Shaken, Not Stirred | The Daily Peel | 2/16/22

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Market Snapshot

If your portfolio, like everyone else’s on Wall Street, was up yesterday, make sure you thank Vladimir Putin. An ease in the Russia-Ukraine beef let everyone on Wall Street chill out a bit and led to a St. Paddy’s day - a green day. The Nasdaq closed up 2.53% while the S&P gained 1.58% and the Dow rose 1.22%

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Let’s get into it.

 

Macro Monkey Says

WFH Forever — The long-rumored Great Reopening has begun. Airports, cruises, theme parks, sporting events, concerts, and other would-be super-spreader events are coming back nearly in full, but one notorious congregation point remains unmissably absent from the list. No one wants to go back to work. Who would’ve thought?

Office buildings appear to be the epitome of “first-to-suffer, last-to-recover” when it comes to returning to pre-pandemic “normalcy.” According to building-access card swipe data compiled by Kastle Systems, an average of 33% of the workforce returned to the office in the first week of February. That figure is up from January lows of 23% and down from December highs of 41%, meaning employees are really just playing ping-pong based on the virus-instilled fear levels of the day. 

Meanwhile, movie theatres are packed by comparison, with Kastle reporting that movie theatre occupancy is around 58% of pre-pandemic levels. Airports are hovering around 80% of total February 2020 flyers, while NBA games are chilling right on the cusp of full recovery, seeing about 93% of pre-pandemic attendance. 

Restaurants, on the other hand, are not chilling. Despite an average of almost 75% of diners returning, many restaurants, particularly those in busy central business districts, are still getting destroyed. Without the buzz of the typical urban office-worker lifestyle, the midday lunch or the quick stop for coffee these businesses rely on is no more. 

That hurts these businesses, but now the toll is starting to really hurt cities as well. Business closures or lower revenue means less tax revenue for the city itself, leading many officials to make desperate pleas, like when NY Governor Kathy Hochul told business leaders to “Give them a bonus to burn the Zoom app and come on back to work.”

Damn, I never would’ve guessed that the place where people have to fake smile and kiss ass for 8 hours a day would be the last place we want to go back to. That’s gonna have to be a fat bonus, Governor.

BlockFined — Out of all the financial crimes you could possibly commit, the one thing you definitely don’t want to do is lie to customers. Particularly, in the SEC’s eyes, you do NOT want to lie about risks associated with your investment product offerings. BlockFi, inevitably, missed this lesson. 

The digital currency exchange and lender was hit with a $100mn fine from the SEC and 32 states over its practices related to its lending products. The exchange, for roughly three years, has been offering 9% interest on customers’ crypto deposits, while the average savings account’s interest rate is much less than 1%. Regulators finally woke up from their collective mushroom trip and did some work to outline the baby steps of soon-to-come regulation around crypto lending. 

$100mn sounds like a horrendous hit to the company, but it might actually be a blessing in the long run. See, prior to this ruling, the SEC had said as much about digital currencies as Pete Davidson has said about Kanye (basically nothing). 

As part of this decision, the SEC has clarified that BlockFi must register these lending vehicles with the Commission as they are considered investment securities via the Howey Test and must not take any more deposits into these accounts until fully registered.

So BlockFi lost $100mn, but it gained the title of “first U.S. regulated crypto lending product,” a massively beneficial first-mover advantage. 

Now, as for more regulations of this asset class, maybe ask again in 2028. It’s gonna be a while.

 

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What's Ripe

Virgin Galactic ($SPCE) — Saved from its 6-month free-fall just before slamming head-on into the ground, Virgin Galactic really turned on the jets yesterday.

Shares had plummeted 85% since June of last year, but yesterday’s 32.1% jump brings its 1-year return to just about an 80% loss.

On Tuesday, the space tourism firm opened up ticket sales, starting at $450k and requiring a $150k deposit. While this is something analysts have been expecting for basically a decade, Mr. Market must be really excited about space flight.

Marriott International ($MAR) — For a while there, Marriott couldn’t even dream of having a good day. But like a soldier returning from battle, shares in the hotel chain are back and feeling good today. So good, in fact, that shares closed at an all-time high after gaining 5.8% yesterday on a solid earnings report. 

Marriott reported $468mn in net income, or $1.30/sh, while analysts expected just $1/sh, or $341mn in bottom line. A year ago, the company registered a $164mn loss… not a bad 12 months.

 

What's Rotten

Constellation Brands ($STZ) — Constellation may not be a household name, but if you’ve been to college in America, you’re all too familiar with their products.

Yesterday, swirling reports that the alcoholic beverage maker is looking to acquire smaller beverage maker Monster Energy sent shares tumbling 6.1%, and while details are still scarce, talks are ongoing, according to CNBC.

Not sure what exactly the plan with the acquisition is, but it sounds like a serious competitor to the goated Vodka Red Bulls could be in the works. 

Energy Stocks ($XOM, $OXY, $FANG) — Like vax makers during the pandemic, energy stock returns seem to be positively correlated with the world falling into chaos. 

Shares in these companies had been ripping up throughout this whole Russia-Ukraine catfight, but as the world took a deep breath of relaxation yesterday, valuations took a tumble, along with oil prices. 

XLE ended the day down 1.1%, while some energy units, like Occidental, lost more than 3.0%.

 

Thought Banana

Everything’s Bigger In Texas — Literally, everything. Land size, truck tires, hats, and, especially today, Big Tech fines. Sorry, Zuck, that’s how it goes.

The Attorney General for the State of Texas has this past week filed a massive, MASSIVE, lawsuit against Facebook parent Meta. The suit alleges that a recently discontinued facial recognition product from Zuckerberg’s empire that was frequently used in Texas violates the state’s privacy laws. Here’s where it gets good. 

Each individual violation of this Texan privacy law is met with a fine of $25k. The lawsuit alleges “tens of millions” occurrences in which Meta’s facial recognition software was used illicitly within the state. 

Through the power of quick math, we can see that the total dollar value of fines from these activities is — at a minimum — $250bn. That’s roughly 44% of the company’s enterprise value and is over 5 times the total value of all cash & equivalents on Meta’s balance sheet.

See, I wasn’t lying when I said it was MASSIVE. It’s unlikely Texas will see the full amount of the potential fine. But nevertheless, Zuck must be shaking in his shoes because it’s gonna be one fat fine if the allegations are true.

Wise Investor Says

“If you invest $1K in a stock, all you can lose is $1K, but you stand to gain $10K or even $50K over time if you’re patient.” — Peter Lynch 

 

Happy Investing,

Patrick & The Daily Peel Team

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