Happy Friday Everyone 👋
SIX things you need to know this week in 60 seconds.
How many hikes?
Biggest tech deal ever
Nasdaq correction opportunity
Exxon’s net zero pledge
NFTs are defying the crypto markets
If you liked Peloton at 105…
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1. MACRO
How many hikes?
First, it was one rate hike. Then it was two which quickly turned into three. Now it’s four…with the chance for more?
The Fed’s meeting on January 25-26 will give us more information, but upward pressure on bond yields could continue as strategists are already discussing the possibility of a fifth hike squeezed into 2022.
All three stock benchmarks are in the red to start the year, with tech and growth stocks wearing most of the pain as bond yields rise in response to uncertainty on how trigger-happy the Fed will get.
Meanwhile, the 10-year is at 2-year highs on a path to 2% and the VIX remains elevated at the highest levels in a month.
GRIT’S TAKE: The Fed will likely signal a rate hike for March, but some are considering the possibility of a surprise hike in January, or an increase of .50 instead of the anticipated .25.
GRIT’S ACTION: As long as the S&P earning yield is higher than the 10-year yield = STOCKS over BONDS.
Under the Radar
MOST TRUSTED NAME IN UAV. No, UAVs aren’t just a recon ship you use in Call of Duty, they have applications for virtually every industry! Draganfly released the first commercialized quadrotor unmanned aerial vehicle (UAV) in 1999 and has been leading the drone industry since. Click here for more on their latest project: AI consumer companion drones that fly*!
INCUBATING TECH GIANTS. Sears, then Amazon. Blockbuster, then Netflix. BlackBerry, then Apple. It’s the circle of life (read: capitalism). That circle now spins tighter than ever which means the next big tech giants are already being built, and the best-in-class are doing it at Victory Square, where investors get ground floor access and have given away 3 dividends with plans to give away more*!
CONSISTENCY IN CRYPTO MARKETS. Cryptocurrency markets are notoriously volatile but Liquid Meta has created a business model that generates consistent revenues in any market: liquidity mining. By providing capital liquidity to markets, Liquid Meta generates scalable revenue with exceptional margins from day 1 of operations onward*!
EXPOSURE TO EXPLOSIVE MARKETS. Blockchain Foundry is at the forefront of innovation in the blockchain and NFT markets. From helping enterprises with opportunity audits, consulting, DeFi, token service to a custom-built NFTGen pipeline that will enable much more than what is offered with your typical NFTs, Blockchain Foundry is the gateway to the decentralized universe*.
*This is sponsored advertising content.
2. DEALS
Biggest tech deal ever
The second-biggest company in the world just made the biggest tech deal ever! The $75B all-cash purchase of Activision is almost triple the size of Microsoft’s previous largest acquisition (LinkedIn for $26B in 2016).
The deal will add titles like Call of Duty and World of Warcraft to Microsoft’s gaming collection and is expected to increase video-game revenue by ~50%. Currently, video games account for ~9% of total revenues.
Activision has had a cloud of workplace misconduct, sexual harassment, and culture issues hanging over it since 2018, but word on the street is controversial longtime CEO Bobby Kotick will disappear into the sunset once the deal is finalized.
GRIT’S TAKE: The acquisition will make Microsoft the third largest video gaming company in the world by revenue behind only Tencent and Sony.
GRIT’S ACTION: Long $MSFT and added to it this week.
3. STOCK MARKET
Nasdaq correction opportunity
The Nasdaq is in correction territory (-10%) and two out of three tech stocks with high PE multiples are trading at less than 50% of their one-year highs.
With free cash flows (FCF) averaging twice the other major indices, tech companies are trading at the highest FCF yield (FCF-to-EV) since June of last year!
The market cap-weighted FCF yield for the Nasdaq is just under 3%, so the market is pricing tech shares as “yieldy” assets that also offer an FCF multiple above the forward earnings multiple, which means some are trading at a discount.
GRIT’S TAKE: Last year we saw a similar move where yields shot up and the S&P and Nasdaq played footsie with a 5-10% correction, after which they rallied to new highs.
GRIT’S ACTION: Adding to core tech names with FCF.
4. COMMODITIES
Exxon’s net zero pledge
Back in May 2021, a tiny activist hedge fund, Engine No. 1, scored a huge win in a proxy fight after arguing that Exxon’s halfhearted energy transition from fossil fuels was placing the company at “existential” risk. The defeat cost Exxon 3 out of its 12 board of director seats.
This week, Exxon announced its goal to cut greenhouse gas emissions at its oil and gas operations to net zero by 2050. It said it would be publishing a series of road maps by the end of 2022 detailing how it’s going to get there.
The plan is to power operations using renewable energy, eliminate the routine flaring of natural gas and methane leaks from its facilities, and seek to deploy carbon capture and hydrogen.
Exxon had previously argued that 2050 net zero targets were unrealistic so this is a step in the right direction, but it’s less ambitious than goals set forth by competitors like BP and Shell.
GRIT’S TAKE: CEO Darren Woods says Exxon would still be able to expand oil and gas production in the coming years while staying in line with its new emissions reduction goals.
GRIT’S ACTION: Carbon is the fastest rising asset class in the world. And barely anyone paying attention.
5. CRYPTO
NFTs are defying the crypto markets
The S&P is down nearly 7%, the Nasdaq is down over 10%, and Bitcoin and Ethereum are down 10% and 15%, respectively, to kick-off 2022.
Do you know what isn’t down? Digital cartoon images!
OpenSea topped $4B in monthly NFT trading volume this week for the first time ever (with another 10 days to go). That’s 20% higher than the previous peak of $3.42B in August 2021.
The surge is being led by the Bored Ape Yacht Club (BAYC) collection (combined market value of $2.4B), as well as Mutant Ape Yacht Club (MAYC) and Bored Ape Kennel Club (BAKC).
GRIT’S TAKE: NFT popularity is exploding with more and more celebrities (Eminem, Britney Spears, Jimmy Fallon), sports franchises & leagues (NBA, MLB), and brands (more on that below) diving headfirst into the non-fungible world.
GRIT’S ACTION: Twitter asked me if I wanted to add an NFT as my profile picture today by connecting my digital wallet… the world is changing faster than people realize!
6. ENTERTAINMENT
If you liked Peloton at 105…
Peloton had quite the week! On Sunday, it announced that it would be asking customers to pay more for its products, citing inflation and supply chain costs. You may recall they slashed prices in August 2021 following some PR trouble and slowing growth.
On Tuesday, the company announced the hiring of McKinsey & Co. to review its cost structure, which is to say they’re paying someone a bunch of money to fire employees for them. The same day, leaked audio revealed plans to cut 40% of the sales and marketing teams.
But wait—there’s more!
Yesterday, SEC filings showed that Peloton executives and insiders sold almost half a billion dollars in shares before the stock began its steady decline (+80% from peak last year).
Believe it or not—there more:
According to documents obtained by CNBC, Peloton is temporarily halting production of its bikes and treadmills due to soft demand and trouble reigning in costs.
GRIT’S TAKE: If you liked Peloton at 105, you’re going to LOVE it 24!
GRIT’S ACTION: I told you I hated it at $105.
*SOURCES
2. WSJ
4. FT
5. Forbes
6. CNBC, #2, #3, #4, BusinessInsider
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