Baaa Go the Central Banks | The Daily Peel | 12/16/22

Dec 16, 2022 | Peel #360


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Market Snapshot

Happy Friday, apes.

Someone grab the trash can; I think I'm gonna be sick.

Markets sold off in dramatic fashion yesterday, largely in a slightly delayed reaction to Fed Chair Powell's hawkish commentary while mixing in the FOMC's 5.1% terminal rate projection. Dollar movements proved volatile before ending higher on the day as yields broadly fell. Those are not sentences we like to hear. But they're true, so…

Let's get into it.

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Banana Bits

  • The Senate is Senat-ing as I write this and plans to vote on a budgetary stopgap bill to avert a government shutdown. (again, happy Friday)
  • CZ, the founder of Binance, is somehow chilling about the mild freakout occurring on his digital currency exchange, the largest in the world
  • Maybe power does corrupt as Elon Musk appears to be going full dictator mode on his new toy, Twitter
  • Speaking of Elon, the man has dumped another $3.6bn recently. I can't imagine why, though. It's not like he's made any big purchases lately, right?

Macro Monkey Says

Central Bank Sheep

Among global central banks, the Federal Reserve is like Michael Scott-they may be in charge, but deep down, everyone questions if they really should be.

But nevertheless, central banks across the globe followed in the Fed's footsteps yesterday. The Bank of England (BOE) and the European Central Bank (ECB) joined hands with JPow and raised their own base rates by a convenient 50 bps yesterday. Sound familiar?

It should because the Fed just did that yesterday. It was almost as if markets straight up just didn't believe Powell's +5.1% interest rate dreams until all the homies at the other central bank's confirmed his narrative.

For reference, the ECB raised from 1.5% to 2%. At the same time, they also announced a $15bn/month balance sheet reduction plan beginning in March 2023, keeping with the down bad tone haunting the macro environment of late.

According to recent data on the ECB's balance sheet size, that's about 0.18% per month.

Meanwhile, the BOE raised from 3.0% to 3.5% as active fiscal policy seeks to make policy decisions even harder. While there was no such announcement around increased balance sheet reduction, BOE Governor Bailey did express in a letter to Jeremy Hunt, Britain's Finance Minister, that he believed inflation in the island has peaked.

Whether that's true or not, it's clear the U.S. isn't alone in being on shaky economic territory here. Both Great Britain and the Euro area have experienced double-digit inflation this year, so it makes sense that they'd be on edge as well.

And all three major economies essentially face the same, C-19-induced issues around (maybe a little too) rapid wage increases, distorted supply chains, and growth in the money supply.

So, if it wasn't clear yesterday, it should be now. Central bankers are largely forecasting economic pain not too far into next year. Whether they're correct, which we know economists rarely are, or overreacting due to trauma from the 1970s, we'll just have to wait and see.

Meme of the day



What's Ripe

Lennar Corp ($LEN) ↑ 3.82% ↑

  • One of the nation's largest homebuilders raised the roof to avoid the rest of the market chaos that went down on Thursday, gaining nearly 4% on the dreary day.
  • Lennar Corp reported earnings late on Wednesday, delivering a pleasant surprise to investors. Net EPS grew 16% YoY to $4.55 while revenues grew quicker at a rate of over 20% for the same period.
  • It wasn't all fine and dandy, however. New orders are down 15% annually amid JPow-induced demand destruction through masochistic rate hikes.

Verizon ($VZ) ↑ 0.85% ↑

  • I know, it's a less than 1% move, but hey, I don't make the rules; Mr. Market does.
  • Unlike fellow communications giant AT&T (-2.28%), Verizon defied the gravity of market bearishness yesterday as Morgan Stanley analyst Simon Flannery basically called a long/short on $VZ and $ATT, respectively.
  • It's a real switcharoo, as Flannery raised Verizon from an equal to an overweight rating while doing just the opposite with AT&T. Imagine just all of a sudden ditching the Red Sox and becoming a Yankees fan. Basically the same, right?
  • Anyway, he cites valuation trends tipping in Verizon's favor as the primary driver of the rating switch. Like every referee knows, can't make everyone happy.

