Finance

“Iknow the allocation models don’t say this,” admitted Steven Mnuchin, a Treasury Secretary turned private-equity investor, last month, “but if I had to put money to invest for the next ten years I’d put 100% of it in the us economy.” Although Mr Mnuchin’s patriotism may be in part ideological—for he is both an investor and a political creature—he is not alone. According to Morningstar Direct, a data firm, American fund investors hold just a sixth of their equity allocation overseas. Jack Bogle, who invented index funds, called international exposure an overcomplication. Warren Buffett, an investor, thinks his wife should allocate 90% of her wealth to the s&p 500, America’s leading index, and 10% to Treasuries after his demise. This patriotism is an oddity. After all, Mr Mnuchin is right: it is not what asset-allocation models suggest. Diversification is perhaps the most important idea in modern finance. Its power was shown by Harry Markowitz, an economist who died on June 22nd, in the 1950s—when portfolio theory suggested investing in whichever stock held the highest present value of future dividends. Markowitz realised such analysis ignored risk. Andy’s apple farm might return 10% a year on average, but with wild swings. Barry the bootmaker posts a steady 7% a year. As long as the two firms’ fortunes are not in sync, a portfolio that contains a little of Andy and a little of Barry will offer better risk-adjusted returns than one holding shares in either firm. The insight won Markowitz a Nobel prize. It also laid the groundwork for Bogle’s index funds (which hold shares in a vast swathe of firms, not just a few) and modern academic finance. The capital-asset-pricing model, invented by William Sharpe, another economist, assumes all investors behave as Markowitz describes—maximising risk-adjusted returns—in the same way the theory of the firm assumes that companies maximise profits. Diversifying holds benefits at all levels of portfolio construction. Within stocks, investing in many firms is better than holding a few; across assets, holding stocks, bonds, real estate, commodities and so on is better than holding one or two assets. And holding these assets in many countries is preferable to just one. Americans love America, but nothing is more American than making money. Why, then, the home bias? Maybe owning foreign stocks is not necessary for geographic diversification. American firms are multinational. Growth tends to move in sync across the globe. There are risks that volatility in returns—Markowitz’s measure—cannot capture. No portfolio manager will be fired for buying American. If they invest in a country that seizes their assets, they will be shown the door.Yet the real reason for patriotism may be simpler: it has worked. American stocks have outperformed the rest of the world for three decades—an inordinately long time. Since 1990 America has on average returned 4.6 percentage points more per year than a broad index of rich-world stocks—an inordinately large premium. Although stocks everywhere moved in the same direction, which negated the benefits of diversification, America’s moved faster. The result is that, even though America is only 25% of the global economy, its stocks count for 60% of the global market capitalisation. This share has risen by 12 percentage points in the past decade. The only other country to have seen its share rise by more than a percentage point is China. Will the streak continue? America has deeper capital markets, stronger institutions and a bigger economy than anywhere else. Innovation flows freely—just look at the recent artificial-intelligence boom. Yet these traits are not new, meaning they should be priced in.A new paper by Cliff Asness and colleagues at aqr Capital Management sounds another note of caution. They adjust returns for changes in valuations, finding the vast majority of American outperformance is because valuations have soared. Of the 4.6% premium American stocks have commanded, some 3.4% exists because price-to-earnings ratios in America rose. Just 1.2% comes from fundamentals, like higher earnings.Outperformance owing to strong fundamentals might be repeatable. Winning “simply because people were willing to pay more for the same fundamentals”, as Mr Asness has written, is probably not. Shifting to foreign stocks after their long losing streak might feel risky. But the case for diversification is reasserting itself. America is the home of the brave. The country’s investors should remember that—and look abroad. ■ More

Publishers Clearing House agreed to settle a lawsuit with the Federal Trade Commission for $18.5 million, the agency said Monday.
The FTC alleged that PCH, well known for its sweepstakes, used “dark patterns” and other deceptive, unlawful business practices.
The agency also sued Amazon last week for using dark patterns relative to Prime subscriptions.
The PCH settlement money will be used to refund customers. It’s unclear how many are affected and when they might receive a refund.

