Category: Markets

Meta Stock Skyrockets in Monumental Rebound From Brutal 2022

Posted on by slightbourne@noblecapitalmarkets.com

After a nightmarish 2022 saw Meta’s stock plunge over 60%, the company orchestrated a jaw-dropping turnaround in 2023 – with shares skyrocketing 178% year-to-date. This staggering rally cements 2023 as the best year ever for Meta’s stock, capping a remarkable validation of CEO Mark Zuckerberg’s intense push around “efficiency” and coast cuts.

The share price resurgence was fueled by Meta leanly rebuilding itself as an advertising titan laser-focused on what drives revenue today. Zuckerberg notably changed his tone in early 2023 – listening to shareholders, communicating more transparently, and realigning his priorities around the core ad business over capital intensive metaverse bets.

It represented a dramatic pivot from the seeming indifference to shareholder concerns that defined much of 2022 as Meta’s stock spiraled. After three straight quarters of declining sales, Zuckerberg admitted economic troubles and stiff competition had severely impacted projections.

2023 became Meta’s “year of efficiency” with sweeping layoffs and disciplined spending helping right the ship. Growth returned as digital advertising rebounded and Meta seized market share back from rivals Snap and Alphabet.

Crucially, Meta rapidly adapted its ad targeting to Apple’s 2021 privacy policy changes which had previously hammered revenue. Investments in artificial intelligence and machine learning helped Meta overcome the loss of certain user data – finding new ways to optimize ads despite disruptive forces.

The company also benefited enormously from booming advertising spend out of China looking to target Meta’s billions of users globally. This diversified another previous over-reliance on western advertisers.

Wall Street firmly rewarded Zuckerberg’s renewed focus and urgency regarding costs and care for the core business. But work remains heading into 2024 amidst lingering industry skepticism.

Meta still predicts an uncertain advertising landscape tied to geopolitical instability and the possibility of global recession. Its family of social apps also face intensifying governmental scrutiny and lawsuits related to mental health and data privacy concerns.

Plus the multi-billion dollar metaverse division continues bleeding substantial losses quarter after quarter – leading some analysts to demand bolder restructuring of that arm. Zuckerberg has trodden delicately here so far though, reluctant to fully abandon his vision.

And peril lies ahead in 2024 as digital behemoth Google plans to join Apple in phasing out certain ad tracking cookies from its dominant mobile ecosystems. This threatens a repeat of the mammoth revenue hit Meta only just recovered from and adapted to regarding Apple’s changes.

The regulatory ground also keeps shifting under the entire social media sector with legislative action repeatedly proposed on issues ranging from antitrust regulation to outright platform bans tied to national security concerns.

Upstart rival TikTok particularly remains an imposing threat having pioneered the culture-dominating short video format now ubiquitous across all social apps. Its popularity with younger demographics continues outpacing Meta’s offerings, forcing more ad dollars out of Meta’s reach as marketing follows shifting generational engagement.

Despite still monumental scale, Meta therefore heads towards 2024 with nervous investors recalling how quickly its business model faltered against the collision of multiple storm fronts in 2022. Its salvation came by sweating assets through job cuts and engineering revenue growth however possible in a battered online ad market.

But Meta likely needs more innovative long-term vision to guarantee sustained dominance as new technological and economic realities reshape its competitive landscape in dynamic ways year after year.

For now, as 2023 wraps historically, Mark Zuckerberg has earned a victory lap after boldly steering his tech empire back from the brink. Though clouds remain on the horizon, Meta proved it still has sharp reflexes and can reinvent itself when forced. The coming decade may demand that agility over and over as digital ways of life advance apace.

Biotech Dealmaking Heats Up as Private Capital Charges Back In

Posted on by slightbourne@noblecapitalmarkets.com

A wave of multibillion dollar buyouts has swept the beaten-down biotech sector in recent months, marking a potential turning point for an industry hammered throughout 2022 – 2023.

With valuations of public companies still depressed, flush private investors have stepped up acquisitions of promising drug developers to bolster pipelines for the long-term. And in a bullish sign for the strategic direction of the space, therapeutics targeting high unmet needs and novel modalities remain key areas of focus amid dealmaking.

As macro gloom recedes, the renewed embrace of biotech M&A highlights a pivot back toward the innovation-driven spending required to sustain growth post-pandemic.

BMS Kicks Off Buying Spree With $13.2B Turning Point Deal

Bristol Myers Squibb fired the starting gun on big-ticket biopharma deals in October, announcing a $5.8 billion purchase of Mirati Therapeutics (MRTX). The buyout delivered a 122% premium in order to land Mirati’s promising portfolio of precision cancer medicines.

Market observers viewed the unsolicited, $58 per share bid as a credible benchmark of intrinsic value vigilantly researched by a strategic acquirer. Immediately in the deal aftermath, similar development-stage oncology names rallied sharply as traders priced in new takeout probabilities.

In fact, suitors moved swiftly to capitalize on improved biotech sentiment, with Horizon Therapeutics agreeing to a $26.4 billion around the same time. The transaction marked 2023’s largest healthcare buyout, further reinforcing peak valuations remain attainable for commercial-stage rare disease names.

Scaling Up to Compete in Gene Therapy

Gene therapy remains one especially alluring area for dealmaking despite lofty price tags. These ultra-rare disease medicines come with cure potential that commands premium sales and reimbursement pricing power.

Recognizing the imperative to bulk up gene therapy capabilities, Pfizer ponied up $5.4 billion to reinforce its genetic medicines pipeline through the acquisition of French outfit Vivet Therapeutics. The move added Vivet’s promising gene therapy for Wilson disease, along with manufacturing strengths across multiple delivery mechanisms.

