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October 22, 2021

The Trump Effect on DWAC

Good morning traders,

Welcome back to The Daily Setup. Markets were mostly up yesterday, minus the Dow edging out a 6 point loss. Here’s what’s on the docket today:

  • A new SPAC gains 356% during trading thanks to former President Donny Deals
  • The Fed bans stock trading by its senior officials 
  • WeWork is public again

So let’s BS around the water cooler, send a few emails, and ride into the weekend. 

See ya next week,

Jeff

 

Chart of the Day – HP

 

Shares of Hewlett Packard (HPQ) gained 6.89% Thursday following the company’s announcement of an increased dividend and bullish outlook for fiscal 2022. The annual dividend was raised 28% from $0.78/share to $1/share. But more on this later…

HP and the Fed

BIGGEST MOVER

Make SPACs Great Again

The stock of Digital World Acquisition Corp. (DWAC) was up super mega bigly on Thursday. DWAC was up more than 350% on the day after news broke that it would be the vehicle that former President Donald Trump would bring his social media platform TRUTH to market with. Shares of DWAC closed at $45.50, but hit an intraday high of $52 and were halted several times due to massive volume.

  • President Trump announced he will be rolling out TRUTH, a platform to compete with Twitter and “stand up to the tyranny of big tech”.
  • Over 470M shares of DWAC traded on Thursday and the company was the most traded name on the NYSE and Nasdaq consolidated tape.
  • The biggest question about the announcement is why the ticker symbol was not changed to MAGA? 

A press release stated that the TRUTH app is currently available for pre-order in the Apple App Store and a beta version of the platform should roll out in November. An immediate catalyst for user growth should be the flood of blue check Big J journalists signing up for the service to parse through every TRUTH President Trump sends out with a fine-toothed comb. Here’s an inside peak at how much in earnings the company is projecting by EOY.

 

Today was a good day 

-Ice Cube and HP shareholders

 

Now, as we promised. Back to HP earnings. CEO Enrique Lores and CFO Marie Myers held the company’s virtual analyst day, the company’s first since 2019. As with all virtual events, I’m assuming pants were optional. Hopefully there were no Jeffrey Toobin moments.

  • Adjusted non-GAAP profits are now expected in the $4.07-$4.27/share range for fiscal 2021 which is sharply higher than Wall Street’s consensus estimate of $3.78/share.
  • Due to the increased need for PCs for remote schooling *parents experiencing PTSD hearing that term* and remote work, HP’s stock rallied throughout much of the pandemic.
  • Myers stated that the “company now has $4.5B in free cash flow according to GAAP (the accounting principles, not the clothing store) and expects to return 100% or more of it to shareholders in the form of buybacks or dividends over time…unless the company sees higher return investment opportunities.” 
  • Lores said that the company is better positioned than its pre-pandemic status.
  • Fun fact: HP has exceeded $2B in annualized revenue from gaming PCs and related peripherals. I had no idea nerds playing Fortnite in their mom’s basement spent that much money.

HP’s stock is down 15% from its May 10th peak of $36 but is up 16% from its most recent low of $26.11 put in on October 13th. This puts the stock smack in the middle of its trading range for that time period. This may lead to range-bound trading in the near term as bulls and bears battle it out to gain perspective on future price movement. 

 

Fed Outlaws Fun

Joe Bastianich Cooking GIF by Masterchef - Find & Share on GIPHY

The Fed announced on Thursday that they’ll ban their senior officials from owning individual stocks or bonds, limiting them to the gray, joyless arena of mutual funds, which they’ll have to hold for at least a year. Additionally, whenever they want to buy or sell the securities that aren’t off-limits, they’ll need to notify the Fed 45 days in advance.

  • These new restrictions come on the heels of last month’s scandal, when presidents of two regional Fed branches stepped down after the public learned that they had invested in large companies before the central bank bought trillions of dollars of asset purchases that included bonds from those same companies.
  • The goal of these new restrictions, aside from saving face, is to resolve the conflict of interest created by allowing Fed officials to make personal investment decisions based on insider knowledge of how Fed policy will drive stock movement. 

