Tuesday, June 21st, 2022 – Volume 2 – Issue 246
Happy Tuesday… Stocks came roaring back to start the week off on a green foot. 411 stocks of the S&P 500 were up today.
Energy was the S&P’s best-performing sector as oil prices jumped to $114 per barrel. Diamondback Energy (FANG) surged 8.2% and Exxon Mobil (XOM) rose 6.2%.
Big Tech also had a nice day — Alphabet +4.1%, Apple +3.3%, and Amazon +2.3% — despite growing fears of a recession, inflation, and stagflation in the market.
Crypto: You probably can’t tell… but bitcoin is up 22% since it’s low of $17,593 on Saturday night. BTC surged about $21,000 today as investors fight to hold the $20K psychological level.
Now, for the top stories of the day…
Source: Heat Map & Sector Performance — Finviz.com
Elon's Twitter Saga Hits Critical 69-Day Mark
It’s been 69 days since Elon tweeted, “I made an offer” and 79 days since he disclosed his stake in Twitter. Unfortunately for Tesla and Twitter shareholders, issues still need to be resolved before the world’s richest man buys the birdhouse.
Elon’s three “unresolved matters”:
Too many bots: Twitter claims that less than 5% of “monetizable” daily active users are bots, but Elon said that’s “probably not most people’s experience when using Twitter,” later adding, “We’re still awaiting a resolution on that matter, and that is a very significant matter.”
Debt Financing: Elon is planning on paying $33.5 billion himself, and outside investors, including Oracle’s Larry Ellison and crypto platform Binance, are pledging $7.1 billion. The remainder will come from bank loans with Musk selling Tesla shares and using shares as collateral.
Shareholder Approval: Investors intend to vote on the deal in July or August. Musk’s bid is for $54.20 a share, and Twitter stock is sitting at $38.91, which would translate to a ~40% bump, but It’s unclear whether they will approve it, as some Twitter shareholders just sued Elon and Twitter over the chaotic deal.
Tesla investors want out. Tesla shareholders presumably prefer Elon walking away from the deal, as many don’t like the idea of him using Tesla shares as collateral or selling additional shares, as well as taking his time and energy away from Tesla. Tesla stock is down nearly 40% since he announced his stake in Twitter.
Twitter’s board weighs in. Elon got some good news today when Twitter’s board unanimously recommended that shareholders approve the proposed $44 billion agreement.
This Crypto Short Squeeze Sends Token Surging 300%
Celsius (CEL), the native token of crypto lender Celsius Finance, surged as much as 300% yesterday as holders of the crypto attempted to orchestrate a GameStop-like short squeeze.
CEL initially lost over half its value as the company paused withdrawals of funds for its users — a move that made many believe that the company was potentially insolvent.
Calculated Moves: Holders seem to have rallied behind the #CELShortSqueeze hashtag on Twitter, attempting to recoup some of their losses using good ‘ole market dynamic tricks. Here’s the step-by-step process that people were telling each other to follow…
Buy CEL on FTX.
Move tokens to MetaMask.
Connect to 1inch, and set a sell limit order @ $100 (or some other ridiculously high price).
And lastly, of course, share this with your friends…
CEL managed to hit an intraday high of $1.56, putting it up over 58% in just 24 hours (and up 320% in just one week). Celsius token hit a low of $0.17 on June 12th.
The Latest: Celsius released a statement yesterday, saying that its “objective continues to be stabilizing our liquidity and operations,” and that “this process will take time.” Overall, Celsius’s issues continue to be a risk to the broader crypto market, and serve as a cautionary tale for overextension in risky business.
The Weakest Home Sales Since 2020
First the stock market, then the crypto market, and now everyone is just waiting for the real estate market. Sales of existing homes fell 3.4% in May to a seasonally adjusted annualized rate of 5.41 million units, according to the National Association of Realtors.
Pain: This was the weakest reading since June 2020 post-covid and the weakest pre-covid reading since January 2020. On a YOY basis, sales were down 8.6%, while April’s sales were revised lower.
Economic data always lags by a month, this reading represents contracts likely signed during March and April when the 30-year fixed mortgage rate increased from 4% to 5.5%. The current rate is about 6%.
More Pain to Come: “I do anticipate a further decline in home sales,” said Lawrence Yun, chief economist at the National Association of Realtors. “The impact of higher mortgage rates is not yet fully reflected in the data.”
- At the end of May, there were roughly 1.6 million homes for sale, an increase of 12.6% from last month, but down 4.1% YOY. This represents a 2.6-month supply at the current rate.
- The median average price of a house sold in May was $407,600, a 14.8% YOY increase, and a new record.
- Houses stayed on the market for an average of just 16 days.