And gene editing pioneer Sangamo Therapeutics is selling off its cell therapy assets to Sanofi for $700 million as it refocuses efforts around in vivo gene insertion. The deal hands Sanofi disruptive cell therapy technology utilizing precisely engineered zinc fingers to correct disease-causing mutations.

Analysts say more buyouts centered on next-gen platforms are likely on the horizon as drug developers vie for leadership in areas forecast to reshape therapeutic spaces.

Take a look at more biotechnology companies by looking at Noble Capital Markets’ Senior Research Analyst Robert LeBoyer’s coverage universe.

Private Capital Eagerly Steps in to Back Innovation

Beyond M&A from strategic acquirers, private equity firms have swooped in to capitalize on depressed biotech valuations. The robust dry powder levels built up during the boom years leave private investors eager to allocate while achieving advantageous cost bases.

Among notable deals, Angel Pond Capital teamed up with life science investor OrbiMed to take gene therapy biotech Generate Biomedicines private for $478 million. The transaction represented a 130% premium to ensure locking up Generate’s base editing technologies believed to be capable of correcting over 75% of known point mutations.

In cybersecurity and enterprise software, sponsor-led take privates had utterly dominated deal flow in 2022. But order books are now once again filling up with biotech buyouts from special purpose acquisition vehicles, highlighting a normalization in deal dynamics after last year’s freeze-out from rate-sensitive private market valuations.

Market Recovery Taking Shape

The fresh upswing in biotech M&A follows a wave of dip buying from some the world’s largest asset managers in shares of industry leaders like Vertex Pharmaceuticals and Regeneron Pharmaceuticals. Warren Buffett’s Berkshire Hathaway has been particularly aggressive stepping in to purchase stakes in key biopharma bluechips.

Meanwhile, the fund-raising backdrop continues improving for earlier stage biotechs as well after deal activity all but shuttered for much of 2023. Multiple debt offerings and venture rounds have successfully priced in recent months, ensuring the all-important continuity of innovation cycling.

With fundamentals stabilizing and access to capital normalizing, the environment for biopharma dealmaking has markedly improved. Expect the momentum to carry through 2024 as drug developers position through M&A for the next, post-pandemic leg higher while private capital readily supports compelling technologies at discounted prices. The long-term health of the biotech ecosystem depends on transactions advancing today’s high-potential assets, and the industry appears to have emerged from its lull ready to strike the necessary deals.

Is a Market Recovery in Sight?

Posted on by slightbourne@noblecapitalmarkets.com

The stock market roared back to life on Thursday after the Federal Reserve laid out an ideal scenario for investors – falling inflation, rate cuts on the horizon, and an economy heading for a soft landing.

The Dow jumped nearly 500 points to top 37,000 for the first time ever, while the S&P 500 closed in on its record high from early 2022. And the interest rate-sensitive Russell 2000 small cap index outperformed larger benchmarks by over 50% as investors pivoted towards beaten-down areas of the market.

According to Noble Capital Markets’ CEO Nico Pronk, “this may be a market recovery happening in front of our eyes. We are seeing all the signs here.” Fed Chair Jerome Powell’s highly anticipated comments on Wednesday took the lid off the market’s concerns over surging rates upending the economy. The central bank’s updated forecasts now call for no more rate hikes in 2023, along with three 0.25% cuts in 2024.

That’s welcomed news for rate-sensitive sectors like real estate and regional banks that have been hammered for most of 2022 on fears of sustained higher borrowing costs. Regional banks popped nearly 5% on Thursday, extending a rally that has seen the group gain over 20% in the past month alone as the path towards rate cuts grows clearer.

The tech-heavy Nasdaq also continues to rebound, now up over 10% since mid-October, while the small cap Russell 2000 has exploded more than 20% over the same stretch. The index had given up all its pandemic-era gains earlier in 2022 amid rate hike jitters, but with a soft landing now in sight, it’s leading the way higher once again.

Pronk believes markets are moving towards a positive direction and showing strong signs of recovery.

Economic Experts Forecasted Markets Breakout

During an economic outlook panel at NobleCon19, experts agreed on a possible resurgence of the markets, particularly in the small-cap space. The consensus was that small-cap investments tend to outperform larger companies during economic recoveries due to their greater potential for growth. The panel expressed optimism for how the Russell 2000 index may surprise investors moving into 2024.

With inflation and rates now clearly on downward trajectories per the Fed, the stars have aligned for financials to break out as risks meaningfully recede. Traders and investors are taking notice, investing money back into the space to play long-awaited catchup to index gains.

Russell 2000 Small Caps Lead the Charge

Another standout area has been small caps, with the domestically-focused Russell 2000 now charging ahead of larger benchmarks since the October lows.

The Fed’s resolute commitment to tamping down inflation has brought U.S. rate hike expectations back in sync with global peers. That’s helped dissipate a major headwind for small caps tied closely to domestic growth.

Add in falling recession odds, and the stage is set for investors to once again embrace the higher growth, higher beta segment of the U.S. market to drive gains from here. The Russell 2000 now trades just 6% away from retaking all-time highs emblematic of the pre-rate hiking frenzy.

Its outsized advance against the more moderate S&P and Dow gains points to conviction building around more speculative areas poised to benefit most from easing financial conditions. Traders now see the elusive soft landing materializing in 2023, with markets firing ahead on hopes a still-resilient economy can avoid buckling under the Fed’s inflation fight.

After a Fed-dominated year where good news was largely shunned amid policy uncertainty, bulls once again have reasons for optimism. The light at the end of the rate hiking tunnel has markets gearing up for a potentially substantial move higher to round out 2023.

