Roller Coaster Market

Jan 31

Strap in boys and girls. Last week’s market losses look to be spilling over into this week. Investors appear to be increasing their discount rates in an attempt to front-run any potential rate increase from the Federal Reserve and J-Pow himself. The S&P 500 is now down 7% for the month of January and it appears as if we are only just now getting started.

This week will be key on the earnings front as Alphabet, Amazon, Ford Motors and Starbucks will all be reporting. The January job report will be dropped and investors will watch the OPEC meeting as energy prices across the globe have skyrocketed.

Finally, it appears as if the crypto lender Genesis will now be accepting NFTs as collateral for loans. If anyone knows how to short this market I am all ears. Lending actual money based on an overinflated bubble of Jpegs is the epitome of a financial bubble is made of.

Stay safe out there and protect yo pockets.

`Together with`

Markets

Despite the roller-coaster past week, stocks ended up closing up on Friday. Apple’s strong earnings report helped boost the market and gave a sign that all is not dire for every tech company. Despite the Friday boost, the Nasdaq will likely have its worst month since the Great Recession back in 2008.
Adding to the stressors of higher interest rates is the geopolitical noise from Russia and the Ukraine. Should war be declared, natural gas prices could go ballistic as the European Union buys 40% of their gas from Russia. Should there be additional energy shortages in Europe, thermal coal should do extremely well here for anyone who owns them.

Earning Spotlight

January 31:

NXP Semiconductors (NXPI)
Cirrus Logic (CRUS)
Harmonic (HLIT)

February 1:

Exxon Mobile (XOM)
UBS (UBS)
UPS (UPS)
Sirius XM (SIRI)
Alphabet (GOOG)
General Motors (GM)
Starbucks (SBUX)
AMD (AMD)
PayPal Holdings (PYLP)
Match Group (MTCH)
Electronic Arts (EA)

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Short List

The XRT retail EFT still remains the most heavily shorted ETF with over 264% of the shares short. This is down from the 382% held short on Friday. The SPDR Oil and Gas Exploration EFT continues to creep up as investors appear to believe the recent outperformance in the energy industry is short-lived.

I am long both oil and gas and retail companies. I love investing against what the herd is doing and monitoring what the most heavily shorted ETFs helps me gauge the market sentiment. Subscribers can see my top stock picks here.

Actionable News

Elliott, Vista said near deal to buy Citrix Systems for $104/share (Seeking Alpha)
PC videogaming sees record spending, engagement in 2021 (Seeking Alpha)
Something in the water stocks: Baird finds picks among struggles (Seeking Alpha)
Evercore calls out old-school clothing brand with a Street-high target and 83% upside (Evercore)
Morgan Stanley hunts communications-software gems in new risk-off world (Morgan Stanley)
A biotech with 100% upside keeps reporting safe results (Evercore)
What's next for movies: Morgan Stanley does a cinema sweep (Morgan Stanley)
These dating stocks may be ready to rebound (Jefferies)

Big Movers

Boot Barn (BOOT) fell 9.72% Friday as investors digested the recent earnings report.
Pennsylvania Real Estate Investment Trust (PEI) fell an additional 8.73% Friday. The stock is down 71% over the past year and currently has a market cap of only $60 million.
Prison owner and operator, The Geo Group (GEO) fell 8.07% Friday on zero news. The stock is down 24% over the past year. I almost purchased the stock back when it was trading around $5 per share just days before a short squeeze shot the stock up over 80%. I may get interested again should the price continue to fall.

Best Comment

Looking out into 2022, I see an economy with accelerating rates of inflation, mostly driven by commodity and labor inflation. While the Federal Reserve will continue to talk tough, it will fail to rein in this inflation. Instead, the Fed will likely remain behind the curve in terms of taming this inflation but will succeed in detonating the bubbles in the Ponzi Sector along with high multiple tech. Additionally, I believe that many of the set-it-and-forget-it “compounder” companies will see margin and ultimately multiple compression as the Fed engages in Quantitative Tightening along with interest rate increases. Consequently, the capital in this sector will likely gravitate to the “Old Economy” value names that I have spent much of my career analyzing.
This sector rotation began during the summer of 2021 and has been accelerating ever since. While it has led to some volatility, I think the real fireworks are just beginning. Fortunately, we have taken down our overall exposure and I believe that our portfolio is well-positioned for inflows into undervalued securities that are tied to increasing rates of inflation. - Praetorian Capital, Q4 Investor Letter