Too much employment? | The Daily Peel | 12/6/21

Silver Banana goes to...

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Market Snapshot

And the game of tennis continues, with markets falling right back down to close out the week of volatility we saw over the last several trading days. Growth stocks led the plunge, with the Nasdaq losing 1.82% while the S&P and Dow held up better, closing down 0.84% and 0.17%, respectively.

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Let's get into it.

 

Macro Monkey Says

Jobs - It's a lot of work to measure work across an entire economy, but the Bureau of Labor Statistics gets it done every month. Last month's job report, officially known as "the Employment Situation Summary", to sound way fancier than it is, just dropped and the best way to describe it has to be "underwhelming."

The headline figure, being the number of nonfarm payrolls added, clocked in at 210,000, well below the 535,000 expected by economists. While economists being wildly wrong isn't anywhere close to a shocker, the fact that November's number was the lowest growth since employment actually contracted in December 2020 was a bit of a surprise. But, to put things in context we have to a dig a bit deeper.

The Fed's goal of "maximum employment" is one of things that everyone knows what it is in theory but not in practice. Figuring out exactly when we reach max employment is an elusive endeavor, but one thing's for sure, being that we're definitely getting close. Unemployment fell further, in the face of low hiring growth, to 4.2% from 4.6% prior. Before the pandemic began, unemployment sat at 3.5% (Feb' 20), but many argued at the time we were past the natural rate of employment and warned against causing an overheating of the economy.

Now, unemployment sits at 4.2% while labor force participation grew to 61.8%, still slightly lower than the 63.3% seen before the pandemic. It's a tricky situation, especially given that both October and September's reports were revised upward by a combined 82,000 jobs, meaning economists were even more wrong than previously thought.

DiDone - 2021 has been a year for all of us, but perhaps no-one else is feeling the pain quite like Chinese tech stocks. 

You might remember DiDi - there was a solid week long stretch back in July where we wrote about them every single day. The Uber of China IPO'd on June 30th in a fervor of excitement, uncertainty, and communism. Given DiDi is a poster child of Chinese tech being able to compete head on with that of the U.S., the CCP was not even close to happy that the firm chose to list in New York. From banning app downloads to opening every kind of investigation imaginable, it is safe to say that DiDi was duly punished.

Commensurately, shares were punished too. Shares are down a brutal 57% since IPO as of Friday when shares fell another 22.2% on news of a delisting. In a presumed attempt to save themselves from the wrath of the CCP, DiDi announced it will delist from the NYSE "immediately" and begin the process of listing in Hong Kong.

 

Traditional portfolios are a mess. 

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What's Ripe

Zillow ($Z) - Shoutout to all the dip buyers and diamond hand hodlers. After literally months of basically nonstop decline, Zillow finally got a break on Friday. Shares popped 11.3% on news of the firm being slightly less garbage than they were thought to be before. Late Thursday, the firm announced that it had already sold over half the homes they purchased through their miserable failure of a home market-making business. More importantly, Zillow will use funds from that business line to buy back +$750mm in their own shares. I guess becoming less sh*tty is just as good as being an actual good business.

Krispy Kreme ($DNUT) - Krispy Kreme gave a giant middle finger to Goldman Sachs last week after analysts downgraded the donut slinger to a "sell" rating, which was immediately followed by a 10.8% pop on Friday. Several weeks ago, Krispy Kreme reported earnings, revealing the company's outsized pricing power (are donuts an inflation hedge?) on a solid earnings report. Since then, insiders have been buying up shares, peaking with existing investor JAB doubling-down by increasing their ownership of the stock to roughly 45%.

 

What's Rotten

Smith & Wesson Brands ($SWBI) - Smith & Wesson really shot themselves in the foot with their most recent earnings report. Reporting late last week, the weapons company fired off EPS of $1.13/sh against $1.29/sh expected on $230.5mm in quarterly sales vs $265mm expected. In response, shares fell 28.7% on Friday, leaving investors staring down the barrel of the stock's worst day since March 2020. Dip buyers and bargain hunters will definitely be checking this one out, but if they send it, they better hope the company has a killer quarter over the next few months.

DocuSign ($DOCU) - Given that no one saw each other for a solid 18 months while COVID was raging, a lot of business moved online, meaning demand for DocuSign skyrocketed. Well wouldn't you know it, a lot of that demand has slowed now that we're, you know, allowed to see each other again. Shares closed on Friday down an insane 42.2% after the firm reported earnings. Sales came in below guidance and they basically missed on everything, adding in that consumer buying patterns were "normalizing" as the cherry on top.

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Thought Banana:

Grab some Grab - Some call Chamath the king of SPACs, but after this week, Altimeter Growth Corp has a fresh claim to the throne. The largest SPAC deal ever was just completed last week with Altimeter's acquisition of Singaporean super app wannabe Grab at a valuation of $40bn

Southeast Asia's largest startup launched as a ride hailing firm. After purchasing Uber's regional business unit, their reputation was cemented, but now, the stakes are getting higher. Grab has expanded their business lines beyond ride hailing, moving into the very related industry of food delivery and the very unrelated industries of digital payments and broad financial services.

Businesses generally look for "synergies", every MBA's favorite word, when expanding. Not sure what synergy there is between giving people rides as well as letting them trade stocks, but hey, it seems to be working out. 

Wise Investor Says

"If you don't fully understand the risks of an investment you are contemplating, it's OK to do nothing." - Mark Cuban

 

Happy Investing,

Patrick & The Daily Peel Team

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