Fraud^2 | The Daily Peel | 11/10/21

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Market Snapshot

Finally markets broke their streak of new all-time highs, giving the bears a long awaited day in the sun. That day in the sun culminated with the Nasdaq losing 0.6%, the S&P losing 0.35%, and the Dow falling 0.31%.

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Macro Monkey Says

Fight for the Fed - We're all aware of the beautiful romance that's blossomed between JPow and his treasured money printer. But now, that romance is being challenged.

Lael Brainard, former MIT professor with a PhD from Harvard and long-time Undersecretary of the U.S. Treasury for International Affairs, is a Member of the Federal Reserve Board of Governors, where she has sat since 2014. As was confirmed earlier this week, Brainard is the top challenger for JPow's thrown. Reports emerged on Monday that Brainard sat down to interview for the Fed Chair position during her visit to the White House last week. 

This can't be good news for JPow, but it's great news for Congressional Democrats that aren't the biggest fans of Powell. Brainard is thought to be more dovish when it comes to interest rates, meaning she would be more in favor of expansionary monetary policy, although, in practice, her economic views often align with the current king. Where they differ, and why Congressional Democrats largely support Brainard, is her much tougher stance on bank regulation. 

The only registered Democrat on the Fed's Board of Governors, Brainard attracted attention immediately from her respective party. You'd have a hard time calling Powell hawkish since late 2019, but advocates for Brainard support her views on bank regulation and believe she is more likely to expand the Fed's involvement in mediating racial and other economic inequalities. 

JPow's term ends in February, but he could very well be up for re-nomination, having historically held bipartisan congressional support. Sen. Elizabeth Warren would beg to differ, but I worry she hasn't considered that "LBrain" just doesn't have the same ring to it. 

PPI - Grab some drinks, strike up the band, and get ready to celebrate - economists actually got something right. October's PPI report, measuring inflation from the producer side of the coin, came in at 0.6% for the month, exactly in line with estimates. While they can rejoice in being right for the first time maybe ever, this comes for a month that saw the steepest annual increase in over a decade. PPI grew 8.6% from October of last year, tied with that of November 2010. 

While you might be thinking (or screaming) to yourself that this is definitive proof that the inflationary environment we're currently in is not transitory, but of course, it's not that simple. Splicing the data reveals goods price leaped 1.2% for the month while services just 0.2%. This would suggest the inflation we're seeing remains largely related to supply chain issues and a run up in global commodity prices (also, largely because of those supply chain issues). Moreover, 80% of the services increase can be attributed to one line item: autos & auto parts.

So, while this is definitely not ideal, it's no reason to get all doom and gloom on me now. Economics is a challenging, complex topic that's largely more art than science, and as the saying goes, beauty is in the eye of the Fed Chair. 

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What's Ripe

Roblox ($RBLX) - Step 1: Get kids addicted to your video game when they're stuck at home in a pandemic. Step 2: Make sure the addiction is so strong they stick with even after they can go outside again. Step 3: Beat the sh*t out of earnings with revenue jumping 102% YoY and an EPS beat leading to a single day jump of 42.2%. Roblox followed this playbook so well you'd think they invented it....

Amazon ($AMZN) - Even with Jeff galivanting around the plant (literally), Amazon is doing just fine. The firm gained 2.5% yesterday on an amalgam of good news. First, Amazon announced the expansion and doubling down in it's cloud unit, and with the margins generated by that business line, who can blame them. Then, a new shopping feature was announced allowing shoppers to send gifts to someone else with just an email address, which creeps me out way too much but hey the market's loving it.

What's Rotten

Palantir ($PLTR) - Palantir certainly brought a tear to Peter Thiel and other investors yesterday. Falling 9.3%, the firm reported earnings and results were...actually pretty good. I'm not sure if they read the report upside down or something, but Q3 revenue grew 36% to $392mm, not a bad showing. Unfortunately, Wall Street wanted $395mm, so naturally shares got taken to the woodshed. 

Tesla ($TSLA) - Normally, Elon's tweets lead to gains for some kind of "asset", even if it's a dog-meme cryptocurrency. That trend flipped this weekend. Musk deciding to poll Twitter on his decision to sell 10% of his Tesla shares triggered a 4% fall on Monday and a brutal 12% plummet yesterday, one of the biggest single day losses ever for the firm. I mean, this one guy is largely responsible for the wild valuation the company now enjoys, so if he's selling, why should I hold?


Thought Banana:

Fraud^2 - One of the first lessons my Freshman year finance teacher told us was (verbatim) "realistically, you can do whatever in markets, but just know when and where you may get caught." I remember because I wrote it down in giant letters and circled it twice, but clearly, the guys in charge of AlphaPlus did not receive such wisdom.

As the great writer Matt Levine points out in his "Money Stuff" blog from Bloomberg, we have an unusual case of fraud on fraud on our hands, or Fraud^2. For context, when investors file securities fraud claims, they file them to a settlement fund claim administrator who is in charge of distributing the funds from the fraud to the victims. 

Basically, the fraud squared occurred as claim aggregator AlphaPlus fraudulently filed for access to fraud settlement funds claiming to be fraudulent victims of the purported fraud. And they did well. The firm gave itself $40mm in fraudulent fraud money and took it to the bank. However, in doing so, one of the lead schemers sent a not-so-smart email to another lead schemer that reads:

"Hi Dave, I didn't have your Paul email when I woke up in the middle of the night thinking about JAIL, because we waited a week to hear anything from the admin."

Now I haven't asked my finance professor yet, but I'm pretty sure dropping the big J word in full capital letters on yourself isn't exactly knowing when and where you'll get caught. Come on guys, rookie mistake.

Wise Investor Says

"An investment in knowledge pays the best interest." - Benjamin Franklin


Happy Investing,

Patrick & The Daily Peel Team

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Comments (1)

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