The Publishers Clearing House offices in Jericho, New York on Jan. 30, 2019.
Bill Perlman/Newsday RM via Getty Images)

How ‘dark patterns’ can trap consumers

Sara Adair shows off the oversized check for $1 million her husband Mark received from the Publishers Clearing House Prize Patrol in South Boston, Massachusetts, on April 1, 2022.
Craig F. Walker/The Boston Globe via Getty Images

The FTC also sued Amazon last week for allegedly using “dark patterns” to trap people into recurring subscriptions for its Prime service without consent.  
Dark patterns are a “manipulative” and unlawful design trick, examples of which include pre-checked boxes, hard to find and read disclosures, and confusing cancellation policies, the FTC said. They pose “heightened risks” for consumers online, it added.

“This is our second dark pattern lawsuit over the last week,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said of the PCH lawsuit in a written statement. “Firms that continue to deploy deceptive design techniques are on notice.”

In the PCH case, the FTC claimed the company used “manipulative phrasing and website design” to convince consumers they needed to buy a product of some kind to enter the company’s sweepstakes or increase their odds of winning.
When it included disclaimers or clarifying information, the text was in small, light font and overlooked by consumers, the FTC claimed.
In addition to sweepstakes, PCH also sells merchandise and magazines. The FTC alleged the company charged hidden fees that averaged more than 40% of the product costs, and misled customers with deceptive language in email subject lines and statements in its privacy policy.

PCH agreed to settle charges, which claimed it had violated the FTC Act and CAN-SPAM Act. The company will pay $18.5 million to the FTC, which will refund impacted consumers. The company is also required to stop using deceptive language around sweepstakes and sales, and halt use of surprise fees, among other changes to its business practices.
More broadly, consumers may not realize they are being manipulated or misled by dark patterns since they are “covert or otherwise deceptive,” the FTC said. There are numerous examples, but some common ones consumers may confront online include phony customer endorsements (for example, the endorser may have been paid), fake low-stock messages (for example, there’s only one item left in stock) and a fake countdown clock (which pressures consumers to buy immediately, but resets after timing out). More

Budrul Chukrut | Lightrocket | Getty Images

Check out the companies making headlines in midday trading.
Lucid Group — Lucid shares jumped 9% after the electric-vehicle maker said it will provide powertrain and battery systems to British luxury automaker Aston Martin.

WSFS Financial — The regional bank added 4.4% after D.A. Davidson upgraded the stock to buy from neutral, noting WSFS could benefit from a higher-for-longer interest rate environment. The gain helped the SPDR S&P Regional Banking ETF (KRE), which traded 2% higher.
Pfizer — Pfizer slid 4.5% after it said it would end development of its experimental obesity and diabetes drug, lotiglipron, because of elevated liver enzymes that could indicate liver damage. Pfizer said no participants reported any symptoms or side effects.
Carnival — Shares sank nearly 12% despite the cruise line reporting a smaller-than-expected loss for its second quarter and giving an upbeat outlook. The stock has soared more than 70% year to date as the industry recovers from the Covid-19 pandemic. Royal Caribbean and Norwegian Cruise Line also fell Monday, dropping about 3% and 6%, respectively.
Moderna — Moderna rose 2.5% during midday trading. UBS upgraded the pharmaceutical stock to buy from neutral, saying the potential for other vaccines for the company isn’t fully appreciated by investors.
Alphabet — Shares of Alphabet fell 1.8% after UBS downgraded the tech giant to neutral from buy. UBS said Alphabet has limited upside from here and that the shift toward artificial intelligence could weigh on financial results in the near term.

