Technoking Trolls The SEC | The Daily Peel | 4/18/22

Market Snapshot

You’ve probably forgotten about the mixed bag we all traded through on Thursday after a long Ramadan/Passover/Easter weekend, but it’s our job here at the Daily Peel to remind you. 

The major markets couldn’t figure out what they wanted to do, ending the day at session lows after some temperate swings. Oil was up another 2% Thursday, Gold was basically flat, and the 10-year was back up near three-year highs finishing the day up 14 bps at 2.83%. After the weekend, BTC hovered between 40 and 41K, and ETH traded through the weekend at around $3100. 

The Dow has been down each week of the last three, closing down 0.33% Thursday. The Nasdaq was down almost 3% last week, shedding 2.14% on Thursday alone. The S&P was also unimpressive, finishing down 1.21%.

Let’s get into it.

Banana Bits

• Nothing says Slava Ukraini like the flagship of the Russian fleet at the bottom of the Black Sea
• Jobless claims are up slightly, but the labor market remains warm and tight
• Is Elon trolling the SEC? This time, he followed the rules, bidding to take Twitter private at $54.20 the week before 4/20. Well played.
• Recruiting, hiring, sourcing talent, and searching for a new gig in the industry sucks, but it doesn’t have to.
• Even when compared to lockdowns and forced shutdowns, restaurant owners are calling this the toughest operating environment ever.
• Even after calling crypto the next Beanie Baby, the Wolf of Wall Street himself is becoming a blockchain simp.

Macro Monkey Says

Rate Pressures — Rising interest rates probably feel like a boa constrictor around the neck of a rapidly growing company, especially one that needs to borrow money to finance its growth.

Servicing debt becomes more expensive as interest rates rise. Borrowing money seems less attractive. Expensive liabilities also can give smaller, less established companies a headache on their balance sheets.

When you hear the term interest rate pressures, the talking heads really mean that little guys in the Nasdaq are getting boa-constricted in the neck by rising interest rates. To them, the current macroeconomic backdrop probably feels like Jerome Bettis standing on their chests.

Currently, the liquidity environment is getting tougher for small growth companies, and real interest rates are worsening. This has an impact on valuations, particularly in the downward direction. 

Some good examples of this are what has been happening to software and the cloud of late. These cats just can’t keep treading water at a fast enough pace to keep their knowledge-filled nuggets above it.

There is, however, a great equalizer. Companies can shirk these macroeconomic forces: strong earnings can buoy even the most aggressive, highly leveraged growth company in a rising interest rate environment.

Even though the Fed is signaling that it wants to aggressively squeeze, bananas haven’t really started rotting yet. The economy isn’t showing much of a sign of a reaction to the Fed’s actions. 

However, as credit spreads move higher, the realities of these reactions within the actual economy as opposed to the stock market might finally appear; picture this – a windshield chip turning into a spider web-sized crack.

Whether its growth slowing or liquidity drying up, a Fed tightening cycle usually results in something breaking. Keep your eyes out for where that opportunity might pop up, apes.

What's Ripe

Deere and Co. ($DE) — John Deere and Co., the largest ag machinery firm in all the land, is probably one of the most recognizable brands in the world. Thursday, shares of the big green tractor people were up 2.21%.

There wasn’t really any big news to point to explaining the boost for $DE, but we have a theory. IYKYK, all press is good press. After weeks of watching Ukrainian farmers capture Russian tanks by way of a tractor tow, Deere and Co.’s stonk is finally catching up with all that free publicity.

What's Rotten

State Street Corp. ($STT) — Shares of the arguably non-target financial services and bank holding company initially were up around 1% Thursday morning, eventually giving all of that back and more, ending down 8.55% even after an earnings beat.

Confucius said (probably), “Earnings aren’t everything. Outlook and guidance are increasingly important this earnings season, especially as companies recognize that they’re in a macro environment unlike any other in recent memory.”

Twitter ($TWTR) — You didn’t think you’d make it through the Peel today without hearing us talk trash about the ongoing saga at the blue bird, right? Here’s a little bit of a special edition for you.

After hearing that an NFT of Jack Dorsey’s first-ever tweet sold for about the monthly cost of my equinox membership, I thought Twitter was finally becoming irrelevant. But apparently, Elon Musk is trying to Make Twitter Great Again, offering to take $TWTR private at $54.20.

