Well folks, sideways is better than down and that is what the market gave us yesterday with the S&P 500 trading only 1bp lower by the close. Our picks did relatively better with our short recommendation on $ARKK ETF leading the way, returning 1.5% by the end of after-hours trading. Read on for more market inspiration and a slew of special bulletins as we bring you an update on our Bullwhip piece from yesterday and a special report on the BRIC nations' coup against the USD.
I’m never less at leisure than when at leisure, or less alone than when alone.
- Scipio Africanus
Breaking the market’s performance down further, the tech sector was finally the big winner yesterday with many FANG stocks up 1%+, this was followed by consumer cyclical and healthcare stocks - Healthcare and its derivative sectors were up on news that another COVID-19 booster shot had been given the green light by the CDC within the US. That said, a majority of other sectors were mixed to red, with real asset and commodity corollaries losing the most as all of the world’s ‘7 supermajor’ oil & gas conglomerates were down 2%+.
Despite the tech sector’s gain yesterday, Bitcoin performed quite poorly during the early half of this week and has lost the $20K USD support level for the second time now since the beginning of the crypto winter. A catalyst on the horizon for this asset would be China’s possible choking-off of supply and banning of cryptocurrencies in relation to this new reserve currency they are vying for alongside the other BRIC nations; another would be a less than optimal inflation print on the 10th of July as Bitcoin and other cryptos, in general, have advanced on news of that nature in the past given their deflationary attributes.
Short: Delta Airline Lines (DAL-NASDAQ) | Timeline: 3-5 days
Delta Air Lines, Inc. (DAL) provides scheduled air transportation for passengers and cargo internationally and is in for a challenging second quarter as gas meters in at all-time highs and potential no-fly zones are introduced. With this bearish sentiment, DAL has dropped about 30% from the beginning of June as investors lack confidence with earnings coming up in two weeks. Taking a closer look at the chart, Delta's price action has formed a head and shoulders - a pattern of three peaks, where the outer two are close in height and the middle is the highest. This pattern is considered one of the most reliable reversal signals that predict a bullish-to-bearish trend. Consequently, as the share price broke this pattern's lower level, the 50-day MA was rejected by the 200-day MA, indicating a tried and true downtrend for Delta Airlines.
An interesting update from yesterday’s piece on the Bullwhip effect, Target and other large retailers are considering doing away with the traditional return process by giving customers back their money while keeping their previously purchased items. Sounds too good to be true? I agree. However, the economics of this ludicrous proposition prove that it could be the right move for retailers struggling with excess inventory. Let me explain - with rising gas and storage costs retailers will end up losing money if they accept a used good back into the warehouse for repurposing, even if they’re able to sell the product again for the same price. Another worry for retailers is the traditional spike in return during item price declines, as consumers return goods en masse in hopes of a better deal. This will worry retailers, as many have considered, or started to slash prices in order to increase the velocity of goods sold. Rather than pay for the logistics on both sides of the transaction, they’d rather pay to take the inventory off their hands and balance sheets. Whether this will be beneficial long term is anyone’s guess, however, one dire conclusion that could be drawn from this news is that the US could be trending towards deflation in the near future.
The BRIC is an alliance of nations headlined by the namesake members, Brazil, Russia, India, and China. This bloc is essentially an EU counterpart set up in the Eastern hemisphere, but their most recent proposals have shocked the world. The BRIC nations have proposed creating a new reserve currency based on a basket of member currencies, in an attempt to make a new global reserve currency. While their logic is flawed for reasons which I will explain below, the main selling point of the currency is that roughly 40% of the world’s population would be represented by this bloc, a far greater number than is represented by the USD. While the nations do have population count on their side, there are some large factors working against them, first and foremost being China’s two currencies. By having both an onshore and offshore currency, the global community finds it extremely hard to trust China and with this proposed basket the question of which currency will be included must be asked. Furthermore, with the ongoing Russian-Ukrainian war, and the sanctions associated with it, one must consider if sanctions will be applied to the entire bloc if this currency is created. In any case, this is one of the first sizeable challenges to the USD as the global reserve currency, and certainly not the last.
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