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Buongiorno. Today’s Bull Sheet comes to you from Coins2Day’s Licata news bureau, on Sicily’s southern coast. The maritime forecast here calls for “confused seas.” As I glance at the stock screens, it’s not much better on dry land.
Yep, it’s shaping up to be a risk-off Monday as COVID jitters grip the markets (inflation concerns don’t help either). With the exception of the safe-haven dollar, just about every asset class is down as I type: stocks, futures, oil, crypto. You get the picture.
The earnings calendar this week will be a busy one. If futures are any indicator, investors aren’t all that focused on corporate news at the moment. They weren’t last week.
Speaking of “confused seas,” in today’s essay we go Greek to unravel the mysteries of the market. Naturally.
But first, let’s check in on the rest of the markets action.
Markets update
Asia
- The Asian markets start the week on a down note with the Hang Seng slumping 1.9% in afternoon trade.
- The Delta variant is now the world’s most dominant strain of COVID-19; it’s wreaking havoc from Tokyo to Tallahassee, and those disruptions are being felt across global markets this morning.
- Predictions about the demise of OPEC+ were premature, apparently. The cartel and Russia struck a deal on Sunday to jack up crude production by an additional 400,000 barrels per day.
Europe
- The European bourses were redder than the gambero rosso di Mazara—the famed (and pricey) Sicilian red prawn—at the start this morning. The Stoxx Europe 600, which fell 0.6% last week, was down even further (–1.7%) two hours into the trading session, with every sector in negative territory.
- “There are barely words in the German language to describe the devastation that’s been wrought here,” Chancellor Angela Merkel s aid over the weekend after surveying the destruction from last week’s floods that have now claimed nearly 200 lives.
- Shares in French media conglomerate Vivendi were down 0.6% in early-morning trade after news broke that Bill Ackman won’t go ahead with his SPAC-led buyout plans for Vivendi subsidiary Universal Music Group.
U.S.
- U.S. Futures have been in decline all morning. That’s after all three major exchanges closed last week in the red, with the Nasdaq down the most, off 1.9%. YTD, the tech-heavy index is up 11.9%, the worst performer of the trio.
- Shares in Zoom Video Communications were down slightly in pre-market trading following news it just pulled off its largest ever acquisition, a $14.7 billion all-stock deal to buy customer-service software provider Five9.
- We have another busy week of earnings on tap. Netflix goes tomorrow. Then there’s Johnson & Johnson and Coca-Cola (Wednesday), plus Intel (Thursday) and Honeywell (Friday), to name a few.
Elsewhere
- Gold is down, trading around $1,800/ounce.
- All the COVID uncertainty is good news for dollar bulls. The greenback is up again this morning.
- Crude is down with OPEC+ promising to put more oil on the market over the next 18 months. Brent is trading below $73/barrel.
- Crypto continues its lackluster slide. Bitcoin is down, trading below $32,000.
***
Sing to me, muse: Take 2
The last time I was down here—and I do mean down; I’m much closer to Tunis than I am to Rome—I turned to the heroes, villains, gods and mortals from Homer’s The Iliad and The Odyssey to try and make sense of last summer’s bull-market rally.
Little did we know it then, but the rally was in its infant stages. The S&P 500 has climbed an impressive 33% since that day, July 27. (So stop grumbling about last week’s hiccup.)
But things feel a bit different this year, or they do to me. And, so, I thought I’d send us back out to the wine-dark seas to find a hero or two who might be able to show us where the journey might head next.
As you may recall, last year I found four Homeric characters—Cassandra, Calypso, the lotus eaters, and Ulysses himself (a.k.a. Odysseus)—who would’ve been right at home in the markets of last summer.
Here are four new ones for this summer.
Menelaus
Menelaus was a real hothead—a born fighter, and a lucky one at that. He of course draws the fortuitous straw and wins the hand of Helen, the fairest woman in the whole of the ancient world. And then he loses her—to a guy named Paris. He’s up one day. He’s down the next. He steams over his loss. He wants revenge. He doesn’t intend to settle this wife-napping ordeal in a one-on-one duel. No, he vows, it will be sorted in the battle to end all battles. 1,000 ships. 50 kings. And don’t forget the wooden horse.
Menelaus doesn’t just want to win Helen back, he wants nothing more than to vanquish Paris and destroy the villain’s homeland, the city of Troy. Everyone agrees. Let’s go sack Troy! What could go wrong?
Menelaus, his accomplice warrior kings, and their armies miscalculate the odds. They believe their superior numbers will enable them to put the old squeeze on their foe. But the battle turns into a bloody, 10-year war of attrition.
To whom, dear reader, does this sound familiar? The WallStreetBets boys and the Robinhood army come to mind. At the height of the meme stonk frenzy earlier this year, this band of retail traders went on the offensive against Wall Street—against any hedge funds that dared to short their beloved GameStop. They inflicted some damage on a few funds, including one named Melvin—erm, Melvin Capital. But the skirmish came at a huge cost, particularly for those who joined the fighting late. At the end of Homer’s tale, Menelaus loses many friends and brave comrades, but he does win back his beloved Helen. And what kind of beauties do the WallStreetbets crowd have to show for all their fighting? GameStop, AMC Entertainment, and maybe some Dogecoin. Woof!
