December 16, 2021

Good morning traders,

Welcome back to The Daily Setup. Markets were up yesterday thanks to the Fed’s announcement that it will raise interest rates faster than anticipated. Here’s what’s on the docket today:

  • Fed’s announcement
  • Coinbase fixes its price glitch
  • Nancy Pelosi still thinks Congress should buy stocks

So have a cup of coffee, read through the newsletter, and let’s make today a good one.


CMC Materials, the Fed, and Retail sales


Silicon Surge – CMC Materials

Shoots up due to Acquisition

Shares in semiconductor materials supplier CMC Materials (CCMP) gained 33.91% yesterday thanks to the announcement that CCMP will be acquired by rival Entegris in a cash-and-stock transaction. Gold is so last century, silicon wafers are the new hotness.

  • Entegris will be paying CCMP shareholders $133 in cash and 0.4506 shares of Entegris for each CCMP share that they hold. This is a windfall for those investors as this exchange will be a 35% premium compared to where the stock closed on Tuesday.
  • The transaction is paid via fully committed debt financing from Morgan Stanley Senior Funding but is not subject to financing conditions. When all is said and done, CMC shareholders will own 9% of the company, with Entegris shareholders controlling 91%.

Despite the number of shortages and shipping delays that have affected semiconductor manufacturers for the past 2 years of the pandemic (stares at the calendar and cries), it’s a pretty safe bet that their services aren’t going anywhere (just like their products due to shipping delays). Entegris CEO Bertrand Loy has a similar amount of confidence on the matter, positing that the company expects to realize $75M in run-rate cost synergies and $40M in CapEx synergies within the 12-18 month period after the deal closes in 2022. If they end up staying true to predictions, it could be positioned to make a serious splash on the semiconductor scene and investors will be hoping to strike some serious silicon.


Jay fixes inflation

Spongebob Squarepants I Give Up GIF - Find & Share on GIPHY

Jay goes back to sleep after the inflation problem is solved

Well it finally happened, the eggheads at the Fed got together and agreed that maybe, just maybe, inflation is getting to be a problem, and that they should do something about it. On Wednesday Fed Chairman Jerome Powell announced that the Fed will be raising interest rates in 2022 faster than initially anticipated. Talks on the matter began to swirl around mid-November, with a number of officials doing their best to wake ‘ol Jay up, and the market began to adjust accordingly. A faster taper rate than expected reflects the chair’s confidence in the economy going forward. That or he’s as tired of hearing the word “transitory” as are the rest of us.

  • In November, the Fed started taking baby-steps towards combating inflation by curbing its $120B-per-month bond purchasing program by $15B starting November and December, a pace which would cut the program by mid-June 2022. Today’s announcement doubles that rate to $30B a month, now concluding the program by end of Q1.
  • With the bond-buying program’s conclusion on the horizon, the likelihood of rate hikes is pretty much assured. Powell went on to say they don’t anticipate the need to raise rates before the taper ends, but reserve the right to do so before the country hits full employment. In fact, Jay and his buddies are so confident that policymakers see five more increases as appropriate across 2023 and 2024 to really let the air out of inflationary tires.

This is certainly great news for the market, which has been looking for any kind of concrete policy from the Fed instead of: “let’s throw taxpayer money at it and see what happens”. Rate hikes happening sooner than anticipated is due to inspire a lot more confidence in the market amongst the public, bringing us from the brink of bearishness. The markets adjusted accordingly, with the S&P 500, Dow, and Nasdaq rising 1.3%, 0.9%, and 1.7% respectively.


Holiday cheer worthless

Santa dropping an absolute dump of a CPI into your stocking this year

While November spending outpaced YoY price gains, the lead was measly– just a seasonally adjusted 0.3%— in comparison to October’s phat 1.8% gain. Some analysts attribute this weak holiday performance to the record-high transitory inflation that’s even got J-Pow freaking out (cough cough gas prices are up 52% from December 2020 cough). Or maybe Santa just isn’t coming this year.

