YOUR QUIVER | December 30, 2022
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Repo Rally
Yesterday was a record repo market, with 104 counterparties putting $2.3 trn at the Fed’s ORR facility. Today is the last biz day of the year, which can create pressure when borrowers try to get investors’ remaining dollars and drive increases in key lending rates.
Kingmakers
Energy was the standout this year of challenging markets. WTI and Brent increased by >4% and >7%, respectively, for YTD22 after jumping >50% in 2021. Farm commod also were strong, notching a fourth annual increase—the longest stretch since the early 90’s. Tech obviously got pummeled, with the NASDAQ losing around -1/3 of its value as rates rose and long-duration assets suffered the consequences. Bonds lost -16%, according to BBG, the greatest decline since 1990. Bitcoin fell more than -60%.
Keeping Your Options Open
The # of US contracts jot the 10bn mark in 2022—the first time ever, according to BBG. Contracts in US single stock and index options >2x the level 3 yrs ago. Bearish puts grew by >30% y/y, versus bullish calls which fell by -12%. Also, as we pointed out in other notes, short-term contracts were popular. GS estimates that S&P options expiring <24 hrs were >40% of total volume in 3Q22—almost 2x the level from 6 mo prior. Traders were trying to deal with market-moving events and data releases (and Powell press conferences). The one group that curtailed their options this year were the smaller investors, after getting burned.
Wood to Chop
That’s what Cathie Wood’s got on her plate for 2023. Analysts have cut earnings expectations for half of the largest holdings in ARKK, her main innovation ETF, according to BBG; ARKK is down -67% YTD. You’ve got $TSLA and $ZOOM down >-60% YTD alone. If the Fed doesn’t pause and/or pivot, there could be more stocks hopping on the pain train. But on a positive note, many investors tried to be non-consensus this year and brought inflows into ARKK (although they seemed to give up in the 4Q, per the chart below). ARKK took in $1.3bn this year, down from the $4.6bn in 2021, and $9.6bn in 2020.
BOJ BIG
The BOJ is following the mantra “go big or go home” with a third day of unscheduled bond buying. Now they’re at a monthly record of >$125bn with the additional fixed-rate and fixed-amount purchases, according to BBG. Yields obviously have ramped, and now domestic investors have a reason to bring their capital home. But this looks like the BOJ doesn’t want higher yields on shorter notes. After NYE, there will be a 10-yr note auction, and foreign funds are expected back.
The Buddy System
Putin and Xi Facetimed, and Xi confirmed that he was still Putin’s buddy, ready to expand the “strategic partnership” between them. OK, maybe they didn’t exactly Facetime (they did a video call), but that’s kind of a funny picture in my head. Xi still understands that there are limits to the friendship, though, as China doesn’t want to get caught up in sanctions—but at the same time, he needs Putin on his side regarding goals for Taiwan. So, for now they have an awkward buddy system on the global stage.
Lunar (Covid) Landing
No one really knows the extent of covid deaths, but folks are estimating that China may experience up to 25k deaths a day in Jan during Lunar NY festivities (with 1mm infections/day currently ramping to 3.7mm/day next month), peaking around Jan 23 per Airfinity. The US may test intl aircraft wastewater to track emerging strains, according to Reuters. Give that team a bonus for hardship work. The Natl Health Commission’s notes state that about 18% of China’s population may have gotten covid in the first 20 days of Dec. So of course China is going to stop publishing numbers.
Revenge Travel
Within 30 min of China ending its quarantine restriction, searches for overseas trips went up by 1k% on Trip.com, and that day bookings for outbound flights from the mainland increased by over 250% (and for inbound flights by >400%). After 3 years of staying put, the Chinese want to explore and see family. Top destinations are Singapore, South Korea, HK, Japan and Thailand. Also a top trip—heading to Macau and HK to get an mRNA vaccine and Paxlovid. They’re learning about supply and demand, though—flight prices are around 3x the normal price, as airlines haven’t changed their schedules to accommodate the demand. Let’s play a game—where do these lines head next (per the chart)? We can play another game called “Who’s Excited This NYE?” Execs at Swatch, Hermes, and Prada…as luxury consumption is prepped for a jump.
Climate Risks
A number of companies (Gen Dynamics, Haliburton, EOG Resources, etc.) added climate change risks to their reg disclosures after the SEC demanded it.
The Big Reveal
OK, not so much. Trump didn’t pay much in taxes (or at all in some years). It’s like watching a kid hesitate for 10 minutes before jumping into a pool. “I’m gonna do it. I’m really gonna do it. OK, I think I am ready now….” When the splash comes, you’re just glad the annoyance is over.
Hmmmmm
SBF held at least 4 meetings with senior WH officials before its demise? Follow the money, and get ready for new headlines and a book deal.
What Did We Learn This Year?
Let’s do a quick recap with associated charts thanks to BBG. #1 Inflation sucks. So much that people start focusing on it. #2 People also learned that rates can go up (and make house payments more costs). #3 Plus, they learned that the USD can ramp (which is good for vacations but bad for exports). #4 Moreover, we learned what “transitory” means (and doesn’t mean). #5 Lastly, we learned that people are willing to admit they have no clue about what’s going on, which is where we’re at right now. So, clean out your inbox, start that increased exercise regimen, buy some extra veggies, hug your (fill in the blank with partner, puppy (look at that face above), kid, mom, etc.) and get a good night’s sleep so that you’re ready for what’s in store in 2023.
Happy New Year!
No tongue in cheek comments here. We wish you and your loved ones a wonderful end to 2022, and a healthy and prosperous start to 2023.
