You BTFD? | The Daily Peel | 3/8/22

Market Snapshot

Just… wow. What a brutal way to start the week. We promised it would be another week of fun, and depending on how you look at it, we got just that. 

A full "explanation" is in store below, but for now, just know the Nasdaq cratered a massive 3.62% while the S&P lost 2.95% and the Dow fell 2.37%, putting the index in correction territory for the first time in two years.

Let's get into it.

Banana Bits

Macro Monkey Says

Murder on Wall Street - Is everyone okay? Are we all still alive? I know I got my face ripped all the way off yesterday, and I'm guessing a lot of you did too. Don't fret, apes. We're in this together.

Yesterday was a brutal day to be an equity investor. Unless you're in commodities, you likely have tears dripping into your coffee right now. Maybe we can get the long energy gang to lend us some bills to dry our tears. 

So, what happened yesterday? Well, we can't be exactly sure, but we're here to speculate, so let's do just that. 

First, energy prices continued to soar, with Brent rising another 4.6% by 4 pm. The consensus view seems to be that energy prices will remain elevated, along with a slew of other commodities like wheat and corn, and that this added cost will pump the brakes on global macro growth, largely triggering the flattening in the yield curve seen yesterday.

At the same time, the dollar continues to rip, trading at its highest level since March 2020 when compared to a basket of other large-economy currencies. The dollar index, DXY, and the S&P have a monthly correlation of -0.21, meaning their relationship is inverse by a mild degree. 

This is largely due to the fact that when the dollar falls, profits earned abroad are worth more once converted back into dollars, and vice versa. A rising dollar means any earnings that come from Japan, the Eurozone, China, etc., are worth lesser dollars. If that doesn't immediately make sense, just trust me on this one.

And lastly, yesterday, we also witnessed a dramatic spike in expected inflation. 10-year TIPS breakevens reached an all-time high of 2.785%, implying the bond market sees long-lasting, elevated inflation. Like a wise man once said, "I don't trust people; I trust dogs and the bond market."

Yeah, not a whole lot to be positive about. Even crypto was crying yesterday, with BTC down 3.1% and ETH down 5.8% at the time of writing. Now the only question remaining is: You buying the dip?

 

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What's Ripe

Bed, Bath, & Beyond ($BBBY) - Here we go again. With the way Bed, Bath, & Beyond traded yesterday, it's clear that meme mania and degeneracy dominance are back in full swing. Shares erupted over 85% at the open to close the day up a mere 34.2%

The push came largely from retail traders buying up shares after news emerged that GameStop chairman and Chewy founder Ryan Cohen loaded up on the stock. Not that he believes in the company at all, however, but because he immediately started calling for management to consider selling part or all of the firm.

Energy Stocks ($SLB, $HAL, $NEE) - Rising 8.1%6.2%, and 5.0%, respectively, Schlumberger, Halliburton, and NextEra were the top three returners in the S&P yesterday. 

Only 69 stocks in the index rose yesterday, and while that's nice, they're basically all oil and other commodity stocks, y'know… the kind of companies Greta Thunberg likes to yell at. 

Do I even need to say it? You're all smart apes. The story is the same, rising commodity prices = rising equity prices for companies within that industry. 'Nuff said.

What's Rotten

GameStop ($GME) - Nobody likes getting cheated on. But for GameStop investors yesterday, it was their worst nightmare. The firm's own chairman - the man who told Wall Street to "buckle up" back in June and watch what was to come next for the firm - has shifted his focus to a mistress by the name of Bed, Bath, and Beyond. 

I guess he was right about the whole "buckle up" thing, just in the complete and total opposite direction as $GME is down >50% since those comments. Yesterday's 11.1% fall didn't help.

Big Tech ($GOOGL, $AMZN, $FB) - Really, I could've chosen just about anything as the second What's Rotten today, but considering Big Tech makes up way too much of U.S. indexes, let's just go with that.

And quite honestly, the story is about the same across the board. With skyrocketing commodity prices and the ongoing war in Europe, investors are about as jittery as they come. Rotations out of risk-on assets like stocks, especially tech stocks, was the name of the game. 

Alphabet sank 4.2%, Amazon lost 5.6%, and Meta dropped 6.3%.

Thought Banana

Russia Roundup - Yeah, something tells me we'll be talking about this for a while. Again, no groundbreaking changes yesterday, but let's see what's going on in eastern Europe.

First and foremost, Ukraine and NATO still can't agree on a no-fly zone proposition. President Zelensky has been pleading with NATO forces to institute a no-fly zone over the country. 

But the problem is, that means NATO would be required to shoot down any Russian plane flying over the nation, effectively bringing the alliance into direct conflict with Russia. This is exactly what we want to avoid.

However, as the U.S. does, we innovated. Rather than provide direct defense, the U.S., Poland, and Ukraine are entering a fantasy football-esque three-way trade to make something work. 

Basically, the plan would be for Poland to supply Ukraine with Soviet-made fighter jets to assist in preventing Putin from gaining all-out air superiority. But Poland wouldn't agree to do so without getting replacement fighter planes, and that's where the U.S. stepped in, offering to provide U.S.-made jets as a replacement. 

No deal has been reached yet, but as the Russian bombardment of cities like Mariupol and Vinnytsia ramps up, Ukraine needs help fast.

Second, we'd be remiss not to go over actions taken by private corporations to help out in the whole "f*ck Russia" effort. The "private sanctions," if you will, include (but are not limited to):

  • Apple deciding not to sell products in the country anymore
  • Google blocking all Russian media from its platforms
  • Meta not allowing access to any Russian state media outlets
  • TikTok banning new content from Russia
  • Netflix suspending all operations within Russia
  • Spotify ceasing all Russian operations
  • Visa, Mastercard, AmEx pulling out of Russia
  • Exxon pulling out of a massive oil and gas project with Russian companies
  • Boeing, Airbus refusing to supply parts to Russia
  • Ford suspending operations in the country
  • Mercedes suspending sales and deliveries to Russia
  • Toyota, Volkswagen halting production across the nation
  • Disney pressing pause on new releases in Russia
  • Nike temporarily shutting down all Russian store locations

And many, many, MANY more. In terms of morale across the population, these private sanctions could have even more effect than government-implemented restrictions. We'll see what happens. I know I'd be big mad if I couldn't post on TikTok anymore.

Wise Investor Says

"The investor's chief problem - and even his worst enemy - is likely to be himself." - Benjamin Graham

 

Happy Investing,

Patrick & The Daily Peel Team

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Mar 8, 2022 - 6:26am
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