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What's Rotten

Novavax ($NVAX) ↓ 34.30% ↓

  • If peaking in high school was a stock, it would be Novavax. This guy was so cool back in the C-19 days, rising well over 3,500% from February 2020 to 2021.
  • Yesterday, it lost over one-third of its market cap. I can only say this: good luck with your margin call(s) if you're exposed!
  • The plummet comes on a freshly announced plan to issue an additional $125mn in common stock alongside $125mn in convertible notes due in 2027 (which, presumably, will become even more common stock created then). In short, investors are getting diluted to hell.
  • $125mn is ~14% of the company's market cap at close following the brutality of yesterday, a gargantuan percentage to see eviscerated by stock sales. Pour one out for the diamond handers still holding-unless you bought during or before March 2021, you're officially down overall.

Netflix ($NFLX) ↓ 8.63% ↓

  • Now that's a lot of damage. Netflix shed well over +$10bn in market cap yesterday on a bunch of noise from some hater losers.
  • At least, that's what the streaming giant wants you to think it is. A report from online trade magazine Digiday released yesterday alleges Netflix's supremely hyped-up ad tier ain't all investors hope it might be.
  • Now, Netflix didn't care to return comment, but Digiday claims the firm has had to start dishing out (former) advertiser revenue for failure to meet viewership targets. That might even be more embarrassing than that thing you did in high school.

Data Peel



Thought Banana


^ That's a dumbed-down version of what investors, forecasters, and (sadly) economists are saying about the People's Republic of China right now.

Don't worry, apes; the Western world doesn't get to hoard all the economic hardship of the globe right now. The globe's second-largest economy is getting in on the fun too!

Earlier this week, China published heavily anticipated macro data, with retail sales and industrial production in main focus. Spoiler alert: it was an absolute doozy.

Retail sales, for starters, tanked 5.9% in November vs. 2021's figures. If that's not already bad enough, consider the fact that analysts were calling for a fall of 3.7%. That's a surprise "beat(?)" of almost 60%.

Meanwhile, industrial production continued to grow, buoying hopes at least a little bit. The 2.2% growth registered for the same period was way off (63%) from the 3.6% that analysts at Reuters had predicted.

Fixed asset investment slowed at the same time, and the officials scheduled to give a press conference following this data dump decided to say, "yeah, f*ck that" only a day prior to the release. Largely, China's troubles can be boiled down to the common quote, "same sh*t, different day." Idk who coined it, but it sure comes in handy.

And that's because China, although being drastically different, export-driven economy, doesn't exactly have a "get out of recession free card." Sure, they run things with a tight ship over there, but you can't just outrun shrinking global liquidity and general bad vibes.

Moreover, China has been dealing with its own issues. In addition to a sudden relaxation of years-old C-19 protocols, the real estate crisis across the nation, along with the crackdown on consumer technology, make the crown weigh heavy.

At the end of the day, it's just good to know that whatever happens, we're all in this together…right?

The big question: How will China and other emerging markets fare economically and in market performance compared to developed nations over the next year?

Banana Brain Teaser

Yesterday Turn me on my side, and I am everything. Cut me in half, and I am nothing. What am I?

The Number 8 (∞ on its side and two 0s cut in half).

Today - It's 100 bananas off the WSO's PE Deals Process Course for the first 10 correct respondents. LFG!

A boy was at a carnival and went to a booth where a man said to the boy, "If I write your exact weight on this piece of paper then you have to give me $50, but if I cannot, I will pay you $50." The boy looked around and saw no scale so he agrees, thinking no matter what the carny writes he'll just say he weighs more or less. In the end the boy ended up paying the man $50. How did the man win the bet?

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

Wise Investor Says

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

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