Another Down Week | The Daily Peel | 6/6/22

Market Snapshot

Markets wrapped up another down week on Friday, continuing our downward trend in 9 of the last 10 weeks. Friday marked 100 days of Russia’s incursion into Ukraine, and Crude topped $120/bbl. ETH and BTC are still hovering around 2k and 30k, respectively.

At the closing bell, the Dow was down 1.05%, the S&P slid 1.63%, and the big loser, the Nasdaq, was down 2.47%.

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Let’s get into it.

Banana Bits

Apparently, not everyone who works in the crypto space is honest? You don’t say.
Sometimes the difference between success and failure is the advice of a great mentor
If you thought C-19 vaccine drama was over, think again
The labor market is still extra tight, just how some of us like it
Say what you want about the rhetoric; Putin’s price hike’s underlying cause continues in Ukraine after more than 100 days and counting

Banana Brain Teaser

The answer to Friday’s BBT was “the number 8.”

For today’s first fifteen correct respondents, we will knock 20 bananas off an hour-long WSO Mentors session. Here we go:

I am a bird, I am a fruit, and I am a person. What am I?

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser” or simply click here to reply!

Macro Monkey Says

A Global Shift — There’s change afoot, and global markets are slowly digesting changing conditions. Morgan Stanley co-president Ted Pick made comments over the weekend that the last business cycle was defined by cheap debt and low interest rates, and both the next business cycle and economic cycle are currently TBD.

According to Pick, this probably won’t happen overnight. It could take a year and a half or longer, which definitely means there is some uncertainty for your portfolio in the interim.

Interest rates are going to rise, and debt will no longer be inexpensive; we all understand that. But what else will unfold is still uncertain.

The last 15 years have been defined by negative interest rates that basically penalized those who like to save their money and enticed us with quick and cheap hits of debt whenever the urge to borrow struck.

The “Fed Put” is no longer in play, and there’s a decent chance that we might not see the same levels of monetary policy maker intervention to prop up some of the growth shitcos that have only survived on cheap debt.

As you’ve watched expedited valuation compression, you might start to see a return to fundamentals, i.e., you might have more success in picking companies that actually make money with healthy balance sheets.

This might be a wake-up call for markets. As real interest rates return to the table, you’ll see the cost of capital at levels that haven’t been in the economy for a decade and a half.

You know this, Apes: higher interest rates are great for banks and capital markets. Will big lenders emerge from the ashes of the previous business cycle as big winners?

As pre-revenue growth names struggle, large-cap tech might look a little bit more attractive relative to other Nasdaq darlings. Will consolidation benefit the $AMZNs, $AAPLs, and $MSFTs of the world?

The beauty is that there will be lots of right answers and probably even more wrong answers. Let’s just hope that it doesn’t take 24 months to tame inflation and get on with our lives.

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What's Ripe

Okta ($OKTA) — In a sea of slow swimmers, apparently, Okta is a strong one. Shares of the software company were able to shake off news of its public data breach in light of strong earnings and hiked guidance.

Friday’s 5.02% bump rounded off basically the best week for Okta in like two years. Analysts like Okta, and by all accounts, the consensus rating is that of a buy.

Northrop Grumman Corp ($NOC) — After underperforming the market on Thursday, shares of $NOC moved higher by 3.35% on Friday.

Apparently, more aid to Ukraine means more fat defense contracts, which means buckets of money for NGC. It’s insane to send tens of billies of dollars of weapons during several weeks of fighting to a country that has a GDP of around 170Bn, but that’s another story.

Investors liked Northrop’s outlook on Friday.

What's Rotten

Tesla ($TSLA) — Well, Elon has, like, a really bad feeling about the economy. Maybe he has been listening to Jamie Dimon too much, or maybe he’s right.

On his gut feeling, he announced that Tesla was about to chop headcount by 10%. Surprisingly not via tweet, he announced this gut-punch via email on Tuesday night.

Hot take: most big companies turn over 10% of their workforce annually anyway, and this threat of getting the ax is just more motivation to bring workers back to the office. No one chases the carrot faster than someone under threat of getting the big stick.

$TSLA shed 9.22% on Friday.

Etsy ($ETSY) — Speaking of beaten down, $ETSY shed another 7.23% on Friday.

E-commerce is another battered sector, and Etsy shares a common story with many e-com losers. The online marketplace looking to boost profits through fees and engagement actually had pretty decent earnings in the first week of May. However, their guidance didn’t sound that promising.

Couple that with softening consumer demand, and you end up with an Etsy that is down more than 25% in the last month. Yikes, Apes.

Thought Banana

Consumer Barometer — The Fed is doing its damnedest to curb inflation through increasing rates and demand destruction. This isn’t news; we’ve been harping on this for literally months now.

But by definition, inflation happens when too much money is chasing too few goods and services. When this happens, prices go up.

I personally think that there are two ways to look at this.

The first is that the value of the dollar goes down relative to goods and services in the US economy, i.e., you don’t get as much bang for each individual buck.

The second way to think about it is that prices go up. Inflation simply means higher prices for the same things.

Some of you might argue that what I’m saying is the same damn thing, but I think there’s a subtle nuance here.

The Fed is really looking for the consumer to not just realize that prices have gone up but for us to recognize that each dollar no longer carries that same bang. This recognition can drive a little bit of negativity amongst consumers.

The Fed actually wants some of this negativity in the near term. Realizing that your current dollar doesn’t buy what it used to is a sign of demand destruction, and it’s also a positive sign for the Fed’s efforts to tame the inflation beast.

When the consumer is in a dark and gloomy place, we don’t see as much spending or consumption. This decreases the velocity of money and slows down an overheated economy.

A defensive consumer could actually be good for inflation. Will it be absolute $hit for retail and consumer cyclical names? You betcha.

But when we slow down the money that’s leaving our wallets, we give the economy a chance to have supply catch up with demand, slowing down inflation in the broader sense.

I’ll be on the edge of my seat until Friday’s consumer sentiment preliminary numbers are released. Here’s to hoping the Fed’s efforts to chop inflation are actually working.

Wise Investor Says

“What do you call a stock that’s down 90%? A stock that was down 80% and then got cut in half.” — David Einhorn

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