The Trials of the Century

OpEx week, crypto kids and market outlook

Author

Litquidity Capital
November 20, 2022

Good morning to everyone except the Forbes journalists who decided marketing trumped common sense with their “Queen Caroline” FTX puff piece.

Let’s dive into a market recap and outlook. OPEX happened, Twitter turmoil continues and the World Cup starts today. In case you’re not predisposed to watching 90+ minutes of soccer, FIFA’s current president came with some entertainment of his own in a press conference yesterday:

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Bad News Dumpster Dive

Market movers like to bury their news, so we've decided to excavate them.

Equities:

  • Options trading volumes were at all time highs for Friday’s OPEX, with $2.1 trillion options expiries (Bloomberg)

  • ~2,500 employees remain at Twitter after ~1,200 employees who survived mass layoffs resigned on Thursday. There were ~7,500 employees upon Musk’s acquisition (Fortune)

  • Qatar banned all beer sales (i.e., FIFA’s primary advertiser) at and around its World Cup stadiums just two days before the tournament began (AP)

  • Grindr went public via a SPAC Friday (NPR)

  • Carvana is cutting 1,500 jobs, 8% of its workforce (CNBC)

  • Disabled Twitter employees filed a class action discrimination suit because they felt they couldn't keep up with Musk's “hardcore” drive (Business Insider)

  • Retail investors are believed to own about 67.5% of GameStop's float (TheStreet)

Crypto:

  • SBF's Alameda Research was approved for a Paycheck Protection Program loan worth $370,000 in April 2020 (Bloomberg)

  • FTX said it fired three of SBF’s top deputies (WSJ)

  • Some of Twitter’s top crypto staff left Friday night, including team boss Tess Rinearson, who had spearheaded NFT PFPs (Bloomberg)

  • Binance CSO Patrick Hillmann said it took two hours of due diligence on FTX to determine there was nothing they could do to save the crypto exchange (CNBC)

Regulation:

  • Elizabeth Holmes has been sentenced to 11.25 years in prison for fraud (CNN)

  • FBI Director said that allowing TikTok to continue operating in the US could pose a threat to national security (NPR)

  • The Justice Department will investigate Ticketmaster’s parent company, Live Nation (NYT)

  • U.S. senators push to ban government deals with Chinese chipmakers (Politico)

M&A:

  • Madison Square Garden Entertainment submitted the initial registration for the potential spin-off of its traditional live entertainment and MSG Networks business (Press Release)

  • ACI Worldwide subject of takeover speculation (Seeking Alpha)

  • CoreCard reportedly drew takeover interest from Goldman Sachs (WSJ)

  • Ibex Holdings Ltd. is attracting takeover interest from private equity suitors including CVC Capital (Bloomberg)

  • Lee Enterprises potential suitor Alden Global Capital has abandoned its bid for now (Axios)

  • Radius Global gained on reports of takeover interest (Seeking Alpha)

Prediction Markets:

  • USD’s correlation to stocks, bonds, commodities and gold has gone to an extreme of late

  • The Fed's Bostic is “ready to move away from 0.75 percentage point increases” at December’s meeting (forecasted hike to 4.50%)

  • A 4th straight negative print of Conference Board’s Top 10 Leading Indicators signals that recession is looming. The list has a track record of anticipating every recession since the early 1970s (MarketWatch)

  • The New York Fed's survey of consumer inflation expectations shows they moved up (i.e., the wrong way) last month, reversing several months in which inflation expectations fell (forecasted decrease to 0.25%)

  • 37% of real estate agents couldn’t pay their rent in October, up from 27% in September (forecasted 7.5% peak mortgage rate)

  • Americans now think they need at least $1.25M to retire comfortably, a 20% jump from last year (weak state of the economy)

  • British households face the largest fall in living standards since records began in the 1950s, as the UK is the only G7 economy whose output has not recovered to pre-pandemic levels (CNN)

  • The Fed's preferred yield curve, which is the market implied 3-month T-bill yield in 18 months minus the current 3-month T-bill yield, is about to invert

Market Outlook

News to know for the week ahead

The inversion of the 2-year and 10-year US Treasury yield curve is currently the most inverted since February 1982, with the 2-year bond yielding 4.45% compared to the 10-year bond's 3.78%. The inversion signals that investors see more risk in the short term given the weakening economic conditions.

European stocks rode high into the weekend, with a boost from the U.K. pensions industry. Rising rates upended the strategy after former Prime Minister Liz Truss unveiled plans to cut taxes at a time of rampant inflation. Some investors, though, say a cold winter could raise natural-gas prices and put pressure back on the economy.

Gold is gaining versus the S&P 500. The most-actively traded gold futures contract is up 7.3% from recent lows set in early November. Government bond yields and the U.S. dollar have eased some of their multiyear highs, which has boosted gold prices. Gold is up 6.8% so far this month, compared to a 1.8% gain in the S&P 500.

Economists expect Main Street to see pain in 2023 as refinancing activities ramp up for $1.6 trillion in corporate debt. Refinancing the debt at higher rates will hurt profit margins and ultimately lead to an increase in the unemployment rate. It's during that period of weakness investors should turn opportunistic towards stocks.

The bond market faces the prospect of a final bout of chaos, exacerbated by dwindling trading volume typical during the last weeks of the year. A gauge of the market’s volatility based on options prices, the ICE BofA MOVE Index, resumed its advance this week after a month-long retreat from the highest levels since the onset of the pandemic in March 2020.

The L Suite

In case the bear market has you down bad, here's a full list of the celebrities being sued for promoting FTX.

  • Tom Brady

  • Kevin O'Leary

  • Stephen Curry

  • Shaquille O'Neal

  • David Ortiz

  • Larry David

  • Trevor Lawrence

  • Naomi Osaka

  • Udonis Haslem

  • Shohei Ohtani

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