Private Wealth

Weekly Research Briefing: Memorial Day

June 01, 2022

I grew up with either a BB or pellet gun in my hands and learned to enjoy trips to the gun range as I got older. But in no society would I believe that mentally troubled teenagers or adults should have access to any deadly weapons. There are solutions in our modern, information-driven world to permit rightful people to own weapons. With 90% of American citizens in favor of stronger background checks, it is time for the U.S. Congress to listen to their country and unmake firearms the leading cause of death for U.S. children. Our hearts go out to everyone impacted by the Uvalde shooting as well as the 200+ other mass shootings in America this year.

That was an interesting week in the markets. Just when we have become accustomed to falling earnings weighing on stocks, and slowing economic growth clouding the macro picture, the credit markets put up their biggest week since the Fed/Treasury's emergency COVID response. The move might have been sparked by the J.P. Morgan analyst day last week, and then encouraged by a better-than-disastrous week of earnings. Whatever the reason, whenever credit screams, we pay attention. Usually, you only hear about credit when it is breaking lower, but this time you need to listen closely because it has broken higher. It could signal that a floor is going to be set for the majority of risk in this market.

Typically, credit moves like last week are accompanied by some major Fed/Treasury/White House action, which we didn't have this time. But we did have an oversold equity market, and we are seeing mounting evidence that the economy (and inflation) is slowing. Bets on a Fed pivot and a possible non-hike at the September FOMC meeting are building. So maybe the accelerant to the credit market move was caused by a number of large institutions now buying decent yields in an uncertain world of falling stock prices, but with confidence that a significant recession is off the table. With the economy slowing and earnings on the retreat, it is difficult to make the case for a quick stock market return to its highs. But maybe at least we have reached a bottom for the broader indexes, and now we will have some shallow water to tread until equity investors feel more comfortable taking back up their equity exposures.

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The largest Junk Bond ETF absolutely ripped upward last week...

US job vacancies rate

The Daily Shot

But it wasn't just a move in Junk. The credit move last week was across all fixed income assets...

Mortgages, Munis, Bank Loans, Emerging Markets, High Grade Corporates, Bank Preferred Stocks and BDCs. It takes a lot of buying firepower to move all these sizable markets in one week.

US job vacancies rate

The Daily Shot

As this 15-year study shows, a big move up after a sizeable drawdown can provide a healthy backdrop for equities...

Market pricing for the number of 25 bps Fed rate hikes


This study shows the positive backdrop provided by a 6%+ weekly gain in the S&P 500...

Market pricing for the number of 25 bps Fed rate hikes


Three days of solid upside volume is a rare event but one that often has helped to mark a bottom...

@mark_ungewitter: Constructive 3-day breadth.

Market pricing for the number of 25 bps Fed rate hikes

Maybe more importantly, corporate insiders are buying their stock which could indicate that they must not see a recession coming...

Where is Jamie Dimon's big block BUY ticket. His buys typically mark a bottom in J.P. Morgan.

Between the start of the month and May 24, insider buying at S&P 500 companies has been the strongest since March 2020, according to figures from VerityData. For the broader Russell 2000 index, there have been more insider buyers than sellers this month for the first time since March 2020, VerityData said.

Despite retail investors pulling out of the stock market and the looming threat of a slowdown or recession, “corporate insiders are holding a non-consensus view across most sectors and [are] actively buying the dip”, analysts at JPMorgan said in a May 27 note, adding that the share purchases were encouraging for the direction of stock markets.

Market pricing for the number of 25 bps Fed rate hikes

Financial Times

Two weeks of retail earnings have shown us what a mess the inventory situation is currently...

@LizAnnSonders: Retail inventories ex-autos have spiked at 12.8% annualized rate since end of COVID recession … throughout prior expansion, inventories rose at 2.7% annualized rate

Wide distribution of outcomes after historical yield curve inversions

One reason inventories are a wreck is because all the past stuck 2021 orders are being shipped alongside the panicked double ordering made in 2022...

@SamRo: “US port data suggest easing backlogs. Notable examples are the ports of Los Angeles and Long Beach, which process about 40% of total imports into the US…” – JPM

Wide distribution of outcomes after historical yield curve inversions

The good news with the current economic slowing and cleaned up port traffic is that transportation costs are in quick retreat...

Wide distribution of outcomes after historical yield curve inversions

Consumers remain increasingly discouraged...

Wide distribution of outcomes after historical yield curve inversions

BofA Global Research

Some good news for future homebuying consumers? The peak in treasury interest rates last month has caused a peak in mortgage rates...

