Eugene Fedorinov, MBA, CFA

Banc of California shareholder expectations were dashed this morning as the financial servicces company reported lower revenue, lower cash, and significantly lower earnings than expected—reporting 12 cents in the second quarter versus analyst estimates around 19 cents—the disappointing results are sending shares back down this morning to price levels of two weeks ago. Shares are down -7.6%. Running Point and I were quoted this morning by Boursorama and TradingView in an article titled, "Banc of California shares fall on concerns over rising provisions." Reporting by Manya Saini. QUOTED EXCERPT "The hike in their provision for credit losses may unnerve some investors, especially if they feel that the bank may be playing catch-up with reserves and not getting ahead of the game," said Michael Ashley Schulman, chief investment officer at Running Point Capital. 🔜 --> In other words, they may need to increase real estate loan provisions again over the next couple quarters. #banks ~~ Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. This is not investment advice and this is not a recommendation to buy or sell a security. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-24-104

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I'm currently having a little fun with the Utility Theory approach to asset allocation. Here's an another quick note at SSRN on the Optimal Hedging of Assets with Pathological Distributions of Returns. https://lnkd.in/eGiNhjqQ I'm stealing from the best which, in this case, includes Clive Granger. #markets #finance #stocks #quantresearch #portfoliotheory #hedging #options

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Hope everyone had a good holiday week/weekend on both sides of the border. This week’s edition is a tad light (edition attached and if you want to be added just let me know) 1) WSJ article on the financing of the Kansas City women’s soccer stadium. The stadium was unique in that the anchor tenant was a women’s team allowing them to get prime dates, sponsorship, f&b revenues etc. Also unique in that less than 5% of the cost was on the public. The stadium has been a resounding success and its size 11,500, lends itself to multiple other uses. It was a long haul, with only one bank willing to finance the stadium despite considerable local support. 2) FT article on DNEG, the virtual effects and animation company which has been involved with projects ranging from “Dune” to “Garfield,” which was recently recapitalized with an investment from Abu Dhabi’s sovereign wealth fund. Post recapitalization DNEG will expand its investments in films it works on and accelerate AI usage. 3) WSJ article (and there’s a similar one in the NYT, which I did not include) on the arrest of a Saudi filmmaker who has seen considerable success on Netflix and built up Saudi’s anchor animation studio. The article highlights the tensions in Saudi as it continues to woo creative industries as part of its larger economic transformation, juxtaposed with political and cultural tensions As always reach out if you want to chat, Ben

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A good take. Doves will coo about the unemployment rate and the desirability of reducing restriction. The hawks will be concerned about the cpi/pce, employment growth, gdp and wage growth. Very interesting. I can see the case for some dialing back on restriction later in 2024 IF there is better inflation data - but only if. The June SEP will likely keep those hopes alive even as the median number of cuts is dialed back to 1-2 by end 2024. https://lnkd.in/eSk7whgR

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YOU CAN'T FIGHT THE FED - BUT YOU DON'T HAVE TO LISTEN EITHER The Fed spoke yesterday, putting the no-hikes scenario is firmly on the table. But it's changed direction too often lately. It is clear, that the FOMC is NOT ahead of the curve. For that, look to Janet Yellen. My full interview at Bloomberg News #markets #Fed #interestrates #economy https://lnkd.in/d2cAzQhV

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During the National Football League’s recent draft, teams selected from hundreds of prospects to build rosters for the future. It’s my favorite sporting event of the year, mainly because it provides an opportunity to see professional evaluators miss wildly with their projections. (This is probably why I enjoy working in finance as well.) And while many sources of uncertainty contribute to these misses, NFL teams are often derailed by a self-inflicted error: focusing too much on a prospect’s weaknesses at the expense of all their strengths.    I was thinking about this lesson in the context of small cap value performance. Many investors have expressed concern over small cap value stocks underperforming large caps in the US over the 20 years ending in January. But this was largely an outlier from a global perspective. In major non-US markets, small cap value stocks handily outperformed their large cap counterparts over this period. While a two-decade stretch of underperformance is not what investors hope to see from US small value, it’s important to take notice of what went right for small value over this period.    Thinking globally also reinforces the importance of diversification when emphasizing small cap value stocks. The returns for these stocks may not move in lockstep across regions, and outperformance for non-US stocks can mitigate the impact of disappointing relative returns in the US. (See chart and accompanying disclosures for additional important information.)