Tesla — The EV maker dropped 2.8% after Goldman Sachs downgraded Tesla to neutral from buy. The Wall Street bank lowered its rating after Tesla’s recent rally and the competitive space for EVs. The downgrade follows similar rating changes recently from firms Morgan Stanley and Barclays.
— CNBC’s Michelle Fox, Alex Harring and Jesse Pound contributed reporting. More

A Tesla electric car is plugged into a recharging terminal at a Healthy Living Market store June 18, 2023 in South Burlington, Vermont. 
Robert Nickelsberg | Getty Images

Check out the companies making the biggest moves in premarket trading:
Tesla — Shares dropped 1.9% after Goldman Sachs became the latest Wall Street bank to downgrade the electric vehicle maker to neutral from buy. Goldman cited the difficult pricing environment for electric vehicles, as well as the stock’s recent run up, for the call.

Moderna — The drugmaker gained 2.5% following an upgrade by UBS to buy from neutral. The bank said the stock’s current valuation isn’t pricing in potential upside from other vaccines. UBS cut is price target to $191 from $221, which still implies 61% upside from Friday’s close.
Lucid — The EV maker popped 12% after it announced a partnership with Aston Martin to supply powertrain and battery systems to the British luxury carmaker. Aston Martin will give Lucid a 3.7% stake in the company and cash payments totaling $232 million.
Alphabet — The Google parent slid 1.4% after being downgraded by UBS to neutral from buy. The bank said the tech giant faces near-term revenue headwinds from new search competition and stiffer generative AI competition.
Pfizer — Shares slipped 2.4% after the drugmaker announced it was discontinuing the clinical development of its experimental obesity and diabetes drug, lotiglipron. Studies had shown elevated liver enzymes, although no participants reported any symptoms or side effects.
PacWest — The regional bank jumped nearly 6% following the announcement that Ares Management acquired $3.5 billion specialty finance portfolio from PacWest. The portfolio consists of high quality, senior secured, asset-backed loans.
Carnival — Shares were up 1.9% ahead of the company’s earnings, expected before the bell. Cruise stocks have been soaring as the industry rebounds from the Covid pandemic. More

Bitcoin’s price has risen more than 12% since the beginning of June.
Investors attributed the jump to news that BlackRock had filed for a spot bitcoin ETF.
The more likely thing moving bitcoin, though, is large purchases by so-called bitcoin “whales” as liquidity remains low.
This, analysts say, is causing big moves in the price of the world’s top digital currency.

Andriy Onufriyenko | Moment | Getty Images

Bitcoin has rallied sharply this month — but not for reasons you might think.
The world’s largest digital currency has risen more than 12% since the beginning of June. On Wednesday, its price topped $30,000 to hit its highest level since April 14, according to Coin Metrics data.

Market players have attributed the jump to the news that U.S. asset management giant BlackRock had filed for a spot bitcoin exchange-traded fund tracking the market price of the underlying asset.
While that may be part of the reason, the outsized moved can be put down to another factor beyond the news flow surrounding large institutions taking steps to embrace bitcoin or other digital assets.

Thin liquidity and big players

Crypto “market depth” has been sitting at very low levels this year. Market depth refers to a market’s ability to absorb relatively large buy and sell orders. When market depth is low and big players put in orders to buy or sell digital coins, prices can move in a big way up or down, even if the orders are not that huge.
Market depth is a measure of liquidity in a market.
According to data firm Kaiko, bitcoin’s market depth has fallen 20% since the start of this year. Bitcoin has been one of the hardest-hit cryptocurrencies in terms of market depth, Kaiko said.

The market depth of bitcoin at a 1% range from the mid price has fallen about 20% since the start of the year, according to data firm Kaiko.

“Bitcoin’s recent surge in value has largely been driven by large trades within a less liquid market,” Jamie Sly, head of research at CCData, told CNBC via email.
“Our analysis of market orders over 5 BTC reveals an aggressive surge in market buying, suggesting large players are seeking to gain exposure to digital assets.”
“When combining large orders with thin books, the market is subject to more volatile movements,” Sly added.
That lack of liquidity has in part been driven by the regulatory scrutiny of the crypto industry from U.S. authorities. The Securities and Exchange Commission has sued major exchanges such as Coinbase and Binance.
Low liquidity, which has been a feature of the crypto market all year, is also partly behind bitcoin’s 80% year-to-date rally.

