Uh-Oh, Tick Tock | The Daily Peel | 3/30/22

 

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Market Snapshot

Pop the champagne, apes; U.S. markets officially exited correction territory yesterday. On the complete opposite hand, key maturities on the U.S. yield curve inverted for the first time in 3 years. Despite this traditionally bearish signal, the Nasdaq ripped 3.01%, while the S&P gained 1.23%, and the Dow got a nice 0.97% bump.

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Let's get into it.

 

Banana Bits

  • Joey B's budget proposal wants to spend a lot of bananas (more on this in Thought Banana below)
  • Russian oil is going for a fat discount, and India is loving it
  • These pro retail investors' portfolios don't go down like yours and mine. Have they figured out which stocks only go up?
  • Invasions, sanctions, and now alleged poisonings. Russia's invasion and tactics just keep getting wilder.
  • A BAYC NFT was sold for $115, 99.96% below its listed floor price. Crypto is fun!
  • On the other hand, the World of Women NFT collection raked in $79mn in a single day.
  • Just because you can't get laid doesn't mean your portfolio can't. Investing in OnlyFans may soon be a reality.
  • AMC shed the little dignity they had left and is leaning hard into the meme-stock strategy.
 

Macro Monkey Says

Uh-Oh - Everybody, stay calm… no need to panic… it's just the inversion of the 2- and 10-year treasury yields… it's not like that almost guarantees a recession or anything, right??

meme

Well, kinda. While we still shouldn't panic yet, the 10-year treasury yield and the 2-year treasury yield officially inverted yesterday. It's not that an inversion guarantees a recession, but "historically, a recession has not happened without an inversion," says global macro strategist Ben Emons. Nice and calming, right?

No, of course not, so what does this mean? An inversion of shorter and longer-term treasury yields is a signal of investors' doubt in long-term economic growth, hence the higher return for short-term products. In theory, longer-term yields comprise shorter-term yields while incorporating other time-induced risks like future changes in interest rates.

That means that the 10-year yield should be roughly equivalent to holding ten 1-year, or, in this case, five 2-year notes. So, this is essentially investors' way of saying they expect growth to slow in the long term. In layman's terms, it's a big "f*ck you" to JPow.

But let's get technical for a second. First, it's important to recognize inversions have been present since October, when 20-year yields surpassed 30-year yields. Since then, several other inversions have occurred, including the 7- and 10-year and the 5- and 10-year in just the past month alone. So while yield curve inversions aren't new to our current market, the inversion of the 2- and 10-year yields are.

And when it comes to recession predicting, it just so happens it's the 2- and 10-years that matter. 6 out of our last 6 recessions have been preceded by a 2- and 10-year inversion. But for its predictive power to truly come to fruition, history says the inversion has to remain for at least a full quarter (aka 3 months, aka 90 days). So no need to panic yet, but the countdown is officially on. If nothing changes before late June, we riot.

meme

Fortunately, investors have (allegedly) been mentally prepared for this. Rate hikes tend to lead to a compression in the spread of short-term and long-term yields. Both short and long-term yields tend to rise, but short-term yields tend to rise more as longer date issues inherently carry more interest rate risk. This time, the 2-year yield rose wayyyy more than the 10-year, hence the inversion.

TL;DR: Mr. Market is terrified of Mr. Inversion. He can usually deal with Mr. Invrsion for a while, but if he hangs around for too long, that's a fight on sight. Fingers crossed, apes.

 

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What's Ripe

Uber ($UBER) - Like a psychopath who found his heart, Uber has apparently grown bored with repeatedly murdering taxi industries across the world. Now, it looks like they're trying to help.

Kicking things off in their hometown of San Francisco, the world's largest ride-sharing firm is close to fully incorporating a feature that would allow users to hail taxis right from the Uber app. 

Investors are loving this full 180. Shares shot up 7.0% yesterday on this potential new revenue source and "decreasing competition," as if anyone on Earth has taken a taxi since Uber launched. 

