Drop It Like It’s Ice Cold | The Daily Peel | 1/24/22

 Market Snapshot

I hope you like the color red because that’s all there was in financial markets last week. Rates, yields, and Netflix scared traders into a broad equity selloff to close out last week, pulling indices down harshly. The Nasdaq led the fall once again, losing 2.72%, while the S&P fell 1.89% and the Dow lost 1.3%.

Let’s get into it.

 

Macro Monkey Says

Come On Home — If you have roughly $400k lying around, as that figure is now about the median sale price of homes in the United States. Sounds crazy, but when you factor in recent reports from the National Association of Realtors that existing home sales have reached a 15-year record high, it makes a little bit more sense.

Low rates and WFH triggered an absolute frenzy in the housing market since the pandemic began. First-time homebuyers flocked to snatch up what they hoped would be a ticket out of their parent’s basement while iBuyers like Zillow and OpenDoor did everything in their power to make sure those buyers went broke in doing so. On heavy demand with quickly reducing supply, prices shot up. But that didn’t stop homebuyers.

Even with those ongoing dynamics, 6.1mm existing homes changed owners in 2021, an 8.5% increase compared to 2020 per the NAR. Moreover, turnover rates, or the amount of time it takes to sell homes, plummeted as buyers floored the gas pedal to move into their new houses ASAP. Homes “typically sell now in about a week,” according to NAR chief economist Lawrence Yun, giving us mild 2006-vibes and causing concern for realtors that these buyers don’t know what they’re getting themselves into.

But the all-cash offers and waiving of contingencies keep coming. Americans just want a new house. Keep in mind, however, that rates have been at zero for nearly two years now, and consumers are drowning in cash more than ever. Subprime loans and ungodly amounts of debt are playing a microscopic role this time around, so if you fancy yourself to be the next Michael Burry, maybe chill out a bit. (I sure hope I don’t regret saying that.)

Digital Fiat Currencies — Confused yet? You’re welcome. Now allow me to clear up that seeming oxymoron in the section header.

A few years of waiting and a 40-page reading later, we finally get a peek at the Federal Reserve’s thought of issuing a digital dollar. On Thursday, the central bank dropped maybe its most anticipated report in recent memory, weighing the pros and cons of a digital dollar. Of course, the Fed’s primary skill is first and foremost to obfuscate and confuse the public on their own opinion of contentious issues like that of a CBDC, but let’s try to parse the double-speak as best we can.

As far as bulls and bears go, the Fed is more of a pig. The report “took no position” on the adoption or rejection of a U.S. CBDC, but it did highlight pros and cons. The pros primarily revolved around a faster national payment infrastructure that doesn’t use ancient methods like ACH and the ability to reach previously unbanked citizens. The downsides, however, included concerns of enabling fraud, money laundering, and other financial crimes that definitely don’t happen already and have never, ever happened before. 

Now, this paper was far from intending to be a final decision. The Fed described it as the “first step in a public discussion.” Talks will be ongoing, but already the Fed has plans in place to implement the 24/7, rapid payments network called FedNow in early 2023. One way or another, Alexander Hamilton’s financial system is coming to a full-speed collision with 21st-century technology. And it’s about time.

 

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What's Ripe

Peloton ($PTON) — Even a blind squirrel finds a nut once in a while. That’s really the only way to surmise Peloton’s 11.7% jump on Friday because there sure wasn’t any news to celebrate. Dumpster-diving investors are those that like to buy up shares in companies that have recently seen drastic falls in hopes of taking advantage of an overly-bearish market. After falling 85% since a December 2020 peak, those dumpster-divers might have finally had enough. But, the firm is still not actively producing its own products and seems to have less stability than the CDC’s COVID policies.

Xilinx ($XLNX) — Acquisitions can be short and sweet, or they can be brutally long and wrapped up in mind-numbing amounts of red tape, bureaucracy, and a whole lot of ass-kissing. AMD and Xilinx are in the latter camp. However, reports swirling late last week indicated that the final regulatory hurdle, approval from Chinese antitrust regulators, might be incoming soon. Shares initially popped 5.0% on hopes of a thumbs-up from the CCP but ended the day with a less optimistic 1.2% gain.

 

What's Rotten

Netflix ($NFLX) — Netflix has won another Oscar, but this time, it’s for the sh*ttiest performing stock in the S&P 500 — and it wasn’t even close. Shares got rocked harder than Nate Robinson, hitting the floor with a 21.8% loss on Friday. Basically, investors puked at Netflix’s newly reported Q4 subscriber growth, which at 8.3mm was actually higher than Wall Street’s 8.13mm expected but lower than the company’s own guidance of 8.5mm. 

The terrifying part, however, was the firm’s updated outlook for subscriber growth in the coming quarters. Q1 2022 numbers are expected to be nearly 40% lower than that of Q1 last year, but I guess that’s what happens when you start a war with the likes of Disney, At&t, Amazon, Comcast, Apple, and many more… all at the same time. Good luck!

Shopify ($SHOP) — Joining Netflix in the garbage bin on Friday was Shopify. The e-commerce darling, the primary challenger to Amazon, and the best thing to come out of Canada since Seth Rogen has seen shares plunge 47% in just the last three months after Friday’s 13.8% dive. Part of that fall is likely the fault of JPow raising rates, but the firm announced that its strategy of employing a third-party fulfillment and delivery network might not actually be the move at scale. Making the investments needed to go vertical in fulfillment and delivery is a tall (and expensive) journey that some investors, apparently, do not want to be a part of.

Thought Banana:

Drop It Like It’s Ice Cold — Yet another ever-feared crypto winter appears to be upon us. Of course, knowing what BTC will do tomorrow is like knowing what Elon Musk’s next tweet is gonna be. But for now, things aren’t looking good.

At the time of writing, BTC has lost almost 20% in just the past seven days. ETH is down 27%, SOL has lost 34%, and NEAR is down over 42%, to name just a few. Basically, everything is down 20-40% in the digital currency market. It’s so bad that pseudo-philosophical threads and anti-fiat subtweeting from crypto-bros have reportedly reached an all-time low.

Of course, this isn’t the first time and surely won’t be the last time we see a fat fall in the digital currency market. Volatility is the name of the game for cryptocurrencies, this is exactly what we signed up for. Like tech stocks and other high-growth, long-dated assets, rising rates are taking a serious dent out of their market value. Discount rates rise, prices of assets fall, and prices of long-dated assets fall off a cliff. 

Regardless of what happens in the near term, every time BTC sees a drastic fall, it seems to only build resilience and solidify long-term bullishness among investors. Things are tough right now and just might get even worse. Still got those diamond hands?

Wise Investor Says

“The function of economic forecasting is to make astrology look respectable.” — John Kenneth Galbraith  

 

Happy Investing,

Patrick & The Daily Peel Team

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