Polyphemus
In the land of one-eyed giants, Polyphemus calls the shots. When Ulysses and his men wash up on the shores of Sicily they make their way to the cyclops’s cave and find a massive cache of cheese, lamb, and wine. Famished, they dig in. It doesn’t end well. An enraged Polyphemus eats six of Ulysses’s men, leaving the band of weary travelers in a bind. That’s when Ulysses springs into action. The wily warrior gets Polyphemus drunk, and then stabs him in his one good eye with a burning stake. Reeling and squealing, Polyphemus asks one of the most famous lines in the poem: Who dares to defy me? Ulysses tells him his name is nobody. And, so, Polyphemus sounds the doomed alarm: “Nobody is attacking me!” The other cyclops hear Polyphemus’s cries and conclude, well, if nobody is attacking him then there can’t be any danger.
The “nobody” head-fake is a common ruse. My kids pull it on me all the time. Who made this mess? I demand. They simply shrug their shoulders, the proverbial “nobody did nothing” defense. I think of Polyphemus when I get stonewalled like that. I also think of Polyphemus when I listen to Fed Chair Jerome Powell’s inflation testimony. In a world where everything’s expensive (or quickly getting there) we naturally ask some questions. Should we be alarmed? Is the economy overheating? Should we hoard up more wine, lamb, and cheese at today’s prices, or wait it out? And what about our stock portfolio?
Powell’s answer is frustrating. “Inflation,” he says, “is transitory,” which leaves the rest of us cyclops market observers rolling our one good eye. Well, if inflation truly is transitory, there’s no need to be alarmed then. It’s transitory, we repeat.
Call this PolyFed policy.
Scylla and Charybdis
Our heroes are finally heading back home, to Ithaca. But they have to navigate their ship through the treacherous Strait of Messina. Meander even so slightly off course and Odysseus and his shipmates run headlong into the cliff-dwelling Scylla—a real man-eater. Catch a nasty current on the other side and get sucked into the whirlpools conjured up by Charybdis.
Yes, the choice is between the rock (Scylla) and the hard place (Charybdis)—the dilemma to end all dilemmas.
Investing, of course, is full of all kinds of rock-hard-place dilemmas. The newbie crypto investor knows all about this. Once Bitcoin hit $60K, he was all-in. It’s going to $100,000. Unconvinced? Just check out Twitter, or here on Reddit. The memes will lead us all to fabulous riches, his buddies told him, advice that, in retrospect, sounds more like the sirens’ call than a sound investment tip.
We all know what’s happened since. The crypto coin has lost half its value since those golden days in mid-April and is trading 30% below its 100-day moving average. Not to worry, the crypto chorus responds. Buy on the dip—again, and again, and again.
And yet it’s not going up as they said. It’s just spinning around and around and around, and now it’s sinking.
You don’t have to be a ship’s captain to know this isn’t proceeding to plan. The problem: There are more sellers than buyers these days, and it’s creating a whirlpool effect on crypto prices. For those holding a good chunk of their investment portfolio in $60K Bitcoin, $4K Ethereum, and $0.70 Dogecoin, they’re already underwater.
How did Ulysses manage such a dilemma? He made it through, but he lost a half-dozen men in those treacherous waters.
Yep, the man-eater Scylla got ’em.
Penelope
The queen of Ithaca, wife to Ulysses, Penelope is the undisputed hero of this tale. She’s cunning, judicious, dependable, and one heck of a seamstress. She outfoxes suitor after suitor by weaving—and then unweaving—a burial shroud for her father-in-law. She makes clear she wants no part of these men who come a-courting to her door while Ulysses remains lost at sea. She ain’t buying their easy talk of 🚀 good times and 🚀 happiness, guaranteed.
Eventually, at the behest of the gods, Penelope faces her suitors. But she requires each to prove himself worthy. Only the disguised Ulysses can eventually meet her lofty demands.
Penelope is the rock, the steady straight-shooter in a tale full of deception, intrigue, and danger. She knows value when she sees it, and remains steadfast and loyal to her course even as the gods, villains, and self-described heroes whisper things in her ear.
Whether there’s any investment advice in the story of Penelope, I’ll leave that to you to decide.
***
There’s more news below.
Bernhard Warner
@BernhardWarner
[email protected]
As always, you can write to [email protected] or reply to this email with suggestions and feedback.
Today's reads
All eyes on Hong Kong. The continued geopolitical turbulence between Washington and Beijing could actually be good news for Hong Kong. Some analysts are now saying Hong Kong stands to become the preferred destination for Chinese IPOs that otherwise would have listed in the U.S.
Herd on the Street. There's a school of thought in investing that should your neighbor, taxi driver or barber start talking up stocks, it's high time to flee the market. That wisdom has been tested, and has failed decisively this year. As the Wall Street Journal's Caitlin McCabe writes, "for much of this year, it has paid enormous dividends to stay with the herd."
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