Weekend Update #135
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
Markets moved higher following a big week of economic readouts. Headline CPI came in at 3.0% year-over-year, below economists estimates as energy prices lapped last year’s surge from the Russia-Ukraine war. Core CPI, however, remains elevated at 4.8% year-over-year. PPI also came in slightly below economists estimates as final demand fell to 0.1% year-over-year, its lowest level since August 2021. NFIB Small Business Optimism Index for June and Univ. of Michigan’s preliminary Consumer Sentiment report for July both saw notable increases as easing inflation increases overall confidence.
In other notable news, a judge in New York gave a split ruling in the SEC v. Ripple case which deemed that cryptocurrency token XRP in and of itself is not a security. While the ruling was only determined for XRP, many are drawing similar conclusions of the decision to other potential tokens that could be caught in the SEC’s crosshairs. The ruling is expected to deal a significant blow to the SEC which has been cracking down on crypto companies since the start of the year.
Threads, Meta’s recently launched social media platform meant to compete with Twitter, reached 100 million sign ups in 5 days, beating OpenAI’s record of two months which was set back in February.
For the first time in 63 years, Hollywood writers and actors are on strike at the same time as the Screen Actors Guild, which represents some 160,000 performers, announced a walkout Thursday after failing to reach a new labor agreement. The group joins the Writers Guild of America who has been on strike since May 2. The impact will be seen across various entertainment companies as many programs and projects will be suspended until an agreement is reached.
Earnings season is officially upon us, as Pepsi (PEP) and Delta (DAL) beat estimates on Thursday, and banking heavyweights JPMorgan (JPM), Citi (C) and Wells Fargo (WFC) beat estimates on Friday. Tesla (TSLA) and Netflix (NFLX) are set to kick off tech earnings next week.
Weekly Performance
S&P 500 4,505.42 +2.42%
Dow Jones 34,509.03 +2.29%
Nasdaq 14,113.70 +3.32%
Key Economic Readouts Next Week
Monday, July 17 — Empire Manufacturing
Tuesday, July 18 — Retail Sales
Wednesday, July 19 — MBA Mortgage Applications, Housing Starts
Thursday, July 20 — Jobless Claims, Existing Home Sales
Thank you Blue Room Analyst NICK PEART
THANK YOU FOR JOINING US
What an incredible turnout we had this past Wednesday, thank you for joining us to celebrate our new expanded space and, more importantly, the addition of John Fenley.
John Fenley, CFA, a veteran asset management executive with over 30 years of experience as a portfolio manager and analyst of global equities, has joined as our new Portfolio Manager and member of the Blue Room Executive Team.
John began his career as an analyst and portfolio manager in the asset management division of two banks before joining Hansberger Global Investors, a lift-out of Templeton. Most recently, John served as the Director of Fundamental International Strategies for Segall Bryant & Hamill (SBH), which manages over $22 billion in assets.
Prior to the acquisition of his firm by SBH, he held the title of Managing Partner and Director of International Strategies at Denver Investments, one of the largest investment firms in Colorado, for 18 years. As a seasoned global equity investor who has worked for two start up boutiques, and has managed an $8 billion investment firm, John’s deep industry experience also provides him with valuable insights into strategy, marketing, and client relations.
John is a recipient of multiple Lipper Awards, the highly respected industry designation for exceptional performance, for his category-leading 5-year, risk-adjusted returns. He has also been recognized for performance by Investor’s Business Daily and Pension Bridge. His expertise in the management of global equity strategies will be invaluable to Blue Room.
“John and I have known one another for over a decade, and I’ve admired his work with Children’s Hospital and Habitat for Humanity. While his professional achievements are undoubtedly impressive, I am equally proud to have such a strong community leader join Blue Room at such an exciting time for the Company.” - Blue Room Founder Minyoung Sohn.
“It is an honor for me to join Min and the incredibly diverse and talented team that he has assembled at Blue Room. Min’s passion for investing is unmatched and he has skillfully passed along his knowledge and expertise to the next generation of investors. Combining his years of experience in asset management with the intention of making the world a better place by investing back in the community, is what truly inspires me to be a part of Blue Room Investing.”- Blue Room Portfolio Manager John Fenley.
The Bureau of Labor Statistics’ latest CPI report for the month of June 2023 was released on the morning of Wednesday, July 12. Headline CPI clocked in at +3.0% year-over-year, slightly below economists’ median estimate of +3.1% while core CPI came in at +4.8% year-over-year in June, also below economists’ median estimate of +5.0%. Markets in turn responded positively, with the S&P 500 rising nearly a full percentage point as participants wagered that the Fed is nearing the end of their rate hiking cycle. However, a deeper look into the composition of the inflation numbers suggests risk is to the upside with regards to inflation.
