I am Groot

 

Didn't have too much time this weekend to think about what happened this week, but I do know it’s more of the same. Earnings Season kicked off with great earnings from the major banks led by Banking & Trading. SEC looks close to approving America’s first Bitcoin ETF. It’s not a full blown spot fund, but futures are better than nothing, right? The Port of LA and Long Beach are now running 24/7, because as we’ve highlighted things are backed up. Energy prices are still trending higher. Yields are up indicating some think inflation is going to cause rate hikes sooner than later. All this and the US equity markets and most major global indices were up decently last week. This is where my title comes from. ‘I am Groot’ it’s all it says, but it’s interpreted as different things by Rocket and others that “understand” him. This is how I feel the market reacts to data at times. It looks the same, sounds the same, but certain people act differently and make a ton of money.

This week we’ll see earnings really take off and also see a decent amount on the economic calendar. Beige Book is one that should give us more insight into the Fed. I’m also looking to see what Riot Blockchain shows off in its Bitcoin mining facility.

Earnings Season

Last Week

This past week was like the appetizer for Earnings Season. The banks started us off with a bang. Each showed strength in one area of business, but I tend to focus on their Equities or Investment Management businesses. The highlights for me were; JP Morgan +30% on Prime Brokerage and derivatives, BofA sales & trading up 9% but 33% in equities, Citi up 40% in equities and it was their 2nd best quarter in last 10 years, and Goldman +51% YoY in equities. The thing that really stood out was with strength in Banking and Global Markets Goldman YTD net revenues have set a record already for full year numbers. On the stock performance side, only JP Morgan didn’t smash. Initially down, they ended the week with a slight uptick.

Other non-bank names that had worthwhile results were Alcoa, who beat by about 14% on the bottom line and traded up by 15% by Friday, and midcap Duck Creek Tech (DCT), who beat by about 30% and traded off 25%.

This Week

Now we start getting into the mix. This week we have 78 S&P 500 and 126 Russell 1000 names reporting. That’s 14% & 13% of the respective market caps of those indices. Smallcaps are always more spread out, but 7% of the Russell 2000 market cap reports. On the individual names, we’ve got Tesla with a huge 16% Predicted Surprise and some upward momentum in the SmartEstimate.

Equity Capital Markets (via Refinitiv’s IFR)

Another active week for the ECM desks with nearly 30 deals in total about half of those SPACs or IPOs. The largest deals were Gitlab (GTLB), IHS Holdings (IHS), and AvidXchange (AVDX). GTLB has performed well in it’s first two days, up almost 50%, but the other two are actually lower, IHS by 20% and AVDX by 6.6%.

This week we’ve got a bunch of smaller offerings coming to market. Showing 10 IPOs, but only looking to raise a total of $2.1B. Our friends in the second city know about the largest expected offering, Portillo’s. It’s a regional chain serving Chicago-style food. Hmmm, chipped beef. There is still a huge backlog of names that have filed and those filings continue to come in.

Best of the Week

I thought this was a great conversion, especially for those that are not all too familiar with how event driven trading strategies work. They go step by step through the process of finding and evaluating trades. You’ll hear how much reading of filings goes into this. I’m sharing the guest’s blog here too because it includes a bunch of great content.

Mergers & Acquisitions: The Ultimate Game of Poker

THE LONG AND SHORT OF IT

Best of the Rest

News out last week about an eminent approval of a Bitcoin Exchange Traded Instrument. The Real Vision team covered this in their daily wrap on Friday. I thought there were a few other good articles around some of the things that may not come to mind right away. The second link focuses on contango only, but then Dave Nadig of ETF Trends highlights a few more things, like position limits, leverage, taxes and custody that could also be problems on top of contango.

Bitcoin Jumps as BTC Futures ETF Set to Make Its Debut - Listening time: 40 minutes

Dying for a Bitcoin Futures ETF? Watch Out for ‘Contango Bleed’

The Problem With a Bitcoin Futures ETF

Keith from Hedgeye comes on a little strong for many, but I think his brash personality allows him to promote ideas that many will not. This conversation with Kyle Bass goes to places many will not. There’s criticism of China, Ray Dalio, Bloomberg, CNBC, and Wall St banks. They really get into some of the things that are wrong with our industry.

Hedgeye Investing Summit VII: Kyle Bass, Founder & Chief Investment Officer, Hayman Capital - Listening time: 54minutes

Anything that starts with baseball cards collecting grabs my attention. Especially a 1952 Mickey Mantle card, which I spent about 20-30 hours searching three houses for one that was supposedly given to my uncle when he was a kid. Never found it. Then the author gets into the supply and demand of investable assets. This chart below is what prompted me to share the article. I knew buybacks play a huge role in supporting US stocks, but didn’t realize it was this much.

Paradox Of Paper

Drew looks at the crazy valuation of Tesla again. These were his original charts, but in the thread there are a few more. The Tesla bulls came out in defense and there was a discussion around EV and net debt.

TSLA vs. Everybody

I thought these next few charts were worth sharing. They get into what US equities have done in certain environments. 

Tightening - don't worry (about stock performance)

https://twitter.com/LanceRoberts/status/1447537517528498187?s=20

Median Quarterly Excess Return in Stagflationary Periods

This is another one of those deep dives on market structure. This one is one of those sort of lobbying efforts from Citadel Securities. They’re trying to make the case for being able to enter and cancel orders for the benefit of risk management. They’ve made the point that it helps narrow spreads and more robust price discovery, which leads to a more healthy market.

Why Restricting Cancel Rates Can Increase Bid-Ask Spreads

One for the Road

This one has nothing really to do with finance, but does a little with business and life. Drones are finding more and more ways into our lives. I think the package delivery thing was a little over subscribed, but there are tons of other use cases for these. This article dives into the search and rescue use case. It’s a longer form article, but this fascinated me.

Why Drones Are the Future of Outdoor Search and Rescue

Thanks for reading. Have a great couple of weeks, as I'm off next week.

Michael