Happy Friday Everyone 👋
SIX things you need to know this week in 60 seconds.
Introducing: Quantitative Tightening
Supply-chain tech startups aren’t being overlooked anymore
Apple just keeps growing
From LNG zero to LNG hero
Battle for “Store of Value” market
Samsung wants to bring NFTs to your living room
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1. MACRO
Introducing: Quantitative Tightening
With consumer prices rising at the fastest pace in 40 years and the job market nearing full employment, the Fed is shifting gears.
December minutes revealed policymakers’ plans to accelerate the pace of tapering which would end the bond-buying program in March.
In light of higher and more persistent inflation than anticipated, members also discussed the possibility of throwing things in reverse with quantitative tightening (i.e., selling back the same bonds it’s currently buying) to reduce the size of its balance sheet.
This would happen at some point after the first quarter-percentage-point rate hike, of which the Fed foresees 3 in 2022:
1st: March
2nd: June/July
3rd: November/December
GRIT’S TAKE: The Fed also signaled 3 interest rate hikes for 2023 and 2 more in 2024.
GRIT’S ACTION: Avoid: Bonds, Utilities and REITS. Long: Financials.
Under the Radar
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A 20+ Year History of Drone Innovation: Draganfly continues to revolutionize the drone industry. The award-winning, industry-leading drone solutions and systems developer, has signed a minimum $9 million manufacturing agreement with Digital Dream Labs, Inc. to design and develop an AI companion robot capable of flying*.
*This is sponsored advertising content.
2. DEALS
Supply-chain tech startups aren’t being overlooked anymore
Murphy’s Law, which states that “anything that can go wrong will go wrong”, has certainly applied to the global supply chain over the last 2 years.
This had led to a logistical nightmare—backlogs, bottlenecks (thanks Evergrande!), shortages, etc—that has every industry rethinking their supply chain operations and distribution networks.
It also led to over $24B in venture funding for supply-chain tech companies through the first 3 quarters of 2021. That’s 58% more than all of 2020 before all of these vulnerabilities were exposed and these startups were overlooked.
The focus here is to leverage technology to streamline supply chains and boost efficiency. Think more automation.
GRIT’S TAKE: The average pre-money valuation for late-stage supply-chain tech companies was ~$120M in Q3 2021, up 41% from Q3 2020.
GRIT’S ACTION: Long established player = Descartes Systems (DSGX-US). Free cash flow machine!
3. STOCK MARKET
Apple just keeps growing
The number of Nasdaq stocks down 50% or more is almost at a record for the stock market. Apple is not one of these stocks.
In August 2018, it became the first publicly traded company to reach $1T in market value. In 2 years, it doubled to $2T, becoming the first company to reach that milestone as well.
That was 16 months ago. Since then, Apple’s market cap has risen another $1T ($500B since November 15, 2021), and this week it became the first company ever to reach the $3T mark.
While the pandemic hurt many businesses, it served as a tailwind for Apple (and all of Big Tech) who was able to navigate the aforementioned supply chain crunch and deliver for customers who wanted to trick out their new work-from-home setups.
They’ve also managed to ween off their dependence on the iPhone (still crushing it) with the help of their (higher margin) services business which accounted for nearly $70B in revenues last year.
GRIT’S TAKE: Moody’s upgraded Apple to a triple-A rating in December 2021. There are only 2 other companies with this rating: Microsoft and Johnson & Johnson.
GRIT’S ACTION: Don’t mess with a beautiful thing = Long Apple for Life.
4. COMMODITIES
From LNG zero to LNG hero
Less than 10 years ago, the U.S. was a net importer of liquified natural gas (LNG).
Thanks to a shale gas revolution and billions of dollars invested, production has surged 70% since 2010 and U.S. export capacity is expected to be the largest in the world by 2022.
As we noted last week, winter has arrived in Europe which is facing record-low LNG inventories coupled with record-high prices.
A surge in deliveries to the E.U. in December has helped make the U.S. the world’s largest exporter of LNG, beating out Qatar and Australia in output.
GRIT’S TAKE: The U.S. isn’t likely to be the top exporter for long. Qatar has plans for a massive project expected to break ground in the late 2020s which they hope will solidify them as the world’s top supplier for good.
GRIT’S ACTION: Taking my time trying to figure this trade out.
5. CRYPTO
Battle for “Store of Value” market
Right now, Bitcoin holds 20% of the “store of value” market which has historically been dominated by gold. Goldman Sachs thinks that widespread crypto adoption is going to change that.
In a note on Tuesday, Zach Pandl (co-head of global FX and EM strategy) wrote that an increase to 50% share of the market over the next 5 years would propel the price of Bitcoin above $100k “for a compound annualized return of 17% or 18%”.
Over the past year, despite the current sell-off, Bitcoin has produced a return of roughly 17%. Over the same time, despite near-perfect conditions, gold has returned about -6%.
GRIT’S TAKE: This is all to say: digital gold > gold.
GRIT’S ACTION: Do you want to own a rock or magic internet money?
6. ENTERTAINMENT
Samsung wants to bring NFTs to your living room
If you have a million-dollar Bored Ape Yacht Club NFT but you can’t display it to guests in your home, do you really have a million-dollar Bored Ape Yacht Club NFT?
How will people appreciate your social virtual status symbol?
Samsung is promising that BAYC members will never have to worry about that again with the world’s first TV screen-based NFT explorer and marketplace aggregator.
Customers will be able to browse, purchase, display, and learn about NFTs straight from their TVs starting this year.
If this isn’t peak mainstream, then I don’t know what is!
GRIT’S TAKE: Your move, Roku.
GRIT’S ACTION: NFT’s are going to take over the authentication of EVERYTHING. From passports to Chanel shoes… LONG Ethereum!
*SOURCES
1. CNBC
2. WSJ
3. FT
4. Bloomberg
5. Bloomberg
6. The Verge
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