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Post 1/2: Investing in sports teams & leagues via private markets. Ultimately, the big push from private equity & private credit firms comes down higher expected returns, stemming from; 1) the sports sector has historically been closed to investment capital (i.e. it's not been picked over like many other sectors) due to league limitations, 2) recent returns for top sports owners has PE shops drooling (e.g. Marc Lasry's 2023 sale of the Milwaukee Bucks returned >5x return over 9 years), and 3) these markets are massive globally and can soak up a lot of dry powder. Investing in sports teams and leagues typically takes two forms; 1) large well established teams & leagues under a monetization improvement thesis: firms such as RedBird Capital Partners & Arctos buying European football clubs, NBA/NHL/MLB teams and/or one of my favorites, Liberty Media purchase of F1, 2) growth leagues & teams under a pretty self-explanatory investment thesis where optimal ownership & governance from the outset can drive better league margins & economics: examples include athletes buying/launching pickleball teams, to the growth of Major League Rugby, or as a more proven example, the success of the Indian Premier League India. The opportunity across sports is massive, and I think the biggest investment opportunity has just been unlocked, with the recent decision in House vs NCAA to allow the payment of college players, which will likely lead to the broader monetization of college athletics, where the latest figure I could find showed that the NCAA generated $18.9 billion in revenue in 2019 (Source: Statista). In terms of investment structure, for both the greater good of sport, and potential investor outcomes, I'd argue the best structure for private investment into sports teams & leagues by institutional investors is in single-asset SPVs on a team-by-team basis. As far as innovation goes, I'm excited to see if DAOs provide an efficient mechanism fans to own a stake in their team, similar to how the Green Bay Packers are owned by ~540,000 fans. And for those that want to buy a sports team today, there are numerous publicly-listed teams, including Borrusia Dortmund, Manchester United, and the NY Rangers & Knicks. Note: review the Offering Prospectus in depth for governance!! And as always, do your own due diligence.

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Our latest market commentary addresses - among other items - the continued outperformance of large cap growth stocks and in particular standout performer, NVIDIA Corporation (NVDA). The consumer, economy, and markets all proved resilient in the recent quarter and year to date. Read on for the full report.

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When does "Traditional Fixed Income" work? When the interest rate curve is steep. Traditional fixed income playbook: 1) Bond Ladder 2) Carry Trade 3) Roll-down Trade None of these work with an inverted curve. What worked 20 years ago won't work today in an inverted curve.

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The economy rebounded in the first quarter, increasing 1.7% q-o-q, but weaker than expected and growth in the fourth quarter was revised lower. The details show strength in domestic demand, while inventories were the main drag. Consumer spending was the main source of growth, but most of the strength comes from a higher population and the higher frequency rate suggests some slowing going into Q2. With growth remaining weaker than population growth, GDP per capita continued to decline and is now about 3.6% lower than its recent peak. Disposable income rose in the first quarter due to higher compensation of employees and net property income. With inflation moderating, real disposable income showed a robust increase, suggesting some improvement in households’ purchasing power.  Nevertheless, real disposable income remains below its pre-pandemic trend. The saving rate rose on the quarter and is reaching its highest level since 1996, if the pandemic is excluded, suggesting that households continue to be cautious with their spending and supported by higher interest rates. With the preliminary estimate for March suggesting the economy expanded by 0.3% m-o-m, growth is expected to be resilient going into the second quarter. Assuming no change in economic activity in May and June, growth in Q2 could be around 1.5% q-o-q ar. Today’s GDP number does not change our view for the Bank of Canada and continue to think the BoC will cut at its June meeting. Growth in Q1 was weaker than potential, suggesting further widening of the output gap. With all measures of core inflation below 3%, the momentum in the BoC's preferred measures below 2.5% and the breadth of the inflationary pressures in line with the historical average, all the conditions we had identified (https://bit.ly/3vjVOnx) to support a rate cut have been met. If the BoC doesn’t cut next week, it would be a matter of extreme caution in our view, rather than suggesting that upside risks to inflation remain a concern. Nevertheless, whether they cut in June or July has very little impact on the outlook. What matters more will be the speed and the number of cuts we will see over the next year.

