Thanks, Xi | The Daily Peel | 3/29/22

Market Snapshot

Talk about putting the team on your back. Big Tech pulled off a Herculean feat yesterday, carrying the rest of the market out of the deep red territory. Indexes bounced around a bit, but with oil falling and confused treasuries, investors looked to equities to save the day. The Nasdaq finished up 1.31%, while the S&P followed with a 0.71% gain, and the Dow sputtered along with a 0.27% rise.

Let’s get into it.

Banana Bits

• 77-year old FedEx Founder Fred Smith steps down from the CEO spot after a 50-year run of creating $60bn
• Wars are usually good for national morale and support for leaders, but apparently, not for Joey B’s approval rating.
• Meanwhile, Joey B wants to drop a cool $5.8tn in FY’2023 (more on this tomorrow)
• Financial Historian Jamie Catherwood drops the mic on historical precedents for markets during periods of war with inflation mixed in.
• Companies really love themselves in 2022, issuing record-shattering share buybacks. 
• Apple’s CODA wins Best Picture in a huge first for streaming services and deaf people. 
• Why anyone cares, I don’t know, but the Twitterverse really wants the Academy to revoke Will Smith’s Oscar. 

Macro Monkey Says

Spring Might Be Springing — The Spring Equinox of March 20th-21st has officially passed. With that, we know that here in Boston, the average temperature this past winter was right around 32℉. On Sunday, we hit around 45℉, so things might be looking up. Trading right along with Boston’s average temperature and potentially joining the Greatest City in the World in crawling out of winter is… the cryptocurrency market.

Despite how ridiculous it seems, the above is actually kinda true. At the time of writing, BTC’s 100-day moving average (roughly 3-months, or the length of winter up here) sits around $45k. Looking at my screen right now, BTC is quickly headed towards $50k with a vengeance, currently parked just north of $48k. In fact, the entire market is up a nice 6.9% in just the past 24-hours alone.

The obvious question is what is driving these gains. But it’s digital currencies, so there’s not really an obvious answer. The recent uptick in price we’re seeing owes its origins to JPow and the FOMC’s decision to raise rates. Intuitively, you would think rates rising is bad for high-risk assets like BTC and others. But given BTC’s unique asset profile, there’s a few more things to consider.

First, digital currencies largely don’t have any kind of cash flow. When rates rise, there are two big reasons why high-risk equities fall: 1) their long-dated cash flows get taken to the woodshop by higher discount rates, and 2) yields on safer assets like fixed-income rise, so investors don’t have to dumpster dive for gains. 

Based on that first reason, it’s possible we could be seeing investors rotate some of that higher-risk portion of their portfolio towards digital currencies and away from high-risk assets with cash flows. It’s a stretch, but institutional money can move the sh*t out of markets, so we’ll chalk it up to a hard maybe.

But of course, there’s a whole lot more going on too. For starters, a geopolitical conflict like the war in Ukraine is theoretically good for the value of currencies not tied to any government. 

Not only will fleeing Ukrainians buy up BTC to lower their cash balance, but cracks put in the armor of U.S. dollar dominance by developments like China potentially buying Saudi oil in yuan, Russia forcing other nations to use rubles to buy their oil, and the seizure of U.S. dollars abroad are all uber-bullish for the digital currency space.

Lastly, legislation has something to say as well. Biden’s executive order a few weeks ago was received with surprising warmth from industry participants, seeing the declaration as a long-term driver of asset class growth. Adding to those legislative drivers is the freshly introduced ECASH Act, courtesy of Mass. Congressman Stephen Lynch, Chairman of the Fintech Task Force of the House Financial Services Committee. 

Basically, the ECASH Act introduces a less “Orwellian spy surveillance nightmare” method of issuing a government-backed digital currency, according to ShapeShift founder Erik Voorhees. The Act seeks to grant the digital dollar power to the Treasury, not the Central Bank, without using distributed ledger (blockchain) technology. A TDC, rather than a CBDC, if you will. 

Privacy-freaks love it as this disempowers governments from being able to track every single transaction Americans make, as would be possible on a blockchain-based CBDC. According to Decrypt, the TDC would “create an end product that is as anonymous as cash.” 

There’s a lot going on in the cryptoverse right now, and all this action might just heat things up enough to pull us out of winter. If BTC truly does trade alongside weather patterns in the Northeast of the U.S. (which it doesn’t), things are looking good. 

What's Ripe

AMC Entertainment ($AMC) — I can’t believe I still have to write about this bullsh*t, but AMC ripped 45.0% today, so really, it’s our fiduciary duty to tell you about it.