@bespokeinvest: For now mortgage rates topped out just above 5.5% and have pulled back ~25 bps.

Wide distribution of outcomes after historical yield curve inversions

But as the data shows, the run-in springtime mortgage rates put a halt to April's pending home sales...

Pending home sales declined more than expected last month, down 11.5% from a year ago...

Cumulative personal savings in the pandemic

The Daily Shot

And April's new home sales dropped to pandemic-era lows...

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

A slowdown in new home sales typically precedes a recession. Will this again be the case?

"Sales of new single‐family houses in April 2022 were at a seasonally adjusted annual rate of 591k...This is 16.6% below the revised March rate of 709k & is 26.9% below the April 2021 estimate of 809k" - U.S. Census Bureau and the U.S. Department of Housing and Urban Development

Wide distribution of outcomes after historical yield curve inversions


Falling housing sales have led to sellers quickly adjusting their listing prices lower...

@TheTranscript_: $RDFN: "The housing market is sending clearer signals that the pandemic-driven housing frenzy is coming to an end. Nearly one in five (19.1%) home sellers dropped their price during the four week period ending May 22—the highest level since October 2019"

Wide distribution of outcomes after historical yield curve inversions

Lumber prices in retreat as demand ebbs...

Wood prices were a leading indicator of the supply chain problems and inflation that followed pandemic lockdowns. Prices shot up in the summer of 2020 as cooped-up Americans remodeled en masse and demand for suburban houses soared. By last spring, lumber cost more than twice the pre-pandemic high. Now, two-by-four prices are flashing caution.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

Best Year for Commodities


Last week's Richmond Fed release was an ugly one, proving further that the U.S. economy is in retreat...

@bespokeinvest: The Richmond Fed's Manufacturing Composite experienced the second-largest month over month decline on record in May

Best Year for Commodities

And then America's largest company began to plan for a flat year of units in its largest business...

Apple Inc. is planning to keep iPhone production roughly flat in 2022, a conservative stance as the year turns increasingly challenging for the smartphone industry.

The company is asking suppliers to assemble roughly 220 million iPhones, about the same as last year, according to people familiar with its projections, who asked not to be named as they’re not public. Market forecasts have hovered closer to 240 million units, driven by an expected major update to the iPhone in the fall. But the mobile industry has gotten off to a difficult start to the year and production estimates are down across the board.

The worst inflation in decades, a war in Ukraine and supply-chain turmoil all threaten to weigh on sales in 2022. Strategy Analytics has predicted that overall smartphone shipments will contract as much as 2% in 2022, and TrendForce has twice downgraded its full-year production forecast in recent weeks.


Further economic pressures leading to these companies all adjusting their outlooks and strategies...

[SNAP] Cuts Q2 Rev and adj EBITDA guidance to 'below low end' of prior outlook, citing macro deterioration (prior Q2 Adj EBITDA $0-50M, Rev +20-25% y/y) - Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range. - Source

[AMZN] Reportedly wants to shed 'at least' 10 million square feet of space in the NY area; Considers options to sublet the space or end warehouse leases amid cooling online sales - press - Reportedly excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta- The surfeit of space could far exceed 10 million square feet, according to one source - Source

[MSFT] Reportedly to slower hiring in Windows, Office and Team units - press - Source

"After the start of COVID, the acceleration of e-commerce led to outsized revenue growth, but we're now seeing that trend back off. However, based on the strong revenue growth we saw in 2021, we kicked off a number of multi-year projects to accelerate some of our longer-term investments, especially in our AI infrastructure, business platform, and Reality Labs. These investments are going to be important for our success and growth over time so I continue to believe we should see them through. But with our current business growth levels, we're now planning to slow the pace of some of our investments." - Meta Platform (FB) CEO Mark Zuckerberg

The Transcript

Even Hollywood is watching its spending and cash flows which will lead to plenty of new austerity in a business not used to it...

Wall Street’s change of heart over Netflix is now radiating uncertainty throughout Hollywood. A new age of austerity may be emerging in the streaming wars.

“The world all of a sudden woke up and said: ‘No, you have to make money’,” said the former chief executive of a major television network. “Now it’s like: ‘I can’t just spend $15bn on content and say we’re growing 3mn subs in Indonesia and have the Street add another $50bn to your market cap?’”

Netflix last week updated the principles of its corporate culture to include “You spend our members’ money wisely”, marking the first time it has codified any notion of expense control. Industry giant Warner Bros Discovery has also announced plans to slice billions from its budget.

