The Inaugural Almost Daily Market Brief
Banks Take On Risk, GoDaddy Gets A Nasty Letter, And People Still Love Losing Money On Options
A New Day
Good morning, and welcome to the inaugural issue of Ironside Research’s Almost Daily Market Brief! The ADMB will provide routine updates of interest to market watchers, in addition to our weekly posting on investor issues and deeper dives into individual equities and issues.
We hope this quick digest will provide some interesting insight into how we view the markets and provide some color on the type of news that analysts monitor daily. Where we can, we’ll strive to avoid linking to paywalled articles (no promises, though, it’s tough out here in these streets).
As a bonus, you can probably finish this newsletter faster than Aaron Rodgers finished his career with the New York Jets.
Markets
The S&P 500, after rallying 17% year to date, has been treading water for a few weeks as traders have suddenly revisited the Fed’s ability to stick the landing on the economy.
On a technical basis, the market appears unconvinced either way at the moment, with a recent failed breakout around the 4,550 mark. We also expect a relatively quiet day as traders await the release of inflation figures tomorrow.
We’ll be keeping a close eye—like every other market-oriented human on earth—on tomorrow’s inflation report for any surprises that might to push the Fed to alter course from its most current stance of ‘hey maybe we’ve beaten the economy into utter submission so we don’t need to keep violently raising rates but who knows LOL.’
As of today, traders are expecting no hike for September’s Fed meeting, but of course these expectations could shift following the release of tomorrow’s report.
As a reminder of where we currently stand, a majority of traders expect flat rates through May of 2024.
Banks Taking On Risk
Early 2023 had a regional banking crisis (remember that?) brought on by:
Rising interest rates, and
A whole lot of compliance and risk department bank people whose thinking about those rising rates can be summed up as: ‘cool, this won’t affect us.’
Deposits—the main source of funding for banks—are generally thought of as sticky. It’s a big deal to leave your bank, especially if you use them for a lot of services. Rising interest rates, according to the ABA Banking Journal, are challenging that assumption as depositors see inflation and interest rates at money market funds and treasury bonds while rates on savings and deposit accounts pretty much stay stuck at zero.
Whatever the pattern of depositor behavior may be, deposits are the lifeblood of banking institutions. And when that source of lifeblood starts to get a little less plentiful, bankers will do what all humans do and start finding new ways to secure the resource they so desperately need. Since it’s tough to find enough five dollar bills laying on the ground to make up for the shortfall, bankers have to turn to more risky alternatives.
In banking’s case, that risk takes the form of brokered deposits, which the WSJ reports this morning is sitting at roughly $1.2 trillion across the banking sector.
Unlike regular deposits—which are accrued the old fashioned way by establishing customer relationships, etc—brokered deposits are institution-to-institution affairs where banks approach large funds or other financial companies and offer CDs or other higher-yielding instruments in exchange for the excess cash sitting around at those institutions.
The problem is that, unlike regular deposits, this is more or less mercenary money: it will flow to where rates are the highest. This has the potential to put banks at risk since the ratios (such as the CET1 ratio, or the Supplementary Leverage Ratio) which are monitored by regulators are pretty much contingent on the bank’s ability to maintain an appropriate amount of equity relative to assets (like, you know, deposits).
In other words, anything that makes the depositor base less sticky presents a major risk lurking in the background of bank balance sheets, and brokered deposits certainly fit the bill.
GoDaddy Better Get Going
Members of GoDaddy’s board of directors probably shuddered violently upon waking this morning without knowing why. As of 8am EST, however, they probably know why.
Venerable activist hedge fund Starboard Value published a letter this morning to the management of GoDaddy arguing that the company has done little to reward shareholders. As the third-largest shareholder in the company (and the leader of high-profile activist campaigns at Papa John’s and Darden), the letter is sure to make waves among the investing public.
Among other things, the letter alleges that GoDaddy has failed to accelerate top line growth the same way its peers at Squarespace and Wix have, and—perhaps most damning—that management has failed to live up to the promises made at the company’s last investor day.
While nothing in response has been said, we are eagerly awaiting the reply from GoDaddy management.
Other News….
It’s tough to be the king
Google (perhaps you’ve heard of it) will go to court today for opening arguments as part of the antitrust suit filed against it by the federal government earlier this year. The suit alleges that Google has taken illegal steps to protect its search monopoly. Poor little Google, for its part, is likely to maintain that it is but a bit player in a sea of search engines and ad-tech companies, largely in line with Peter Thiel’s old adage about how companies discuss their place in the market.
Nobody told Big Oil ESG Is out of style
Investors may be losing faith in ESG as an investing style amidst allegations of greenwashing and high-finance interference, but Big Oil appears to have not gotten the memo.
Following Exxon’s blockbuster deal to acquire a network of pipelines in Texas and Louisiana to sequester CO2 underground, Chevron is now dipping its gigantic toes into the renewable space, acquiring a 78% stake in the Advanced Clean Energy Storage Project in Utah. The project is expected to come online in 2025.
People are addicted to options
In news that surprises absolutely no one, people can’t stop gambling their money away on equity options, those leveraged instruments that YOLO and FOMO-obsessed Reddit traders love.
Now, while it used to take at least a week to lose all your money (weekly options being the shortest duration equity options available for a long time), eager cash-burners can now lose it in a day! Use of 24-hour options contracts are surging, with market participants essentially using them like lottery tickets.
Cramer watch
Oft-incorrect yet hyper-confident market commentator Jim Cramer thinks that the AI hype flooding the market may have reached its peak. Make of that what you will, but the Punxsutawney Phil of the markets has spoken.
Say it ain’t so
People are discovering—like, actually discovering, in the year of our Lord 2023—that doing business in China is risky, and as opaque as an Oracle’s pronouncements.
Final Thoughts
Morgan Stanley has lost their minds with Tesla’s latest valuation. Apple is launching a new iPhone that is sure to look like previous iPhones. Unions are having a nice day in the sun. Aaron Rodgers has brutally let down every New York Jets fan to have ever existed, past, present, and future, for all of eternity, and fully confirmed that nothing good can ever, ever happen to the Jets. New Yorkers are also so pressed for space they’re A-OK with bathtubs in their kitchens. Putin thinks Elon is kind of a cool guy. Big Tech companies have reached a tentative agreement to not let AI melt the world’s collective brain.