#133 - Are Current Events a Tailwind for CyberSecurity? Spotify buys Podsights + Launches “Car Thing” & Epoch Raises $3.6m to Drive Employee Meeting Engagement
In this week's episode of Reformed Millennials, Broc and Joel discuss how markets are reacting to world events, highlights from the Alberta Budget, the Spotify “car-thing” and whether they’ll be able to start tracking conversions for audio advertisers after their latest acquisition. Plus a Canadian startup who started pivoted from helping refugees settle into new regions to increasing employee engagement in internal events raises a $3.5m USD seed round.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
This Market feels more like 2012 than 2022… Especially when you look at the names that are attractive.
Rising rates, geopolitical stress, inflation. All reasons for recent market volatility. But the reality is, this is normal. Over the past 4 decades, the average intra-year stock drawdown was 14%. And yet, in 80% of those years, the calendar return was positive.
Year over Year Hard Assets vs. Financial Assets
Uranium Miners $URNM +204%
Gas Expl $FCG +180%
Coal Miners $ARCH +166%
Agriculture $MOS +100%
Oil Exp $XOP +135%
Copper, Steel $XME +74%
The main indexes tested and even went below their January lows, only to stage a major bounce towards the end of the week, last week. Given the sentiment and economic backdrop, it’s probably just an oversold bounce within a continued bear market. And yet, it’s still anyone’s guess to how long it’ll last. The S&P 500 testing its declining 20-day moving average or even 450 is not out of a question here.
Metals stocks have been notably the strongest sector, probably due to war-related sanctions. XME is at 10-year highs. Steel, aluminum, copper stocks are busting loose.
Oil stocks are also holding well and are setting up for potential breakouts - GUSH, ERX, AR, DVN, TRGP, FANG, MUR, SU, etc.
It’s good to see stocks outside of the commodity space starting to break out and set up nicely on shorter time horizons… see SEAS, LNPH, DOCS, etc.
It’s still a headline-driven choppy market that is capable of gapping up or down 2% on any given day. This environment requires one to be nimble, open-minded, and willing to trade both sides of the market.
💸Reformed Millennials - Post of The Week
Charlie Bilello Had a fantastic post this weekend filled with charts.
I've pulled out the Russia-centric parts of his post attached at the bottom.
The Russian Ruble has completely crashed. Since its peak in 2008, the Ruble has now lost 73% of its value against the US Dollar.
The Russian equity ETF ($RSX) debuted in April 2007 and has been twice as volatile as the S&P 500 since then.
Have investors been rewarded for this additional risk?
The Russia ETF ($RSX) is down 38% since inception versus a 295% gain for the S&P 500 ($SPY ETF).
While Russian stocks were crashing, US stocks initially sold off in sympathy, hitting a new correction low near the open on February 24th.
At -14.6% and 51 days, this was the largest drawdown for the S&P 500 since February/March 2020 and the longest since 2018.
But the declines on the 24th didn’t last, as the S&P 500 rose 4.2% from its low to finish the day in positive territory. This was one of the largest intra-day rallies for the S&P 500 in history, and it occurred exactly one month after a similar rally (+4.4% on January 24).
The volatility in the markets has not dampened the expectations of the market for rate hikes very much at all.
While a 50 basis point (bps) initial move is now seen as a low probability event, Fed Funds Futures are still anticipating 25 bps hikes at the March, May, June, and July FOMC meetings with 6 hikes in total by year-end (to a range of 1.50%-1.75%).
Why are investors expecting rate hikes in spite of the weakness in the financial markets?
The glaring disconnect between Fed policy and inflation.
We received more data on that front this week with the PCE Price Index showing a 6.1% increase over the last year, the highest rate of inflation in 40 years. This compares to a historical average of 3.25% inflation since 1960.
Meanwhile, the Fed Funds Rate remains close to 0% versus its average over the same time period of 4.8%.
Lest the Fed loses all their remaining credibility, the rate hikes are coming.
What Russian Sanctions Mean For Europe and The World
“Now that the question of a Russian invasion of Ukraine has proven itself not to be a hypothetical, Western governments will be pushed to respond.
The United States and its European allies are likely to pursue a sanctions campaign, but this is easier said than done. While it has been popular to deride Russia and its economy as a "gas station" masquerading as a country, the reality is that Russia is a significant--often the largest--exporter of several critical commodities. Russian exports directly feed and fuel (or enable the processes to do so) vast swathes of the world from South America to the Middle East and East Asia--in addition to lighting and heating European homes and supplying crude oil to US Gulf Coast refineries.
For the latter scenario, Russian crude exports to the world's largest oil producer picked up significantly in 2021 as a result of US sanctions against Venezuela, illustrating the double-edged nature of sanctions in the globalized economy.
The ins and outs of the major oil and natural gas suppliers is a favorite topic of ours here at Zeihan on Geopolitics, and it forms a cornerstone of our expertise; my team and I have decades of combined experience on the issues facing global energy. Crack open any of my books and you'll see that oil and gas are usually the topic of the longest chapters.
My second book, The Absent Superpower, chronicles the many outcomes of the American shale revolution. Most notable: an America able to divorce itself from the wider world, and a major regional war in which Russia invades…Ukraine.
Now we are gearing up for the release of our newest project - The End of the World is Just the Beginning: Mapping the Collapse of Globalization. The new book breaks down the future shape of various economic sectors in a post-globalized world: finance, manufacturing, agriculture.
The rapidly-building Ukraine War obviates nothing in the new book (thankfully), but it certainly focuses the mind on the burning questions of the day. How badly will the war impact the world’s second-largest energy exporter? Which consuming markets will be most (and least) impacted? How will those markets adapt to the sudden loss of Russian exports? How long will those losses last?
🌊 Canadian Companies To Peruse 🌊
EPOCHAPP.COM - Founded in Kitchener, Ontario. Epoch is the employee experience platform that drives engagement in your learning programs, DEI and ERG initiatives, AMAs, All Hands and internal events. Raises $3.6m USD from Rally Ventures (feb 23rd).
🔮Best Links of The Week🔮
YouTube adds another TikTok feature: live rings
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iPhone average selling price up 14% as iPhone 13 drives record revenue