After following Peter Lynch’s de-worse-ificiation strategy by buying a gold mine, AMC management has started to use their one combined brain cell to maybe not destroy the entire company. CEO Adam Aron came out and said of the Hycroft acquisition that the firm would seek “more transformational M&A” deals.

Some took this as a sign that the deal may be off, others took it as management looking for other deals, and others got their shorts squoze by the stonk’s 120% two-week gain.

Tesla ($TSLA) — Typically, shutting down production at the factory that produces half your company’s products at the exact same time that the founder/CEO/Technoking gets COVID is a recipe for a major down day. 

Fortunately for them, Tesla is anything but typical. I mean, just look at yesterday’s 8.0% gain, in which Tesla added more market cap than Ford is worth. 

The bump comes as Mr. Musk himself, who announced via Twitter that he “supposedly” has COVID, looks to expand ownership through a stock dividend. Basically, that means Tesla will begin “paying” shareholders through a dividend that issues additional $TSLA shares rather than cash.

Whether those shares go up is anyone’s guess. But I don’t have to tell you apes that Tesla shares historically pretty much only go in one direction.

What's Rotten

Energy Stocks ($USO) — Don’t go fire your car up for a celebratory drive yet, but oil prices plummeted yesterday. As for your local gas station, they probably won’t want you to know that for a good while.

But regardless of what they tell you, we’re here to say that both Brent and WTI saw major, right around 9%, declines yesterday. At the time of writing, WTI sits at $103.56/bbl, while Brent’s premium put it at $109.84/bbl, while the U.S. Oil Fund lost 7.7%. 

Still, you can thank the CCP for yesterday’s oil price troubles. China’s pandemic rules make Liam Neeson’s character in Taken seem about as strict as a hippie, and with recent viral surges across the country, provincial lockdowns have begun once again, posing a serious threat to global oil demand.

So, if driving really does get cheaper in the next few weeks, we can direct our thanks towards Xi… for once. 

Discovery ($DISCA) — Having poor management is one thing, but paying a guy $247mn for driving 2021 returns of -15% has to be at least borderline criminal.

Nevertheless, that’s the situation Discovery shareholders and CEO David Zaslav face today. In the interest of transparency, Zaslav did drive a positive return at one point in 2021, with shares up 155% by late March (immediately post-merger announcement), only to fall 67% since then. Just yesterday, shares tanked another 6.5%.

And it’s those garbage returns and poor pay incentives that have led companies like Institutional Shareholder Services Inc. to recommend investors vote against Zaslav’s highway-robbery form of a pay package at the firm’s April 8th shareholder meeting. 

Oh, and for comparison, the top performer in 2021 was Devon Energy, gaining nearly 200%. The CEO’s pay? ~$13.5mn.

Thought Banana

Oscar Who? — Ohh…” The Oscars.” Sorry, forgot that was a thing. Well, apparently, the famed award ceremony of self-glorifying, virtue-signaling, out-of-touch, elitist celebrities happened yesterday. Did anyone care? No. Did some sh*t go down? It’s Hollywood, so obviously.

That might’ve been a little aggressive, so apologies to anyone who actually might care (if those people still exist), but at least we weren’t nearly as aggressive as Will Smith. No matter what happens, I promise the only thing getting punched in the face is your portfolio. 

Now, aside from that publicity-seeking garbage, of which I’m ~75% sure the producers paid him to do in order to revive the dying “award ceremony,” some of the outcomes might actually impact your stonks. Attention all Apple holders, please see below.

There is one award that the layperson tends to care about, being Best Picture. Since starting to produce its own content back in 2013, Netflix has been dying to usurp the top award from old-school Hollywood studios. Despite that nearly decade-long headstart, the first streaming service to ever win Best Picture was cemented yesterday by none other than Apple TV+ with their film CODA.

Despite how great this is for Apple, Netflix and their >220mn subscribers will be just fine without the Best Picture trophy. The OG streaming studio did walk home with a few awards, and their reliance on TV shows is far more relevant to shareholders than meaningless awards from Hollywood know-nothings. The real loser is clearly the traditional movie production complex, continuing to lose eyeballs and honors to the far superior streaming services. 

Not that we needed the Oscars to tell us that. Movie theater attendance remains abysmal, while attendance on your living room couch is likely close to an all-time high. Maybe the real winner is at-home popcorn stocks?

Wise Investor Says

“He will win who knows when to fight and when not to fight.” — Sun Tzu