Spencer Neumann, Netflix chief financial officer, said the company would be “pulling back” on spending growth over the next two years, as it seeks to maintain its operating profit margin at about 20 per cent.

Financial Times

Sequoia Capital joined other VCs in suggesting that its companies have a plan and be ready to tighten their belt at a moment's notice...

Calling the current environment a “crucible moment,” Sequoia Capital warned that the good times are not only over, there’s no indication when they’ll return.

In a Zoom call earlier this month with the founders of its approximately 250 portfolio companies, the venture firm reviewed a 50-page presentation titled “Adapting to Endure,” according to documents obtained by Bloomberg News.

Sequoia laid out the case for a long and drawn-out recession, and instructed founders to “do the cut exercise” immediately if they haven’t already done so by examining ways to conserve cash through eliminating or scaling back projects, R&D, marketing and other expenses.

“It doesn’t mean you have to pull the trigger, but that you are ready to do it in the next 30 days if needed,” Menlo Park, California-based Sequoia wrote in the presentation. The Information earlier reported the presentation.


Thought this was an interesting note sent out alongside its staff reduction notice by a European delivery company...

We are currently experiencing a unique wealth and money transfer in the capital markets that changes the world economy. Over the course of the last 24 months trillions of dollars have been injected into the economy, which created a tremendous growth wave for the world. Everyone was a winner, everyone had access to capital and all companies had high valuations. This was also favourable for Gorillas.

Two months ago in March, the markets turned upside down, and since then the situation has continued to worsen. Very rapidly, greed in the markets was replaced with cautiousness. And tech companies, especially low or negative margin tech companies, are facing a very strong headwind.

The result of this new reality is that wealth and money are being transferred to low risk profitable businesses. This will kick-off a natural selection process in our q-commerce industry...

In January 2020 there were 30 players in our industry.
In January 2021 only 15 remained.
In January 2022 you can count 4.

And now the stage of the final 4 begins, where one year from now there will be only 1-2 players remaining.

Gorillas will be this player. And this requires a new plan.


But all the open lifeguard jobs are not enough to offset the increasing job losses from companies now focused on cash flow...

@carlquintanilla: B of A: “The good news is that high frequency data is showing hints of [job market] cooling off. .. job posting on @Indeed are down 8.5ppt from the high on December 31, 2021 .. claims have moved modestly higher over the last seven weeks ..”

S&P 500

Slowly rising joblessness is good news for the Fed which is doing what it can to reel in wage growth...

S&P 500

Stocks follow earnings. And earnings outlooks are now falling for the average stock...

@LeutholdGroup: After nearly two years of persistent and dramatic upward revisions to the forward EPS estimates, there are some recent signs that the party may have ended.

S&P 500

All the slowdowns across the U.S. economy and corporate earnings are good news for the Fed. And the market is noticing...

S&P 500

J.P. Morgan

But all is not lost in the U.S. economy as the airline industry is showing this summer...

Consumer volumes and fares are now running above 2019 levels. Planes are running completely full due to a lack of capacity. Corporate travel is attempting to recover but will probably need to get to September to see some good data points. Here is Southwest Airlines and JetBlue showing their current strength:

[LUV] Raises Q2 Rev +12-15% (prior +8-12%), Affirms ASM -7% v Q2'19, CASM-X +14-18% v Q2'19; To report solid profits and opr margins in Q2 and through rest of 2022 - The Company continues to experience strong load factors and an acceleration in bookings for summer travel. The improvement in the Company's second quarter 2022 operating revenue guidance is primarily attributable to continued passenger yield strength, which has more than offset the increase in its second quarter 2022 fuel price projection. (

[JBLU] Raises Q2 Revenue at or above high-end of previous guidance (prior 11% – 16%), capacity 2-3% v 0-3%; Seeing June rev up meaningfully 20% compared to May and April - filing - Operational performance has improved steadily since early April as a result of the investments the Company has made to enhance operational reliability into the summer peak. While the industry continues to face some challenging operating conditions mainly due to weather and air traffic control disruption, JetBlue’s completion factor in May is trending above 98% compared to approximately 90% in the first three weeks of April - The demand environment continues to be strong, with bookings exceeding Company expectations. To date, revenue for the month of June is shaping up to be meaningfully better compared to earlier months in the quarter, and we expect June revenue per available seat mile to be up more than 20% year over three. JetBlue now expects revenue for the second quarter of 2022 to be at or above the high-end of its prior guidance of a revenue increase between 11% and 16%, year over three. JetBlue continues to expect record revenue this summer. (

The Transcript

The acquisition games continue as companies continue to want to deal at these lower market prices...

