Stocks giveth and stocks taketh
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SIX things you need to know this week in 60 seconds.
Inflation is still hot
Goldman Sachs bails on SPACs
Stocks giveth and stocks taketh
EU ban on Russian oil hits snag
RIP Terra
A gamer’s worst nightmare
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1. MACROInflation is still hot
The pace of inflation slowed for the first time in 8 months to 8.3%, but who are we kidding—that’s still crazy high!
The decline was due mostly to gas prices coming down from March…though those same gas prices have since reached new highs…
There’s also evidence that inflation is not contained to just the supply chain as services prices (excl. energy) rose 0.7%, the fastest one-month increase since 1990.
Grocery prices rose at the quickest 12-month pace since 1980 at 10.8% YoY, while prices at full-service restaurants rose 0.9% for the month, the biggest gain since October.
If you booked summer travel plans early then you look like a genius right now as airfare experienced its biggest surge ever at 18.6% in March.
GRIT’S TAKE: Core inflation also came in hot led by housing costs with both tenant rent and owners’ equivalent rent increasing at 4.8% YoY—paces we haven’t seen since the late 80s/early 90s.
GRIT’S ACTION: Since the FED was founded in 1913, the U.S dollar has lost 95% of its purchasing power. Meanwhile, the S&P is up 3,513,664.83%—or 10.05% per year (6.7% inflation-adjusted).
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2. DEALSGoldman Sachs bails on SPACs
SEC: “These SPACs are out of control, we’re going to need to see more information about potential conflicts of interest and we need to make it easier for investors to sue over B.S. projections.”
Goldman Sachs: “Welp, see ya later!”
Ok, that’s not exactly how it went down, but, in a response to new liability guidelines from regulators, Goldman Sachs—the second-biggest underwriter of SPACs last year—is bailing on most of the SPACs it helped to take public.
Many of these companies have yet to complete the de-SPAC’ing process. Companies that fail to de-SPAC are forced to return capital to investors.
Goldman has said it would fulfill its duty to those who are close to the finish line, which is to say the rest are presumably S.O.L.
They’ll also be putting a pin on new US SPAC issuance until there’s more clarity around the potential expansion of underwriter liability.
GRIT’S TAKE: Will other investment banks follow? Citigroup—last year’s leading underwriter—already paused initial public offerings on new US SPACs last month.
GRIT’S ACTION: The SPAC implosion reminds me of the dotcom bubble… No revenue, pie in the sky business plans, “come-to-Jesus” moment from investors… OOF!
3. STOCK MARKETStocks giveth and stocks taketh
For months, wealthy individuals and professional money managers like hedge funds have been cutting risk. The latter has reduced equity exposure to a 2-year low.
Meanwhile, retail investors have maintained relatively firm positioning this year despite the S&P being off to its second-worst start in history.
Morgan Stanley estimates that the same investors who jumped into stocks in 2020 and enjoyed those hefty pandemic gains have now effectively given them all back.
A basket of retail stocks favored by retail investors which doubled from the start of 2020 to November 2021 has seen losses this year equal to roughly double that of the S&P’s.
And it’s starting to show: retail investors bought only $14B in stocks in April, the second-lowest amount since late 2020.
GRIT’S TAKE: With policy reversing from where it was when they started out in 2020, new investors are getting their first look at a market not supported by the Fed.
GRIT’S ACTION: Buy great companies and leave them alone. Buy great companies and leave them alone. Buy great companies and leave them alone. Buy great companies and leave them alone. Buy great companies and leave them alone.
4. COMMODITIESEU ban on Russian oil hits snag
Last week a bill was introduced to the European Commission that would ban the EU shipping industry from carrying Russian crude.
The aim is to make it more difficult for Putin to work around oil bans by simply transporting crude to other countries.
Those plans have hit a snag as the Commission has been unable to win over Hungary, which opposes the plan because it (and other Eastern European countries) import the bulk of their crude through Russian-linked pipelines.
Still alive though, are chances of the EU putting a ban on maritime insurance. Most Russian oil products are transported via tankers so this would serve as an indirect ban of sorts.
The IEA estimates that an embargo would cut Russian supply by approximately 3mpbd. On the flip side, a study in Germany shows that a ban on Russian natural gas would cost the country roughly 12% of its GDP.
GRIT’S TAKE: Meanwhile, the EU is taking steps to relax environmental regulations as it endeavors to replace Russian supplies with renewables and imported hydrogen power.
GRIT’S ACTION: Still not chasing energy here.
5. CRYPTORIP Terra
TerraUST (UST) is was a supposed stablecoin which, unlike other stablecoins, was backed by an algorithm.
So instead of being supported by real-world liquid cash equivalents or dollars, UST was backed by a complex system of minting and burning tokens meant to adjust supply and stabilize prices.
Or, sorcery.
Over the weekend investors seemed to realize that you can’t pull money out of thin air and UST lost its pegging to the dollar, which resulted in a massive sell-off
This coincided with the start of an eventual 99% drop in Terra’s native token Luna, which is part of the peg mechanism for UST.
GRIT’S TAKE: To make matters worse, CoinDesk reported that Terra founder Do Kwon was one of the pseudonymous co-founders behind another failed stablecoin called Basis Cash which was modeled after an earlier project named Basis that shut its doors in 2018 over SEC-related risks.
GRIT’S ACTION: This feels like 2017-2020… from $25k to $5k to $69k… I am staying the course!
6. ENTERTAINMENTA gamer’s worst nightmare
Kids might actually have to start listening to their parents when they’re told to “go play outside”.
Both Sony and Nintendo have warned that gaming consoles are likely to be in short supply (again) for the rest of the year due to a shortage of components—namely, semiconductors.
“There’s no end in sight to the semiconductor shortage at this point.”
- Shuntaro Furukawa, Nintendo president
Sony was previously projecting to sell 22.6M Playstation 5 units this fiscal year. They’re now shooting for 18M.
Whereas Sony has plenty of software sales to help soften the blow, Nintendo's revenues rely heavily on hardware sales. Sales of its Switch were down 20% from the previous year and are projected to fall another ~8% this year.
GRIT’S TAKE: On an unrelated note, Nintendo will carry out a 10-for-1 stock split in September. Currently, Japanese investors must purchase a minimum of 100 shares which totals roughly ~$40k.
GRIT’S ACTION: Check out my take on $Roblox here….am I selling?
WallStreetBets sentiment this morning:
*SOURCES
1. WSJ
2. Bloomberg
3. Bloomberg
4. FT, FT, FT, WSJ
5. Bloomberg, Coindesk
6. WSJ
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