Good Afternoon,
September existed in two parts for investors, and for once, it wasn’t pre- and post-Burning Man. It was pre- and post-CPI print. (Each does your bank account equally dirty). This week, we'll be talking fun facts about recent financings, and the Fed meeting that should've been an email.
Bottom Line Up Front
Contribute something new to the news you’ll coffee chat over
Figma's being sold. The collaborative design tool was originally incepted as a meme generator.
SEC may ban Robinhood order flow. They must've heard about their infamous HQ investor wall, which illustrates Snoop Dogg and staff.
Fed to reset U.S. housing. Mortgage rates spiked above 6% the same day as the anniversary of Lehman Brothers' fall. Don't get too sad, though, because they're not. The brothers threw a party marking the 10-year anniversary of the bankruptcy.
But first, a quick note from The BAD Investment Company.
Tired of ESG Bullsh*t?Fortunately, there's a money manager that decided that B-A-D might be the better acronym for investors.The BAD ETF (NYSE: BAD) launched last December and is taking a different stance in this green washed world focusing on 3 industries for which the ticker represents – B-A-D.
Betting – Casinos, gaming, and online gaming operations – 33%
Alcohol – Alcoholic beverage manufacturing and distribution – 23%
Drugs – Pharmaceutical and biotechnology product development and manufacturing – 33%Cannabis cultivators & distributors - 10%
The case for these BAD industries remains strong for a simple yet important reason – they have historically offered attractive risk-adjusted returns. In addition to these industries overcoming government scrutiny, these industries have shown resilience during economic downturns because people tend to indulge in their vices, or what some call hobbies.
As a result, we believe these asset classes are typically underappreciated and therefore under-valued but the reality is that people will continue to consume alcohol, gamble, and need medicine in good times, and in BAD.
In regards to the betting and cannabis aspects, as these industries become more widely accepted socially and legally, they may offer investors additional growth as more states look to legalize those industries for additional tax revenues.
Learn more about the BAD ETF fund details and sign up for our mailing list to get the latest fund insights and information.
Deep Dive: Decision Day
i.e. J Pow's no good very bad meeting that should've been an email
Yield Curves: Are Steep (Allegedly)
In the most predictable reaction since Kanye’s last rant, the Fed concluded this month’s meeting to announce it will raise rates again for the fifth time this year by 0.75%. In true Econ 101 fashion where everyone asks a version of the same question, journalists were quick to point to the "yield curve" and how its inversion points to a recession.
But, as every CNBC anchor and their glam team can now tell you, it's steepening. In describing a yield curve, “steep” implies a large positive curve and “inversion” implies a negative curve. So, what exactly is a “steep inversion?” Let's discuss how we got here.
The prices of a range of daily consumer goods and services rose 0.1% from July to 8.3% YoY. A bit too refreshed from their summer Tulum house raves, economists had been penciling in a decline from July (up just 8.0% YoY). The bigger, continued increase spooked investors. Many had assumed that inflation had peaked and would be headed south.
Let’s have a J Pow Wow over what the aftermath will mean for:
1. You buying the Tesla cybertruck
Buying a car will get more expensive, since you'll pay more in interest. The Fed funds rate doesn’t control auto rates directly. They are tied to the prime rate. The Fed’s steep rate increase means that vehicle financing could cost you more money.
Lenders do still hold power over the amount charged to borrowers based on their credit history. So either way, it’ll be rough for you.
2. Your portfolio:
Equities and crypto markets have already taken fatal blows by the Fed's decision to raise rates. Wednesday marked one of the most pivotal Fed meetings of the year. It was equally pivotal for many’s portfolios…for the exact opposite reason.
That’s because, historically speaking, the FOMC is not the time to cash out, bro down. In a history of previous Fed meetings, betting big gets you burned. But the risk averse typically hurt as well once they need to re-enter the market. And that’s because it’s typically advised to close all shorts on equities, bonds and long dollar positions.
Each hour in the 24 leading up to the FOMC are doomsdays. Uncertainty is typically sky-high, and investor sentiment is at a seemingly all-time low.
By the time the FOMC is here, the market has worked itself into a pessimistic tailspin. Investors’ Fed jitters transpire into jitters across indices. Implied volatility for US equities has spiked before every FOMC meeting.
By the time the FOMC is here, the market has worked itself into a pessimistic tailspin. Investors’ Fed jitters transpire into jitters across indices. Implied volatility for US equities has spiked before every FOMC meeting.
3. Your roommates’ student loans:
Higher rates could make it more expensive to refinance student loans. The interest rate is determined by the type of loan and when you borrow. Variable-rate student loans from private lenders may see their interest rate change when the federal funds rate changes.
The roomie is safe for now if they took out federal student loans, which Congress determines each school year at fixed rates.
4. The overdrafts on your AmEx Platinum:
Fed hikes will drive up interest rates on credit cards, meaning that your debt on outstanding balances will go up. Just walk the 200 feet to pick up your Chipotle, Chad.
5. Your Montauk timeshare:
When inflation picks up, so do fixed mortgage rates. Lenders bundle mortgages and sell them in the secondary marketplace to investors. When investors aren’t buying, rates rise to attract buyers. So the Fed hiking rates also hikes the rates consumers pay on their fixed-rate home loans when they refinance or take out a new mortgage.
At least, that’s what your MD’s ex-wife told me:
But don’t go buying up SPY puts to finance your Art Basel tics just yet. Rising interest rates could also mean a slightly better return on your savings deposits, since they’re directly affected by the Fed funds rate. Banks are starting to increase APYs (= annual percentage yields) on savings accounts and certificates of deposit in the wake of the rate hikes.
It could be worse. You could be the 52% over on WallStreetBets who thought the Fed would hike lower than recently.
Someone does have to be on the other side of the trade to make the profit possible.
But it's not just WallStreetBets letting emotions guide their (largely misinformed) decisions. This month, nervousness flashed across virtually every asset class:
Expected swings in US stocks were near levels last seen in mid-July.
Swings on Treasuries jumped to a one-month high.
All major currency pairs. (There was even uncertainty over how foreign-exchange markets would react to the Fed’s decision).
Following the Fed’s announcement, the S&P 500 closed 20% below its Jan. 3 closing record. This saw it slide below 3,800 – a key level analysts warn of a potential test of the stock market’s lows. When economic data fades quickly, investors can expect the benchmark index to fall further.
Looking forward, traders are laser focused on economic growth and earnings because if we get clear signs that either are breaking down further, then it’ll be unlikely that support at the June lows holds
Lit's Pick
Last week, you were advised to go big or go home. Well, the home's aren't going. That's why we're taking "Yes" on the peak mortgage rate being above 7.0% by the end of the year for $0.42. That's all for today, have a great weekend!
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