April 21
In great news, the US House advanced a long-stalled $95 billion aid package for Ukraine, Israel and Taiwan, a breakthrough signaling an end to an increasingly agonizing wait for Ukraine and US allies in Europe. The legislation should become law this week. Some Republicans and almost all Democrats are familiar with the history of the 1930s and the inevitable consequences of appeasing expansionist totalitarian regimes.
Israel proved that it can strike Iran with impunity. I hope the leaders of Iran sleep easily, lol.
An Israeli weapon deployed in a retaliatory strike against Iran on Friday damaged a defense system responsible for detecting and destroying aerial threats near Nantaz, a central Iranian city critical to the country’s secret nuclear weapons program, according to two Western officials and two Iranian officials.
The strike, the Western officials said, was calculated to deliver a message to Iran that Israel could bypass Iran’s defense systems undetected and paralyze them, using a fraction of the fire power Iran deployed last week when it launched hundreds of drones and missiles at Israel. That attack, intercepted by Israel and its allies, caused minimal damage.
https://www.nytimes.com/live/2024/04/20/world/israel-iran-gaza-war-news
Markets and Stocks
The market is now most definitely oversold. Over the next few weeks I see a 3-4% bounce back to 5,150.
It has been a rough few weeks for U.S. equities. The market is off 5%, some of the names I like a great deal are off substantially more. My personal portfolio got spanked last week. Friday was especially harsh; so, what happened.
1. The market was over bought. A correction was inevitable. 2. Expectations about Fed cuts were reset. 3. Heightened tensions in the Middle East did not help. 4. Commentary from Netflix, ASML and TSMC weighed on big technology. 5. Super Micro, a darling of technology momentum traders, released its earnings date without providing color for the quarter. Almost always SMCI preannounces results. Traders became nervous. They have big big profits. They bailed out. Selling momentum became self fulfilling. That selling pressure spread to Nvidia. Traders also have enormous profits in Nvidia. Finally, the market is undergoing sector rotation from technology to other sectors of the market.
So, what happens next ? I never play the sector rotation game. The more you trade, the more you underperform. Buy good stocks and rise the market higher over time. Nvidia is very attractive at under $800. It is trading at around 32x, cheap for a company that should earn $50 in 2027. Remember TSMC says demand for Nvidia chips is insatiable. SMCI will be fine. It is joined at the hip with Nvidia. Dell and HPE are also attractive.
ASML is a must own investment. ASML lithography machines are essential for fabricating the most advanced semiconductors. In other words, no ASML, no accelerated computing or AI.
Semiconductors are the oil of this century. I am pounding the table on Micron and Broadcom.
I am amused by the trading in the largest banks. At the beginning of last week, the market said the banks were dogs. At the end of the week, the market said the big banks were thoroughbreds. I like the banks.
Commenting on the market, Bloomberg says:
US equities sold off sharply on Friday, sending tech stocks to the biggest weekly loss in 17 months. The S&P 500 index closed down 0.9%, dropping for the sixth straight session and the third straight week, leaving it more than 5% below its March 28 closing high. The Nasdaq 100 declined 2.1%, and recorded the deepest weekly drop since November 2022. The CBOE Volatility Index climbed close to 19.
Next week we’ve got March quarter earnings from Google, Microsoft and Meta Platforms. The first two will be closely watched for what we can glean about how artificial intelligence–powered services are lifting revenues, while Meta CEO Mark Zuckerberg is sure to wax eloquent about his hopes and dreams for dominating AI when he speaks on Wednesday.
I like all three names, Alphabet-Google, Meta and Microsoft.
Tesla is going below $100.
Tesla cut the price of its best selling Model Y, the Model X and the Model S by $2,000 in the US late Friday after disappointing first-quarter sales pushed up inventory.
Workers at a VW plant in Tennessee vote to unionize. The consequence be more VW investment in Mexico and less investment in Tennessee. Unions with economic power destroy jobs and raise inflation.
Economics
It makes me laugh when I read that buyers of gold from Costco can’t get a good price when they try to sell the gold. The Journal reports:
The amount below market price that online retailers, refineries and New York City shops typically pay for a 1-ounce gold bar like the ones Costco sells. Cashing out of gold takes more time and money than stocks, bonds or cryptocurrency. With a significant rise in gold prices this year, more people are trying to unload the precious metal, and fewer dealers are making competitive offers.
