A daily market update from FS Insight — what you need to know ahead of opening bell

“You can only become truly accomplished at something you love. Don’t make money your goal. Instead, pursue the things you love doing and then do them so well that people can’t take their eyes off of you.” — Maya Angelou

Over the Weekend

The Democratic National Convention starts today in Chicago NPR

Fed’s Daly backs gradual interest rate cuts as inflation ‘confidence’ mounts FT

U.S. LNG industry under pressure as challenges and uncertainty mount FT

Japanese megabank SMFG got thrown out with the bath water WSJ

Elon Musk’s X to close operations in Brazil as clash over content escalates WSJ

Disney-Fox-WBD sports streaming bundle blocked from launching by judge due to ‘near-monopolistic’ control WSJ

Argentina’s Milei finds it hard to decouple from China WSJ

Starbucks’ $113mn man has a China problem FT

The rise and fall of a mysterious real-estate empire in California wine country WSJ

Sam Altman’s Worldcoin battles with governments over your eyes WSJ

The CEO who made a fortune while his hospital chain collapsed WSJ

How on earth did NASA leave two astronauts in space? WSJ

Behind Ukraine’s Russia invasion: secrecy, speed and electronic jamming WSJ

Biggest U.S. companies warn of growing AI risk FT

U.S. tech groups’ water consumption soars in ‘data center alley’ FT

On dating apps: ‘Can I get your number, i.e. your credit score?’ WSJ

Real-life Ted Lasso: English soccer team bets on a 31-year-old coach from Houston WSJ

Connecticut’s severe Sunday flooding is being classified as a 1-in-1,000 year event NBC

Alain Delon – iconic French film star and one of the foremost European actors of the 1960s, ‘70s, and ‘80s – dies at 88 FT

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

This week is the most important week for August 2024 because of the Jackson Hole Symposium, at which Fed Chair Powell will speak on August 23rd (Friday). Last week, on 8/13, we noted that markets shifted to “risk-on”, premised on a benign CPI. Building on this, we see Powell as likely dovish; thus, this is supportive of further equity gains.

After Tokyo Black Monday, we had noted that our view was that this would prove to be a “growth scare”, even as market bottoms take time.
Since 1928:
– the most common month for a summer bottom is August
– the most common week for a summer bottom is first week of August.

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TECHNICAL

As Mark Newton is on break, there are no new reports or videos currently.

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CRYPTO

Uniswap Labs is launching a $2.35 million audit competition for its upcoming v4 protocol, claiming to be the largest prize pool in DeFi history. The prize pool will fund independent reviews of Uniswap v4’s smart contracts and novel Universal Router system, enabling swaps between ERC20s and NFTs. The audit competition will go live on September 4th and run through the end of the month. Anyone can submit code vulnerabilities, and rewards will be allocated based on the bug severity and quality of submission documentation. Uniswap v4 is expected to improve DeFi with new features like hooks, which enable the customization of liquidity pools, adding functionality for dynamic fees, limit orders, and purpose-built oracles. Additionally, v4 will unveil Uniswap’s “singleton” contract, with all liquidity pools held in a single contract, improving capital efficiency and reducing transaction costs. Uniswap Labs wants v4 to be the most audited set of contracts ever deployed and ensure there are no issues upon deployment. UNI is showing relative strength following the news, gaining 2.34%, while most alts are negative on the day.

Flexa, a crypto payments company, has introduced a new tool, Flexa Components, an asset-agnostic, embeddable toolkit allowing developers to interface directly with retailer point-of-sale systems. Flexa Components simplifies digital payments for merchants, allowing people to pay with digital assets at the point of sale. Customers can pay with their preferred crypto wallet, either by scanning a QR code or tapping a pay button on the merchant’s system. Flexa Components supports payments with USDC, BTC, ETH, SOL, MATIC, LTC, and other assets, and Flexa has already onboarded notable retailers, including Chipotle, Regal Cinemas, Mikimoto, and 99 Ranch Market. Flexa Components is simple for merchants to implement, with integrations taking less than a day and coming with out-of-the-box user interfaces, benefiting merchants with faster payment processing and cost savings. Flexa was founded in 2018 and continues to contribute to making digital assets a part of existing financial infrastructure.

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First News

Reddit, Loved It. Reddit was one of the big winners of last year’s major algorithm change from Google, which took search traffic away from small publishers and directed it to Reddit instead. Now, some publishers are reworking their editorial strategies to capture audiences spending an increasing amount of time there. Reddit originally surged in popularity when many people performing Internet searches realized that many blogs were set up as vehicles for ads, and so, in order to get real answers, they began appending ‘reddit’ after every search term. As a result, Google prioritized the site. The fear is that, once ad bottom feeders leap over to Reddit, the platform is doomed as well – but that may take a while to play out, if it ever does.

