Thursday, February 10, 2022

Will the Fed go Hiking?

February 10, 2022

Good morning traders!

Welcome back to The Daily Setup. Markets were up yesterday. Here's what's on the docket today:

  • Tritium's back
  • The Fed may go hiking
  • Congress may prohibit stock trading

Let's make today a good one.

Nick

How'd the markets look?

Market Outlook

DOW 35,768.06 +0.86%
S&P 500 4,587.18 +1.45%
NASDAQ 14,490.37 +2.08%
BITCOIN $44,470.49 +0.86%

 

Tritium, The Fed, and Disney

BIGGEST MOVER

Tritium brings the thunder

Tritium DCFC has been on a major bender this week. The Australian electrical equipment company saw its stock jump over 55% after announcing on Tuesday that it was expanding operations with a new facility in Lebanon, Tennessee-- and then another 64.57% yesterday after Grandpa Biden put the company front and center for his green infrastructure plan in a televised address. But will he remember that he said it?

  • Production is expected to start in Q3 2022, with the Infrastructure Investment and Jobs Act providing $7.5B to install half a million of Tritium's chargers throughout the country. The chargers are supposed to be distributed in such a way that EV drivers can easily drive long distances between communities and also short distances within them, though it's unclear how fun they'll be to siphon.
  • This is absolutely huge for Tritium, which has been losing money for a while now and has only been reeling in $56M in revenue annually. Thankfully for them, Joe fixed that problem with a wave of his wrinkly hand. Thanks, Dad!

Tritium has basically just received a gift from God. The company hasn't been so good at the whole "cost-profit" thing for a while now, but with this kind of sugar-rush cash infusion Tritium would really have to f*ck up to not be able to turn things around. My guess is that Tritium will be able to hit economies of scale and attract more efficient management as time goes on. In my opinion, I think it's still a buy.

 

Fed boutta go big or go home

*Rare footage of JPow behind closed doors*

For once, the CPI might actually matter. If January's numbers come out higher than expected on Thursday-- meaning, over a 7.2% YoY increase-- the Fed might sac up and roll out a half-point rate hike rather than the quarter-point that they've been teasing. That would be the biggest single hike in over 20 years-- but then, inflation is the worst it's been in 40, so go figure.

  • Analysts say that the chance of this half-point hike happening in March's FOMC meeting has apparently gone from one-fifth to one-third, which-- for those keeping score at home-- is bigger.
  • This is still a less-than-likely outcome, though. The Fed historically prefers gradual hikes and Powell still awaits confirmation for his next four-year term. Many think that a half-point hike would be ill-advised because it would be tantamount to an admission of fault for acting slowly in 2021. Can't have our leaders owning up to their mistakes, now, can we?
  • The question marks in the CPI equation will be airfare and travel lodging, as the Omicron variant curbed travel.

Faster hikes would cool down the market faster, driving down inflation (good in the long term) and hitting your portfolio across the board (bad in the short term). There's nothing to do but wait for the CPI data to come out on Thursday, but the higher that number, the bigger the dip in volatile stocks in the short term. I'm going for safe bets if a half-point hike looks imminent.

 

Mickey Flexes His Muscles

The poet laureate Ric Flair once said "Space Mountain is the oldest ride in the park but it has the longest line" which is reflective of Disney's (DIS) big quarter. The company put estimates in the figure four leglock with strong results across the board, particularly in the theme park space, which brought in $7.2B for the quarter vs. $3.6B in the same period last year. Shares of DIS were up more than 8% after hours on Wednesday, so to again quote the Nature Boy, "WOOOOOOOOOOO!".

  • EPS came in at $1.06 vs. estimates of $0.63 on revenue of $21.82B vs. expectations of $20.91B.
  • Results from the Disney+ streaming service were strong as well, with total subscriptions of 129.8M vs. estimates of 125.75M. I still haven't watched the Book of Boba Fett yet though.
  • Average Revenue per User (ARPU) came in at $6.68 per month, almost a buck more than the $5.80 a year ago. Thanks a lot, inflation.

People booking cruises and going to theme parks again is a great sign for both Disney's future prospects... and for life in general as society gets back to normal after 108 weeks flattening the curve. March starts spring break season as well, so families should be flocking to Orlando as restrictions ease. Streaming numbers should continue to grow thanks to new Marvel and Star Wars content released throughout the year.

Do You Accept Doge Comrade?

Token Talk

From Moscow to Minsk, Bitcoin may be on the verge of becoming legal tender in Mother Russia. The country's government and central bank agreed on a framework to recognize and regulate digital currencies, which is another way of saying Putin said ok. This new attitude is a shift from previous reports of the Russian central bank attempting to ban digital asset mining and trading and is a quicker flip than a blue state governor dropping a mask mandate.

  • Digital asset transactions of 600k rubles (about $8k in freedom bucks) would have to be reported because once a hardline surveillance state, always a hardline surveillance state.
  • Digital currency transactions will have to take place via an authorized firm and users will have to have fully verified identities, which makes sense since Russia is well known for being 100% transparent and on the up and up.
  • The new rules will essentially treat digital assets like foreign currencies, which actually seems sensible and reasonable. Come on Washington, when Russia is making you look clueless and uninformed it's time to take a hard look in the mirror.

Russia joins India in moving to legitimize digital assets, which may make digital currency markets see some stabilization following weakness in recent weeks. It will be interesting to see if this is a real shift in worldview for Russia, or if this is merely an end run around Biden's threats to cut the country off from the global financial system due to escalating tensions with Ukraine.

A Good Idea, 246 Years Overdue

Deals and Rumors

^ Are you though???

Congress may be about to lose a major job perk, namely the ability to trade stocks of the companies that it regulates. Speaker of the House and hedge fund all-star Nancy Pelosi finally seems willing to adopt rules that prohibit members of Congress from acting on privileged information that the general public is not privy to. It would seem that Nancy has finished closing her PTON short position.

  • This new viewpoint is a stark contrast to the Speaker's previous thinking back in December, when she poetically stated "We're a free market economy, they should be able to participate in that".
  • A 2012 law called the STOCK Act was meant to prevent Congressional insider trading, but last year 54 members were caught violating it.
  • Several bills are being prepared, with varying requirements from disclosure requirements to an outright ban of owning stocks.

It's wild to think that Congress could have so many successful investors among its ranks, especially if you remember that the House Bank had to be closed in 1992 because Representatives were incapable of maintaining basic checking accounts without abusing overdraft rules and kiting checks. If I could write an algorithm that tracks Congressional stock trading, I probably better get a move on since it might have a limited shelf life.

Link Roundup

Other News

Other News Link Roundup

  • At least you still have The Daily Setup – Barry Diller's takes six magazines out of print (link)

  • Continental toilets beware – Chipotle launches initiative to expand in small towns across North America (link)

  • The plague, sponsored by CVS – CVS Q4 earnings top projections thanks to vaccines (link)

  • I'll just do a tent – Sky-high interest rates wreck demand for mortgages (link)

  • 100% of the service for 100% of the price – Samsung reveals Galaxy S22 with same price tag as last model (link)

  • Try walking – Honda and Toyota won't have the semiconductors to meet demand this year (link)

Meme of the Day:

I want what they have, via @KennethDredd

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Updated: Today in DOD: Feb. 10, 2022

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