Nielsen ($NLSN) - Making sure Senator Lizzy W cries herself to sleep tonight, the PE machine rolls on. 

In this edition, Elliott and Brookfield Management are leading a deal in which a ton of PE players are putting up a total of $16bn, including debt, to take Nielsen private. Nielsen, a media measurement and analytics firm, popped 20.3% in response yesterday. 

Last week, Nielsen told the group of suitors to shove it, seeing their previous $9bn offer as trash. $7bn later, here we are. The deal values Nielsen's equity at around $10bn, and with a Monday close of ~$7.9bn, investors are diggin' it.

meme

What's Rotten

GameStop ($GME) - Choosing to take a Blue Origin rocket rather than the way better SpaceX like last January, GameStop's latest trip to the moon is off to a much rockier start, hence the 18% intraday collapse yesterday, finishing with a loss of 5.1%.

Fellow meme-stock AMC suffered as well, losing more than 20% at one point during Tuesday trading. There wasn't a whole lot of news, especially not bad news, for either name, so we're left to assume this is a textbook example of profit-taking. 

If you're mad your $GME shares fell 5.1% for no reason today, I'd suggest buying companies whose fundamentals don't look like a Burning Man port-a-potty.  

Mosaic ($MOS) - Like vax stocks benefiting from people dying of Covid-19, fertilizer stocks really benefit from people dying in Ukraine. Unfortunately for fertilizer maker Mosaic, reports from Tuesday indicate a cooling off in Eastern Europe. As a result, shares tanked 5.2%.

Prices for the ingredients of fertilizer and the fertilizer itself have boomed lately, largely thanks to supplies from Russia and Ukraine being effectively cutoff. Yesterday, we learned negotiators for the two nations would meet again soon in Turkey with hopes of agreeing to a ceasefire. 

Even better, Russia has "pledged" to "reduce" their "special military operation" in northern Ukraine in the coming days. Yeah, we'll see, Putin.

 

Thought Banana

Whole Lotta Bananas - Tyler Durden told us that "we buy things we don't need with money we don't have to impress people we don't like." It turns out the government does the same thing.

And this time, Joey B's proposed amount of spending that we don't have is $5.8tn (enough to buy ~9.9tn bananas). On the surface, that giant number sounds like a helluva lot more money printing that goes directly against JPow's war on inflation. Buuuttt, let's look at the details and see why it might not be so bad.

First of all, Joey B seems to have hatched an idea no one in the history of government has ever thought of: reducing the deficit. Within the proposal is a radical new idea to pay down some of our debt, penciling in $1.5tn of the government's revenue to go directly towards that cause. In total, Biden's proposal estimates the deficit over the next decade to fall from $15.4tn to $14.4tn as a result. Huzzah.

The rest of the proposal gets into the fun stuff, the main way the government is spending your money. We attempted to summarize the major points below:

  • A Billionaire Minimum Income Tax, which would tax unrealized gains on assets of individuals over a certain threshold of having "f*ck you" money, as well as imposing restrictions on stock buyback programs, is estimated to generate $2.5tn in revenue over the next 10-years
  • Domestic spending gets a 7% hike to $1.6tn
  • $115bn for Climate, passed in last year's infrastructure bill
  • $813bn poured into defense spending with an increasing focus on cybersecurity
  • 43% increase in the Department of Education's Student Lending Services budget (you can smell the debt forgiveness already)
  • 33% increase in the FDA's budget to $8.7bn (only two years late!)
  • "Modernization" of the IRS, including crypto tax reporting

Of course, there's a whole lot more, and if you hate yourself enough, you can read the full 149-page budget with the link under Banana Bits at the top of this edition. Have fun!

 

Wise Investor Says

 "I've studied the Constitution and the Bill of Rights, and I don't see anywhere that we have to have a recession every four years. I don't see why you can't have a decent environment for years and years." - Peter Lynch

 
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