[VMW] Confirms to be acquired by Broadcom for either $142.50/shr in cash or 0.2520 shares of AVGO stock in deal valued at ~$61B; - Source

[CVET] Confirms to be acquired by Clayton, Dubilier & Rice and TPG at an enterprise valuation of ~$4.0B ($21.00/shr in cash); Transaction expected to close in 2H22 - Source

WEN rises after its largest holder Trian proposed a potential acquisition of the fast-food chain; Nelson Peltz’s Trian Partners disclosed owning a total of 41.6M shares, or a 19.4% stake (Hammerstone)

M&A news in gold miners as South African miner Gold Fields Ltd (GFI) agreed to buy Canada-based miner Yamana Gold Inc (AUY) in an all-share deal valuing the company at $6.7 billion. Gold Fields said its shareholders will own about 61% of the combined group. (Hammerstone)

One big wrench in the world remains energy prices...

Brent crude surged as European leaders agreed to ban some 90% of Russian oil.

S&P 500

The Daily Shot

Of course, rising energy prices is beneficial to those who have a lot of energy on their balance sheet...

@hmeisler: XLE. One step over the line.

S&P 500

If it is broken, then fix it!

With bonds becoming increasingly correlated with equities as inflation and interest rates move higher, the traditional 60/40 portfolio has broken. In a new piece, Henry McVey at KKR strongly suggests it is now time to adopt a 40/30/30 approach to outperform in this new environment.

Importantly, however, as we look ahead, all our macro and portfolio construction work at KKR suggests that we are entering a new environment for investing. Specifically, we are now seeing rising interest rates, higher levels of inflation, and heightened geopolitical risks against a backdrop of slower real economic growth. As such, we have spent time analyzing whether past performance is a prologue for future performance. Our bottom line, similar to what we laid out in our 2022 Outlook, is that this time is different. As such, we firmly believe that we have entered a regime change, where structural forces now warrant a different approach to portfolio construction, including a re-examination of the merits of the ‘60/40’ allocation. Key to our thinking, as we discuss below in more detail, is that the structural relationship between stocks and bonds, particularly during volatile markets, is changing. In particular, we believe that not only are forward returns likely to be lower but also that Bonds can no longer serve as shock absorbers or diversifiers when paired with Equities.

Given this view, we think that investors may need to add different types of investments to their ‘60/40’ mix to protect their purchasing power in this new environment we envision. At KKR, we traffic mainly in private investments. As such, we have created some alternative asset allocation strategies, described below in greater detail, that we believe can be value-added to ‘60/40’ portfolios, especially if we are right about the correlation between stocks and bonds breaking down. If there is good news, our research shows that there are opportunities to add value on both the Equity and Bond sides of the ‘60/40’mix. Our bottom line: It is not business as usual in the investment management business and now is the time for all investors to revisit their asset allocation game plan on a prospective basis.

S&P 500
S&P 500


Imagine being able to shrink the household cleaning and health & beauty aisle down to one-tenth its current size...

Anyone who has strolled the hair- and skin-care aisles of their local drugstore knows there are a bewildering array of products. One colorful bottle after another promises to make you look, feel and smell terrific. Despite the various brands and patent-protected formulas, one thing they all tend to have in common is the first ingredient: water.

In fact, shampoos and shower gels contain up to 95% water. Lotions aren’t far behind with up to 90% water, and creams can have 60% to 80% water...

“Consumers are more aware of environmental impacts than ever, and they are wondering, ‘Why are we shipping around so much water?’ ” says Andrew Gibbs, who teaches sustainable packaging design at the ArtCenter College of Design in Pasadena, Calif., and is the founder of Dieline, a packaging-design website. “If a brand comes in tablet, powder, bar or concentrated form with little or no packaging, then why would you use something else?”

That’s certainly the argument the waterless, or anhydrous, brands are making. Water is heavy. It costs more to package and ship a large plastic bottle of regular liquid shampoo than a bar, sachet or small bottle of powdered or concentrated shampoo, which will often last much longer.

For example, one 1.75-ounce bottle of Susteau water-activated, powdered hair wash is the equivalent (in terms of number of washes) of four 8-ounce bottles of liquid shampoo. Ethique bar shampoos and conditioners, which come in a small recyclable box, will give you about 80 washes versus 15 washes for a typical 8-ounce plastic bottle of shampoo or conditioner.


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The author has current equity ownership in: J.P. Morgan Chase & Co.

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

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