Placing Trust In JPow | The Daily Peel | 3/23/22

Market Snapshot

If cash is king, yesterday, treasuries were trash, and stocks were stellar. The deep selloff in government bonds continued with JPow getting more and more aggressive while investors poured cash into equities. Risk is on, and as a result, the Nasdaq rose 1.95%, while the S&P gained 1.13%, and the Dow was lifted 0.74%.

Let’s get into it.

Banana Bits

• The U.S. is playing 3D chess to not directly help Ukraine, including secretly sending over Soviet Air Defenses 
• Uno Reverse Card: Prologis is trying to buy out a unit of Blackstone
• Here’s the SEC’s summary sheet of the recent climate proposal. More details below.
• Elon Musk dances his way to trillions with Tesla’s fresh, new Gigafactory in Germany. 
• GameStop mooned over 30% yesterday. Meme trade back on? 

Macro Monkey Says

In JPow We Trust — Dogs and the bond market. Frequent readers will know that those are the only two things in the world we trust. We won’t disclose which just yet, but yesterday, one of the two seems to have placed their own trust in the ability of JPow and the FOMC to coordinate a “soft-landing” in regard to monetary policy. 

Yup, you guessed it. Scooby Doo and Clifford issued a joint statement yesterday sayi— okay, I’ll stop. While most dogs probably understand monetary policy better than anyone reading (or writing) this, unfortunately, they can’t talk. The bond market, on the other hand, can… kinda.

And right now, they’re saying, “You got this JPow!” Fixed income traders are officially pricing for a future in which rates are up, inflation is down, GDP growth continues, and Putin doesn’t nuke the entire world. 

Looking at market-implied Fed Funds Rate futures, we can see that markets are now pricing in at least 8 rate hikes this year, implying 25bps or more hikes at each meeting for the rest of the year and entering 2023 with a Fed Funds Rate of at least 2.25%. 

Despite saying basically the exact same thing he did on Monday last week, traders seem to just now be convinced that the Fed Chair has things under control.

As ridiculous as it sounds, a slight change in a few words from the Fed can literally move billions of dollars in value. This time, the change from last Wednesday to this past Monday went from detailing plans to raise rates “more quickly” to raise rates by “more than 25 basis points.” That was it.

And looking at other indicators, traders largely believe the fun will have already started by May. At the time of writing, market-determined probabilities have the odds of a 50bps move to 0.75-1% at 61.6% odds and a 38.4% chance of just a 25bps hike. One thing to notice: markets see a 100% chance of at least some kind of hike.

Implying rates will increase faster than previously thought isn’t a marvelous feat on its own, but what it does signal is that the bond market believes JPow will actually go through with it. Implicit in that assumption is the belief the Fed will need to continue to raise rates, as they stated they plan to do. Also implicit in that assumption is the opinion that we’re gonna need to continue tightening all year, aka, a clear signal that markets expect growth to continue strongly in 2022. Got it? Good.

I know it’s a lot of rate and JPow talk lately, but c’mon. Monetary policy tightening is sure to be a primary driver of markets throughout 2022 and beyond, so you’re welcome. 

Perhaps no piece of information for investors would be better to know than the Fed Funds Rate X number of years down the line. We can’t give you that (allegedly); we can talk you off a cliff on the way there.

What's Ripe

Nike ($NKE) — When it came to having a solid fiscal quarter, Nike followed its own advice: they just did it. Reporting post-market on Monday, Nike put a smile on investors’ faces that translated into yesterday’s 2.4% gain. 

EPS clocked in at $0.87 vs. $0.71 expected on sales of $10.9bn vs. $10.6bn expected. Apparently, North American demand was even stronger than Nike’s sponsored athletes, largely driving the outperformance.

But Nike ain’t doing it just for themselves. The numbers reveal strong consumer spending in the Americas, a bullish sign for the whole economy that played a role in yesterday’s broad market rise. 

Alibaba ($BABA) — Like when the ugly kid in high school becomes super hot in college, Alibaba shares have had a helluva glow up in the past few days. 

Shares in the Chinese Amazon popped off another 11.1% yesterday on news of the firm expanding their share buyback program from $15bn to $25bn. While that’s not exactly much compared to the full market value of $BABA, it’s a show of confidence that investors needed after months of CCP-traumatic-stress-disorder (aka CC-PTSD).

Shares are already up over 50% from lows seen earlier this month, yet they remain ~62% below all-time highs. So yeah, it’s been a weird year for Chinese big tech. 

What's Rotten

Okta ($OKTA) — It looks like Okta has a stalker, or somewhat worse, a full-blown cyberattack, on their hands. 

Shares dropped 1.8% yesterday as investors — and the company itself — try to figure out WTF is going on.

Yesterday, cybersecurity firm Okta woke up to the corporate equivalent of finding your own nudes online. A group of unknown hackers posted screenshots online of what they said was “internal company information” from Okta.

While the extent of the attack is unknown, a cybersecurity firm getting cyberattacked is anything but a good look. With massive customers like Moody’s and FedEx, this can’t be good.

ZIM Integrated Shipping ($ZIM) — Poor, sweet Zim. They tried to do something nice for investors, like give them a fat dividend with a yield of nearly 22%, and in turn, traders tanked shares 12.2% yesterday.

Now, to be fair to those investors, yesterday was the ex-dividend date. In order to receive a dividend, investors must hold a company’s stock on or before the ex-dividend date, meaning anyone who held shares on the ex-dividend date will receive the payments, even if they sell on that same date. 

So, given Zim’s ridiculously generous dividend, a slew of investors likely held shares until yesterday just to get their hands on that $17/sh dividend. Greedy f*cks. 

Thought Banana

Green On Wall Street — No, we’re not talkin’ money here, and unfortunately, we’re not talkin’ weed either (thanks, Patrick). What we are talking about, however, is, of course, Greta Thunberg-type green on its way to Wall Street, courtesy of your Securities and Exchange Commission. 

Just a proposal, for now, it looks like the SEC is soon going to add even more of a reporting burden to publicly traded companies. The 510-page report the SEC issued for commentary is essentially the framework used for financial regulation but now applied to climate impact (trust me, I totally read the entire thing). 

Calling the proposal widespread would be an understatement. Some of the most broad-reaching policies include disclosure of ESG oversight, greenhouse gas emissions, controls for monitoring climate impact, internal carbon price, scope 3 emissions, and a whole lot more.

Remember, the SEC is a disclosure agency. They aren’t forcing certain climate-based standards, but what they are doing is putting companies on the spot and forcing them to disclose how impactful their climate activities are. Basically, it makes it a lot easier to see exactly why ol’ Greta is waving her finger at big companies. 

Wise Investor Says