The SEC’s Clearing Mandate: A Major Shift for the US Treasury Market

Posted on by slightbourne@noblecapitalmarkets.com

The US Securities and Exchange Commission (SEC) has implemented a major shift in the $26 trillion US Treasury market, adopting new regulations aimed at reducing systemic risk by forcing more trades through clearing houses. This overhaul, approved on December 13th, 2023, marks the most significant change to this global benchmark for assets in decades.

The Need for Reform:

In recent years, the Treasury market has experienced periods of volatility and liquidity concerns. The COVID-19 pandemic in 2020 highlighted these vulnerabilities, as liquidity all but evaporated during the initial market panic. This prompted calls for reform, with the SEC identifying the need to increase transparency and reduce counterparty risk.

Central Clearing: The Centerpiece of Reform:

The core of the SEC’s new rules revolves around central clearing. A central clearinghouse acts as the intermediary for every transaction, assuming the role of both buyer and seller. This ensures that trades are completed even if one party defaults, significantly minimizing risk.

The new regulations mandate that a broader range of Treasury transactions now be centrally cleared. This includes cash Treasury transactions as well as repurchase agreements (“repos”), which are short-term loans backed by Treasuries. Additionally, clearing houses must implement stricter risk management practices and maintain separate collateral for their members and their customers.

Phased Implementation:

Recognizing the complexity of implementing such a significant change, the SEC has provided a phased approach. Clearing houses have until March 2025 to comply with the new risk management and asset protection requirements. They will have until December 2025 to begin clearing cash market Treasury transactions and June 2026 for repo transactions. Similarly, members of clearing houses have until December 2025 and June 2026, respectively, to begin clearing these transactions.

Industry Concerns and Potential Impact:

While the SEC’s initiative aims to enhance the safety and stability of the Treasury market, some industry participants have voiced concerns. The primary concern revolves around the potential increase in costs associated with central clearing. Clearing houses charge fees for their services, which could be passed on to market participants. Additionally, the requirement for additional margin, which serves to limit risk, could also lead to higher costs.

Another concern is the potential impact on liquidity. Some critics argue that mandatory clearing could lead to a decrease in liquidity, particularly during times of market stress. This is because central clearing adds another layer of bureaucracy to the transaction process, which could discourage some market participants from trading.

Furthermore, there are concerns about the potential concentration of risk in clearing houses. If a major clearing house were to fail, it could have a devastating impact on the entire financial system. To mitigate this risk, the SEC has implemented stricter capital and risk management requirements for clearing houses.

The Road Ahead:

The implementation of these new regulations will undoubtedly impact the US Treasury market. While the long-term effects remain to be seen, the SEC’s goal is to create a safer and more resilient market for all participants. The phased approach allows for a smoother transition, giving market participants time to adjust to the new requirements.

The success of these reforms will depend on several factors, including the effectiveness of implementation by clearing houses and market participants, the ongoing monitoring and oversight by the SEC, and the overall economic environment. Only time will tell whether these changes will achieve their intended goal of enhancing the stability and efficiency of the US Treasury market.

Additional Considerations:

The SEC’s decision to exempt certain transactions, such as those between broker-dealers and hedge funds, has garnered mixed reactions. Some argue that this creates loopholes and undermines the effectiveness of the reforms. Others contend that it is a necessary concession to address industry concerns and avoid stifling market activity.

The implementation of these new rules will also require close collaboration between the SEC, clearing houses, and market participants. Clear communication and education will be essential to ensuring a smooth transition and maximizing the benefits of these reforms.

Ultimately, the success of these changes will hinge on their ability to strike a delicate balance between enhancing safety and maintaining market efficiency. Only time will tell if this major overhaul of the US Treasury market will ultimately achieve its intended objectives.

Has The Fed Hit a Turning Point?

Posted on by slightbourne@noblecapitalmarkets.com

After two years of aggressive rate hikes to combat inflation, the Federal Reserve is on the cusp of a significant policy shift. This Wednesday’s meeting marks a turning point, with a pause on rate increases and a focus on what lies ahead. While the immediate decision is anticipated, the subtle nuances of the Fed’s statement, economic projections, and Chair Powell’s press conference hold the key to understanding the future trajectory of monetary policy.

A Pause in the Rate Hike Cycle:

The Federal Open Market Committee (FOMC) is virtually certain to hold the benchmark overnight borrowing rate steady at a range of 5.25% to 5.5%. This decision reflects the Fed’s recognition of the recent slowdown in inflation, as evidenced by Tuesday’s Consumer Price Index report showing core inflation at a 4% annual rate. The aggressive rate hikes have had their intended effect, and the Fed is now in a position to assess the impact and determine the next course of action.

Shifting Narrative: From Hiking to Cutting?

While the pause is a significant development, the Fed’s communication will provide further insights into their future plans. Economists anticipate subtle changes in the post-meeting statement, such as dropping the reference to “additional policy firming” and focusing on achieving the 2% inflation target. These changes would signal a shift in the narrative from focusing on rate hikes to considering potential cuts in the future.

The closely watched dot plot, which reflects individual members’ expectations for future interest rates, will also be scrutinized. The removal of the previously indicated rate increase for this year is expected, but the market’s anticipation of rate cuts starting in May 2024 might be perceived as overly aggressive. Most economists believe the Fed will take a more cautious approach, with cuts likely to materialize in the second half of 2024 or later.

Economic Outlook and the Real Rate:

Alongside the policy decision, the Fed will update its projections for economic growth, inflation, and unemployment. While significant changes are not anticipated, these projections will provide valuable information about the current state of the economy and the Fed’s expectations for the future.