The Fed could begin tapering these problematic asset purchases as soon as November. The result would (hopefully) be the mitigation of inflation, which could mean you wouldn’t have to spend a lot of your life savings on everyday expenses. In all seriousness, early tapering would make hedges against inflation less urgently necessary.

The Maverick Makes the Brand

Buy the Rumor

Sexy Top Gun GIF by Pit Viper - Find & Share on GIPHY

Ford has announced that the 2022 hybrid model of the Maverick, their new tiny wittle pickup truck, will probably sell out by November. After that, customers won’t be able to order a Maverick until next summer. The gas-guzzling, nonhybrid model hasn’t exactly flown off the shelves, but maybe that’s because a tank of gas costs way more than it did a year ago.

  • The cheapest hybrid model clocks around a $20k price tag–“ less than half the cost of a Tesla model 3.
  • The EPA reported that the Maverick gets 42 mpg in the city and 33 on the highway for a total fuel economy of 37 mpg, making it the most efficient pickup truck in the country. That’s not quite as good as a Prius, but driving a Maverick won’t make your balls disappear, so it’s a fair trade. 

Ford’s stock is already surging. Shares closed on Wednesday at $16.04 —their highest point in 6 years and many (including Credit Suisse) believe that the upward momentum will continue given Ford’s impressive entry into the EV market. Considering the promising demand for EVs and the economic health of some of the companies providing their raw materials, it’s possible that Ford’s looking at a sustained period of growth.

Everyone’s Favorites: Mortgage and Jobless Claims

Other News

Hello Neumann

Two years after an IPO attempt that was as successful as Notre Dame in the College Football Playoff, WeWork finally went public on Thursday via SPAC. Shares of WeWork (WE) were up more than 13% on the day because apparently people never learn. Remember, this was the company that hemorrhaged cash and whose founder and former CEO, Adam Neumann, turned out to be a gigantic slimeball.

  • The newly public WE was recently valued at $9B, much less than the 2019 SoftBank Group valuation of $47B.
  • WeWork basically signs long term leases with building owners and then enters short term subleases with tenants.
  • Adam Neumann trademarked the word “we” then tried to transfer it to the company for a fee of $6M. This paragon of virtue and ethics walked away from the dumpster fire he created with a reported $1.7B package because life truly is not fair.

 

Internal controls will be something to watch anytime the company releases a public filing, given its history of financial mismanagement and questionable practices. The team at SoftBank is currently in control of the company and something tells me this stock will be one to keep an eye on, either for trading or entertainment purposes.

 

How low can you go? 

Weekly jobless claims, everyone’s favorite and rarely accurate labor market statistic, fell to its lowest level since the beginning of the pandemic in March of 2020. 

  • Initial claims for state unemployment benefits fell 6k to a seasonally adjusted level of 290k for the week ending on October 16th.
  • Claims data in the range of 250k-300k is seen as a sign of a healthy labor market. 
  • Jobless claims, which are used as a proxy for layoffs, are well below the most recent peak of 424k in mid-July, but still above 2019’s weekly average of 218k.
  • Labor market shortages still persist, yet economists are optimistic that this will ease as the pandemic continues to lessen, schools reopen, and unemployment benefits expire in the coming weeks. 

Nothing Gold Can Stay (Below 3%)

This week, mortgage rates crept from 3.05% up to 3.09%, the highest since April. That number is still very low, though, making this the best autumn for buying a house in 15 years. Unless you’re a first-timer, that is, in which case you’re f*cked.

  • A historic drop in mortgage interest rates below 3% in August drove home sales up 7% in September to a seasonally-adjusted annual rate of 6.29M, beating estimates.
  • Aside from mortgage rates and remote work, covid-era savings have driven more buyers to the housing market, but a shortage of materials and labor has ground construction of new homes to a halt, driving up housing prices.
  • The median price of an existing home sold in September 2021 was $352k, which is 13.3% higher than September 2020’s price.


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Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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2 Comments

  1. Omg!!! Are you serious?! This is gotta be the most entertaining and educational market news ever!! Not only am I learning stuff but I’m LMFAO while I’m doing it!! #Winning! **insert Charlie sheen Gif here**

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