🍋 75 bps vs Inflation

Fed hiked rates by 75bps. Robinhood is worth less than the cash on its balance sheet. Bill Gates doesn’t like NFTs and believes that "100% based on the greater fool theory, that somebody's gonna pay more for it than I do." China might have seen aliens and Vince McMahon apparently paid $3m in a hush pact to an employee he had an affair with.

Short Squeez
June 16, 2022

Together With

"It is easier to hold your principles 100% of the time than it is to hold them 98% of the time." — Clayton M. Christensen

Good Morning! Robinhood shares dropped it low, bringing the market cap to as low as $5.99 billion, which is lower than the $6.19 billion of cash and cash equivalents the firm had on hand at the end of Q1. (lmao) While Robinhood and stocks have seen better days, so has crypto. Bill Gates thinks that crypto could see worse days though – he believes crypto and NFTs are "100% based on the greater fool theory, that somebody's gonna pay more for it than I do."

China said their Sky Eye telescope may have picked up signs of alien civilizations, after detecting electromagnetic signals with the world's largest radio telescope. Maybe they can use this tech to dig into the secret $3 million hush pact between WWE CEO Vince McMahon, and an employee he had an affair with.

1. Story of the Day: The Largest 0.75% in Almost 30 Years

Yesterday was a historic day. The Fed raised its benchmark interest rates range 75 bps to 1.5-1.75%, the largest rate hike since 1994. Looking at the dot plot, the benchmark rate will end the year at 3.4%, revised upward by 1.5% since the March estimate.

Jerome Powell said, "Clearly, today's 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common." He did caveat that by saying the July meeting could still see a 50 or 75 bps increase, and decisions will be made "meeting by meeting" with the Fed continuing "to communicate our intentions as clearly as we can."

Stock & crypto bounced back slightly after a disastrous last few days after a hot inflation reading. It remains to be seen if markets will like the rate hike in the long term.

Officials also cut their outlook for 2022 economic growth, thinking GDP will gain just 1.7%, compared to the 2.8% prediction from March.  

Short Squeez Takeaway: It's clear though that fighting inflation is the Fed's #1 target and it's willing to do whatever it takes to get the number down to 2% from 8.6%. Even if that means a heavy landing – tossing the economy into a recession and inflicting pain on the labor market, with unemployment rate expected to rise steadily through 2024 to 4.1%. One thing's for sure, JPow's printer is not being used anytime soon.

2. Markets Rundown

Stocks reversed some of the losses in the last two days because of the Fed's aggressive measures to fight inflation.

Movers & Shakers

  • (+) Moderna ($MRNA) +6% after an FDA committee voted to recommend Moderna's COVID vaccine to children ages 6-17.
  • (+) Snowflake ($SNOW) +8% thanks to Canaccord Genuity upgrading the stock to a buy from a hold.
  • (–) Robinhood ($HOOD) -2% because Atlantic Equities downgraded them to neutral, citing declining users and regulatory issues as threats to the stock.

Private Dealmaking

  • MegaRobo, developer of life sciences robots, raised $300m in Series C funding
  • AlphaSense, market intelligence and search platform, raised $225m in Series D funding
  • UpGrad, an Indian ed-tech focused on post-grad and professional degrees, raised $225m at a $2.25b valuation
  • Overair, an eVTOL spinoff from Karem Aircraft, raised $145m
  • PayCargo, freight payment platform, raised $130m in Series C funding
  • Fellow, coffeemaking equipment startup, raised $30m in Series B funding

3. Top Reads

  • Abbott halts production at Michigan baby formula plant due to storm (Axios)
  • Amazon customers can sue over lack of toxic warnings (Fox)
  • Prices are falling, where? (Axios)
  • El Salvador: The country where you can buy anything with Bitcoin (BBC)
  • Elon Musk expected to reiterate desire to own Twitter in meeting today (WSJ)
  • ‘The economy is going to collapse,’ says Wall Street veteran Novogratz (MW)
  • It’s a daunting time for retirees, who face the biggest inflation threat (CNBC)
  • US home equity hits highest level on record—$27.8 Trillion (WSJ)
  • Inside the US government project to create tiny nuclear reactors (CNBC)

A Message from Morning Brew

There’s a reason over 4 million people read Morning Brew - the free daily email covering the latest business news from Wall Street to Silicon Valley. 

Morning Brew is written in a witty yet conversational tone that makes reading the news actually enjoyable. Plus, it only takes 5 minutes to read so that you can get all of the most relevant updates and get on with your day. Try it now, for free

4. Book of the Day: Negotiate Without Fear: Strategies and Tools to Maximize Your Outcomes

With Negotiate Without Fear, master negotiator, Kellogg professor, and accomplished CEO Victoria Medvec delivers an authoritative and practical resource for eliminating the fear that impedes success in negotiation.

In this book, readers will discover unique and proprietary negotiation strategies honed over decades advising Fortune 500 clients on high-stakes, complex negotiations.

Negotiate Without Fear provides readers at all levels of negotiation skill the ability to increase their negotiating confidence and maximize their negotiation success. You'll learn how to:

Put the right issues on the table by defining your objectives for the negotiation

Analyze the issues being negotiated with an Issue Matrix to ensure you have the right issues to secure what you want

Establish ambitious goals using a proprietary tool to identify the weaknesses in the other side's best outside alternative (BATNA)

Leverage a unique architecture for creating and delivering Multiple Equivalent Simultaneous Offers (MESOs)

Negotiate Without Fear belongs on the bookshelves of executives and all the dealmakers who work for them. Additionally, specific advice is provided in every chapter for individuals who are negotiating for themselves and in the everyday world.

This book is an invaluable guide for anyone who hopes to sharpen their negotiating skills and achieve success in any arena.

“I told them that a concession made before you start the negotiation counts for zero in the relationship bank.”

5. Short Squeez Picks

  • As the stock market is riding the unavoidable market waves, commercial real estate investing has climbed the priority list for investors. Cadre helps diversify the portfolio to keep the ships afloat. Learn more about commercial real estate investing with Cadre here
  • Why saving in a 401(k) plan may be tough for frequent job switchers
  • 10 things the wealthy do differently
  • You’re probably using the 4% rule all wrong

6. Daily Visual: Food & Drink Going Strong

Food services and drinking places advance retail sales estimates 

Source: Axios

7. Daily Acumen: Overpaying for Growth

There are many investors who make decisions solely on the basis of their own forecasts of future growth. After all, the faster the earnings or cash flow of a business is growing, the greater that business's present value. Yet several difficulties confront growth-oriented investors.

First, such investors frequently demonstrate higher confidence in their ability to predict the future than is warranted. 

Second, for fast-growing businesses even small differences in one's estimate of annual growth rates can have a tremendous impact on valuation.

Moreover, with so many investors attempting to buy stock in growth companies, the prices of the consensus choices may reach levels unsupported by fundamentals.

Since entry to the "Business Hall of Fame" is frequently through a revolving door, investors may at times be lured into making overly optimistic projections based on temporarily robust results, thereby causing them to overpay for mediocre businesses.

Another difficulty with investing based on growth is that while investors tend to oversimplify growth into a single number, growth is, in fact, comprised of numerous moving parts which vary in their predictability. 

For any particular business, for example, earnings growth can stem from increased unit sales related to predictable increases in the general population, to increased usage of a product by consumers, to increased market share, to greater penetration of a product into the population, or to price increases.

Warren Buffett has said, "For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments."

8. Crypto Corner by Bonkalytics.com

For more crypto-focused content, sign-up here.

9. Memes of the Day

  

   

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