The real rate, or the difference between the fed funds rate and inflation, is also a key factor in the Fed’s deliberations. Currently, the real rate stands at 1.8%, significantly above the neutral rate of 0.5%. This high real rate is considered restrictive, meaning it is slowing down economic activity. Chair Powell’s comments will be closely watched for any hints about how the Fed might balance the need to control inflation with the potential for slowing economic growth.

Powell’s Press Conference: Clues for the Future:

The press conference following the meeting will be the most anticipated event of the week. Chair Powell’s remarks will be analyzed for any clues about the Fed’s future plans. While Powell is likely to remain cautious, his comments could provide valuable insights into the Fed’s thinking and their views on the economic outlook.

Markets are eagerly anticipating any indication of a dovish pivot, which could lead to a further surge in equity prices. However, Powell may also address concerns about the recent loosening of financial conditions, emphasizing the Fed’s commitment to achieving their inflation target. Striking a balance between these competing concerns will be a major challenge for Powell and the FOMC.

Looking Ahead: A Cautious Path Forward

The Federal Reserve’s Wednesday meeting marks a significant turning point in their fight against inflation. While the immediate pause in rate hikes is expected, the future trajectory of monetary policy remains uncertain. The Fed will closely monitor the economic data and adjust their policy as needed. The coming months are likely to be characterized by careful consideration and cautious action as the Fed navigates the complex task of balancing inflation control with economic growth.

This article has highlighted the key details of the upcoming Fed meeting and its potential impact on the economy and financial markets. By understanding the nuances of the Fed’s communication and the challenges they face, we can gain a deeper understanding of the future of monetary policy and its implications for businesses, consumers, and investors alike.

NobleCon19 Economic Perspectives – 2024: Boom or Bust?

Posted on by slightbourne@noblecapitalmarkets.com


The Economic Perspectives Panel’s discussions at the recent NobleCon19 emerging growth conference not only provided valuable insights into various sectors and the broader economic landscape but also served as a comprehensive analysis that captivated the audience’s attention. The panel, featuring a diverse range of experts from industry leaders to economists, offered nuanced perspectives on the challenges that have characterized markets since 2021 and identified potential opportunities, notably emphasizing the potential for undervalued small-cap investments.

The conference kicked off with an Economic Outlook Panel, expertly moderated by Michael Williams, a seasoned News Anchor at WPTV/NBC in West Palm Beach. Williams adeptly steered the discussions through key topics, leveraging the wealth of knowledge from panelists such as Lisa Knutson, COO of E.W. Scripps; Cary Marshall, CFO of Alliance Resource Partners; Jose Torres, Senior Economist at Interactive Brokers; Shanoop Kothari, Co-CEO of LuxUrban Hotels; and Dan Thelen, Managing Director of Small/Mid Caps at Ancora.

A prevailing sentiment among the panelists was the intriguing possibility of 2024 mirroring the economic resurgence experienced in 1990, a year that followed a challenging period. Notably, the consensus was that small-cap investments tend to outperform larger companies during economic recoveries due to their inherent agility and greater potential for growth. The panel expressed cautious optimism, suggesting that the Russell 2000 index might pleasantly surprise investors in the upcoming year.

The discussion also spotlighted sectors of particular interest, with media and advertising taking center stage. The anticipation of heavy political ad spending, estimated at an impressive $10-12 billion leading up to the 2024 election, captured the attention of the panel. Additionally, the oil and gas markets were under scrutiny, with a notable supply response identified as a contributing factor in curbing recent inflation concerns. Projections indicated a forecasted addition of 2.2 million extra barrels per day in the US in 2023, with prices already having experienced a 17% drop from their earlier peak in the year.

Delving into broader economic discussions, the panel highlighted the resilience observed in 2023 to date, supported by a robust labor market and excess pandemic savings fueling consumption. However, the panel cautioned against undue optimism, pointing to expectations of a potential slowdown in 2024, particularly as the Federal Reserve eases interest rates and government spending recedes. The acceptance of a 3-3.5% baseline inflation in the long term was posited as a necessary acknowledgment, notwithstanding the official 2% target.

While acknowledging potential risks in the commercial real estate sector, the panel expressed confidence that forward-thinking companies were actively engaged in cost-cutting measures and prudent inventory management. The overarching expectation was that stock returns would follow a trajectory reminiscent of the positive trends witnessed in 1990, thereby making small-cap investments an attractive prospect for investors keen on capitalizing on emerging opportunities.

Addressing the transformative impact of artificial intelligence (AI) on various facets of business and society, the panel collectively agreed that AI is not just a passing trend but a transformative force that is here to stay. Cary Marshall went as far as declaring, “AI is the electrification of this country.” While recognizing the potential for AI to reduce labor costs, the panelists cautioned that widespread adoption might take longer than initially anticipated. Jose Torres added a nuanced perspective, suggesting that AI could lead to shorter workdays but expressed concerns about the potential erosion of interpersonal skills critical for persuasion and influence.

In conclusion, the panel emphasized the indispensable need for mental toughness, emotion management, and discipline in navigating the inevitable cycles of the markets. Despite the multifaceted challenges, the prevailing sentiment was one of guarded optimism for the road ahead. As markets continue to evolve and present new dynamics, these key takeaways from the Economic Perspectives Panel offer invaluable insights for investors seeking to navigate the intricate landscape of emerging growth and economic recovery, providing a robust foundation for strategic decision-making in the ever-changing financial environment.

Gold Glitters as Prices Continue Record-Breaking Surge

Posted on by slightbourne@noblecapitalmarkets.com

Gold prices have been on a dazzling run in recent months, with the precious metal notching consecutive monthly gains to reach new all-time highs. On Monday, spot gold prices topped $2,100 an ounce for the first time ever, hitting $2,110 before pulling back slightly. This adds to the previous record set back on Friday when prices exceeded $2,075, blowing past 2020’s earlier high point.

