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Happy Friday Everyone! 👋
Good Morning Everyone! Remember, the economy does not equal the stock market.
MARKET UPDATE
Yesterday’s 2% decline was a “buyers strike”
Until the market understands the FED Plan, they wait.
Today: Options expiry and low liquidity ahead of holiday
3-day weekend: Monday is Presidents Day
10yr: 1.9%
How high and how fast will it climb?
10 a.m. U.S. January existing home sales
Lumber prices are approaching their 2021 highs
Will higher mortgage rates end the run?
Bitcoin:
Ukraine legalized it.
“Banning Bitcoin is like banning the internet – impossible” – Russian Mininster of Finance
Genevieve on FOX news yesterday: “Trying to stop bitcoin is like trying to catch water with your hands”
Biden to sign executive order regulating crypto next week
Crude $88 -2%
1 p.m. Baker Hughes rig count
Ukraine
Next week: Russian Foreign Minister Lavrov to meet Blinken
Russian military exercises are due to end Sunday
SNAP
CFO Derek Anderson sold $1 million shares of common stock
GM
Hummer EV gets 329 mile range (529 km) !!!
Battery weighs more than a Honda Civic
Celanese
Buying DuPont’s materials business for $11 billion
Earnings
Roku: -25%, missed and guided down (I said this was a SELL two weeks ago on the at 15:53 mins Bullpen show!)
Palantir: -15% lack of net profits weighs on stock
Keysight
Consolidated Edison
Liberty Global
Deere
DraftKings
QUICK HITS FROM GRIT
SIX things you need to know this week in 60 seconds.
Stop me if you’ve heard this before: CPI comes in hot
The window for a deal is closing for many SPACs
Hedge funds that got burned a year ago
The perfect storm is hitting metals
JPMorgan is bullish on Bitcoin (depending on who you ask)
A degenerate’s paradise
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1. MACRO
The Fed fighting inflation like
FOMC minutes this week showed that officials discussed an accelerated timetable for raising interest rates.
Back in 2015-2018, the Fed raised rates gradually and they never did so more than once in a quarter.
You’d have to go back to 2006 for the last time rates were hiked at consecutive meetings, but that’s what’s on the table now as inflation has been revealed to be about as transitory as that steamroller from Austin Powers.
Earlier in the week, St. Louis Fed President James Bullard was advocating for front-loaded hikes, saying “our credibility is on the line here”.
A week before he was calling for the Fed to raise by a full percentage point in July (rates haven’t been raised by half a percentage point since 2000).
GRIT’S TAKE: This sets up the possibility for a series of hikes in March, May, and June. On Wednesday, the futures market was projecting ~80% chance the Fed would lift rates in the 1.75-2.00% range this year.
GRIT’S ACTION: How do stocks hold up when the FED hikes rates? Pretty well, actually! The average return over these 8 cycles was 23%. LONG STOCKS!
Under the Radar
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2. DEALS
Your SPAC is (probably) whack
From 2016 to the first quarter of 2021, a total of 26 blank-check mergers failed to cross the finish line.
Since then, more than 22 SPACs have been scratched including at least 6 this year.
Over the first 6 weeks of 2022, SPACs with more than $2.2B in trust have dropped mergers, shifting their focus to new targets to fulfill their mission.
Uncertainty over the Fed’s looming monetary policy decisions and volatility in the technology sector are the main drivers behind the record pace at which we’re seeing SPACs drop.
GRIT’S TAKE: In February 2021, the average redemption rate for deals was less than 10%. This February the rate is above 90%.
GRIT’S ACTION: I’ve been saying this for a year now. Stay away from SPACS.
3. STOCK MARKET
Airbnb is living its best post-pandemic life
Last month—presumably in an attempt to boost sales—CEO Brian Chesky announced he would be working remotely indefinitely and bouncing around Airbnbs every 2 weeks.
