Wednesday, June 22nd, 2022 – Volume 2 – Issue 247

Dow Jones: 30,482 (-0.15%)

S&P 500: 3,759 (-0.13%)

Nasdaq: 11,053 (-0.15%)

Russell 2000: 1,691 (-0.15%)

Bitcoin: $20,178 (-2.52%)

Ethereum: $1,071 (-3.77%)

The bulls are fighting… But it’s a long, uphill battle. Stocks showed signs of continuing their relief rally early this morning but ended up giving back the day’s gains into the close.

Economy: Jerome Powell spoke to the Senate Banking Committee today, doing his best to play down recession concerns and reiterating that he believes the Fed has the “resolve” to tame sky-high inflation. 

But he did say that achieving a “soft landing” without a recession has become “significantly more challenging.”

Commodities and Bonds: Both oil and bond yields fell today. WTI crude oil fell 2.2% to $107.02 per barrel. The 10-year Treasury yield fell to 3.2%.

Crypto: Coinbase (COIN) stock fell nearly 10% as Binance.US announced zero-fee bitcoin trading. The total cryptocurrency market capitalization fell 3.32% today, below $890 billion.

Now, for the top stories of the day…

Source: Heat Map & Sector Performance — Finviz.com

Bearish ETF Bets Just Hit All-Time Highs

It looks like buying the dip in the stock market is officially NOT the strategy that most investors are taking right now as many worry about further capitulation in equities.

Just like during the 2008 Great Recession, bearish bets are dominating the $6.2 trillion ETF market.

  • Inverse ETFs, which win when the market loses, are booming in popularity during the market downturn.

  • The largest leveraged inverse ETF, ProShares UltraPro Short QQQ (SQQQ), hit an all-time high of $4.1 billion in assets last week. SQQQ is based on the inverse performance of the Nasdaq 100 index, leveraged by 3X.

At the same time, TQQQ (the bullish leveraged counterpart) fell to its lowest asset level in over a year, speaking to the lack of overall conviction in the market.

“Investors are selling the rallies now versus buying the dips,” said Athanasios Psarofagis, an ETF analyst with Bloomberg Intelligence. “You can see the sea change in sentiment, even during March ’20, investors were buying the dip.”

“It makes sense to see inverse ETFs becoming more popular and receiving inflows,” said Peter Chatwell, head of global macro strategies trading at Mizuho International Plc. “For real money investors, downside protection of a portfolio is difficult to come by, particularly in a rising yield environment where government bonds don’t work well as a hedge.”

  • Zooming Out: With the most aggressive Fed policy since 1994 fueling the bear market, investor sentiment is disintegrating and the #buythedip crowd is losing steam… And the potential for even tighter policy, more inflation, and a looming recession is adding extra salt to the wound.

  •  

White House Proposes Relief 'Solution' to Sky-High Gas Prices

Gas prices are high, like all-time record high, and it’s crushing consumers around the world. The latest proposal from the White House is to suspend the federal gas tax, but how big of a difference will that really make?

The Situation: The national average for a gallon of gas is $4.95, not only a record high but also fueling inflation in other parts of the economy. Goods and services need to be delivered and gas powers those deliveries.

Proposed Solution: President Biden’s currently weighing the suspension of the 18.4-cent-per-gallon tax. This tax has held the same rate for 29 years and contributes to the Highway Trust Fund.

The Savings: Get ready, because they are massive! If you drive a full-size SUV, which many Americans do, you could save a massive… Get ready… $4.60 a week, according to calculations by GasBuddy!

That equates to about $240 a year, but the proposal is only for a 3-month suspension at the moment, meaning one could save $60. This would save Americans an estimated $70 million per day combined. Based on a $5 gallon of gas, you would save 4% per gallon.

One Problem: Cheaper gas typically results in more demand. Higher demand, higher prices. One other problem, the suspension of this tax will also limit funding for infrastructure, which America has a problem with.

Ray Dalio: The Fed Can't Save Us

Ray Dalio, the founder of the world’s biggest hedge fund, Bridgewater Associates, said the Federal Reserve’s interest rate hikes wouldn’t fix our economy. On the idea commonly touted idea that inflation is “the big problem” and that the Fed tightening will “make things good again once it gets inflation under control,” he said this:

“I believe this is both naïve and inconsistent with how the economic machine works. … That view only focuses on inflation as the problem, and it sees Fed tightening as a low-cost action that will make things better when inflation goes away. But it’s not like that,” adding, “While tightening reduces inflation because it results in people spending less, it doesn’t make things better because it takes buying power away,”

Shifts and squeezes. Dalio said the Fed’s plan essentially “just shifts some of the squeezing of people via inflation to squeezing them via giving them less buying power. Dalio said the only way to increase the standard of living is to raise productivity. 

Stagflation Station. The Fed has no power to fight inflation without hurting our economy, according to the hedge fund manager. “Over the long run, the Fed will most likely chart a middle course that will take the form of stagflation,” said Dalio.

  • Powell is somehow a Sunday Driver AND a speed racer. “Central banks should use their powers to drive the markets and economy like a good driver drives a car—with gentle applications of the gas and brakes to produce steadiness rather than by hitting the gas hard and then hitting the brakes hard, leading to lurches forward and backward,” said Dalio.

Shop Hungry Bull

Celebrate the official return of the Hungry Bull app with some Hungry Bull merch! 