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BMO SIA FOCUS NORTH AMER EQUITY ETF & BROADCOM INC. ZFN.to #ETF units are up 22.6% Year to Date, compared with a gain of 13.92% for the S&P 500 Index and a gain of 3.53% for the S&P/TSX Composite Index so far in 2024. At the end of May, the largest weighted sectors within the fund were Information Technology, Industrials, Consumer Discretionary and Energy. Today’s featured holding, Broadcom* Ltd. (AVGO) has been consistently held in the fund since January of 2023. It has been in the news this week around the announcements of quarterly earnings and a 10 for 1 stock split. Click the link for full report: https://lnkd.in/gJQREw3P

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Jerome Powell has received a strongly worded letter from Elizabeth Warren and two other Senators. Filled with lessons in economics 101, and over 30 external references, the letter runs to five pages. The letter "urges" him to cut interest rates. I'm not sure how he will take it. You can read the full letter which is on Elizabeth Warren's website by clicking the link below. If I was sending such a long letter I would probably accompany it with a hand written note summarising a few key messages. Below is a completely imaginary example of what Elizabeth Warren's hand-note might have said. "Dear Jerome, I am not writing to give orders to the Fed, nor to try and undermine your independence. Rather I'm attaching a friendly letter from your Senate to tell you what you should do. You're probably a bit busy to read all of the attached 5 page letter. So I'll cut to the chase. Here's what we want you to do; Cut the federal funds rate. Just in case you are looking for some kind justification, there's plenty. Everyone else is doing it. The ECB, Canada, Sweden, Switzerland, Hungary and the Czech Republic have all cut rates. What are you waiting for? Your preferred measure of inflation, the PCE, is already below 2% if you exclude everything which went up in price. Excluding Shelter alone would bring the PCE measure of inflation down to 1.8%. Don't forget, it's partly your fault that rents are so high. If you hadn't put rates up landlords wouldn't need to increase rents. What's more, we've seen a 75% fall in housing inventory caused by all these extra people. The rising demand and falling supply has caused rents to go up. It distorts the inflation figure. Shelter should be excluded. Here's another thing you could ignore. Motor Vehicle Insurance. It's up 23% in the year to April. Just exclude that, and you'll be close enough to your 2% inflation target. Motor Vehicle Insurance costs rose because there were more frequent accidents! How is that inflationary? Just disregard it! Lastly, high interest rates make everything cost more. Whether it's mortgages or the cost of financing a business, someone's got to pay for it. So to conclude. You are not doing anything to reduce inflation. You are risking a recession. This could put thousands of Americans out of jobs. We're not telling you what to do. We are not trying to impinge on your independence. But remember who appointed you. We want to honour you as a man who did the right thing, i.e. cutting rates when we told you to. So listen up. You have kept interest rates too high for too long: it is time to cut rates. Do it now. With all my love Elizabeth.

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Bond pricing is slightly improved as treasury yields fall on the latest PCE data. The U.S. 10 Year Treasury yield is currently 4.267%, just below the open at 4.288%. PCE came in on top of forecast with the month over month measure at 0% vs the previous reading of 0.3% and forecast of 0%. Year over year showed 2.6% vs 2.7% previous reading and 2.6% forecast. The release continues to build a narrative that we are starting to see a pull back in inflation towards the Fed’s target at 2% and ultimately makes rate cuts more of a reality as we continue to move in the right direction. Other measures like next week’s unemployment report, along with other jobs data, could continue to add momentum to the cause as the Fed anticipates one rate cut later this year. The Fed Chair’s Congressional Testimony is also coming up July 9th and 10th which could shed additional light on the Fed’s approach as we move into the latter part of the year. There are a handful of Fed speaking engagements today along with Consumer sentiment to be released at 10am ET. Mortgage rates will likely print flat to slightly better this morning all else constant.