- First-time buyers made up 27% of all transactions, down from 31% YOY.
- Realtor.com expects 2022 home sales to come in lower than 2021 sales.
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Who is Going to Be Netflix's Next Big Partner?
The world’s biggest advertising conference is getting underway this week in Cannes, France, and many investors are keeping out for information on how Netflix plans to integrate advertising into its historically ad-free streaming model.
Background: Back in April, Netflix said that it would offer a cheaper, ad-supported streaming option after it lost subscribers for the first time in over a decade. But the question is, who will be Netflix’s new ad partner?
Sources told CNBC that Netflix has already met with Google, Comcast/NBCUniversal, and Roku (as we have previously reported). While no firm decisions have been made at this point, the company is looking to secure an ad-sales and marketing partnership within the next two to three months — and the company they decide to go with could be set for a huge revenue opportunity.
Google, of course, is the world’s largest ad giant, but lacks experience in entertainment content (although the company is trying to push into that space).
Comcast lacks the reach of Google, but the NBC Universal unit is a top dog in selling ads for premium TV content. NBC Universal also just expanded a partnership with Apple, setting precedent for partnering to sell ads for premium content at a massive scale.
Roku is another potential partnership target, as the content company has tons of existing insight into its very own ad-supported subscription model.
“We are still in the early days of deciding how to launch a lower priced, ad-supported option and no decisions have been made. So this is all just speculation at this point,” Netflix said in a statement.
Zooming Out: Share prices are jumping all over the place as traders bet on the next big partnership in tech and content. ROKU jumped over 8% today and GOOGL moved 4.1% into the green. For Netflix and its shareholders, the stakes are very high. NFLX stock is down 50% since it first announced its falling subscriber base.
This is Alarming: Highest Fear Since 2008 Great Recession
While economists are split on the odds and severity of a recession, there’s one thing they are fairly certain about, stagflation. According to the Securities Industry and Financial Markets Association, 80% of economists named stagflation as the greater long-term risk to the economy.
In addition, a recent Bank of America global fund manager survey shows that stagflation fears are the highest they’ve been since June 2008. Stagflation is “by far and away the most popular description of what the economic backdrop will be in the next 12 months,” according to the report.
What is Stagflation? Simply put, high inflation with low economic growth and high unemployment.
Not the 70s: “The sense in which you had stagflation in the 1970s is not one that I think is at all in the cards,” says Jonathan Wright, professor of economics at Johns Hopkins University. Wright believes rising interest rates will tighten the labor market, leading to the potential of a mild recession. In the near term, he believes the labor market may cool by having fewer vacancies.
Naysayers: Not everyone agrees stagflation is inevitable however, as Josh Bivens, director of research at the Economic Policy Institute, says “It doesn’t seem like a high probability.”Bivens says for stagflation to occur, you must have high inflation and high unemployment, which he doesn’t see as likely. Bivens believes that if unemployment was to rise, it would bring inflation down.
Coinbase (COIN) +12.24%: Coinbase rallied today as crypto markets recovered over the weekend and climbed above crucial support levels.
Tesla (TSLA) +9.35: Elon Musk announced Tesla layoffs would be revised down from 10% to 3.5%, calling the amount “not super material.”
Alphabet (GOOGL) +4.11%: Alphabet shares gained today following an AdAge report that Netflix is in talks with the Google parent company about a potential advertising relationship.
Meta (META) -4.09%: Meta stock was unable to hold its morning gains and dove deep into the red on a green day for unknown reasons.
Under Armour (UA) -3.58%: Cowen downgraded the apparel maker due to inflation and supply chain issues, while Analyst John Kernan cut hit PT by $3 to $10/share.
SunPower Corp (SPWR) -3.57%: Goldman Sachs downgraded SunPower to sell over rising interest rates concerns.
Adobe (ADBE) – Morgan Stanley downgraded Adobe from overweight to equal weight seeing slowing EPS. “Beyond Seasonality — Expecting Structurally Slower EPS Growth Ahead; Downgrade to Equal Weight.”
Chewy (CHWY) – Wedbush upgraded Chewy from neutral to outperform on an attractive valuation. “Along with relatively favorable pet category dynamics, bottoming e-commerce trends and attractive valuation, better risk-reward leads us to upgrade CHWY to OUTPERFORM.”
Palantir (PLTR) – BoA initiated Palantir as a buy saying the company is a beneficiary in the future of A.I. “Palantir’s dominant position in the AI-powered software market, differentiated end-to-end & highly secure solutions and first mover advantages should support more than 30% annual revenue expansion and improving profits in the midterm.”
Quote of the Day: “He will win who knows when to fight and when not to fight.” – Sun Tzu
Fun Fact: There are over 582 million entrepreneurs worldwide, unofficially.