Retail traders aren’t back — yet

Another notable feature of the current crypto market is the low volumes being traded on exchanges.
Daily trading volume in the cryptocurrency currently sits at around $24 billion, according to crypto data website CoinGecko.

That’s down markedly from the more than $100 billion of overall trading volume in bitcoin during the peak of the 2021 crypto rally, when bitcoin rose close to an all-time high of nearly $69,000.
Large crypto investors usually hope that an early surge in prices will be enough to tempt retail investors back into participating in the rally which ultimately boosts prices for bitcoin and other digital coins. But that hasn’t happened.
“What is notable about this rally is that trade volumes overall are at multi-year lows, and we are only seeing a slight increase, which even then is far lower than levels we saw from January to March,” Clara Medalie, director of research at Kaiko, told CNBC.
“I think trading volumes and price volatility are two of the most telling indicators of crypto market activity. Both volatility and volumes are at multi-year lows, and even a rapid increase in price is not enough to draw traders in.”

‘It’s not a market for ordinary clients’

In the last bitcoin cycle, market momentum was largely driven by big, institutional names as investment banks from Morgan Stanley to Goldman Sachs set up trading desks to give their clients exposure to the digital currency.
However, the market really started to break out only when retail traders started to take notice — in early 2021, people became tempted by the phenomenon that was NFTs, or nonfungible tokens, and other more speculative bets.
Later that year, the cryptocurrency market experienced a seismic rally, with the price of bitcoin zooming to unprecedented levels. That was in tandem with surging trading volume, which climbed from $21.2 billion at the start of 2020 to $105.4 billion on Nov. 9, 2021, when bitcoin hits its all-time high, according to CoinGecko.
Today, trading volume is nowhere near where it was at the height of the 2021 crypto boom.
“Any bit of news, if it’s good, then the professional traders trade — otherwise, they’re not trading,” Carol Alexander, a professor of finance at the University of Sussex, told CNBC.
“If a bit of good news like the bitcoin ETF comes, they fire the cannons upwards.”
BlackRock’s ETF filing was followed by similar move from Invesco and WisdomTree, which also filed for their own respective bitcoin-related products.

“Bitcoin and ether are both being manipulated in this way by the professional traders. They don’t trade most of the time, they wait until there’s a bit of good news,” Alexander said.
“Then they’ll sell the top and you’ve got a sideways market.”
Indeed, bitcoin has traded within a range this year, and attempts to burst significantly higher have been thwarted.
Alexander thinks bitcoin is likely to trade within a range of between $25,000 and $30,000 for the remainder of the summer.
She expects, however, that toward the end of the year, the cryptocurrency will climb toward $50,000, citing attempts from larger market players to prop up the market, with big purchases making outsized moves.
“It’s not a market for ordinary clients. It’s really is not,” she warned.

Has the market bottomed?

Vijay Ayyar, vice president of international markets at the Indian crypto exchange CoinDCX, told CNBC he suspects the latest run-up in bitcoin’s price is being driven more by “long term institutional buyers.”
Big funds and crypto-focused hedge funds are among the market participants driving the action, Ayyar added.
“I don’t think this is as much of a retail push, since retail was quite flushed out during the recent pullback,” he said.
Several crypto industry insiders have expressed hopes that the market is nearing a “bottoming” period where it can start to rise again.
The recent price action echoes activity in 2018, when both bitcoin’s price and volumes were subdued for several months before beginning to rise again the following year.
However, CCData’s Sly said it is “still too early to say whether the worst is over for bitcoin.”
“The recent wave of interest from traditional financial institutions, like Blackrock, Citadel, and Fidelity instils a renewed optimism in the market,” he said.
“Provided the wider macro environment and equity markets continue to be favorable, it is possible that bitcoin could maintain its current positive price trajectory.”
WATCH: Can ethereum topple bitcoin as the crypto king? More

A new ETF is making a big bet on real estate and other hard assets.
CBRE’s Investment Management launched the IQ CBRE Real Assets ETF in May with the idea that it will deliver inflation protection in a rising interest rate environment.