Analysts say gold still has room to run in 2023 and 2024 as key conditions line up to support further upside for bullion. Low interest rates, a weakening US dollar, rising inflation concerns globally, and an array of simmering geopolitical conflicts should all conspire to keep safe haven demand elevated.

“There is simply less leverage this time around versus 2011 in gold,” said Nicky Shiels of MKS PAMP, noting that the current dynamics put $2,200/oz within reach. Other experts concur, with UOB strategist Heng Koon How targeting $2,200 gold by end-2024, and TD Securities anticipating average prices around $2,100 in Q2 2024.

Fueling this gold fever has been robust central bank buying, especially across emerging markets. Recent data shows 24% of central banks worldwide intend to pad their gold reserves over the next year as economic uncertainty persists. With these institutions showing waning faith in traditional reserve assets like the US dollar, their bullion accumulation provides a sturdy pillar of support.

Geopolitical Flare-Ups Stoke Safe Haven Appeal

Mounting geopolitical tensions represent another propellant behind gold’s rise. The bloody conflict between Israel and Palestine has recently stoked investor fears, driving many towards gold’s relative stability. Looking ahead, strategists believe various other hotspots could flare up and lift bullion demand more.

Besides the Middle East, worsening frictions between China and Taiwan or a resurgence of the crisis in Ukraine could shock markets. And if the US gets dragged into any new foreign entanglements, it may have to ramp up defense spending and borrowing, potentially weakening both growth and the dollar.

With so many risks swirling, portfolio managers and retail buyers appear increasingly eager to hedge with gold. Notably, demand has climbed even as gold prices touched multi-year highs. This underscores bullion’s unique status as a tried-and-true safe haven asset.

Fed Policy Outlook Could Offer Further Boost

Though gold has powered higher despite a spate of Fed rate hikes, any change in this tightening cycle would provide another major catalyst. After lifting interest rates rapidly from near-zero, policymakers must now decide whether to keep tightening or ease off the brakes.

Several officials, including Governor Christopher Waller, have hinted rates may not rise much further if inflation keeps slowing as expected. Markets thus see potential Fed rate cuts arriving sometime in 2024.

If implemented, this dovish shift would likely hamstring the dollar and bond yields, stirring more demand for non-interest-bearing gold. Hence analysts view Fed pivots as a probable linchpin that keeps prices locked above $2,000 over the next couple of years.

With stars aligned for gold both fundamentally and geopolitically, all the ingredients seem in place for its dazzling run to continue. That leaves bulls dreaming ever more ambitiously of how high prices could yet soar. However, given gold’s inherent volatility, traders should steel themselves for pullbacks as well while enjoying the ride upwards.

Investing Icon Charlie Munger Leaves Legacy of Wisdom and Wealth

Posted on by slightbourne@noblecapitalmarkets.com

The investing world lost a titan this week with the death of Charlie Munger at age 99. As vice chairman of Berkshire Hathaway and close confidante of Warren Buffett for over 60 years, Munger played an integral role expanding Berkshire into the mammoth conglomerate it is today, valued over $700 billion. But beyond his partnership with Buffett, Munger made lasting impacts as a business leader, architect, philanthropist and teacher.

Born in Omaha, Nebraska in 1924, Munger served in World War II before earning his law degree from Harvard and embarking on dual careers in law and business. He founded the California-based investment firm Wheeler, Munger & Company which focused on real estate and traded stocks. By the 1970s, Munger had amassed ample wealth to retire early and pursue other passions.

Fatefully, a shared investing philosophy brought Munger together with Buffett years prior, though the two operated their own separate enterprises. When Buffett took control of struggling textile manufacturer Berkshire Hathaway in the 1960s, he tapped Munger to help redirect the company towards the insurance and investment vehicles that became its core business.

With Buffett as Chairman and CEO and Munger as Vice Chairman, the duo refined their strategy of identifying “wonderful companies at fair prices” and letting their investments compound over long periods. Their disciplined approach to capital allocation, thorough due diligence and patience in holding winners drove Berkshire’s stock price from around $300 per share when Munger joined to over $400,000 per share five decades later.

Beyond remarkable returns, Munger spearheaded Berkshire’s evolution from a holding company into the massive conglomerate it has become, owning outright brands like GEICO, Duracell and Dairy Queen and holding large stakes in public companies like Coca-Cola and Apple. Munger encouraged Buffett to open Berkshire’s wallet for large acquisitions when an attractive deal surfaced.

Investing principles etched in stone

While Buffett attracted fame as the public face of Berkshire Hathaway, insiders knew Munger as an equal investing and decision-making force. The Berkshire Vice Chairman preached avoiding unnecessary complexity and instead focusing on business sustainability and management integrity.

“All intelligent investing is value investing – acquiring more than you are paying for,” Munger once said succinctly. He codified principles of patience, discipline and thoroughness that became central tenets of value investing doctrine studied by generations of students and money managers alike.

Munger himself authored multiple books and papers studied religiously in business schools and investment programs. Generations of proteges like Mohnish Pabrai and Guy Spier view Munger as a personal mentor despite limited direct interactions, such was the influence of his published wit and wisdom.

Architect, donor, teacher

Beyond the investing arena, Munger left his mark on educational institutions and fields as diverse as architecture and medicine. Though lacking formal credentials, the businessman designed multiple buildings on college campuses, forging his vision upon schools like Stanford and the University of Michigan through large-scale donations.

Even in his late 90s, Munger energetically dispensed advice as he engaged audiences at Berkshire’s famous shareholder meetings with his trademark wit. He urged individuals to expand their multidisciplinary knowledge and maintain ethical decision-making standards throughout their careers.

