Tag: noah kiedrowski

Market Jitters And The Consumer Price Index (CPI)

Posted on by Noah Kiedrowski

The Consumer Price Index (CPI) readings have become a top topic as of late and have directly impacted market movements and overall sentiment. These CPI reports are becoming more significant as these readings are used to identify periods of inflation. More robust the CPI readings will translate into a stronger influence on the Federal Reserve’s monetary policies. The Federal Reserve is reaching an inflection point where they will need to curtail their stimulative easy monetary as inflation, unemployment, and overall economy continue to improve. As a result, their long-term monetary policy of low-interest rates and bond purchases will inevitably need to pivot to a scenario of higher rates to tame inflation. As a result, investors can expect increased volatility as these critically important CPI reports continue to be released through the remainder of 2021. Additionally, any notion of higher rates may spur investors to reduce exposure to equities.

CPI Market Jitters

Recent CPI readings have spooked the markets as these serve as a harbinger for the inevitable rise in interest rates. As investors grapple with the prospect of downstream rate increases, pockets of vulnerabilities throughout the market have been exposed. The overall markets have been on a blistering bull run since the November 2020 presidential election cycle. The overall markets as assessed by any historical measure have reached stretched valuations with record risk appetite. As real inflation enters the fray, these frothy markets will come under pressure and possibly derail this raging bull market. Moreover, the prospect of rising rates may introduce some systemic risk in the process. The confluence of rising rates, a hot housing market, and robust CPI readings may translate into real inflation rates that exceed the Federal Reserve’s target inflation zone. If these real inflation excursions drag on, these higher rates will be in the fold. Continue reading "Market Jitters And The Consumer Price Index (CPI)" →

Do Valuations Matter Anymore?

Posted on by Noah Kiedrowski

Over the first half of 2021, the overall markets have had breathtaking moves of appreciation. The major indices are in unprecedented territory breaking through all-time high after all-time in what seems to be daily. The broader market has been in a blistering bull market for over a year straight, only accelerating since the November 2020 election cycle and really taking off into July 2021. Thus far in 2021, the S&P 500 is up over 16% and recently posted a seven consecutive positive day winning streak. The S&P 500 is up nearly 5% in the two weeks covering the Q2/Q3 junction, with its most recent run of seven consecutive days being the best winning streak since August of 2020. The other major indices, such as the Nasdaq and Dow Jones, are showing similar patterns as measured via QQQ and DIA, respectively. These markets are unrelenting and beg the question, do valuations even matter anymore?

Stocks are overbought and at extreme valuations, as measured by any historical metric (P/E ratio, Shiller P/E ratio, Buffet Indicator, Put/Call Ratio, and percentage of stocks above their 200-day moving average) or technical metric (Bollinger Bands and Relative Strength Index - RSI). Valuations are stretched across the board, with the major averages at all-time highs and far away above pre-pandemic highs.

Financial Experts Issue Market Crash Harbinger

Major influencers across the financial spectrum such as Michael Burry, Jeremy Grantham, Leon Cooperman, Stanley Druckenmiller, Jeffrey Gundlach, Kevin O'Leary, Gary Shilling, and Robert Kiyosaki are all bracing for a market crash. Collectively, they are all concerned about the rampant speculation and extreme valuations fueled by government stimulus programs.

Michael Burry stated that the markets are in the "greatest speculative bubble of all time in all things,” and speculation is happening across assets before the "mother of all crashes."

Jeremy Grantham stated that the market is Continue reading "Do Valuations Matter Anymore?" →

Meme Stocks And Breaking Down Short Squeezes

Posted on by Noah Kiedrowski

Meme stocks and Reddit’s Wall Street Bets have been behind some massive, short squeezes thus far in 2021. GameStop (GME) and AMC Entertainment (AMC) have been the most notable battleground stocks between hedge fund managers and retail traders. Hedge fund managers that have short positions on a stock profit when the stock declines. On the other hand, retail traders identify heavily shorted stocks and buy the stock with the intention to short squeeze these hedge funds and cause a dramatic rise in the stock price. Although this tug-a-war has worked for GME and AMC in the short term, deploying this tactic can be dangerous. These short squeezes result in astronomical stock appreciation, extreme valuation distortion, and liquidity issues, as trading can be halted when trading abnormalities are triggered. Here, I’ll break down the anatomy of a short position and the mechanics behind a short squeeze.

What’s A Short Position?

Short positions are taken by those who believe the company is overvalued and take the position that the stock will decline in value over the near term. Essentially, this is betting that the stock will decline and when the stock falls, the short position is profitable. Short positions are taken by borrowing shares and then selling the shares in the hope to subsequently buy back the shares at a lower price to capture the spread. For example, shares are borrowed and sold at $100, and over the near term, the shares fall to $75. Once these shares fall as expected, the short seller can then buy these shares back at $75 and return the borrowed shares while netting $25 per share in the process. Continue reading "Meme Stocks And Breaking Down Short Squeezes" →

Facebook Is Inexpensive

Posted on by Noah Kiedrowski

Facebook (FB) continues to demonstrate its ever-expanding and massive moat in the social media space. Facebook’s core social media platform, in combination with its other properties such as Instagram and WhatsApp, continue to grow while expanding margins and unlocking revenue verticals. Despite being faced with several public relations challenges over the past couple of years (i.e., Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, and anti-competitive testimonies), Facebook has triumphed to all-times as of late. Facebook had to contend with scaled back advertising spending amid the COVID-19 pandemic in conjunction with the public relation issues. Facebook continues to grow across all business segments, with its user base continuing to expand slowly. Facebook’s moat is undeniable, and any meaningful sell-off like the recent Fed-induced systemic weakness could provide an entry point for the long-term investor. Although near all-time highs, Facebook is inexpensive relative to its technology cohort.

Advertising Boycotts Falter

Facebook faced a very public onslaught of companies joining an advertising boycott across its social media platforms. However, its latest earnings reports suggest that this effort may have been largely symbolic and effectively inconsequential to its revenue and growth numbers. The advertising boycott had grown to roughly a thousand groups and multinational companies. This presented a unique challenge in which the company remediated and diverted more spending to compliance/security aspects which had already swelled post-Cambridge Analytica, and other platform vulnerabilities were exposed. The magnitude of this boycott seems to have been an inconsequential influence on the stock price. This public relations challenge was managed and posed minimal risk to the company’s valuation moving forward. Continue reading "Facebook Is Inexpensive" →