Good Morning Everyone!
Welcome to the 1,279 new subscribers who have climbed aboard the GRIT rocket ship this week. If you're reading this but haven't subscribed, join our community of over 238k smart, fun & edgy, investors 👇
*This is sponsored advertising content and the disclaimer at the bottom of this email MUST be read carefully.
SIX things you need to know this week in <5 minutes:
The Fed is not happy with the labor market
Private equity is not immune
Auto recovery
Gold bugs are riding high
Silvergate floodgates open
Cramer’s 2023 winners
1. MACRO
The Fed is not happy with the labor market
New employment data released this week highlighted a resilient labor market that has stayed tight despite the Fed's best efforts to boost unemployment.
Job openings moved down slightly in November but still came in hotter-than-expected at 10.46 million, which translates to 1.7 openings per unemployed worker.
With demand still clearly outpacing supply, quits ticked up suggesting resilient wage growth which is the opposite of what the Fed wants to see.
Yesterday's ADP employment numbers piled on to the Fed's dilemma with payrolls surging by 235k, blowing estimates of 153k out of the water.
GRIT'S TAKE: Nothing in the jobs data this week suggests anything but a continued hawkish stance from the Fed.
GRIT'S ACTION: Looking for clues in this morning's BLS data.
2. DEALS
Private equity is not immune
High interest rates and persistent inflation have flipped the environment of cheap debt and soaring asset prices on its head. You don't have to tell that to the private equity (PE) industry, though.
With dealmaking peaking in 2020-2021 on government stimulus that sent the price of everything into orbit, PE had a forgettable 2022 which saw it raise ~20% less than it did a year ago.
Falling valuations and a dried-up market have left PE firms scrambling for liquidity and experimenting with unconventional methods to scrounge up deals, including taking on private debt, offering preferred equity, or even doing cash deals.
Others are opting to sell off stakes in their portfolio companies—a tricky proposition in an illiquid environment where valuations are getting slashed.
GRIT'S TAKE: Expect the dealmaking drought to continue until the Fed has reversed course and the inflation dragon has been slain.
3. STOCK MARKET
Auto recovery
The price for shares of Tesla may be falling off a cliff but the auto industry as a whole is poised for a recovery in 2023 after a disappointing year (above).
With supply chain snarls subsiding and a glut now replacing the previous 2-year chip shortage, auto factories formerly forced into low production and slim inventories are now picking up pace.
Driven by this reversal in the environment and pent-up demand, the industry is expected to grow by more than 1 million vehicles to 15 million units in the US.
Though below recent years, that's still a respectable forecast in an economy convinced of a recession.
GRIT'S TAKE: Affordability remains an issue which means automakers may be forced to cut prices to realize demand.
GRIT'S ACTION: Dollar-cost averaging into S&P.
4. COMMODITIES
Gold bugs are riding high
As the threat of a recession looms over volatile markets, the price of gold has been rising since early November with the precious metal hitting a 6-month high this week.
It also doesn't hurt that central banks—led by China and Russia—went on their biggest gold shopping spree since 1967 last year as countries looked to diversify their reserves away from the US dollar.
Driving prices now in addition to de-dollarization are the prospects of continued weakness in the USD and a dovish pivot from central banks bringing down rates.
Lingering inflation (i.e., taking longer than expected to bring below 3%) could also boost gold but would be at odds with a peak in rates.
GRIT'S TAKE: Gold bugs will be watching central banks for any hints of a shift in policies.
GRIT'S ACTION: Not expecting that dovish pivot any time soon.
5. CRYPTO
Silvergate floodgates open
In a Twitter thread at the end of November, I flagged several warning signs at Silvergate suggesting the bank was quickly headed into a tailspin.
Yesterday, news broke of an $8.1 billion run on the bank last quarter which dragged deposits down from $11.9 billion to $3.9 billion–all in just 3 months.
While Silvergate's CEO assures us the bank has enough cash to cover deposits (sounds familiar), a reported $150 million of its remaining assets are held by customers who went bankrupt thanks to over-leverage bets and a price-go-up attitude.
That doesn't exactly inspire confidence. Shares of $SI dropped more than 40% on the news.
GRIT'S TAKE: Despite downplaying its FTX exposure in November, it turns out FTX was a major Silvergate customer holding nearly 10% of its deposits in the bank.
GRIT'S ACTION: Wary of anyone in crypto who says anything to the effect of "everything is fine".
6. ENTERTAINMENT
Cramer’s 2023 winners
At GRIT, our goal is to give investors an edge by educating and providing them with actionable insights.
Sometimes that means singling out a theme or a sector or an individual name worth exploring.
Other times, it means giving our readers the proverbial heads up in terms of which investments to avoid.
To that end, here's a list of Dow stocks that Jim Cramer predicts will win 2023:
GRIT'S TAKE: Do with this information what you wish.
GRIT'S ACTION: Buying protection for names I own on this list (half-kidding).
*SOURCES
2. Bloomberg
5. WSJ
6. CNBC
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Grit Capital Corporation is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.
By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.
Gritcapital.substack.com (“Grit”) is a website owned and operated by Substack. Grit is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Grit in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Grit is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Grit does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Grit does not verify the adequacy, accuracy or completeness of any information. Neither Grit nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Grit nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis.