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  • 👉 The Investing Week Ahead: 10/17/22

👉 The Investing Week Ahead: 10/17/22

Netflix is hopeful on streaming ads, Tesla looks for a rebound, War games have begun, iRobot shareholders vote on Amazon acquisition, Treasury liquidity deserves attention, & housing market updates.

17 Oct

Remember to keep perspective.

While we aren’t necessarily bullish at the moment, we’re excited to build positions at some point in the coming months. Ironically, the returns of the beginning of this century vs. last century have averaged out to being nearly identical.

To be clear:

  • Total real return from Jan 1900 - Nov 1922 = 128%

  • Total real return from Jan 2000 - Sept 2022 = 124%

Remember that diversification is key.

We’ve been crystal clear about our desire to invest in cash flowing companies as the market continues to spiral downward. However, let’s not forget another thing that we’re dead set on — investing in real estate through Fundrise.

The map above, courtesy of the National Association of Realtors (NAR), shows that over half of the 50 states have at least one significant area that is facing a high housing shortage. There’s a funny thing going on with the mixing of monetary policy and economics.

On the monetary policy side — the Fed is continuing to raise interest rates and is likely to keep them elevated for an extended period of time. This generally makes it over 2x more expensive to get a mortgage for a house.

On the economics side — supply and demand must always be respected. The demand for housing is rapidly being reduced, but this reduction is very much manufactured. People still want to buy their first house or they still want to make that investment in a short-term rental property. The true demand is still there, but people are being forced to play the ‘waiting game’.

So what happens when this “manufactured” demand reduction levels off?

We believe the housing market has bright days ahead. While it may not make much sense for that 40-year-old couple to finally make the leap and get their first mortgage right now — it does not mean that exposure to real estate is a bad idea. As the Fed’s aggression eases in the coming 6-12 months, we believe the true demand for real estate will be able to show its teeth once again.

Let’s check out Fundrise for example:

Over the last 7 years, the average investor on Fundrise has yielded over 80% returns, beating the stock market. ~42% of the properties that Fundrise invests client funds toward are apartments — which have gotten more and more filled up over the last decade:

The Q3 Fundrise Letter to Investors was very clear that Fundrise is not immune to market downturns or the Fed-induced recession. However, the proof is in the pudding that Fundrise has been a strong performer during turbulent times and that their real estate expertise will allow them ample ability to navigate more tough times in the near-future.

Just check these returns!

As of 9/30/22 — Fundrise had returned clients +5%, while the S&P 500 lost investors nearly -24%.

This isn’t fintech or consumer goods.

Unlike those sectors, the demand for real estate doesn’t have the ability to simply vanish. Real estate won’t just ‘fail’. Can difficult market conditions cause short-term difficulties? Of course, but Fundrise has proven its ability to identify cash flowing opportunities in the real estate market — regardless of broader sentiment.

Takeaway:

Do your best to not freak out about your investments. If it was money that you wanted to be liquid — you shouldn’t have invested it in the first place. If you’re currently opening your brokerage and either feeling extreme euphoria from green days and extreme sadness from red days — take a step back.

Try to identify your best entries (which in the short-term, we believe will be later in Q1), place your bets, reassess them on an ongoing basis. We love hearing feedback from subscribers, but it seems that too many of you are focusing on the day-to-day. Training your emotions is the most difficult part of investing.

We shared the above image in yesterday’s Week in Review, but it’s worth sharing once more. Remember that during these chaotic times in the market — volatility is the norm. Make your plan, keep calm, and don’t get so worked up on things that you begin to hate investing. That’s ultimately how you lose in the long-term.

Our plan remains —

Key Earnings Announcements:

Netflix tries to keep investors enticed through targeted ads and Tesla tries to reverse after a dreary month in the market.

Monday (10/17): Bank of America, BNY Mellon, Charles Schwab, Marten Transport

Tuesday (10/18): Albertsons, Goldman Sachs, Hasbro, Interactive Brokers, JB Hunt, Johnson & Johnson, Lockheed Martin, Netflix, Pinnacle, Truist, United Airlines

Wednesday (10/19): Abbott, Alcoa, Ally Financial, ASML, Baker Hughes, IBM, Lam Research, Nasdaq, P&G, Prologis, Tesla, Travelers

Thursday (10/20): American Airlines, AT&T, Blackstone, Boston Beer Co, CSX, Dow Inc, Ericsson, Nokia, Philip Morris, Snap Inc, Whirlpool

Friday (10/21): American Express, Schlumberger, Verizon

What We’re Watching:

Analysts are expecting revenue of $7.85B and EPS of $2.17 for NFLX this Tuesday. Additionally, a new batch of 1.1M paid subscribers is expected (mostly due to the broad success of Stranger Things). We’re looking for an update on the new ad-driven revenue model (mentioned yesterday), as well as the impacts of foreign currency volatility on the company. Keep in mind — Netflix is available in over 190 countries.

