Happy Friday Everyone 👋
SIX things you need to know this week in 60 seconds.
“It will soon be appropriate”
Live look-in at Nvidia’s $40B blockbuster Arm deal
Microsoft: Still bullish
Goldman: $100 a barrel by Q3
ARK is VERY bullish on Bitcoin
Leave the tweeting to the pros
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1. MACRO
“It will soon be appropriate”
If you had a nickel for every time Fed officials said those words over the last several months you’d be flush with enough cash to buy all the dips! Powell echoed them again this week, but for the first time, we’ve got an idea of when “soon” will be.
Interest rates will likely be raised (for the first time since December 2018) by a quarter-percentage point in March, which is the same time the Fed’s asset purchases are set to end.
Without providing a specific timeline, the Fed also outlined its plan to unload the bond holdings on its balance sheet, which is pushing $9T. Powell reassured that these reductions would be telegraphed, executed predictably and that they would kick in after interest rate hikes start.
The market is currently pricing in 4 rate hikes in 2022 with a funds rate of about 1% by year’s end.
GRIT’S TAKE: Goldman Sachs is predicting the balance sheet runoff will begin in July after rate hikes in March and June, followed by 2 more hikes in September and December.
GRIT’S ACTION: Stocks can still go up even when rates do! Here are the S&P returns during years with 4 rate hikes or more since 1978:
1978 = 1.06%
1979 = 12.31%
1980 = 25.77%
1994 = (-1.54%)
2004 = 8.99%
2005 = 3.00%
2006 = 13.62% 2018 = (-6.24%)
Under the Radar
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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*!
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*.
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2. DEALS
Live look-in at Nvidia’s $40B blockbuster Arm deal:
Nvidia is the second biggest semiconductor company in the world at a $550B market cap, behind only TSMC. In September, it announced its intention to buy U.K. chip designer Arm in a massive $40B deal that would make it a global powerhouse in the microprocessor industry.
From day one, the deal was heavily scrutinized by regulators (U.S. and abroad) arguing it would make the company too powerful, and industry stakeholders like Qualcomm, Google, Intel, Microsoft, and Amazon, which were more than happy to help kill the deal.
In December, the U.S. Federal Trade Commission took action, suing the chipmaker to prevent them from “stifling the innovation pipeline for next-generation technologies”.
While the deal is not technically dead yet, Nvidia has told its partners it doesn’t expect the transition to close and has all but pulled the plug after months of making little to no progress in winning approval.
GRIT’S TAKE: SoftBank, which owns Arm, is preparing to go the IPO route now that the takeover is on its last legs.
GRIT’S ACTION: Global chip shortage continues. Long NVDIA.
3. STOCK MARKET
Microsoft: Still bullish
Over the weekend I wrote that Microsoft’s Current Trading Multiples Should be Illegal. Well, they just got…more illegal?
On Tuesday, the company reported earnings and rewarded shareholders by surpassing estimates on the top and bottom lines while reporting quarterly sales of more than $50B for the first time ever! Here are the highlights:
EPS: $2.48 vs $2.32 est
Revenue: $51.73B v $50.88B est
Net income grew by 21% to $18.77B
Revenue increase 20% YoY
Azure and cloud division grew by 46% YoY
Security revenue up nearly 45% to $15B
Microsoft is expecting revenue of $48.5-$49.3B next quarter which tops the $48.23B consensus. Full-year operating margins are also expected to widen slightly.
GRIT’S TAKE: CEO Satya Nadella’s upbeat cloud guidance, which indicated strong demand, is a bullish sign for the software industry.
GRIT’S ACTION: Long this beautiful capital compounder.
4. COMMODITIES
Goldman: $100 a barrel by Q3
Back in July, OPEC, led by Saudia Arabia and its allies, agreed to replace the output that was cut in response to the pandemic by a combined 400k barrels a day every month throughout 2022.
Six months later though, few cartel members besides Saudia Arabia and the United Arab Emirates have actually managed to hit their monthly marks consistently.
The group is now producing 790k barrels a day less than it should be, per its original agreement, and that has analysts at Goldman Sachs predicting Brent prices will reach $100 a barrel by Q3. Prices crossed $87 a barrel this week for the first time in 7 years.
While Omicron fears fade, uncertainty about supply tightening remains and forecasts vary wildly, but all signs point to shrinking spare capacity.
GRIT’S TAKE: Goldman expects Brent to average $96 a barrel in 2022, up to $105 in 2023. Energy Aspects is forecasting $85 and $112, respectively.
GRIT’S ACTION: Energy is the best performing sector right now. But long term it’s one of the worst. I don’t like it.
5. CRYPTO
ARK is VERY bullish on Bitcoin
Just four months ago Cathie Wood was predicting that the price of Bitcoin could top $500k by 2026. This week, ARK Invest released its 2022 outlook report which estimates that the price could exceed $1M by 2030!
The report notes, “on-chain data suggest that bitcoin holders are focused on long-term fundamentals”, which is just a fancy Wall Street way of saying Bitcoin investors are diamond-handed HODLers.
Bitcoin is also taking market share as a global settlement network. With cumulative transfer volume increasing by 463% in 2021, its annual settlement volume has surpassed Visa’s annual payments volume.
ARK points to technological breakthroughs like successful soft fork activation, “layer 2” growth, and Bitcoin-denominated DeFi, as catalysts for widespread adoption and rapid scale.
GRIT’S TAKE: Cathie Wood isn’t the only one bullish on Bitcoin: in November 2021, 8% of Bitcoin’s supply was held by exchange-traded products, countries, and corporations!
GRIT’S ACTION: Do I think bitcoin could get to $1MM… yes. Why?
Simple math.
There is +$706 trillion in global investment assets:
Bonds: +$137T
Stocks: +$117T
Real Estate: $290T
Art & Collectibles: +$22T
Gold: $10T
M2 (cash, savings, etc): $130T
At 1% Bitcoin = $337k
At 2% Bitcoin = $667k
At 3% Bitcoin = $1 Million
6. ENTERTAINMENT
Leave the tweeting to the pros
Elon Musk has had a special place in his heart for Dogecoin since early 2021. He even made it a household name after explaining what it is on Saturday Night Live (sorta).
Since then, the Shiba-Inu-meme-inspired cryptocurrency has lost ~80% of its value despite Musk’s best efforts, which include, but are not limited to, shitposting, memes, and trolling. He even went as far as to accept Dogecoin as payment for some merchandise (you still need fiat for a car).
So, it’s no surprise that he took exception when he saw McDonald’s kicking crypto Twitter whilst it was down and responded with a politically correct way of saying their food is trash.
GRIT’S TAKE: This is a classic case of “you mess with the bull, you get the horns”. McDonald’s Twitter should know better. Who do they think they are, Wendy’s Twitter?
GRIT’S ACTION: Long bitcoin and Ethereum. I don’t think Dogecoin is a good investment.
*SOURCES
2. Bloomberg
3. CNBC
4. FT
5. ARK Invest
6. WSJ
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