Rate Your Experience with Rates. The abiding lower inflation expectations mean that the public sees the Fed cutting interest rates imminently, and lower interest-rate expectations translate to lower mortgage rates, which fell to the lowest level in more than a year, buttressing – jointly with lower agent commissions – hopes for relief in the battered U.S. housing market. The average rate on the standard 30-year fixed mortgage fell ~25 basis points to 6.47%. Thus, in a self-perpetuating cycle, as investors ramp up bets that the Fed will cut interest rates starting next month, a pattern of mortgage-rate relief might be arriving sooner than many expected.

Chips Ahoy. Currently, fabrication of leading-edge chips requires Extreme Ultraviolet Lithography (EUV) machines, manufactured exclusively by ASML, the effective Dutch EUV monopolist. One thing that is maintaining the monopoly – or at least has been doing so up until now – is the fact that these machines are shatteringly expensive: each one costs $380 million and requires some of the most complex, highest-precision components ever created; also a vast amount of electricity and maintenance.

Monopoly menaced

The Okinawa Institute of Science and Technology (OIST) has designed a new type of EUV lithography equipment that could significantly reduce the cost of producing 7nm and smaller semiconductors. OIST has filed a patent application for the technology and, after proving the concept, it will build a working EUV lithography system in cooperation with local corporate partners in 2026. The most likely partner would be Nikon, which, incidentally, is fielding strong demand for its legacy chipmaking machines in China, which is mobilizing resources to build its own semiconductor supply chain.

Not only is this good news for Japan’s lithography industry; it also showcases the country’s deep reserves of scientific expertise and research capabilities. One other below-the-radar advantage Japan has is its ability to work closely with South Korea and also Taiwan, whose TSMC recently made a major investment in Japan. South Korea and Japan are also cooperating on semiconductor supply chains, jointly with the U.S. Asia Times

Participation Trophies Dep’t. Why does it cost so much more to build big things in America than in the rest of the world? This is a question any American with eyes to see has likely pondered while hitching a ride on highly efficient trains in Europe or Asia. The answer to this question will differ somewhat depending on the industry in question. One thesis is that Americans use construction projects as proxy fights over distribution. In a new short paper, the proponent of this thesis explains it for the case of transit costs.

Here is how expensive it is for America to build a kilometer of train, compared to other rich countries:

^{Source: Goldwyn (2024)}

Sure, Singapore and Hong Kong are doing worse, but that’s at least partly because all of their land is densely urbanized. America shouldn’t be doing this badly. Why is it?

After doing a large number of case studies and interviews, Goldwyn, the proponent of the thesis above, hazards a hypothesis:

“In this paper, I argue that these mounting costs and delays are the product of prioritizing politics ahead of transit projects… Impacted stakeholders, often “nonmarket actors” such as municipal agencies, require tangible value from megaprojects in order to allow them to proceed. In practice this “value distribution” is negotiated and renegotiated…This ongoing uncertainty leads to larger project scopes, schedule slippage, and higher costs over time. For transit projects, this do no harm principle or expansive value distribution framework adds costs and diminishes project benefits, when viewed through the lens of faster travel times and greater ridership, when agencies site a transit project in a less convenient freight railroad right-of-way rather than condemning private land, use federal grants to pay for elements beyond the needs of a transit project to gain needed permits, adopt more expensive designs to limit third party interfaces, and placate different powerbrokers, including elected officials, utility companies, transit agency operating entities, and others while undercutting traditional planning, design, cost estimating, and project management.”

In other words, Americans view transit projects chiefly through the green-colored glasses of who gets the benefits and who pays the costs, rather than through the lens of whether the train actually gets built. In the end, fights over distribution shrink the amount of train available to all.

This could account for many, if not all, of America’s excess-cost problems. The richer a nation gets, the more important distribution becomes, simply because there’s more train (or pie) to go around. As the pie is already quite big, growing it becomes less important. Put another way, there’s just so much money in America that everyone is focused on grabbing a larger share from their neighbors, even if that ends up costing us all in terms of overall efficiency.

While Rome burned…

This is a pessimistic conclusion, because it means that any nation reaching a certain level of wealth will have to contend with top-heavy rot resulting from distributional fights. While not the richest GDP-wise, we do have the highest consumption per capita, by far. America’s sclerosis may thus be the destiny of every other country as they catch up to us, if they do. (Word to the wise: if they’re taking the train, they just might.)

Still, this principle isn’t written in stone. At three-quarters of America’s consumption, Switzerland’s is among the very highest in the world, yet its transit costs are far, far lower. Is it possible even for rich countries to build things cheaply? Yes. Will it happen here? With enough transplanted Swiss, there’s hope for us yet. NYU JLL, NoahPinion