  • But it’s not as bad as it looks. For one thing, consumer demand is way better than it was this time last year– 18.2% better, in fact. For context, the YoY gain from 2019-2020 was just 6.8%.
  • And it turns out that people did do their Christmas shopping– in October. Apparently people started shelling out their cash before stores started assaulting customers with Michael Bublé.
  • Inflation does have something to do with the slump, though. While most customers will pay inflated prices for longer than you’d expect, that lack of resistance drives prices even higher, creating a cycle where eventually a significant portion of customers get fed up and leave.

The Fed signaled a more hawkish stance towards inflation, and in this context that’s a good thing. The prospect of lower inflation will improve consumer sentiment and likely drive up spending. Higher spending will (hopefully, after a while) combine with realized lower inflation and produce better seasonally-adjusted retail sales numbers for the coming months. In general this news is a sign for optimism in markets across the board.

We fixed the glitch

Token Talk

Tuesday afternoon around 4 p.m. EST, Coinbase– and data provider CoinMarketCap– briefly experienced a glitch, which valued Bitcoin at $799B-$887B per coin, for a market cap of $14.7 quintillion. Ignore the dips and swells, though, amirite? The error caused many traders to believe that they’d become millionaires or even billionaires overnight. COIN resolved the issue on their website by 5:30 and on their app by 6:30, but frat boys the world over may never recover.

  • Coinbase insists that the mistake didn’t impact trading, just display images. As if in the digital asset world those two are different.
  • This isn’t a great time for Coinbase to f*ck up. Thousands of users are still upset about a glitch back in November that locked them out of their accounts and kept them from trading or withdrawing their funds for weeks.
  • Luckily for Coinbase, the 5.3% dip their shares took early on Wednesday were also a glitch, corrected by markets’ close to leave shares gaining 0.95%.

The glitch itself has been resolved and was never anything more than hot air. What’s clear, though, is that digital assets’ volatility and speculative appeal still account for much of its value. What’s more, Coinbase has left some investors wondering whether it can really be trusted to perform well under pressure if they can’t perform well when there’s not much going on.

Big bank + big bank = big big money

Rumor has it

First-Citizens when they have to wait a little bit for their enormous windfall

First-Citizens BancShares initially declared their intention to acquire CIT group for $2.2B back in October 2020. That announcement must have gotten lost in the mail, though, because it’s been 420 days (#blaze) and the Fed still hasn’t okayed the merger despite the fact that the FDIC approved it (and markets approved of it) pretty quickly. Regardless, many think the gridlock is nearly over, with a big fat payload at the end of the rainbow for First Citizens.

  • How big, you ask? Some analysts expect First Citizens’ stock to jump 24-30%.
  • It’s not you, BancShares, it’s me. The Fed might be waiting to vote on the merger until after they’ve filled all the empty seats in their leadership (several other delayed bank mergers support that idea). If that’s the case, the merger’s probably going through.
  • On the other hand, an anonymous letter sent to the Richmond Fed branch alleged that First Citizens was guilty of antitrust violations, in which case the merger could be boned. Nor does it help their chances that the FDIC and Fed have just launched a regulatory crackdown on bank mergers.

First Citizens’ possible rally is all dependent on whether the merger goes through. That said, even if the merger fails, First Citizens will be fine– their stock has risen 125% in the past five years. Their strength, size, and security as a financial institution are exactly why the Fed’s worried about allowing them to grow even more powerful via the acquisition of CIT group. They might not get a lot bigger in the near future, but they’re sure not getting any smaller. Which is also what I tell my girlfriend.

Link Roundup 📿

Other News

Other News Link Roundup

  • Musical Chairs – SEC Forcing firms to reveal swap positions (Read)
  • Good Karma – Samsara IPO valued at $11.5B (Read)
  • Dropped Like a Brick – Roblox is missing targets and dropping quick (Read)
  • Pfizer Gets Their Booster – Pharma company hits all time high ahead of potential for the pandemic pill (Read)
  • Stop Licking Batteries! – Goldman Sachs says to drop Lithium stocks (Read)
  • Full time trader and part time Speaker of the House thinks Congress should continue to be able to buy stocks (Read)


Trader of the year, via @RampCapitalLLC

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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