In interviews, Munger revealed how his own perseverance powered through major adversity, from the death of his young son to blindness in one eye. While Munger formally steps away from the investing stage he commanded alongside Warren Buffett for nearly sixty years, his insights and values will continue molding new generations of business leaders for decades to come. The legacy left behind ensures Charlie Munger’s status as an investing icon remains etched in stone.

The Recent Russell 2000 Breakout Rally

Posted on by slightbourne@noblecapitalmarkets.com

The Russell 2000 index has been an overlooked area of the stock market this year, dominated by the headlines and volatility of mega-cap tech and blue chips. However, a seismic shift occurred last Wednesday when the Russell 2000 rallied over 6% for its best day since March, turning positive for 2023.

This index of approximately 2,000 small-cap stocks just made Wall Street wake up and take notice thanks to this violent swing. Now is the time for investors to understand what’s driving the resurgence and how to capitalize in small caps.

What is the Russell 2000 and Why Does It Matter?

The Russell 2000 index measures the performance of U.S. small-cap stocks with market caps below $3.7 billion. Weights are assigned by market cap, so the index serves as a benchmark for bonafide smaller firms. These companies tend to be younger with higher volatility and growth prospects.

As a result, the Russell 2000 provides a barometer of investor sentiment towards risk assets. Turning points in the index can indicate shifts in the overall stock market as traders move towards or away from speculation.

The recent 6%+ rally last Wednesday jolted the Russell 2000 into positive return territory for the year so far, now up 4% year-to-date. This signals a potential appetite for risk returning to markets, with traders betting on outsized returns potential in small caps after a prolonged lull.

Why Invest in Small Caps?

Investing in Russell 2000 companies over other stocks has compelling advantages if timed appropriately in the market cycle. First, smaller firms have lower visibility and coverage, so mispricings are more common. This creates pockets of opportunities for above-average returns compared to efficient larger cap markets.

Additionally, smaller size allows for exponential growth that massive companies simply can’t replicate. A small cap doubling in customers or revenue could lead to a 10X stock return, while a blue chip would move only minimally. This asymmetric payoff profile rewards those willing to take on some extra risk.

Finally, identifying world-changing new products and innovations is easier in earlier stage small caps not yet on the main stage. Getting in early on the next Roku, Tesla, or Shake Shack while still qualifying for the 2000 index can deliver truly explosive portfolio growth.

What Investors Should Watch Next

Markets are now intently watching the Russell 2000 to see if last week’s awakening of small-cap animal spirits has true staying power. Traders want confirmation that the breakout can lead to a sustained run versus just being a short-lived dead cat bounce.

If the rally holds, it solidifies the thesis of rotating back towards risk—and earlier stage small names often lead the way in such environments. Savvy investors will use this volatility to start building positions in promising small caps with expanding growth prospects.

The secret is identifying the next crop of disruptors poised to multiply before the herd catches on. By getting ahead of the crowd now eyeing the Russell 2000’s surge, spectacular returns await those able to time the next leg up.

Bargain Hunting for Small Caps at NobleCon

One of the most effective ways to identify the small caps destined to drive the next market boom is to connect directly with leadership at the source. The annual NobleCon investor conference gives the opportunity for exactly that.

On December 3-5 in Boca Raton, Florida, small-cap firms will present their latest innovations, opportunities, and reasons to invest. Attendees gain first look access to fast-growing startups and tomorrow’s giants while they still qualify for the Russell 2000. Now in its 19th year, NobleCon19 promises to uncover the next crop of small cap innovators during the multi-day conference.

For investors looking to capitalize on the Russell 2000’s resurgence, NobleCon19 provides the direct pipeline to target ideas perfectly positioned to ride the reawakening wave in small caps. To learn more and register, visit www.noblecon19.com before discounted early bird rates expire.

Black Friday 2023 Kicks Off After Strong Online Sales on Thanksgiving

Posted on by slightbourne@noblecapitalmarkets.com

Black Friday 2023 is officially here, kicking off the year’s biggest shopping weekend both online and in stores. Early indicators suggest consumers are hungry for deals, with e-commerce sales on Thanksgiving Day jumping 5.5% year-over-year to $5.6 billion according to Adobe Analytics.

The robust online sales activity on Turkey Day comes ahead of an expected $9.6 billion in Cyber Monday revenue, a 5.7% increase from last year. While these growth figures represent a slowdown from the blistering pace set during the pandemic, they highlight that holiday shoppers are still responding to discounts even amidst broader economic uncertainty.

This sets the stage for a pivotal Black Friday that may determine whether projections for up to 4% gains in total holiday sales materialize. Shoppers are expected to turn out in force to scoop up deals on popular items like toys, apparel, jewelry, and consumer tech that were top sellers online on Thanksgiving.

Mobile Shopping Surge Drives Online Revenue

Fueling the growth in Thanksgiving e-commerce sales is the continued surge in smartphone shopping. A record 59% of online revenue came from mobile devices as people browsed and bought gifts on the go. With mobile penetration rising every year, retailers have adapted their sites and apps to make it easier for iPhone and Android users to capitalize on promotions.

Savvy shoppers are discovering they can beat crowds and inventory shortages by taking advantage of online-only deals as well as ordering online and picking up in store. Retailers are encouraging this omnichannel behavior by making curbside pickup fast and frictionless. The convenience of mobile ordering combined with flexible fulfillment options underlies the shift towards more Thanksgiving and Black Friday spending happening digitally.

Top Deals Entice Consumers

Despite economic pressures from inflation and higher interest rates, consumers have shown a willingness to spend when the price is right. Adobe tracked toys discounted up to 28%, electronics up to 27% off, and computers 22% off on Thanksgiving, leading to triple-digit surge in those categories versus October.

