The US dollar takes a chill pill
Quick Hits From Grit
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The US dollar takes a chill pill
The DXY has been acting like a meme stock recently. It came into this week at its most overbought levels since February 2020 but finally ran into some resistance at the 92-92.5 level, which it failed to break through back in March.
The softness in the dollar is likely attributable to J-Pow and the Fed downplaying inflation and sticking to the playbook. Though J-Pow also said that the dot-plot should be “taken with a big grain of salt.” Make up your mind, dude!
2. DEALS & IPOs
Homes are getting out of reach
Home prices in May rose nearly 24% YoY, the biggest increase on record. The median price for an existing home in the US is now over $350K for the first time ever, and because of it, existing-home sales have dropped for 4 months straight.
While most would-be home buyers struggle to bridge the gap between prices and reality, investment companies like Blackrock and Blackstone (who just made a $6B bet) are buying up single-family homes like Michael Saylor is buying up bitcoins (read: all of them).
GRIT’S TAKE: The plan for these houses? Single-family rentals. That’s a scary thought when you consider that owning a home is the traditional cornerstone of financial independence. For most, the home is the most valuable asset they’ll ever own.
3. STOCK MARKET
People will literally ship bitcoin mining machines around the world instead of going to therapy
It’s been 1 week since China’s crackdown on crypto miners and the move has knocked ~$400B off bitcoin’s value.
It set the crypto market into a frenzy with the alpha crypto falling below $30K for the first time since before some HODL’ers were even born. Those without the gift of diamond hands couldn’t stomach the dip and sold (*cough* Jim Cramer).
Michael Saylor took the exact opposite approach: BTFD! On Monday, MicroStrategy added 13,005 bitcoins to its position ($489M).
Bitcoin has now settled back down at the $34K level.
GRIT’S TAKE: The shift from coal intensive to clean energy crypto mining is inevitable, so China’s “crackdown” should really be looked at as a catalyst.
The mining is not going to stop, it just needs a new home and there is no shortage of options.
The eccentric Mayor Francis Suarez, for example, has already rolled out the red carpet for China’s excommunicated with access to Miami’s virtually unlimited supply of cheap and clean nuclear energy.
US oil companies are cash-rich
Uncertain demand and uneven recovery is causing stockpiles in the US and China to drop.
By September, inventory levels at the US’s biggest crude hub (Cushing, OK) are estimated to fall to seasonal levels we haven’t seen since 2018. In China, crude levels are down to 974M barrels last week. That’s the lowest level this year.
OPEC+ is meeting on July 1 when they’ll likely decide to increase output by 500K barrels/day. They’ll also discuss following up with similar boosts for subsequent months. The current output is ~4M barrels/day.
GRIT’S TAKE: The US has been the world’s biggest oil producer over the last decade, but there’s very little American shale growth at the moment, with production still off 15% from pre-pandemic peak.
For US oil companies, the name of the game right now is FCF, and they’re not using it to boost production, they’re using it to reduce debt or return capital to shareholders.
RIP in peace: White Square Capital
Imagine having to tell your friends at the country club that you had to shut down your (professional) money managing hedge fund because a group led by “madtendie”, “BONEPRONE_BP4L”, and “Mr_Bongo1” out capitalized you ; )
That’s what London-based hedge fund White Square Capital had to do this week. They were one of the many “smart money” managers that got burned by Wall Street Bets in the GameStop Mania back in January.
GRIT’S TAKE: In fairness to White Square, they didn’t have Melvin Capital protecting them from big, bad WSB. Though if you ask the fund manager, it had nothing to do with the Reddit army of retail investors…
“The decision to close down is related to thinking the equity long-short model is challenged.” - Florian Kronawitter
Translation = they could not stay solvent for longer than WSB could HODL.
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3. CNBC, Marketwatch, CNBC
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