“The ETF market is lacking options in this space,” the ETF’s portfolio manager, Dan Foley, told CNBC’s “ETF Edge” on Thursday. “There’s a lot of opportunity here with secular changes in things like digital transformation, decarbonization, and then, just frankly, mispricing in the market.”
Foley pointed out that global financial institutions are already in the space and said he believes retail investors should be, too.
“This has been one of the most attractively positioned segments of the real asset universe,” Foley said. “Valuations are very compelling. … [The] elements are in place for a pretty strong total return going forward.”
CBRE’s new ETF is hitting the marketplace as excitement around artificial intelligence companies and technology dominate Wall Street.
Foley contended that hard assets, in general, are an important diversifier away from technology — particularly hot AI stocks. Plus, he noted that hard assets are crucial in enabling a digital economy in the first place.

“Data centers, cell towers, enabling decarbonization — you need these leading infrastructure companies to make that investment. It’s driving growth that we think will drive a differentiated outcome,” he said.
According to issuer New York Life Investments, the fund’s top holdings are in real estate and utilities. They include Public Storage, Crown Castle, Nextera Energy and Equinix (EQIX), which is considered a leader in data centers.
Equinix shares are up 7% over the past month.
“Equinix is a great example of a world-leading entity,” said Foley. “That’s the kind of asset you want. These are essential to the new economy.”
Since the IQ CBRE Real Assets ETF launched May 10, it’s down almost 6%.

Disclaimer More

More than three in 10 Americans think credit cards are “dangerous” or “evil,” according to a NerdWallet poll.
But having at least one credit card and using it responsibly can be a financial benefit, especially for those looking to establish good credit, experts say.
There are benefits and drawbacks to having more than one credit card.

Jose Luis Pelaez Inc | Digitalvision | Getty Images

Why having a credit card can be beneficial

Having a credit card — and using it responsibly — is a good way to start building strong credit, said Ted Rossman, senior industry analyst at CreditCards.com.

Establishing good credit is “essential” for qualifying for loans such as a mortgage or auto loan, and for other things such as buying a cell phone, renting a car or getting a job, the Consumer Federation of America notes. Strong credit also helps consumers qualify for lower borrowing costs.
Not everyone uses a credit card in a financially optimal way, however. Eighty-two percent of American adults had a credit card in 2022, according to the U.S. Federal Reserve. About half of them carried balances from month to month at least once in the prior year. Since credit cards often carry high interest rates, carrying a balance (i.e., not paying off a card in full each month) can add significantly to household costs.

Rossman recommends first-time cardholders get a card without annual fees and with zero-interest, at first, at least, and that they pay their balance in full and on time each month. It is important to make sure the interest rate will be relatively low after the initial no-interest offer runs its course.
There are virtues to sticking with just one card, experts said.
Among the biggest: There’s a simplicity to keeping track of just one set of due dates and other key details such as card benefits, said Bruce McClary, senior vice president at the National Foundation for Credit Counseling.
“If you’re limiting yourself to one card, it helps simplify the process of debt management,” McClary said.

Benefits to having more than one credit card

However, there can be drawbacks to having just one credit card. For one, not all businesses will necessarily accept your card brand.
“In those cases, in might make sense to have two different card types: Visa and Mastercard, for example,” McClary said.
Similarly, a consumer who operates a business can separate their personal and business expenses by using two cards, he added.
Consumers can prioritize a solid all-around card as a primary one, experts said. A good “foundation” for users may be a card with no annual fee that pays 2% cash back on all purchases, for example, Rossman said.

I would say two cards is optimum … and three would be maximum to keep finances simple.