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Good morning. It’s all about “Big Wednesday” this week when we get a CPI & Fed decision. We expect a 0.1% (falling gasoline prices) m/m & 3.3% y/y increase in the CPI. The Fed will keep its policy rate in a range between 5.25% & 5.5% & the dot plot will point to 2 rate cuts in 2024. The risk around the Fed policy decision is that the dot plot shows only one rate cut this year which would probably trigger a sell off across asset classes.

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The S&P 500 index and Nasdaq notched their third weekly decline and this is clearly the correction which was inevitable as the yield on the 10-year US Treasury note spiked from 3.85% in the New Year to as high as 4.67%, the Fedspeak has turned hawkish, King Dollar is on a rampage and the Volatility Index has risen to 19. Inflation angst, the Iran/Israel drone/missile strikes on each other for the first time since Khomeini replaced the Shah in 1979 and scale back expectations of three FOMC rate cuts have created a new macro milieu at a time when the mega cap tech darlings were obscenely overvalued. So it is no surprise that Nvidia slumped 10% on Friday alone as the Nasdaq lost 5.3% for the week. At this rate, the Mag-7 morphed into the Mag-4 and could end up as the Mag-Zero! I cannot fathom how the bulls expect a Fed rate cut in May when March retail sales rose to 4% YoY and inflation data will only get worse as higher rents goose the CPI. No wonder the 2-year US Treasury note yield has spiked to 5% and no FOMC member in his/her right mind would vote for a rate cut at the next conclave. If hot inflation and higher volatility in the capital markets forces the Fed to tilt towards monetary restrictions, the stage for a 10-12% stock market hit in this spasm of selling is certain. The rise in the put/call ratio tells me that fear has begun to replace greed in high beta equities and I can easily see the S&P 500 at 4800 while the yield on the 10-year Uncle Sam note moves to 4.90-5.0%. While Brent at 87 does not suggest any imminent oil supply shock, any escalation in the Middle East could easily trigger a panic buying in the oil market. I can only hope that the human race learns to share this beautiful world with each other and not resort to mass murder as an instrument of geopolitics. Yet three millennia of recorded history tells me not to hold my breath. Churchill did have a point when he once said, "in wartime, truth is so precious that she must be protected by a bodyguard of lies" - and this was three generations before TikTok and YouTube were invented. The prospect of higher oil prices alone due to new Mideast kinetic events mean that the FOMC will be even more reluctant to cut the overnight borrowing rate in May or even June. So higher for longer rates scenario is not exactly bullish for high beta equities as not even the most diehard permabull on Wall Street can deny that the S&P 500 index and Nasdaq are both overvalued relative to their 5-year val multiple ranges. It is premature to expect capitulation just yet on the indices though some single names/sector ideas are beginning to look interesting. The S&P 500 is still too high at 20.6 times forward earnings as macro risks continue to rise and the 50-day moving average violation could be a prelude to a nasty summer. The proof of the pudding will come from the first quarter earnings and the line of sand is now at their 200-day MA at 4670. This would mean a 10% correction from its record high.

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https://lnkd.in/gmi45HZn As anyone who follows the investment markets knows, Nvidia reported its first-quarter earnings yesterday. They not only exceeded the Street's lofty estimates but also increased their expectations AND announced a 10-for-1 stock split! Yesterday morning, I provided my commentary on Oliver Renick's show on Schwab Network. The question is, how fast can Microsoft, Google, Amazon, and the other Technology behemoths play catch-up? Because they will. Thanks to Oliver, his team, and Schwab Network for continuing to ask my opinion on semiconductor and software stocks. #OliverRenick. #SchwabNetwork. #Nvidia #AI

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The 2nd busiest week of earnings season includes two Magnificent 7 companies reporting (Tesla & Google) and the 2Q GDP reading. The rotation into smaller companies and banks is evidence of a rising probability of forthcoming Fed rate cuts and avoidance of recession being priced into stocks.

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