It turns out there was no need to juice the numbers as the company continued its strong pandemic rebound this week after beating Wall Street estimates on earnings and revenue for the last quarter of 2021:
EPS $0.08 vs $0.03 expected
Revenue $1.53B vs $1.46B expected
It also reported its first Q4 profit, earning $55M in net income thanks to a 59% YoY increase in bookings.
Average daily rates rose by 20% from a year ago and average trip length has increased 15% over the last 2 years.
GRIT’S TAKE: Airbnb told shareholders it expects Q1 2022 nights and experiences booked to significantly exceed 2019 levels, estimating revenues of $1.41-1.45B (Wall Street was hoping for $1.24B) for the quarter.
GRIT’S ACTION: Don’t own it. Impressed with the results but it’s not my kind of stock.
4. COMMODITIES
$100 is almost a given at this point
Despite the growing uncertainty regarding Russia’s will-they-won’t-they invasion of Ukraine, many energy analysts seem to agree on one thing: we will see $100 a barrel in 2022.
It’s not only geopolitical tailwinds that have some predicting as high as $150 a barrel, though.
OPEC is still coming up short in terms of production and the Energy Information Administration (EIA)—like a parent who is “just mad, not disappointed”—has lowered its expectations for the cartel by 300k barrels per day in February.
Sector underinvestment in the U.S. and other countries are also contributing to the shortfall.
GRIT’S TAKE: The market is currently in steep backwardation, which means it’s placing a premium on prompt physical available oil (i.e., current price > futures price).
GRIT’S ACTION: I missed this trade – I am humble enough to admit this. Staying on the sidelines. At +$120/barrel demand destruction starts to happen.
5. CRYPTO
“What’s my metaverse strategy?” – every CEO right now
Over the last several months, names like Walmart, Nike, Adidas, Gap, Verizon, Hulu, and others have taken their first (virtual) steps into the metaverse by way of partnerships, acquisitions, trademarks, and patent filings for digital goods and services.
This week, in a report titled “Opportunities in the Metaverse”, JPMorgan cited moves like these as an indication that the metaverse “will likely infiltrate every sector in some way in the coming years, with the market opportunity estimated at over $1T in yearly revenues.”
Trillion with a “T”. Yearly!
According to the bank—which happens to be led by a noted crypto cynic—every CEO and business leader should be asking themselves one question right now: “What is my metaverse strategy?”.
GRIT’S TAKE: JPMorgan itself entered the metaverse this week with the launch of Onyx Lounge in Decentraland (above). You’d think they’d put a little more effort into it considering the market opportunity they’re anticipating!
GRIT’S ACTION: Roblox has the web 2.0 version of the metaverse figured out. They took a beating this week, but as I said on FOX News on Thursday, “if I was Mark Zuckerberg I would acquire Roblox instead of buying back $20B a quarter of stock (especially when his stock falling and he needs a revenue-generating metaverse strategy fast). Better use of capital IMO”
6. ENTERTAINMENT
The most expensive QR code ever
You’ve probably seen it by now but the largest U.S. crypto exchange spent nearly $14M on a bouncing QR code that led to a website that offered $15 in Bitcoin for new users who signed up to the platform.
The problem was that zero dollars were spent ensuring the website could handle the onslaught of traffic it experienced as a result.
So, did the Coinbase ad make any money?
Here’s the back of the envelope math:
117M people watched
20% scan QR code (the chief product officer said they got 20M visits in 1 min)
10% signup
20% link their bank account
0% signed back in after the website crashed
GRIT’S TAKE: Jokes aside—the traffic on Coinbase’s website hit 20M in the minute following the ad, and its app jumped from 186th to 2nd on the App Store.
GRIT’S ACTION: I agree with Chris Powers below.
MEME OF THE DAY
What stocks are being mentioned the most on social media?
*SOURCES
2. Bloomberg
3. CNBC
4. CNBC
5. JPMorgan
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