Back in the Red | The Daily Peel | 10/7/22

Market Snapshot

Fleeting hopes of JPow pumping the brakes were dashed Thursday as the market came to the conclusion that a Fed pivot was unlikely.

The labor market has been a head-scratcher. Although job openings fell and layoffs rose in August, the private sector showed strong job gains in September.

Jobless claims released Thursday were higher than expected, but the market just isn’t convinced that will change JPow’s mind about rate hikes.

At the close, the Dow dropped 1.15%, the Nasdaq sunk 0.68%, and the S&P fell 1.02%.

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Let’s get into it.

Monkey Meme of the Day

Source

Banana Bits

SpaceX notched another victory after successfully launching 4 people to the International Space Station
OPEC+ agreed to reduce daily output by 2 million barrels per day to prop up prices, marking the biggest cut since the start of C-19
Peloton cut more jobs and is giving itself 6 months to prove it’s a viable business
Joey B is doing whatever he can to juice oil production in response to the recent cut from OPEC+

Banana Brain Teaser

SpaceX notched another victory after successfully launching 4 people to the International Space Station
OPEC+ agreed to reduce daily output by 2 million barrels per day to prop up prices, marking the biggest cut since the start of C-19
Peloton cut more jobs and is giving itself 6 months to prove it’s a viable business
Joey B is doing whatever he can to juice oil production in response to the recent cut from OPEC+

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

Macro Monkey Says

When Is a Market “Broken?” — This isn’t the Fed’s first rodeo in hiking interest rates. These cycles have happened before—just not as quickly.

Market commentators have been crying about “markets breaking” due to the quick succession of rate hikes.

But what does that even mean?

Stock market pain, higher bond yields, and more unemployment are to be expected in hiking cycles
But frozen credit markets and big banks blowing up (looking at you, Credit Suisse) could nuke the global financial system
Emerging markets could default on their debts, sending their economies backward

It’s sort of funny how it takes a downturn to uncover the latest clusterf*ck financial instrument financiers have come up with.

In 2008, it was CDOs and mortgage-backed securities. This time around, for UK pension funds, it’s liability-driven instruments (LDIs).

Basically, these bad boys ensure pensions have enough cash to pay their obligations by buying derivatives. You know how this ends—market conditions changed unexpectedly, margin calls were made, and a liquidity crisis ensued.

If an asset promises an upside while protecting against the downside, this kind of thing is bound to happen.

So maybe the lesson here is that financial f*ckery is really behind broken markets rather than predictable interest rate hiking cycles.

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What's Ripe

Pinterest ($PINS) — Analysts at major banks have liked what they’ve seen with $PINS recently, with a flurry of upgrades coming in the past week.

Long-term tailwinds, like a booming creator economy and online ad spending, are part of the appeal.

Rumors of a potential purchase from Alphabet or PayPal added to the gains.

$PINS was up 4.96% by the end of the day.

Weed Stocks ($THCX) — Weed stock investors were sparking up Thursday after positive vibes on Capitol hill sent shares soaring.

$THCX, as you can tell by the name, is a weed stock ETF, and it’s gotten smoked this year.

But Joey B’s pardoning those in jail for small herb possession Thursday had stoners everywhere optimistic that legalization could follow.

$THCX was up 13.04% by the end of the day.

What's Rotten

UK Pound (GBP/USD) — The pound got dangerously close to USD parity a few weeks ago but saw a nice bounce after the government reversed its tax cut plan.

Now, it’s sinking again.

The Bank of England doesn’t meet again until early November, so the market will have to decide where it goes until then.

A strengthening dollar will have a big impact, but could it sink the pound all the way to dollar parity?

GBP/USD ended the day down 1.41%.

Shell ($SHEL) — The British oil behemoth prepared investors for a bummer of a Q3 report, citing weak nat gas trading and shrinking oil refining margins.

$SHEL is still up big on the year after notching record profit in the first half of 2022.

Big Oil likes high oil prices, but they might like stable oil prices even more. Whipsawing oil markets will affect cash flow in Q3, according to management.

By the end of the day, $SHEL was down 4.35%.

Thought Banana

Who Really Controls Oil Prices? — Inflation is Joey B’s biggest domestic problem heading into the midterms, and no price is more visible to Americans on a daily basis than gas.

Despite his pleas, OPEC+ is cutting production to prop up prices, directly interfering with two of Biden’s biggest headaches. Higher oil prices will help Russia’s war effort and keep inflation elevated.

Even though US oil production has skyrocketed in the last decade, when you’re going up against a cartel of the other biggest oil-producing countries on the planet, you’re bound to lose.

$80/bbl is a well-known price threshold the Saudis, in particular, need to stay above. Below that, government budgets are severely strained.
Joey B is expected to turn on the taps of the Strategic Petroleum Reserve, but that’s ultimately a short-term solution

With many of NATO’s biggest foes holding hands in OPEC (Russia, Iran, and sorta Saudi Arabia), the West is watching closely for how the cartel acts in the following months.

The big question: Will the West ramp up oil production to combat OPEC’s power? Or will it double down on renewables as the death blow to oil once and for all?

Wise Investor Says

“Do not save what is left after spending, but spend what is left after saving.” — Warren Buffett

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