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SIX things you need to know this week in 60 seconds.
Bond investors cut inflation hedges
SBF doing his best JPM impression
Think gas prices are high?
Metal markets max pain
RIP: 3AC
Credit Suisse corners the money-laundering market
1. MACRO
Bond investors cut inflation hedges
We’re starting to see some tell-tale signs that inflation could be peaking as tighter financial conditions take a toll on consumers and businesses.
With consumers shifting back to services after a massive boom in goods consumption, retail inventories are building up and price pressures for core goods are becoming more deflationary as overall demand slows.
Value stocks’ outperformance has been waning, commodities are coming back down to earth (more on that later), and inflation expectations are becoming more subdued.
This is being reflected in the bond market with investors cutting inflation hedges at the fastest pace since 2013 as long-term expectations for price growth decline.
“After a good run, we shifted away from the cyclical vamp about two weeks ago.”
GRIT’S TAKE: This suggests the end of the value rotation, but then again markets can be wrong and inflation’s ability to surprise to the upside has been uncanny over the last 12 months.
GRIT’S ACTION: Dollar-cost averaging into S&P.
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2. DEALS
SBF doing his best JPM impression
Sam Bankman-Fried is doing his best impression of John Pierpont Morgan and attempting to capitalize on the turmoil in the markets to expand the FTX empire.
The crypto exchange has been exploring ways to get into the stock trading game and it looks like they’ve found a potential target: Robinhood.
Since its IPO in July 2021, the platform has lost over 75% of its value and its userbase has dropped by nearly 30% (to 22.8m) since the meme-stock frenzy.
Despite revenue and active user figures plummeting, it’s likely that FTX will need to pay a significant premium to get the founders—who control 60% of the vote—on board with any deal.
GRIT’S TAKE: If you believed SBF when he said he wasn’t interested in purchasing Robinhood after acquiring a 7.6% stake in May—I’ve got a bridge to sell you.
GRIT’S ACTION: What is Robinhood without PFOF?
3. STOCK MARKET
Think gas prices are high?
Price shocks at the pump have more and more drivers considering going electric, but they might not like the price tags on the next wave of EVs.
Rising raw materials and commodity prices are making the most expensive component of EVs (the batteries) even more costly.
To help offset costs, EV automakers like Tesla, Ford, GM, Rivian, and Lucid are jacking up prices: the average price paid for an EV in the US was 22% higher in May than it was a year earlier.
For reference, the price of internal-combustion engine (ICE) vehicles rose by 14% over the same period.
GRIT’S TAKE: With yearslong wait times and waitlists in the tens of thousands, increased prices are not likely to put much of a dent in EV demand.
GRIT’S ACTION: Will be interesting to see how EV profit margins hold up.
4. COMMODITIES
Metal markets max pain
Having said that, despite markets facing record tight supply, metals did an about-face earlier this month after the Fed’s 75bps hike.
Fears over signs of a slowdown in global industrial activity being seen out of the world’s major economies have hit metals harder than other commodities like energy and crops.
Copper (an economic bellwether due to its presence in the production of just about everything) prices just experienced one of their biggest drops in 30 years this month.
The pain is widespread across tin, aluminum, zinc, etc. as the Bloomberg Industrial Metals Sport Subindex is down ~26% this quarter.
GRIT’S TAKE: Become a paid subscriber to read yesterday’s deep dive into the recent commodity pullback!
GRIT’S ACTION: Watch the Bullpen where we discuss base metals headed for their worst quarterly slump since 2008 and oil on its way to its first monthly decline since November 2021!
5. CRYPTO
RIP: 3AC
Crypto Winter is here and it’s wasting no time in claiming victims.
Over the weekend I dove into the domino effect that has revealed structural cracks/failures in the industry.
This week, a British Virgin Island court ordered the liquidation of Three Arrows Capital (3AC), one of the space’s most prominent hedge funds, after it failed to repay debts owed to creditors.
Holding roughly $3B in AUM in April (with some estimates putting peak AUM at over $18B), 3AC missed obligations on loans from some of the biggest names in the industry.
Lenders Voyager Digital and BlockFi, for example, made loans totaling over $1.5B to the failed hedge fund and have devolved into crisis mode.
GRIT’S TAKE: I mentioned above that Sam Bankman-Fried’s FTX was making moves amid the chaos: the company has issued revolving credit lines to both Voyager Digital and BlockFi, and could potentially acquire the latter for pennies on the dollar.
GRIT’S ACTION: Playing defense.
6. ENTERTAINMENT
Credit Suisse corners the money-laundering market
At Credit Suisse, when it rains it pours.
Shares are down nearly 40% this year after a string of scandals have called into question the bank’s compliance standards.
This week, a top court in Switzerland dropped the hammer on the bank with the first-ever criminal conviction of a major Swiss lender.
Credit Suisse was convicted on money laundering charges involving an operation orchestrated by a down-on-his-luck Bulgarian former wrestler who moved tens of metric tons of cocaine via boats, planes, and cocaine-packed-rubber-ball-swallowing drug mules.
I can’t wait for the movie.
GRIT’S TAKE: There might even be material for a sequel: Credit Suisse could face another criminal indictment from Swiss courts (again) in a completely unrelated money-laundering case later this year!
GRIT’S ACTION: Speaking of movies, I was lucky enough to be a part of a documentary coming out soon! This is Not Financial Advice explores “the high-stakes world of stock and crypto investing through the eyes of the young investors looking for their lucky break”.
*SOURCES
1. Bloomberg
3. WSJ
4. Bloomberg
5. WSJ
6. Bloomberg
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