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Happy Friday Everyone! 👋
Whatever is happening in the world and the markets, days like yesterday are a good reminder that the most important assets in life are family, friends, and health.
MARKET UPDATE
US Equity Markets staged the biggest one-day reversal on record
Yesterday, big intraday short covering led rally
NASDAQ biggest low-to-close since March 2020, +7.3%
Unprofitable technology staged a 16% reversal to end +8%
Rates:
Odds of a 25 bps hike = 100%
Odds of a 50 bps hike fell to 10% from 30%
Flight to safety trade: look at the DXY above 97 and Gold finally breaking $1,900 again.
PCE Deflator up 6.1% y/y
9am: European Central Bank President Lagarde speaks
Crude 93.40
Biden working with other major nations on coordinated reserve release
Iran nuclear talks are ongoing
Energy fell, XLE -0.8%
Is Energy (XLE) topping?
Ag commodities down this morning: Wheat -5%, Corn -3%, Soybeans -2%, Oats -2%
Russian News Source: Putin open to talks with Ukraine
Russia’s top diplomat said talks are contingent on Ukraine’s surrender
Meanwhile, Russian forces getting close to the capital Kyiv
Taiwan Semi
stock down 4% yesterday
Company said supply-chain risk from Ukraine is manageable
Company said it will comply with export control rules on Russia
Crypto
Bitcoin has been inversely correlated with gold this month
But if we just zoom out a little…
GRIT STOCKS:
Advanced Micro Devices: Announced a new $8B share repurchase
Square/Block: Beat Earnings Q4 $0.27 vs $0.22. Stock +16% (down 68% from highs)
Earnings
Coinbase: Crushed top- and bottom-line estimates. Revenue of $2.5 billion vs consensus of $1.94 billion and EPS of $3.32 vs consensus of $1.85. However, Q1 guidance low.
Intuit
Vale
VMware
Autodesk
Monster Beverage
Dell
Sempra
Liberty Sirius
Foot Locker -16%
QUICK HITS FROM GRIT
SIX things you need to know this week in 60 seconds.
Russia invades Ukraine
The IPO market is effectively shut down
Correction territory
Lumber is back & home-prices hit record
Retail traders want more options
Elon trolls Warren (again)
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1. MACRO
Russia invades Ukraine
Russia—the world’s second-largest producer of natural gas and one of the biggest oil-producing nations—invaded Ukraine in the early hours Thursday morning.
This sent the prices of Brent and Crude oil up as high as $105 and $100 on the day, respectively. E.U. natural gas prices are also surging as the region depends on Russia for more than a third of its supply.
The Russian stock market got crushed, losing ~33% of its value in one of the biggest single-day modern-day market meltdowns ever.
President Biden announced a second wave of harsher U.S. sanctions yesterday and included measures to hinder Russia’s ability to do business in dollars, pounds, and yen. Sanctions were also levied against banks and state-owned enterprises.
GRIT’S TAKE: No sanctions yet on Russian oil from the U.S. or the E.U. Biden said the U.S. will release additional oil as conditions warrant.
GRIT’S ACTION: I bought the dip at 945am yesterday morning. Added to $AAPL, $JPM, $RY, $LVMUY & $BAM.
Under the Radar
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2. DEALS
The IPO market is effectively shut down
New York stock offerings this year have gotten off to their slowest start since the Great Recession. And that was before we were on the brink of WWIII!
Bankers had been gearing up for an uptick in action starting in March but those plans have been put on hold after Russia’s invasion of Ukraine has effectively shut down the market for IPOs in the U.S. and Europe.
Before the geopolitical tensions, companies were already having a tough time selling shares given the Fed’s tightening monetary policy and the consequential heightened volatility.
Now it could be a while before those companies feel bold enough to reignite offerings if the situation doesn’t cool off soon.
GRIT’S TAKE: Historically, IPOs have been among the last segments of the markets to turn around after sell-offs.
GRIT’S ACTION: I’ve been turning down investing in *NEW* private deals.
3. STOCK MARKET
Correction territory
The S&P 500 has officially entered correction territory for the first time since Covid rocked our world 2 years ago.
Reacting to inflation and the likelihood of higher interest rates, last month investors pulled a record $134B out of money market funds (highest amount on record). Taxable and muni bond funds also saw their first monthly outflows since March 2020.
On the other hand, investors are showing a healthy appetite for tech—hold the big tech. The Nasdaq equal-weight ETF (not concentrated on big tech like QQQ) saw the largest inflows in its 10-year history this week, with investors pouring in $165M to the small fund.
GRIT’S TAKE: Money is still flowing into big tech too, though: QQQ saw $3.2B in inflows on Tuesday—that’s the most since March 2021.
GRIT’S ACTION: Tech doesn’t have the same supply-chain issues ; )
4. COMMODITIES
Lumber is back & home-prices hit record
It’s been a little less than a year since lumber went on its epic meme-like run, but the commodity is surging again, rising 227% since August 2021.
Rail and trucking disruptions are causing a shipping and logistics nightmare scenario for lumber producers who can’t get inventory out the door and are being forced to slow down production because they’re literally running out of space to store it.
The driving force behind the last squeeze was the housing boom which just hit a record with home-price growth of 18.8% over the last year. That increase is the highest since the Case-Shiller index began in 1987.
GRIT’S TAKE: Thankfully (for first-time buyers), home-price growth has been decelerating in recent months and is expected to continue to do so as mortgage rates climb (mortgage applications just dropped to lowest in 2 years).
GRIT’S ACTION: If you can, own real assets (like your house) in an inflationary environment.
5. CRYPTO
Retail traders want more options
In news that should shock precisely no one, it turns out crypto traders like to be aggressive.
Last month volumes in crypto derivatives totaled nearly $3T and accounted for over 60% of crypto trading.
Right now most futures and options activity takes place with minimal oversight in offshore venues on exchanges overseen by firms like Binance, but crypto companies are starting to push into the highly regulated U.S. derivatives by way of acquisitions.
Big firms like Coinbase and Crypto.com are buying up smaller, regulated platforms that offer derivatives like options and futures to meet the demand of retail clients looking to make levered bets on crypto.
GRIT’S TAKE: Yeah, being on the right side of an options trade on a risk asset is cool…but have you considered the downside?
GRIT’S ACTION: We don’t like options. We like to own the real thing.
6. ENTERTAINMENT
Elon trolls Warren (again)
In December Senator Elizabeth Warren took a shot at “The Person of the Year” (Elon Musk) accusing him of freeloading off taxpayers. Musk went on a several tweet counter-attack which culminated with a fatal blow, by Internet standards:
“You remind me of when I was a kid and my angry friend’s Mom would just randomly yell at everyone for no reason. Please don’t call the manager on me, Senator Karen.”
This week Warren came back for seconds, pointing out that Musk paid zero federal taxes in 2018 (which is true). Musk maturely replied that he just paid the single biggest tax bill for an individual ever.
This is also true: Musk’s 2021 tax bill is estimated to be over $11M, which is more than some countries make in a year, as Musk himself has observed.
GRIT’S TAKE: No word on whether or not he got that cookie.
GRIT’S ACTION: Maximize the use of your losses, but always pay your taxes.
A lot of chatter on WallStreetBets about Oil and Corn:
*SOURCES
2. Bloomberg
5. FT
6. FOX Business
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