After dropping over -30% in one month heading into the Monday morning — some bulls appear to be arriving back on the scene for Tesla. Bespoke Investment Group unveiled some interesting research that “when Tesla stock has fallen more than -20% over a seven-day stretch - the stock averaged gains of 37%, 84%, and 238% over the next month, three month, and one-year timespan, respectively.” A rather random statistic, but Tesla was hovering around that level of losses heading into today. If we see another leg down in the short-term — it may be time to dive into some shares of Tesla.

Investor Events / Global Affairs

War games, robot vacuums, and a sneaky form of government buybacks?

  • NATO & Russian “Routine” Nuclear Drills

Let’s have a quick touch-base on what’s been going on with that whole ‘nukes’ situation:

  1. Signaling Chaos: About ten days ago, President Biden said that the “prospect of Armageddon” was the highest it’s been “since the Cuban Missile Crisis.”

  2. Growing Probability: Matthew Bunn, a leading nuclear & energy policy analyst, said that there’s an “intolerably high” probability that Russia might use a nuke.

  3. War Games: Russia & NATO are both holding nuclear drills, that were of course “routine” and have nothing to do with elevated tension.

  4. Threats: Retired four-star general David Petraeus had threatening words for Russia, saying that nuclear action would lead to “a collective effort that would take out every Russian conventional force that we can see and identify on the battlefield in Ukraine and also in Crimea and every ship in the Black Sea.”

Just keep an eye on these things! We’ll report back everything that we’ve found in the next Week in Review post.

  • iRobot (IRBT) Shareholder Vote on Amazon (AMZN) Acquisition

Shareholders of iRobot will vote on an acquisition offer from Amazon today. Coming in at an expected $1.7 billion price tag — iRobot would be the third-largest acquisition in Amazon’s history.

Learn more details about the acquisition below!

  • Liquidity Crisis in US Treasuries

Fascinating speculation began stirring last week as Treasury Secretary Janet Yellen voiced concerns over the potential of breakdown in trading of US Treasuries.

In response, some expect the Treasury to announce a bond buyback program, which would enhance the low level of treasury market liquidity.

“The U.S. Treasury Department is asking primary dealers of U.S. Treasuries whether the government should buy back some of its bonds to improve liquidity in the $24 trillion market.” — Yahoo Finance

Important New Information:

We’ve got the Treasury Secretary saying that this “isn’t QT or QE — this is none of those”… meanwhile this would be a US government entity buying back debt in order to keep markets afloat. This would essentially be performing QE on top of the Fed’s QT. This is genuinely bizarre and we need to look further into if this will actually take place.

This former Senior Fed Trader seems to believe that the primary dealers (big banks) need to get back to the Treasury with their advice by next Monday (10/24). If this proxy version of quantitative easing were to be rolled out — things could turn more bullish quickly. Frankly, this has “boost the market before midterm elections” written all over it. We’ll be sure to follow up on what we find out!

Major Economic Events

Seeing how much air is left under the housing market’s wings, deeper economic insights from the Beige Book, and assessing the current state of industrial production.

Monday (10/17): Empire State Manufacturing Index (Released this morning —> Expected: -5.0, Actual: -9.1)

Tuesday (10/18): Industrial Production Index, NAHB Home Builders’ Index, Speeches by ATL & Minneapolis Fed Presidents

Wednesday (10/19): Building Permits, Fed Beige Book, Housing Starts, Speeches by Chicago & Minneapolis Fed Presidents

Thursday (10/20): Existing Home Sales, Leading Economic Indicators, Speeches by Fed Gov Cook & Philly Fed President

Friday (10/21): Index of Common Inflation Expectations

Housing Data on Watch:

This week, we’ll get a further glimpse into how homes are selling, how much demand for building new homes has decreased, and the highly-respected Home Builders’ Index from the NAHB. With mortgage rates hovering around 7%, it’s hard to imagine this housing data improving much in the short-term.

Events-Driven Winners

Which stocks moved the most last week.

Our friends at LevelFields scrub through thousands of data points each week to determine how events impact stock prices.

Buybacks, layoffs, and bankruptcies. This is the name of the game during crazy times in the market like we’re currently experiencing. Did any of you notice that Intel (somewhat quietly) announced that it’s going to lay off thousands of workers?

We’re interested to see how bad the headcount reductions will get across the board. The labor market remains tight, but we’re expecting it to be forced to loosen. Remember — Jerome Powell’s speech in Jackson Hole was just 6 or 7 weeks ago. He made it clear that he “very likely” expects the “softening of labor market conditions.” This should be an interesting end to Q4 and start to Q1.

If you’re starting your investing journey or want to change to a cleaner, social-focused investing platform, consider visiting Public.com.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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