The coolest, most stylist, fintech-app merch around! Let everyone know that you invest with our iconic stock market bull logo. 


Click the link here!

The Price of EV Materials DOUBLED in 2 Years

The electric vehicle industry has a major problem. Since the covid pandemic began, the price of raw materials to make electric vehicles has more than doubled, according to a new report by AlixPartners.

EV (Expensive Vehicle): This has caused EV makers like Tesla, Lucid, Rivian, and GM to raise the price of new electric vehicles, cutting into demand and profits. The raw material cost to make an electric vehicle now totals $8,255 per vehicle, up an astonishing 144% from $3,381 per vehicle in March 2020.

The price increases aren’t limited to EVs however, as the raw material cost to produce a traditional combustion engine car has increased 106% from $1,779 to $3,662 in this same period.

Moving Forward: The increase in production cost is likely to force manufacturers to slow down on the EV hype and focus more on profitability and quality. Both Tesla and GM have recently announced price hikes for their electric vehicle lineup.

Despite higher manufacturing costs, EV production is projected to continue powering forward. AlixPartners predicts there will be over 200 different EV models on the road by 2024, compared to 80 EV models produced last year.

The $750 Million Bailout Saving the Crypto Industry

Sam Bankman-Fried is coming to the rescue of two firms as the market trudges through its rough patch.

The billionaire CEO of FTX agreed to provide BlockFi, the crypto lending platform, and Voyager Digital, the digital asset brokerage, with hundreds of millions of dollars to stay afloat amid the market downturn.

  • FTX is providing BlockFi with a $250 million revolving credit facility.

  • Alameda Research, Bankman-Fried’s quantitative research firm, is providing Voyager Digital with $500 million in financing ($200 million credit line of cash and USDC, as well as nearly 15,000 BTC).

BlockFi’s Bad Beat: Earlier this month, BlockFi said that it would be laying off 20% of its staff. Its valuation has also fallen from $3 billion last year to just $1 billion (according to a report from The Block).

  • Zac Prince, BlockFi co-founder and CEO, said the deal with FTX is more than just debt. It also “unlocks future collaboration and innovation” as the partnership helps the firm navigate the market from a “position of strength.”

Voyager’s Terrible Journey: Voyager Digital stock (VYGVF) crashed nearly 50% when the crypto exchange disclosed over $650 million worth of loans to Three Arrows capital (3AC)… which, as we know, is on the verge of bankruptcy.

  • Wall Street analysts hit Voyager with a wave of downgrades as the stock plummeted under $0.70 today.

  • VYGVF is down 95% year-to-date. Bankman-Fried’s funds are meant to help Voyager withstand the massive losses it’s taken this year.

Bankman’s Billions: Sam Bankman-Fried is one of the richest people in crypto with an estimated net worth of $20.5 billion. FTX crypto exchange hit a $32 billion valuation at the start of the year. Lack of regulation in the industry makes it nearly impossible for firms to turn to the federal government for help — which presents a big contrast with the banking industry in 2008.

Bulls

Revlon (REV) +34.32%: Revlon continues its massive meme stock run after filing chapter 11 bankruptcy, it’s now up over 300% in the past 3 trading sessions. 

Roblox (RBLX) +4.99%: Roblox stock was one of the rare tech stocks able to achieve a substantial gain today amid the market reversal. There was no news. 

Netflix (NFLX) +4.68%: Netflix is exploring digital advertising partnerships to expand revenue, with Google’s parent company Alphabet among the top potential partners.

Bears

Voyager Digital (VYGVF) -53.38%: The Crypto platform’s shares plunge 60% after revealing $665 million exposure to embattled hedge fund; considers issuing default notice.

Coinbase (COIN) -9.71%: Coinbase shares fall after rival Binance.US drops spot bitcoin trading fees.

Kohl’s (KSS) -8.79%: Franchise Group considers lowering Kohl’s bid closer to $50 a share from about $60, source says.

Nike (NKE) – Seaport downgrades Nike from buy to outperform due to inflation and supply chain disruption issues. “Downgrading from Buy to Neutral, as we don’t believe NKE’s relative multiple is justified by how the company sets up vs. the sector.”

Airbnb (ABNB) – JMP downgraded Airbnb from market outperform to market perform on valuation concerns. “Though we see ABNB as a dominant player, proliferating a category within travel, we believe the current valuation reflects its market position and see shares as fairly valued.”

Kraft Heinz (KHC) – BMO upgraded Kraft Heinz from outperform to market perform seeing a “compelling investment opportunity.” “We are upgrading KHC to Outperform with a $46 target price or 25% upside from current levels, as KHC’s strategic evolution, which continues to be overlooked by the market, creates a compelling investment opportunity.”

Quote of the Day: “If you can afford to take a risk and you’re young enough, either start your own company or be involved with one where you’re racking up equity. There’s no other path to becoming a millionaire. No employer is going to let you make a million dollars off of their business. They don’t have to. Realize that if you want that path, that journey to becoming a millionaire, you have to sacrifice a lot and work like a dog. I did. There was no balance in my life. I wasn’t even around when my kids were young. But today, I can afford to gather them with me every weekend anywhere on Earth I want to.” — Kevin O’Leary

Fun Fact: More than 8,000 glasses of Coca-Cola are knocked back every second.