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SIX things you need to know this week in <5 minutes:
Less than ideal capacity utilization rates
Starboard is making moves
Survey says…capitulation?
Oil prices tug-of-war
Gold, but tokenized
JPMorgan hires former Celsius exec
1. MACRO
Less than ideal capacity utilization rates
As the name implies, capacity utilization rates offer insights into how much capacity (full potential) of production is actually being utilized.
When rates are high, spending is typically required to ensure capacity can keep up with demand.
Historically, a rise above 80% has triggered some of the worst cases of inflation ever, like the 1970s pictured above.
This week, data revealed stronger-than-expected industrial and manufacturing activity which pushed US capacity utilization to its highest level since March 2008 at 80.3%.
GRIT'S TAKE: Good news is bad news. Resilient factory activity will keep upward pressure on prices.
GRIT'S ACTION: It’s worth noting that regional manufacturing data this week showed contractions in New York and Philadelphia.
2. DEALS
Starboard is making moves
Activist investor Starboard is strolling through the software market throwing out finger guns and collecting stakes.
Last month, the hedge fund acquired 9% of Wix—a popular web tool developer—which has been having some free cash-flow troubles.
On Sunday, news broke that it had taken a ~5% stake in Splunk—a security software maker—which is going through a rocky transition after flying high in 2020.
Just two days later, Starboard revealed yet another stake, this time in Salesforce—the $157 billion CRM software giant—who, you guessed it, is having profitability issues.
GRIT'S TAKE: Reportedly eyeing even more potential targets, Starboard has a great track record of success with companies in the IT sector.
GRIT'S ACTION: Turning around operations and improving margins is the name of the game.
3. STOCK MARKET
Survey says…capitulation?
Bank of America's monthly global fund managers' survey questions 326 managers who control $971 billion in AUM.
The latest results are in, and the theme is capitulation.
Some data points to consider:
6.3% 👉 highest cash as a percentage of portfolios since April 2001
49% 👉 net underweight equities
91% 👉 don't see global profits rising 10% or more next year, the most since the global financial crisis)
68% w👉 see the dollar as overvalued
GRIT'S TAKE: These are all certainly positive signs, but I'd like to see actual equity outflow capitulation before we light any fireworks.
GRIT'S ACTION: The survey says we're not there yet in that regard.
4. COMMODITIES
Oil prices tug-of-war
Over the past year, US Strategic Petroleum Reserves (SPR) have dropped by ~34% or roughly 210 million barrels.
This week, Biden approved the release of another 15 million barrels aimed at "lowering gas prices" (which is just a euphemism for "playing political checkers") ahead of midterm elections next month.
The White House plans to replenish reserves when the price of WTI crude drops to between $67 and $72 per barrel.
Small problem: OPEC is hellbent on, a) sticking it to Cool Joe, and b) keeping prices at ~$95 per barrel (Brent).
GRIT'S TAKE: Biden has also left additional releases on the table for this winter, provided (political) conditions required it.
GRIT'S ACTION: "Biden put" at ~$70.
5. CRYPTO
Gold, but tokenized
Change is brewing in the $11 trillion gold market and its future may lie in…blockchain technology.
The World Gold Council is pushing for an overhaul of one of the world's oldest markets with hopes the changes will reignite demand by making the poor man's Bitcoin (gold) more accessible and trading more liquid.
The package of changes, called "Gold 247", includes building a database on the blockchain of every gold bar in the world, thus enabling tokenization.
Tradeable tokens backed by easily exchangeable bullions would unlock access to retail participants and relieve the burden of holding physical gold.
GRIT'S TAKE: This will require massive global buy-in from the entire market, but pilots with 30 miners, refiners, and banks just concluded and a program to ensure integrity is underway with London Bullion Market Association.
GRIT'S ACTION: Sticking to good old-fashioned Bitcoin.
6. ENTERTAINMENT
JPMorgan hires former Celsius exec
Here's Jamie Dimon, CEO of the world's largest investment bank, on cryptocurrencies just one month ago:
“They are decentralized Ponzi schemes, and the notion that's good for anybody is unbelievable”
Previously colorful language used by Dimon to describe the asset class include, but is not limited to: "fraud", "fool's gold", and "terrible store of value".
Here's a headline from this week about Dimon's investment bank:
"JPMorgan Appoints Former Celsius Exec as Crypto Regulatory Policy Head: Report"
Celsius, lest we forget, filed for bankruptcy in July after freezing customer accounts in June.
GRIT'S TAKE: You can be wrong as long as you hire the right people, but if those right people hire the wrong people—then man, I don't know.
GRIT'S ACTION: Long $JPM and long Bitcoin
*SOURCES
1. Bloomberg
5. Bloomberg
6. Decrypt
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