“The best moments in reading are when you come across something — a thought, a feeling, a way of looking at things — which you had thought special and particular to you. Now here it is, set down by someone else, a person you have never met, someone even who is long dead. And it is as if a hand has come out and taken yours.“
– Alan Bennett
The story I'm going to write about is about hands: the invisible hand, the visible hand, and the hand that has come out from the depths of history that has taken mine.
Last spring, I joined the Dartmouth Political Economy Project for a reading group on Adam Smith. Others who have joined include an economist, a historian, and undergraduate students like me, interested in demystifying "the father of modern economics". We meet every Monday afternoon in probably one of the oldest rooms in Dartmouth to discuss Smith's work and life, diving into primary texts like The Theory of Moral Sentiments and Wealth of Nations, as well as secondary research on the Scottish Enlightenment.
And, of course, we talk a lot about hands. After all, when most people think of Adam Smith, they think of "the invisible hand". Living in a time of Mercantilism, he was among the first to recognize that trade barriers initially set up to accumulate gold and silver prevent mutually beneficial transactions from taking place. Smith believes in "the invisible hand"—the market in which individual players decide what is best for themselves—to foster collective prosperity.
Born in China not long after the country joined the WTO, I witnessed its phase of radical marketization and opening up. "The invisible hand," coined by the Scottish intellectual almost 250 years ago, explains the transformation I see day-to-day. Yet, I had also been skeptical towards Adam Smith's theory as I understood it. To me, the name "Adam Smith" was equivalent to "the invisible hand," a synonym of the laissez-faire school, which accounts for the myriad of problems we see today: inequality, extreme poverty, and the commodification and objectification of almost everything that exists. Would Smith ever have anticipated what marketization and free trade would do to human society? If not, what's the point of talking about his theory in the 21st century?
With these questions in mind, I boarded the flight to Scotland. Our group leader, Professor Charles Wheelan, worked his way through getting all of us invited to Adam Smith Tercentenary Week (in other words, Adam Smith's 300th birthday party) hosted by the University of Glasgow. The conference features academic workshops ranging from economics to moral philosophy, with the aim of contextualizing Smith's theory in a contemporary framework.
Not surprisingly, we talked a lot about "the invisible hand". We also discussed it in relation to "the visible hand" of the government since it is now a consensus that markets sometimes fail and that some external force is needed to correct it. What surprises me is that the deeper we dive into Smith's original text, the more relevant I find it to be for the contemporary challenges of capitalist society.
For example, Smith is always conscious of the potential harms of marketization and overspecialization. Under hyper-division of labor, he argues in The Wealth of Nations, a person has no way to develop "moral sentiments" and "wisdom"—things that make us human. Having written The Theory of Moral Sentiments before The Wealth of Nations, Smith developed his economic theory based on nuanced observations of human nature. What most people have overlooked is that Smith has always been deeply concerned about human well-being. For him, material progress is a means to the end of living a happy, meaningful life.
In his talk titled "Economic Failure or Failed Economics," Nobel Prize winner Sir Angus Deaton calls for a renaissance of Smith's interdisciplinary, human-centered approach. Doing research primarily on poverty, inequality, and "Deaths of Despair," Sir Deaton argues that modern economics, which prioritizes wealth accumulation, overlooks "the social aspect of human well-being," which "Smith saw as essential to the task of the economist". Perhaps it is the hyper-specialization in academia in the last two centuries that hinders the development of humanism deep at the heart of economics when the discipline was born.
Smith's empathy with common people and concern for human happiness deeply resonate with me. As I reread Smith's works, I experienced several "aha moments" that almost feel like his hand "has come out and taken mine". Moving forward, I try to carry my new understanding of Smith into my internship at Blue Room. At Blue Room, with the vision of Togetherism, investing is never just about generating returns. It's also about committing to a future that is more equitable and sustainable—the key to human flourishing.
July 13, 2023 Global Meeting #118
Thursday
July 13, 2023
12 PM
BLUE ROOM GLOBAL MEETING
NUMBER 118
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Hello Blue Room,
Here is the agenda for the 12 PM meeting today:
Blue Room Investing Updates
Emily Philpott: Blue Room
John Fenley & Eli Haynes: Sales & Marketing
Jared Fenley: Internship Program
Jim & Naia: Blue Room Impact Updates
Icebreaker Questions:
+ If you could apply supercomputing to any challenge in the world, what would you do?
+ Or, if you could have a personal assistant follow you around every day, what would you have them do?
OVERVIEW
United States Producer Price Index YoY and MoM
PPI is a family of data that gauges the costs of production. There are three areas of PPI classification that use the same pool of data from the BLS: industry, commodity and commodity-based final and intermediate demand (FD-ID).
Finished Goods YoY~ Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.
Final Demand ~ PPI for final demand measures the average change in prices received by domestic producers of goods, services and construction sold for personal consumption, capital, investment, government and export.
