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%.

Interested in gleaning both the big picture & the finer technical details of leveraged buyouts? Our WSO LBO Modeling Course will teach you the fundamental theories of LBO, as well as the importance of cash flow, debt, taxes, and scheduling.
Check it out here

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.


WSO LBO Modeling Course

If you’re looking to learn both the big picture and the finer details of LBOs, check out the WSO LBO Modeling Course.

Our course will teach you both the fundamentals as well as the importance of cash flow, debt, taxes, and scheduling through refined learning modules and applied case studies.

Our students have landed and thrived at the biggest firms on Wall Street after getting practical training from quality instructors with LBO experience.

Check it out


Join 110,000+ Wise Primates

Subscribe to get the most critical market moves each morning, Monday through Friday.


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



Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? Sign up for the WSO Daily Peel here.   ADVERTISE // WSO ALPHA // COURSES // LEGAL

Join 110,000+ Wise Primates

Subscribe to get the most critical market moves each morning, Monday through Friday.

 

Dolorem enim consectetur harum eos. Ad accusamus aliquid laudantium.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Lazard Freres No 98.8%
  • Harris Williams & Co. 25 98.3%
  • Goldman Sachs 17 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (21) $373
  • Associates (91) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”