What’s new
Administrative topics and an introduction
Well folks, back on the normal schedule! The folks on the Hill pushed through their nearly $2 trillion stimulus package and this was the bigger news piece of the week. We continue to hear a lot about reflation and value rotation trades. My friends, the Pirates of Finance posted another great video on this exact topic and it is a great primer and data piece on this topic. I’ve linked in below, and you should watch it.
This week’s piece is a quickie - really sounding off on the highlights financially and economically of the past week.
Let’s get into some stories.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: +4.07%
S&P 500: +2.64%
NASDAQ: +3.09%
Asia and Europe 5 Day Performance
Nikkei 225: +2.96%
Hang Seng: -1.23%
FTSE 100: +1.97%
DAX: +4.18%
Rates, Spot Prices, and ‘Good to Knows’
Market Madness Portfolio: +2.39%
CBOE Volatility Index (VIX): 20.69
US 10 YR: 1.629%
Crude OIL: $65.56
Spot Gold: $1,726.48
TEDRATE: 0.15
LIBOR (3 month): 0.18388%
U.S. Dollar Index: 91.67
EUR/USD: $1.1949
Pound/USD: $1.3910
USD/JPY: 109.024 JPY
USD/CNY: 6.508 CNY
Weekly update
An article by Christopher
Financial markets
Markets performed well this week as the stimulus bill was signed by Joey B. and reopening optimism continues. Tech held it together this week, but it was a bumpy ride as the tech world battled rising rates and the rotation out of growth and into value (as part of the reflation and reopening narrative). The reopening narrative hit a nice milestone this week as Joey B. announced over 100 million vaccines had been administered to Americans. These investment rebalances continue to rattle the Covid-superstar stocks (tech) in tandem with considerations for rising yields.
Elsewhere in the world, European stocks performed well, and Asian stocks were mixed. China’s largest index wiped out 2021’s gains thus far and put the index near correction territory. From what I read, there are fears by the regulatory agencies regarding asset bubbles forming in the economy, and the government rolled back on their original inflation and fiscal deficit targets as a way to create some ‘wiggle room’ to combat potential bubbles and ‘avoid systemic risks.’
Hey, we’ve all been there - the GFC was no joke. So, if China needs to gradually deflate some bubbles, go right ahead. Some intermittent financial downturns are WAY better than a full-blown bubble burst.
In commodities and currencies, gold rose against last week’s close, oil is holding steady over $65/barrel, and the US Dollar Index is down a bit from last week.
As it relates to the Market Madness Portfolio, I have to sit down and rebalance. The tech exposure (mainly from $ARKK and $SPY) is a bit too much now that we’re seeing the rotation from growth to value take hold. Since inception (circa June 2020), the MM Portfolio is up 23.64%, which is definitely not anything to sneeze at. However, over the next couple weeks, I am going to do some research and generate a new portfolio with more single stock ideas for the next iteration of the fund and we will see where the markets take us.
Bonus Reads:
A great primer on the Reflation Trade via The Pirates of Finance [Video]
What Are Your Thoughts (03.09.2021) [Video]
Economic data and stimulus
The bigger news this week was on the economic front and stimulus front. We already mentioned the stimulus bill being passed, so I won’t beat a dead horse. On top of the single direct payments, the plan also includes extended unemployment benefits that will continue into the Summer. This part comes with mixed reviews, as some experts see the enhanced benefits as a detractor for those collecting to seek employment.
On the other side of the coin, this past week we saw a smaller than expected rise in new jobless claims. The week over week claims are still quite high, but many hope that the stimulus bill and ‘reopening fever’ will help boost the return-to-work push.
The last piece of economic data in the headlines this week was the inflation print. The Consumer Price Index (CPI) saw an increase off the back of higher gasoline and energy prices (seasonally adjust increase of 0.4%). Core CPI (CPI, excluding food and energy) rose a mere 0.1%. Over the past 12 months, the non-seasonally adjusted CPI print from Feb to Feb was 1.7%, still below the Fed’s 2% inflation target. There are still a great deal of worries out there about the potential for a big rise in inflation on the heels of all this stimulus if continued to be left unchecked by the Fed.
Federal Reserve officials acknowledge that annual inflation is likely to rise in the coming months as the economy picks up. A spending surge after the economy more fully reopens, or supply-chain bottlenecks, also could cause some prices to jump.
But decades of slowing inflation due to globalization, technological advances and aging populations prompted the Fed last year to ditch its longtime practice of raising interest rates to pre-empt higher prices. Policy makers now plan to wait until inflation hits a 2% target and remains above it for some time before contemplating interest-rate increases.
