Dow Jones: 32,944 (-0.69%)
S&P 500: 4,204 (-1.30%)
Nasdaq: 12,843 (-2.18%)
Russell 2000: 1,979 (-1.59%)
Bitcoin: $38,871 (-1.58%)
Ethereum: $2,575 (-1.48%)
‘Weak’ 5… It’s been five full weeks since the Dow has finished one in the green. Stocks continued their sharp downward moves today as investors stay extremely cautious in this volatile market.
The S&P 500 and Nasdaq are also down for their second-straight week. This week, the Dow lost 2%, the S&P gave up 2.9%, and the Nasdaq fell 3.5%.
Today’s drop comes as oil recovers from its big decline earlier this week. WTI crude jumped about 3% to $109.
The Friday Fall-Off: Markets have been down on Fridays recently because traders don’t feel super confident about holding tons of market exposure over the weekends. With the situation in Ukraine changing all the time, anything can happen on short notice.
Crypto: Ethereum 2.0 hit 10 million ETH staked as of yesterday, which is worth over $25 billion. However, both Bitcoin and ETH struggled today as crypto firms based in the UAE were hit with requests to liquidate holdings of Russian clients.
Now, for the top stories of the day…
Source: Heat Map & Sector Performance — Finviz.com
Mr. Wonderful is Putting 20% of His Money Here…
Famed investing shark Kevin “Mr. Wonderful” O’Leary made headlines today after revealing that ⅕ of his portfolio is made up of cryptocurrencies and companies within the digital asset space.
This fact is particularly surprising considering the level of emphasis Mr. Wonderful has always put on diversification and dividend-payers. But Kevin argued on CNBC today that he can still be diversified within the digital assets that now make up a large portion of his portfolio.
Kevin claims to own upwards of 30 positions within the emerging digital asset sector, telling CNBC that “you don’t know who is going to win…” so own them all. Kevin indicated that he owns a wide range of actual cryptos from Ethereum to Solana to Avalanche, in addition to several companies within the space.
One company Kevin owns within the space is FTX, the up-and-coming crypto exchange founded in 2019 by multi-billionaire Sam Bankman-Fried. Kevin is also now a paid spokesperson for the exchange.
Kevin’s interview on CNBC comes just two days after President Joe Biden signed off on an executive order telling the US government to take a closer look at digital currencies. The order is intended to direct the federal government to consider potential risks with crypto while also evaluating whether or not the technology could be utilized by the government in the future.
With the executive order being a recent development, of course, CNBC had to ask Kevin for his thoughts. Mr. O’Leary said that “it wasn’t an all-out ban, so that’s good news,” but expressed concerns about the administration’s focus on climate risks brought on by the crypto industry. Kevin sold all of his positions in publicly traded mining institutions immediately following the issuance of Biden’s executive order.
Why Chinese Stocks Got Devastated This Week
Just when you thought it couldn’t get any worse, Chinese tech stocks just had their worst performance in a year. This week alone, the iShares China Large-Cap ETF (FXI) is down 8.80%.
It’s believed the sharp selloff this week is being cause by the SEC identifying five U.S.-listed American depository receipts of Chinese companies failing to adhere to the Holding Foreign Companies Accountable Act (HFCAA). These companies include: Yum China, BeiGene, Zai Lab, ACM Research and HUTCHMED.
HFCAA was passed back in 2020 to protect American investors from potential fraud due to companies failing to comply with regulator needs to review company audits for 3 straight years. These are the first 5 companies to be identified, and the current worry is that there will be more to come.
Brendan Ahern, chief investment officer at KraneShares, believes that “all the chinese listed ADRs” will end up on this list eventually due to Chinese law prohibiting U.S. auditors from reviewing the proper documents.
The pain is best summed up in DiDi globals -39% move today and 47% decline over the past week. Alibaba has taken an 11.89% hit this week and is now down over 70% from its ATH. Even the hot EV stock NIO is getting demolished, down 12.65% this week and 7.34% today alone.
The SEC has not taken action yet, as these companies have a deadline of 2024 to become compliant, but with geo-political tensions between the west and Russia/China heating up, many investors seem to be reading the writing on the wall.
Betting on the Collapse of the (First) Digital Dollar
This hedge fund isn’t convinced that Tether and USDT have everything all figured out.
Fir Tree Capital Management, a hedge fund with $4 billion in assets under management (AUM), is making a big short bet against Tether, the first USD stablecoin to hit the crypto market in 2014.
While initially received really well by the community, Tether hasn’t been without its trials and tribulations. The stablecoin organization has been under heavy fire due to their somewhat ambiguous reserve claims.
- At first, Tether said that every single USDT token was backed 1:1 by a U.S. dollar — implying that those dollars were readily available in the event of a bank run or network failure.
- But then it was revealed that over half of Tether’s reserves were in the form of commercial paper, which is essentially short-term corporate debt.
- Interestingly, Tether was also banned from doing business in New York (along with Bitfinex) last year.
Some popular YouTubers (namely Coffeezilla) have done deep dives into Tether’s past, speculating that USDT could even be somewhat responsible for keeping crypto prices inflated. And with Tether’s $80 billion market cap, if anything were to happen, things could get pretty bad… $80B is over 10% of Bitcoin’s current market cap.
The Short Thesis: Fir Tree says they’ve been exploring a short USDT position since last July, reasoning that much of the $24 billion in commercial paper that is backing the token is actually tied to Chinese real estate developers.
