Hope you had a better day yesterday than Mr. Market, although that sure wouldn’t be saying much. JPow came out there and rained his typical hellfire down on market, leading equities to sell off in droves, with all 11 S&P sectors finishing (much) lower. Anyone else miss the good ol’ days when he was the pump god? Me too.
But it wasn’t just equities. 2-year treasury yields hit a decade-and-a-half high, crossing 5% and ripping higher late in the evening. The 10-year yield soared as well as JPow j-plowed sentiment into the ground while the U.S. Dollar index spiked to nearly 106. Are you having fun yet?!
Let’s get into it.
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Banana Bits
Powell’s full statement here (it’s not even that long) and the WSJ’s annoyingly detailed summary
Consumer credit grew by $14.8bn in January, a 3.7% annualized rate of acceleration compared to December
Can’t believe it even took this long, but the apparently and utterly incompetent Norfolk Southern Co is finally under investigation over its safety practices
Mortgage rates are still moving in the wrong direction, now sitting right around 6.65%
Macro Monkey Says
JPow Speaks
Mr. Fed Chairman, I know you’re reading this, and all I have to say is…f*ck you.
At least, that’s how I (and I’m guessing most of us) felt watching markets go from a nice, mildly-up morning to tanking like no one’s business as soon as Fed Chair Jerome Powell took the floor at the Senate Banking Committee hearing. Just look at the S&P’s intraday chart:
It was all fine and dandy until right around 10:03 am when JPow dug into his prepared remarks, with one line, in particular, stealing the show (more on that below). But by around 11:30 am, you just couldn’t help but feel bad for the guy.
First, he got screamed at for X reason; then he got screamed at for anti-X reason by Senators on the other side of the aisle…man said a few weeks ago he makes $190k/yr, but damn, I think he earned more than that just yesterday alone.
Going into a Presidential election year, Senators almost across the board took the chance to grandstand on whatever their pet issue is as it relates to the macro picture. It was clear their campaign fundraising was top of mind, and as a result of the vehement negativity from all angles, these bad vibes easily could’ve played a role in killing the market’s mood.
But with that in mind, JPow did give us a fresh update on the Fed’s thinking here in early 2023. Yesterday kicked off the first of two semi-annual Monetary Policy Reports the Fed Chair presents to Congress, including both a review of the current economic picture as well as actual monetary policy.
The key phrase there is “kicked off” because although it’s somehow already March, we’re only just getting started.
Struggling through a series of unrelated and downright weird questions, Powell tried his damndest to keep the message clear and concise: Basically,
The Fed is going to keep rates at higher-than-expected levels for a longer-than-expected time period
Returning to 50 or 75 bps single-hikes in the fed funds rate is not off the table
Recent data like the hot January jobs report, consumer spending, and still rapidly growing unit labor costs have the FOMC shaking in their shoes
There is no indication of any rate cuts or monetary policy loosening on the horizon
It was almost as if Powell’s prepared remarks were meant to serve as a nagging finger wave from the market’s dad over its recent positive performance. That early quote that we mentioned above kinda sums it up as follows: “As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
That last cute, little phrase of “prepared to increase the pace of rate hikes” shocked the nation seemingly almost as much as the 2016 election.
As a result, market-implied probabilities for the next rate hike (March 22nd) flipped a switch. At close on Monday, traders pegged a 25 bps hike at about 70% and a 50 bps hike at about 30%. Yesterday, those odds made a complete 180 with expectations for 50 bps hike now at 75%.
Lastly, as hinted at earlier, it was clear this testimony was met with more political ire from both sides of the aisle than “normal.” Dems were pissed about the potential of tightening into a recession, while the other team was equally as pissed at remaining inflation. It was a lose-lose for both factions, but once again, Senator Lizzie W from the great state of Massachusetts easily had the funniest interaction.
This has already gone on way too long, and we haven’t even scratched the surface. Don’t be surprised to see a perfect part two tomorrow, but let’s just hope the market’s performance doesn’t run with a part two in the meantime.
What's Ripe
WW International ($WW) ↑ 79.07% ↑
WW International, aka Weight Watchers, sure does have a lot of people watching their weight. After yesterday, a whole lotta people are watching its stock too.
Shares boomed nearly 80% on news of an acquisition, but not one in which WW is the target company, as you might expect. WW announced plans to purchase the weight-loss telehealth platform called Sequence.
As WW has sucked *ss recently, with shares falling over 70% in 2022 amid global macro turmoil and body positivity movement that has been kind to everyone except their earnings, the company desperately needed something to avoid really having to tighten their belt (bah dum tss). Yesterday, they got just that.