—INTERN PROFILE—
RYAN
YU
Duke University Junior
Data Science
Finance Minor
My name is Ryan Yu and I am a first-year intern here at Blue Room for summer 2023. I am from Allendale, New Jersey and will be out in Denver working in-person for the first 7 weeks of the program. Currently, I am a rising junior at Duke University majoring in data science with a minor in finance. I actually spent the previous summer doing data science research at Duke, but realized I wanted to do work in a more dynamic space, tied to the current events both on a macro and micro level – hence my interest in finance. Going into my sophomore year at Duke I was focused on exploring finance and made an effort to become more involved in some of the business organizations on campus. I also took a class on the financial markets with professors Emma Rasiel and John Caccavele, and gained a lot of hands-on experience with developing investment theses, modeling, and presentation skills. What I enjoyed about some of the competitions I was able to participate in was the combination of quantitative and qualitative analysis, as well as the team-focused, high-reward nature of the work we were doing.
At Blue Room this summer, I am excited to pair the deep primary research that Blue Room values with the building of models for the companies we are assigned. It has already been rewarding to listen in on our investment bullpen meetings and hear members of the full-time team explain how they try to understand both economic and company-specific news. As I gain familiarity with my companies, my goal this summer is to develop an understanding of how these companies fit into the overall picture of the market, and with both primary research and quantitative analysis, evaluate them as potential investment opportunities for Blue Room Fund One.
Consumer sentiment rose for the second straight month to 72.6 — soaring 13% above June and reaching its most favorable reading since September 2021.
All components of the index improved considerably, led by a 19% surge in long-term business conditions and 16% increase in short-run business conditions.
Overall, sentiment climbed for all demographic groups except for lower-income consumers. The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets. As seen in the chart, sentiment is now about halfway between an all-time historic low of 50 from June 2022 and the February 2020 pre-pandemic reading of 101.
On July 3, 2023, China set export restrictions on gallium and germanium, which are both critical to the production of semiconductors, missile systems and solar cells. This represented a show of force ahead of economic talks, including an impending visit from Treasury Secretary Janet Yellen, between two rivals that increasingly set trade rules to achieve technological dominance. Both gallium and germanium appear among 50 minerals that the U.S. Geological Survey deems “critical,” meaning they are essential to the economic or national security of the U.S. and have a supply chain vulnerable to disruption.
China and the West (including Europe) are interdependent in the semiconductor supply chain, with China supplying the majority of raw materials and the West applying revolutionary technologies to produce advanced semiconductors. The Russia-Ukraine War, of which both countries are heavy producers of raw materials, has led to a Chinese consolidation of materials. In 2022, China represented 15% of Synopsys revenue, the 2nd largest geography after the US.
This comes amidst the raging chip war between the West (led by the U.S.) and China, over the most cutting-edge semiconductor technologies. Semiconductors consist of millions or billions of transistors that act like miniature electrical switches that flip on and off to process data such as images, radio waves, and sounds. They are used in almost every electronic device, from the data centers powering cutting-edge AI LLMs, to dishwashers, to mobile phones, to self-driving cars, and countries are fighting for a piece of the pie in manufacturing and supplying microchips. In fact, the battle for semiconductors is at the heart of the tense geopolitical battle between China and Taiwan, of which the latter produces over 60% of global semiconductors, and 90% of the most advanced ones, despite being the size of the state of Maryland.
Semicon China 2023, the world’s largest semiconductor conference and exhibition, was held in Shanghai at the end of June. Coupled with Beijing’s materials strikedown in the following days, the insights coming out of the conference shed light on China’s aspirations for the future and the subsequent impact on the semiconductor industry.
—INTERN PROFILE—
MELISSA
WHITE
Middlebury College, Sophomore
Computer Science
Hello everyone! My name is Melissa White and I am a first year intern at Blue Room for summer 2023. I am from just outside of Boston and I really enjoy spending time outdoors. Some of my favorite activities are playing pickleball and skiing. Currently, I am a rising sophomore at Middlebury College in Vermont, where I am a sprinter on the track and field team as well as studying Computer Science. I have always had curiosity towards computers and because they are so prominent in our everyday lives, I find lots of value in understanding how they work. Middlebury College is a Liberal Arts School, so during my first year I was encouraged to take all different types of classes. I ended up taking some finance electives along with my computer science courses and through those classes I found my passion for business. I then joined some business clubs on campus where I became even more enthusiastic about my career in finance as I saw that I was able to incorporate my Computer Science degree in a more qualitative way.
I decided to pursue this opportunity at Blue Room because the team’s values stood out to me. They preach togetherism which is the power of sharing and working with your peers. Being included in the team's investment meetings has not only allowed me to learn more about different industries and investing in general, but it has also shown me how working together leads Blue Room to great success. The communication between the team members is exceptional and provides the best space for me to learn in.
I am super excited to pair my interests in technology with finance and Blue Room has given me the opportunity to do so through assigning me to two companies in the semiconductor industry. I look forward to continuing working with the other interns and Blue Room team!
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