- The hedge fund says that the commercial paper could lose its value since the real estate developers are still struggling amid the Chinese property crisis.
- A big drop in Tether’s reserves could lead to a big disconnection between the token and USD, which it’s supposed to stay pegged to.
- Asymmetric trading: The position is structured in a way that limits downside risk, yet pays off in a big way if things move away from the $1 peg. Fir Tree is betting that the trade will pay off within 12 months.
Goldman Sachs Just Increased the Odds of a Recession
At this point, the stock market is starting to feel like a deck of cards. With the S&P seemingly making new YTD lows every week, the index is now down 11.32%. Things were already looking shaky, but certainly the Russian invasion of Ukraine has made the situation nearly impossible to predict.
As a result, Goldman Sachs has once again cut its GDP outlook for 2022 and increased the odds of a recession. The latest cut has seen U.S. GDP go from 3.1% growth to 2.9%. Although the cut is small, the forecast has been cut greatly from the original projection of 4.2%.
The primary reason for the latest slash is the uncertainty around inflation due to the ongoing Russian conflict. With inflation already running at the highest level since 1982, complications with oil and other commodities are likely to keep prices high for some time to come. The firm notes this new wave of inflation will “likely result in a drag on consumer spending,” with food and gas prices likely to continue rising.
Recession Fears Grow
The latest University of Michigan consumer sentiment reading showed consumer future expectations are now at the lowest level since October of 2011. While Goldman still says the probability of a recession is low, the chances are rising.
Economists are also keeping a close eye on bond yields, specifically the inverted curve. When long term yields fall below short term yields, this reflects a more bearish outlook for long term economic growth and is a historic recession indicator.
The firm said its current odds of a recession sit between 20% and 35%. Wells Fargo has also recently cut its GDP outlook from 4.5% to 3.1% and boosted its inflation outlook from 5.3% to 6.8%. On the bright side, the firm’s inflation forecast was cut from 3.6% to 3.4% with the hopes rising employment will keep the U.S. from recession.
Elon Musk: World’s First Trillionaire 2024
The race to become the world’s first trillionaire is heating up. While most of us are trying to keep our brokerage accounts afloat, these wealthy elites continue to stack up their bread to unimaginable levels. Elon Musk is currently in first place, and may believe he is the man that will become the first ever trillionaire.
According to “The World’s Real-Time Billionaires” Forbes tracker, Musk currently sits at $221 billion, with Jeff Bezos in second with $173.3 billion, and Bernard Arnault & family close behind with $159.2.
A recent study by procurement company Approve.com says Elon could hit the milestone by 2024, just two years away. But he is still $779 billion away from reaching it, so how could he quadruple his net worth in just 2 years?
With the majority of Musk’s fortune tied to Tesla and SpaceX, these companies will have to continue their dominance to reach such a goal. Well, with the current crisis in Russia, the report expects this to be a major boost. With oil skyrocketing and Russia’s decision to stop supplying rocket engines to the U.S., the door is wide open for Musk to capitalize.
With Musk’s annual average income increasing by 129%, these catalysts could multiple that compounding interest, and easily achieve the famed trillion dollar mark. This of course depends on Tesla stock holding up and the world avoiding a recession.
Approve.com’s report says Gautam Adani’s family will become the second trillionaires by 2025 and ByteDance’s CEO Zhang Yiming by 2026. So Elon Musk world’s first trillionaire? Maybe so!
LegalZoom (LZ) +4.05% – LegalZoom posted strong YoY earnings yesterday while also announcing a $150 million buyback program.
Avis (CAR) +3.38% – No relevant news, just a slightly green day.
Chewy (CHWY): +2.29% – Paysafe names JPMorgan to provide core banking services
DiDi Global (DIDI) -44.08% – DiDi has announced it will suspend its listing on Chinese exchanges due to regulatory concerns.
DocuSign (DOCU) -20.11% – DocuSign recently released disappointing guidance for Q2 causing a premarket selloff that has extended through trading hours on Friday.
Affirm (AFRM) -15.70% – No relevant news for Affirm… just an exceptionally bad day sinking alongside the Nasdaq.
DocuSign (DOCU) – Baird downgraded shares of DocuSign from outperform to neutral saying there is reduced visibility for the electronic signature company. “Yesterday afternoon DOCU reported solid FQ4 results, though FQ1 and F23 revenue, billings and margin guidance disappointed, dropping shares further after hours.”
Roblox (RBLX) – Deutsche Bank initiated coverage of Roblox as a buy saying it has an “early leader” advantage in online gaming. “We see Roblox as an early leader in the interactive digital creator marketplace, with growing moats and strong network effects.”
Chevron (CVX) – JPMorgan downgraded Chevron from neutral to underweight based on valuation. “We downgrade to Underweight from Neutral. High-quality global Oil Major, though valuation looks increasingly full. CVX is a high-quality Oil Major, with primary exposure to Upstream and a smaller Downstream/Chemicals footprint than US peer XOM.”
Quote of the Day: “When something is important enough, you do it even if the odds are not in your favor.” – Elon Musk
Fun Fact: North Korea and Cuba are the only places you can’t buy Coca-Cola.
- Citi Bank’s co-head of digital assets leaves to launch a crypto startup
- Stripe announces fiat payment support for cryptocurrencies and NFTs
- Janet Yellen says American’s likely to see another year of “very uncomfortably high” inflation
- Rivian posts $2.5 billion loss, warns supply issues to limit ’22 output
- US federal budget deficit narrowed in February to just 2/3 of what it was for February 2021