Sea Ltd ($SE) ↑ 21.84% ↑
Gone, left for dead, lost at…sea. That appeared to be the label many investors had assigned to e-commerce, gaming, and financial services(?) company Sea Ltd until Tuesday.
Despite JPow’s best efforts to nuke the market, we got hard-working stocks out there like Sea, just absolutely carrying the team. The firm’s stellar earnings report boosted the stock and kept at least some lucky traders away from the bleach cabinet.
Profits hit $422.8mn in Q4 as “cost efficiency” prevailed compared to 2021’s Q4 loss of $616.3mn. That’s a swing of just under $1.04bn in 12 months while GAAP revenue still grew 7.1%. I’d come up with a joke, but we’ll just have to wait and see.
What's Rotten
Rivian ($RIVN) ↓ 14.54% ↓
Were EV cars themselves part of the hype cycle too? Apparently, as Rivian investors really, they’re facing an all too similar demand problem.
Now, the primary driver of yesterday’s embarrassing performance surprisingly wasn’t Powell but instead was the firm seeking to raise an additional $1.3bn through a green bond offering. That means exactly what you think it does, but due to this credential, the firm is also able to offer a lower yield.
Investors haven’t exactly been thrilled with Rivian this year, as shares have fallen over 15.5%, but it’s their own fault. First, they stopped giving numerical updates on their pre-order figures (wonder what that means). Then, CEO RJ Scaringe cited macro factors, rates, and a potential low-demand problem.
Naturally, no one wants to hang out with Rivian anymore. Oh, almost forgot–the bond sale comes with an additional $200mn option and is in the form of convertible debt, meaning the company could pay it off with shares, thus diluting equity owners directly. Good luck, RJ!
Thor Industries ($THO) ↓ 3.80% ↓
First, no one could pick up Thor’s hammer. Now, no one can pick up Thor’s stock as the RV maker plummets on an announced crash in guidance.
RVs were so cool and retro during the pandemic, weren’t they? Yeah, now, all of a sudden, money ain’t so free anymore, based on Thor’s lowering of per-share profit expectations to roughly 75% of what that had previously guided for.
Alas, another pandemic dream gone just like that. Although, to be fair, if you do own an RV, I am enormously jealous (please give it to me).
Data Peel
Target Rate Probabilities For 22 March 2023 Fed Meeting
This might be the biggest “who the f*ck do you think you are?” news story of all time.
Get this: FTX now has the stones to sue another company over losses tied to allegedly-erroneous losses tied to none other than the Grayscale Bitcoin Trust.
Now, it’s not exactly as juicy as we may hope. Now that FTX is in the hands of accounting super-ner John Ray, the firm is in full “pay back customers” mode (for real this time) and has apparently now decided to come out swinging.
Allegedly, FTX is owed $550mn in redemptions that the Trust has now stopped allowing. Of course, this one move won’t completely heal the bankrupt former crypto titan, but the strategy certainly could lead to further redemptions.
In case you forgot, FTX owed approximately $8.1bn to customers and creditors, reportedly recouping as much as $5bn by mid-January. They still have billions more to go, naturally, but just like this lawsuit, a start is a start.
The suit was officially filed by the trading arm of the once-great FTX, Alameda Research. This was also the side of the business run by Caroline Ellison, Scum Bag-Fraud’s (alleged) former girlfriend, who has probably totally ratted on him.
We won’t know all the details until someone makes a sick documentary, obviously, but fr now, it’s always good to check on our former CEO of the Year, Scum Bag-Fraud, and the other misanthropes unfortunate enough to be involved. Stay tuned.
The big question: Will FTX ever scrounge up enough money to pay back customers? If so, how much? How will Grayscale and its Bitcoin Trust fare in the future?
Banana Brain Teaser
Yesterday— Travel a mile and I will change, travel a million and I will end as I started, What am I?
An odometer.
Today — It’s 100 bananas off the PE Master Packagefor the first 3 correct respondents. LFG!
I have one, you have one. If you remove the first letter, a bit remains. If you remove the second, bit still remains. After much trying, you might be able to remove the third one also, but it remains. It dies hard! What is it?
“I have found in my long experience in Wall Street that the men who are most successful in making money through investments are those who have a strong liking for the business and who can remain cool and detached when the market fluctuates.” — Jesse Livermore
Happy Investing,
Patrick & The Daily Peel Team
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“Net Return" refers to the annualized internal rate of return net of all fees and costs, calculated from the offering closing date to the date the sale is consummated. IRR may not be indicative of Masterworks paintings not yet sold and past performance is not indicative of future results. See important Regulation A disclosures at: Masterworks.com/cd
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