Ian Season | The Daily Peel | 10/3/22

Silver Banana goes to...

Market Snapshot

While investors suffered continued market destruction to close out September, those on the East Coast grappled with damage from Hurricane Ian.

Prayers up that most of the casualties are things rather than people and pets.

Despite drops across major indices, a slight bump in household spending in August showed how resilient the U.S. consumer is in the face of eye-watering inflation.

At the close, the Dow sank 1.71%, the Nasdaq dropped 1.51%, and the S&P fell 1.51%.

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Let’s get into it.

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Banana Bits

Putin is making moves to annex four regions of eastern and southern Ukraine, ratcheting up tensions in the war
Meta is tightening its belt, cutting headcount and budgets in wide swaths
Inflation in the Eurozone hit double digits in September, marking 11 straight months of increases
The service sector in China contracted in September, providing more evidence that the world’s 2nd biggest economy is struggling

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Macro Monkey Says

Debt Rears Its Ugly Head — Modern Monetary Theory (MMT) went mainstream several years ago when it seemed like the government could print money forever without regard for increasing debt.

Pre-C-19, inflation hadn’t budged for over a decade, despite rampant spending.
So, the theory goes that the government can just continue printing money without concern about rising debt.
That thinking seemed to seep into business and consumer mindsets, who took on huge debt loads after the C-19 shock. To be fair, many had no choice.

But too many also assumed cheap interest payments would last forever. Now, with bond yields and rates going up up up, that debt is starting to cost something to service.

We featured Carnival today as a big market loser, and a big reason is their cash flow issues, as their debt service payments have gone way up.
Households are also holding huge debt obligations, and servicing that debt amid a slowing economy and high inflation will be a challenge.
Meanwhile, the U.S. government is sitting pretty as a safe haven for the world and its reserve currency

At least for now, the U.S. government seems to be in fine shape, as the rest of the world has fled to the dollar for safety.

But consumers and companies don’t have the luxury of the money printer and stand to feel the hangover of the debt binge of the last few years.

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What's Ripe

Coinbase ($COIN) — Wells Fargo dipped its toes into the crypto universe after initiating coverage of $COIN. It kicked it off with an underweight rating and price target of $57.

Coinbase rose Friday anyway, powered by gains in BTC and ETH.

It has lost 3/4 of its value since the start of the year, so if you’re a true believer, now’s probably the time to get in.

At the end of the session, $COIN gained 4.12%.

Asana ($ASAN) — Asana is one of the few companies that had an incredible September, rising over 23% in the month.

The workflow solutions company had a blowout Q2, and news of CEO Dustin Moskovitz loading up on stock reinforced investor optimism.

$ASAN hasn’t hit profitability yet, but consistent revenue growth has alleviated cash burn concerns for now.

$ASAN is up 8.70% in the last week.

What's Rotten

Carnival ($CCL) — You thought a 1-year low was bad? How ‘bout a three-decade low?

That’s what $CCL is looking at right now. Its earnings report this week was horrendous, and cash flow continues to be an issue.

Other cruise lines sank on the news as the industry continues its long recovery post-C-19.

$CCL was down 23.25% by the end of the session.

Nike ($NKE) — Nike has way too much stuff right now.

After scrambling to keep up with demand in the last few years, it now has a huge glut of inventory that it can’t get rid of.

The only way to unload all those shoes and apparel is to mark it down, which will squeeze margins, and that means unhappy investors.

By the end of the day, $NKE was down 12.81%.

Thought Banana

Global Food Market Woes — Just a few decades ago, economists were sure that if the population kept growing at its current levels, the world would run out of food sometime in the 21st century.

Somewhat miraculously, that hasn’t happened.

Thanks to improved technologies, and better distribution of those technologies, food yields have skyrocketed
Hunger rates have been plummeting as a result, despite a continuously growing world population
Managing food waste has arguably been a bigger problem than producing more food

Ukraine and its surrounding areas act as the breadbasket for the world. Russia and Ukraine together account for “30% of globally traded wheat, 20% of corn, and 75% of sunflower oil.”

The food miracle could now be in jeopardy as the conflict has hampered production and harvests.

As usual, poorer countries will be hit the hardest, and hundreds of millions could become food insecure in the near future.

The big question: is the world ok with market forces determining global food supplies?

Depending on how bad this crisis gets, how much will the IMF and World Bank be willing to spend to stabilize wheat and fertilizer prices?

Wise Investor Says

“If a man didn’t make mistakes, he’d own the world in a month. But if he didn’t profit by his mistakes, he wouldn’t own a blessed thing.” — Edwin Lefévre

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