Researchers write: We examine whether Medicaid recipients receive the same health care services as those on Medicare.
We track the services provided to the same individual as they age into Medicare from Medicaid at age 65, becoming dual enrolled. Cost sharing remains negligible across the insurance switch, implying that observed changes in service provision reflect supply-side factors.
Service provision increases by about 20 percent upon switching to Medicare, across a range of categories and treatments including high-value care.
We find that 60 to 90 percent of the increase in office visits is explained by physicians averse to accepting new Medicaid patients.
Geographic variation in our estimates shows that the average increase in utilization is larger in those states with lower Medicaid acceptance rates and higher Medicare acceptance rates.
By contrast, we find relatively small increases in care from existing Medicaid providers. This analysis indicates that Medicaid's smaller provider network plays a large role in limiting service provision.
Now that study made me shake my head. Of course Medicare patients receive better service because Medicare doctors are paid more. Medicare reimbursements are about 80% of the cost of care provided. Medicare patients pay the difference. Medicaid reimbursements are about 60% of the value provided. Medicaid patients are by definition broke. They don’t have the money to make up the difference.
Politics
Further to the good news on legislation to fund more support for Ukraine and Israel as well as for programs related to Asia, the New York Times reports:
The House on Saturday was heading toward passage of a $95 billion foreign aid package for Ukraine, Israel and Taiwan, as Speaker Mike Johnson put his job on the line to advance the long-stalled legislation in defiance against hard-liners from his own party.
Lawmakers were expected on Saturday afternoon to vote separately on aid for Ukraine, Israel and Taiwan, as well as on another bill that includes a measure that could result in a nationwide ban of TikTok and new sanctions on Iran. The fourth bill was meant to sweeten the deal for conservatives.
Mr. Johnson structured the measures, which will be melded together into one after each piece is approved, to capture different coalitions of support without allowing opposition to any one element to sink the whole deal. Each of the aid bills for the three nations is expected to pass overwhelmingly, and the Senate is expected to take it up quickly and send the legislation to President Biden’s desk, capping its tortured path to enactment.
The legislation includes $60 billion for Kyiv; $26 billion for Israel and humanitarian aid for civilians in conflict zones, including Gaza; and $8 billion for the Indo-Pacific.
https://www.nytimes.com/2024/04/20/world/europe/house-vote-aid-ukraine-israel.html
Sociology
Tyler Cowen writes about the new film, “Civil War.” Cowen says thd film is very definitely politics, and yes I am aware of the pronouncements of the director — ignore them! I am writing about the movie, what was on the screen.
The seceding states — California, Texas, and Florida — all have substantial Latino population segments. The core political message is that a nation cannot hold together under those conditions. The “Democrat vs. Republican” issues become irrelevant in those scenarios, and that too is part of the political message. Ethnic considerations become primary in the final analysis. And note that the separate Florida, not part of the Western Alliance, is the one state with lots of Latinos and not so many Mexicans. It is California and Texas that share the same ethno ambitions. See Marginal Revolution.
My words:
I don’t know if I will see the movie but its message is a croc of BS. Hispanics integrate well with the dominant culture of family and the pursuit of happiness through economic striving. Importantly, Hispanics are more law abiding than white males from lower income backgrounds.
A research paper from Europe also made me smile:
This paper [analyses] the relationship between exposure to poor people and support for redistribution among the rich in Denmark.
In short, we find that local exposure to poor individuals reduces support for redistribution among the well- off.
First, we show that the negative effect of exposure to poor individuals ostensibly consolidates over time and thus extends beyond a transient effect after a specific episode. Second, we show that the negative effect is observable in a more abstract outcome by tapping general attitudes toward redistribution. Third, our findings show that the negative effect of exposure to poorer individuals for redistribution support extends to a relatively economically equal Scandinavian welfare state.
Exploring what exact mechanisms, e.g., stereotype activation or negative out-group affect, underlie this response' and why we do not see a symmetrical response when poor people are exposed to rich individuals are relevant foci for future research.
Rather than animating a self-correcting demand for greater equality, such experiences tend to perpetuate inequality by lowering the desire for redistribution among those who are asked to pay more.
https://x.com/degenrolf/status/1781312855540687295?s=66&t=hi3LjJ8kVbN50WgSIEfnAg
My words: no kidding. Spend a few years behind the wire with psychopaths and bottom feeders then tell me you like redistribution.