Amazon and Target rolled out additional Black Friday toy deals with major markdowns on Barbie dream campers, Marvel action figures, and Nintendo Switch gaming bundles expected to rank among the most popular purchases.

Similarly, doors opening early at retailers like Best Buy, Walmart, and Apple will likely attract shoppers chasing deals on big-screen TVs, Bluetooth speakers, tablets, and the hot new Airpods Pro 2 earbuds. Though buying conditions are tougher this year, bargain hunters still prioritize snagging discounted must-have gifts for loved ones.

What’s at Stake for Retailers

While Thanksgiving and Black Friday don’t determine overall holiday fortunes, they set the tone for retailers during the critical year-end sales period. Those who miss targets this weekend play catch-up and may have to result to profit-busting promotions to move stagnant inventory later in December.

However, retailers who excite shoppers out the gates with alluring deals and experiences create positive momentum they can ride into the New Year. The outperformance of those players better able to adapt to the mobile and omnichannel-centric future of holiday shopping will be on full display this weekend.

For consumers, the state of Black Friday offers clues into buying conditions for the next month as they weigh completing wish lists amidst budget realities. With early reads tilting positive, cautious optimism seems warranted – though restraint may still pay off waiting to see if deals sweeten further in December.

One thing is certain: all eyes turn to how activity plays out on the unofficial start to the holiday sales season. Black Friday retains symbolic importance for retailers and consumers alike – so expect the 2023 version to again provide intrigue and insights into the health of the US consumer.

Fed Signals No Rate Cuts Coming Despite Recession Fears

Posted on by slightbourne@noblecapitalmarkets.com

Despite growing fears of an impending recession, the Federal Reserve is showing no signs of pivoting towards interest rate cuts any time soon, according to minutes from the central bank’s early-November policy meeting.

The minutes underscored Fed officials’ steadfast commitment to taming inflation through restrictive monetary policy, even as markets widely expect rate cuts to begin in the first half of 2024.

“The fact is, the Committee is not thinking about rate cuts right now at all,” Fed Chair Jerome Powell asserted bluntly in his post-meeting press conference.

The summary of discussions revealed Fed policymakers believe keeping rates elevated will be “critical” to hit their 2% inflation target over time. And it gave no indication that the group even considered the appropriate timing for eventually lowering rates from the current range of 5.25-5.50%, the highest since 2000.

Despite investors betting on cuts starting in May, the minutes signaled the Fed intends to stand firm and base upcoming policy moves solely on incoming data, rather than forecasts. Officials stressed the need for “persistently restrictive” policy to curb price increases.

Still, Fed leaders acknowledged they must remain nimble in response to shifting financial conditions or economic trajectories that could alter the monetary path.

Surging Treasury Yields Garner Attention

This balanced posture comes after the early-November gathering saw extensive debate around rapidly rising Treasury yields, as 10-year rates hit fresh 15-year highs over 4.3%.

The minutes linked this upward pressure on benchmark yields to several key drivers, including increased Treasury issuance to finance swelling federal deficits.

Analysts say the Fed’s aggressive rate hikes are also forcing up yields on government bonds. Meanwhile, any hints around the Fed’s own policy outlook can sway rate expectations.

Fed participants decided higher term premiums rooted in fundamental supply and demand forces do not necessarily warrant a response. However, the reaction in financial markets will require vigilant monitoring in case yield spikes impact the real economy.

Moderating Growth, Elevated Inflation Still Loom

Despite the tightening already underway, the minutes paint a picture of an economy still battling high inflation even as growth shows signs of slowing markedly.

Participants expect a significant deceleration from the third quarter’s 4.9% GDP growth pace. And they see rising risks of below-trend expansion looking ahead.

Nevertheless, on inflation, officials suggested hazards remain tilted to the upside. Price increases slowed to a still-high 7.7% annual clip in October per CPI data, but stickier components like rents and services have been slower to relent.

The Fed’s preferred PCE inflation gauge has also moderated over recent months. But at 3.7% annually in September, it remains well above the rigid 2% target.

Considering lags in policy impacts, the minutes indicated Fed officials believe the cumulative effect of 375 basis points worth of interest rate hikes this year should help restore price stability over the medium term.

Markets Still Misaligned with Fed’s Outlook

Despite the Fed’s clear messaging, futures markets continue to forecast rate cuts commencing in the first half of 2023. Traders are betting on a recession forcing the Fed’s hand.

However, several Fed policymakers have recently pushed back on expectations for near-term policy pivots.

For now, the Fed seems inclined to stick to its guns, rather than bowing to market hopes or economic worries. With inflation still unacceptably high amid a strong jobs market, policymakers are staying the course on rate hikes for the foreseeable future, according to the latest minutes.

Millions of Gig Workers May Be Missing from Monthly Jobs Data

Posted on by slightbourne@noblecapitalmarkets.com

Each month the U.S. Labor Department releases its closely-watched jobs report, providing key employment statistics that the Federal Reserve monitors to gauge the health of the economy. However, new research suggests these monthly figures may be significantly undercounting workers, specifically those in the rising “gig economy.”

Economists estimate the undercount could range from hundreds of thousands to as many as 13 million gig workers. This discrepancy suggests the labor market may be even tighter than the official statistics indicate, allowing more room for employment growth before hitting problematic levels of inflation.

Gig Workers Slip Through the Cracks

Gig workers, such as Uber drivers, freelancers, and casual laborers, often don’t consider themselves part of the workforce or even “employed” in the traditional sense. As a result, when responding to government labor surveys, they fail to identify themselves as active participants in the job market.