Cathy Curtis
founder and CEO of Curtis Financial Planning

A second would likely be based on how consumers shop and how various cards divvy up rewards and benefits, experts said. For example, frequent travelers may benefit from a card geared toward travel rewards and comes without foreign transaction fees.
“This is where you have to make some choices for yourself,” McClary said. “You have to think about your daily life, where you shop and where you’ll be most likely to redeem the points you’re earning.”
Websites such as NerdWallet and CreditCards.com can help determine the best reward card for you, McClary said.
In addition, having a second credit card, or more, can help build a person’s credit utilization ratio, said Curtis, founder and CEO of Curtis Financial Planning.

Xavier Lorenzo | Moment | Getty Images

This is the ratio of what consumers owe relative to their total credit limit. Credit utilization is an important determinant in one’s credit score and having one that’s too high can reduce your score.
Cardholders should keep their ratio under 30% across all accounts, experts said. So, in a basic example, a consumer with a $10,000 credit limit wouldn’t want their balance to exceed $3,000.
Having more than one card raises one’s overall credit limit, and with responsible use, can reduce one’s credit utilization ratio.
“If a person needs more than one card to keep their credit utilization ratio low, then I would say that is a good reason to have more than one card,” Curtis said.

How many credit cards is too many?

But this is a balancing act.
Having too many cards can sometimes make users look like overeager borrowers and thereby reduce their credit score, even if they have low balances, McClary said. Lenders get the perception of a “compulsive borrower” if there are too many applications for credit in a short time frame, he added.
Spreading applications out — one or two in a six-month period, and no more than five in a two-year span — is generally safe, Rossman said. That includes applications for all types of debt.

Additionally, having multiple credit cards may add to the costs of carrying credit if they have annual fees, McClary said.
It’s “critical” for consumers who are disorganized or tend to overspend and carry balances on their cards, instead of paying their balances in full each month, to limit their cards, perhaps to just one, Curtis said.
“If a person is more fiscally responsible, I see no harm in having more than one card,” she said.
Generally, consumers should always strive to pay off balances each month, automate their monthly payments and secure a card with the lowest interest rate possible, she added. More

A view of the Starbucks vending van during its debut in Hangzhou, the capital of China’s Zhejiang province, June 7, 2022.
Long Wei | Future Publishing | Getty Images

Check out the companies making headlines in midday trading.
Starbucks — Starbucks shares lost nearly 2.5% after a union representing workers said strikes are slated to begin Friday in response to claims the coffee shop chain is not allowing Pride decorations at cafes. More than 150 stores, and about 3,500 workers, plan to join the strike occurring over the next week, the union said.

CarMax — The used-car retailer popped 10% after beating the consensus estimate of analysts for its first-quarter revenue. CarMax posted $7.69 billion, higher than the $7.49 billion anticipated by analysts polled by StreetAccount.
Virgin Galactic — Virgin Galactic shed 18% after announcing a $300 million capital raise via a common stock offering. The space tourism company also said it plans to raise an additional $400 million to grow its fleet of spacecrafts.
C3.ai — Shares of the major artificial intelligence beneficiary sank more than 10.8% after Deutsche Bank reiterated its sell rating on the heels of the company’s investor day. “Until we get more comfort in some of the leading indicators, magnitude of new deals and signs of sustained new business traction we maintain our Sell rating,” the bank said.
Under Armour — The athletic clothing company’s stock dropped 2.8% after being downgraded by Wells Fargo to equal weight from overweight. The Wall Street bank said Under Armour had overexposure to North America, excess inventory and a CEO at the helm for just six months.
Accenture — Shares of the IT and consulting firm fell 2.8% Friday, on track for its fifth-straight losing session. TD Cowen downgraded Accenture to market perform from outperform, citing a tepid outlook from the company in its earnings report earlier this week.

Evotec SE — Shares of the drug development company based in Germany gained 4.2% following an upgrade to overweight from equal weight by analysts at Morgan Stanley. The firm said Evotec looks well-positioned to capitalize on AI.
GSK — U.S-listed shares of the U.K.-based biopharmaceutical company gained 5% after GSK announced the first legal settlement over allegations its Zantac heartburn medication causes cancer.
— CNBC’s Michelle Fox, Alex Harring and Jesse Pound contributed reporting. More