We could give a $hit about the stock price right now; after Elon’s most recent stunt, Twitter is now equally as popular and slightly more controversial than Will Smith at the Oscars. We f*cking get it. A marketplace for free speech, blah blah blah.

Rumors are running wild. Perhaps, Thoma Bravo is putting together a bid. Maybe Tesla buys Twitter instead of Elon. Maybe Mark Cuban leads a DAO to snag Twitter. Regardless, this thing is a bona fide chocolate mess, with shares down 1.68% Thursday. 

Twitter’s board is using a poison pill plan to protect its company from Elon’s bid. For the uninitiated, this means that Twitter wants to dilute Musk’s ownership stake by allowing existing shareholders to purchase shares at a discount if anyone snatches up 15% or more of the company’s shares without the board’s permission. This makes it more challenging and more expensive to execute a takeover.

In the meantime, it turns out that everyone loves them some free speech; The institutional giant Vanguard recently swooped in to snatch up additional shares, knocking Musk off the top spot of the podium of Twitter stakeholders. 

Another curveball here is that Twitter has sought the help of Goldman to defend itself when, ironically, Goldman has a $30 price target on Twitter’s stock and has issued a sell rating. Who woulda thought? The great Vampire Squid playing both sides. Go figure.

Even Elon said that it’s unlikely that this deal goes down, and there’s a chance that $TWTR shares take a dump after the regulators disallow the deal or Twitter leadership successfully poo-poos the buyout. But for the love of God, I’m f*cking over the master troll and these games.

Thought Banana

Will Retail Survive? — Of course, it will. We all need to buy $hit, even if it’s stuff we don’t need.

For most of 2020 and 2021, we went through a period of what experts called “pent up demand,” which, to us, kinda sounds like being a teenage boy with a hot history teacher. People wanted to spend money, but they couldn’t.

Add in fat stimmy checks from Big Brother, supply chain problems that led to low inventories, and a general fear of going in public, and consumers were about to cream their wallets. 

Too much money chasing too few goods can inherently inject inflationary pressures into an economy, which is precisely what we’re seeing. 

This leads to higher labor, production, and supply costs, a general ballooning of expenses that businesses will ultimately pass on to their customers.

Right now, consumption is high. Chase noted that credit card spending is up, especially amongst those of us who make less than $50k per year. Credit card spending was up 15% for the first half of April compared to April of 2021. Like Hinge, we are trying to bring back the old meaning of swiping.

Guidance for the most part for the big retail giants traded in the $XRT Retail ETF is relatively optimistic and rather consistent: business is good, and our pockets are being padded with the stacks of cash that you fools have been waiting like two years to spend.

But can these earnings blockbusters continue? 

The things that you need to survive in this world are getting more expensive and rather quickly. 

• Rents on average are through the roof in the last year. (Up 33% here in NYC!)
• Home prices are up, and mortgages are getting more expensive as interest rates have topped 5.25%.
• Gas has climbed almost $2/gal since January 20th, 2021
• Food prices at the grocery store have skyrocketed 10%, and restaurant prices have jumped a not-so-nice 6.9% in the last year

While we may have seen the peak rate of change, if you think we will see a tame 3% annualized inflation number next month, you’ve probably been hanging out with Elon Musk and Joe Rogan.

Consumer sentiment has plunged in the last year, down 25% according to the nerds in the nerdery at the University of Michigan. Today we saw a touch of recovery in sentiment since last month’s report was released, but regular everyday Joes and Joe-ettes aren’t exactly bullish on America right now.

For the sake of history, the only times consumer sentiment has been this low is when we have been in a recession. Take that with a grain of salt; if there’s one thing we know for sure, it’s that no one person is as dumb as all of us.

After consumers blow their collective loads of cash, inventories will start to build back up, and fingers crossed, supply chain challenges will ease. Prices will rise to the point of demand destruction, and fewer people will be making as many trips to the mall.

Pair this inevitable demand slowdown with a paycheck that doesn’t go as far as it used to and a consumer who might think a recession is on the horizon, and we might have a recipe for a not-so-tasty retail sector bust or even worse – the dreaded R word.

Depending on how adversarial the Fed becomes, retailers with poor balance sheets and consumer bases that aren’t loyal or rich enough to help them weather the storm might end up in a world of hurt.

These are the things that keep me up at night. If I knew the future, I’d surely quit my job here at the Peel and move on with that perfect knowledge of future events. But until then, keep wildin’, apes.

Wise Investor Says

“Most successful investors, in fact, do nothing most of the time.”  — Jim Rogers