Researchers Anat Bracha and Mary Burke examined this response pattern by comparing informal work surveys with standard employment surveys. They uncovered a troubling gap where potentially millions of gig workers get missed each month in the jobs data.

For the Fed, Underestimating Tightness Raises Risks

For the Federal Reserve, accurate employment statistics are critical to promoting its dual mandate of stable prices and maximum employment. If the labor market is tighter than the data suggests, it could force Fed policymakers to act more aggressively with interest rate hikes to ward off inflationary pressures.

An undercount means the economy likely has more remaining labor supply before hitting problematic levels of inflation-fueling tightness. With more Americans able to work productively without triggering price hikes, the Fed may not need to cool off the job market as quickly.

Implications for Fed Policy Decisions

In recent years, the Fed has dramatically revised its estimates for full employment to account for the lack of rising inflation despite ultra-low unemployment. Recognizing millions more gig workers could further adjust views on labor market capacity.

According to the researchers, the uncounted gig workers indicate the economy has had more room to grow without excessive inflation than recognized. As a result, they argue the Fed’s benchmark for tight labor markets could be revised upwards, allowing for less aggressive rate hikes.

Gig Workforce Expected to Expand Post-Pandemic

The gig economy workforce has swelled over the past decade. But the COVID-19 pandemic triggered massive layoffs, confusing estimates of its true size.

As the economy rebounds, gig work is expected to continue expanding. Younger generations show a preference for the flexibility of gig roles over traditional 9-to-5 employment. Moreover, companies are incentivized to hire temporary contract laborers to reduce benefit costs.

Accurately capturing this crucial and expanding segment of the workforce in monthly jobs data is necessary for the Fed to make informed policy moves. The research highlights an urgent need to refine labor survey approaches to avoid missteps.

Adapting Surveys to Evolve with the Economy

Government surveys designed decades ago need to adapt to reflect the rapidly changing nature of work. Respondents should be explicitly asked whether they engage in gig work and probed on their monthly hours and earnings.

Modernizing measurement approaches could reveal a hidden bounty of untapped labor supply and productivity from gig workers. With more accurate insight into true employment levels, the Fed can better balance its dual goals and promote an economy that benefits all Americans.

Stock Markets Rally Back: A Beacon of Hope Emerges

Posted on by slightbourne@noblecapitalmarkets.com

After a tumultuous year marked by soaring inflation, rising interest rates, and economic uncertainty, the stock markets are finally beginning to show signs of recovery. The recent surge in the Russell 2000, a small-cap index, is a particularly encouraging sign, indicating that investors are regaining confidence and seeking out growth opportunities. This positive momentum is fueled by several factors, including signs of inflation subsiding, the likelihood of no further rate hikes from the Federal Reserve, and renewed interest in small-cap companies.

Inflation Under Control

The primary driver of the market’s recent rally is the easing of inflationary pressures. After reaching a 40-year high in June, inflation has been steadily declining, with the latest Consumer Price Index (CPI) report showing a year-over-year increase of 6.2%. This moderation in inflation is a welcome relief for investors and consumers alike, as it reduces the burden on household budgets and businesses’ operating costs.

No More Rate Hikes on the Horizon

In response to the surge in inflation, the Federal Reserve embarked on an aggressive monetary tightening campaign, raising interest rates at an unprecedented pace. These rate hikes were necessary to curb inflation but also had a dampening effect on economic growth and put downward pressure on stock prices. However, with inflation now on a downward trajectory, the Fed is expected to slow down its rate-hiking cycle. This prospect is positive for the stock market, as it reduces the uncertainty surrounding future interest rate decisions and allows businesses and investors to plan accordingly.

Capital Flows Back to Small Caps

The recent rally in the Russell 2000 is a testament to the renewed interest in small-cap companies. These companies, often considered to be more sensitive to economic conditions than their larger counterparts, have been hit hard by the market volatility of the past year. However, as investors become more optimistic about the economic outlook, they are turning their attention back to small caps, which offer the potential for higher growth and returns.

Light at the End of the Tunnel

The stock market’s recent rally is a promising sign that the worst may be over for investors. While there may still be challenges ahead, the easing of inflation, the prospect of no further rate hikes, and the renewed interest in small-cap companies suggest that there is light at the end of the tunnel. As investors regain confidence and seek out growth opportunities, the stock market is poised for a continued recovery.

Additional Factors Contributing to the Rally

In addition to the factors mentioned above, there are a few other developments that are contributing to the stock market’s recovery. These include:

  • Strong corporate earnings: Despite the economic slowdown, many companies have reported better-than-expected earnings in recent quarters. This suggests that businesses are able to navigate the current challenges and remain profitable.
  • Improved investor sentiment: Investor sentiment has improved in recent months, as investors become more optimistic about the economic outlook and the prospects for corporate earnings.
  • Increased retail investor participation: Retail investors have been a major force in the stock market in recent years, and their continued participation is helping to support the rally.

The Road Ahead

While the stock market has shown signs of recovery, there are still some risks that investors should be aware of. These include:

  • The possibility of a recession: While the economy is slowing down, there is still a possibility that it could tip into a recession. This would have a negative impact on corporate earnings and stock prices.
  • Geopolitical tensions: The war in Ukraine and other geopolitical tensions are creating uncertainty and could lead to market volatility.
  • Rising interest rates: Even if the Fed slows down its rate-hiking cycle, interest rates are still expected to be higher than they were before the pandemic. This could continue to put pressure on stock prices.

Despite these risks, the overall outlook for the stock market is positive. The easing of inflation, the prospect of no further rate hikes, and the renewed interest in small-cap companies are all positive signs that suggest the market is on a path to recovery. As investors regain confidence and seek out growth opportunities, the stock market is poised to continue its upward trajectory.