More than 80% of economists surveyed by The Wall Street Journal said they expect inflation to rise above the Fed’s 2% target for a period of time due to the latest relief package. Economists in the survey said they see annual inflation rising to 2.8% by the middle of this year, then falling gradually after that.
(excerpted from WSJ article)
Sometimes, it is easy enough to say that this time we can look to the past for answers, and this may be true. However, it may also be a good time to just keep expectations in check, and allow for natural ebbs and flows to guide the path to the long run inflation target (i.e. don’t get your bottoms twisted in the short term). The signals right now that sound the inflation alarm are still rather mixed; some in favor and some against future unchecked inflation.
Something that is unquestionable is that the Fed is going to have to address their ballooned balance sheet and unwind some of this monetary stimulus and coordinate their efforts with the fine folks on the Hill (since the fiscal stimulus is impacting the future too). Something interesting that I’ve been seeing during the pandemic was that was keeping inflation in check was money velocity being practically zero. As the reopening commences and we get back to full business, money velocity will pick up and that is going to be something important to watch (given how much stimulus has been injected into the system) as it relates to the potential for heightened inflation. But that is a headache and a worry for another day.
Bonus Reads:
A Primer on Bonds and Yields by Sahil Bloom (a condensed version can be found here as a Twitter thread he made)
Dollar Collapse and the $187 Reese’s Cup – Heisenberg Report
A Quick Note…
An unsponsored #ad
Sometimes, it is nice to be brought back to the past a bit. It is coming up on a year for me personally since last I was in-person at university. Before that downward spiral, I was in a great class taught by Prof. Wiggins on Mergers and Acquisitions. It was a case-centric course, focusing on the managerial decisions and strategies behind the M&A world, as well as an investigation into some various deal structures. It was a great time, and I walked away learning that so much of an M&A deal cannot be put into the spreadsheet.
I bring this up because one of the case studies we looked at was titled “Suit Wars” and outlined the takeover and reverse-takeover battle between Jos. A. Bank and Men’s Warehouse. I’ve been going through my old lecture materials and was reviewing the material in this course when in comes an email from my friends over at PETITION. A new edition, 😎The owners of Men's Wearhouse don't like the way things look😎, dropped and it was a really good follow-on to that case study and a prime example of the damage the pandemic has done to traditional brick and mortar.
If you are any bit interested in the world of distressed investing, restructuring and bankruptcy, please go check out PETITION. No quid-pro-quo here, just a great newsletter in a very interesting financial niche done incredibly well.
Quick Takes
To fill in the gaps
More on Roblox’s direct listing this week. (via CNBC, WSJ 1, and WSJ 2)
China vs Alibaba. (via WSJ)
CDC says the fully vaccinated can gather indoors without masks. (via WSJ)
Greensill Capital becomes insolvent. (via WSJ)
SoftBank invested $400 million into Grensill before it collapsed. (via WSJ)
AND Greensill borrowed nearly $100 million from its own bank before its collapse. (via FT)
Apollo reabsorbs Athene in all-stock deal. (via WSJ)
Cathie Wood sees the party going on for a while longer. (via CNBC and via FT)
The SPAC movement continues as Grab seeks to go public. (via WSJ)
Looking into EV’s future. (via WSJ)
U.S. households’ net worth rose to record $130.2 Trillion in Q4 2020. (via WSJ)
BTC breaks $60,000. (via CNBC)
The rise of ‘smart investing’ apps. (via WSJ)
Bridgewater Associate’s warning following government bond selloff. (via FT)
General Banter
What’s on the minds of our editors and writers
I’m incredibly thankful and humbled to be included in Bookshlf’s 100 Shelves that Caught our Attention! It’s a great community to be a part of, and a great place for me to share additional articles and content that does not make it into the weekly edition of Market Madness.
Reader’s Corner
A place for suggestions for readers like you
Bain’s Global Private Equity Report 2021 is an interesting read.
What I’m Reading:
Options, Futures, and Other Derivates (10th edition) [for education]
Money: The True Story of a Made Up Thing [for interest]
Well done. You’ve made it through the madness. I’ve worked hard to ensure that you leave this page having learned something, and I hope that it benefits you in your daily adventure. Thank you again for checking in.
Do you like what you have read? If you know of anyone missing Market Madness, save them the trouble, and share it with them!
Check out Behind the Madness for all the cool links and sign ups I used to have at the bottom of the weekly edition. Updated weekly!
Check out A Series of Financial Musings for informative threads related to all kinds of financial learning points, novel retentions, and commentary on research papers.
Continue the conversation with me on Bookshlf, “a dedicated space to help people organize, curate and discover the content they love, no matter where it's from. A place to save it for yourself, or share it with communities who will love it, too.”