Friday, Jan 21st 2022

Short week, big stories

Commentary

The below content and projections are the opinion of the authors. Any conclusions or takeaways are their own. This should not be considered as investment advice. Investing involves the risk of loss and returns are not guaranteed.

Three things this week —

1) Brands and celebrities go big on NFTs, as trend shows no signs of cooling down.

Everyone, it seems, is trying to ride the non-fungible wave. In the past five days alone, Tom Brady’s NFT company Autograph raised $170 million; Coinbase and Mastercard — both holdings in Titan’s Flagship portfolio — partnered to make buying NFTs easier; and Twitter rolled out capabilities for users to display NFTs as their profile pictures. The letters N, F, and T are managing to emerge from almost every corner of the culture right now: we’ll watch to see how durable this hot trend can remain.

2) A correction hits the NASDAQ, with a potential further decline ahead.

As of market close on Wednesday, January 19, the Nasdaq Composite index officially entered a correction. A “correction” in financial markets is defined as an index declining at least 10% from its most recent high. This week, Titan’s investment team activated the maximum hedge for clients across our equity strategies, as our team believes that, in the weeks ahead, the markets’ most likely trajectory is to go lower. Financial markets have been on unsteady footing for the last few months, and the ground looks no firmer today.

3) A Blizzard may lay ahead for Microsoft, after investing 11 figures into metaverse deal

On Tuesday morning, January 18, Microsoft announced its largest-ever deal on record: a $68.7 billion deal to acquire video game maker Activision Blizzard. The all-cash deal values Activision at $95 per share. Microsoft’s announcement declared that the combination of these businesses “will provide building blocks for the metaverse.” But, back in the real world, it appears investors have some concerns. Shares of Activision have traded near ~$82 since the announcement, a discount of around 15% to the buyout price and a spread suggesting elevated worries over regulations and other potential complications ahead.

Two sides to the housing market —

The housing market often reflects the state of the overall economy. And right now, that means prices are going higher, demand remains strong, but availability is spotty.

The monthly report on home builder sentiment is, admittedly, a niche piece of market data. But we think Tuesday’s update from the National Association of Homebuilders (NAHB) offered up a clean outline of the “some good, some bad” state of the recovery.

“While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022,” NAHB chief economist Robert Dietz said in Tuesday’s report.

Taking a step back, Dietz might’ve been talking about the housing market, the yogurt aisle, or the furniture store.

Meanwhile, homebuilder sentiment remains at the same levels as the spring of 2021, which was by most metrics the hottest housing market in over a decade.

So that “some good, some bad” assessment holds steady: the cul de sac is half empty, or half full – depending on who you ask.

One thought for the weekend —

Sports are fun and business is boring. Or at least, that used to be true.

As the NFL Playoffs continue this weekend, anyone in the state of New York knows what that means: a tidal wave of ads for legal sports betting. And with it, the continued blurring of the lines between business, sports, money, and what constitutes a good time.

At the beginning of the Covid-19 pandemic, when the sports world along with most everything else was shut down, a popular hypothesis was that the speculative energy poured into sports betting would find its way into financial markets.

The number of retail participants in financial markets has risen notably over the last few years. And the “meme stock” events that captured investor attention over the course of 2021 certainly suggested elevated levels of risk-taking had entered the market. There is no doubt that for some investors, picking stocks became a game.

Unlike sports gambling, however, speculation is just one of many features of the stock market. And unlike the sports world, in financial markets, prices and actions are a two-way street. Public companies are incentivized to create value for their shareholders while athletes and coaches owe bettors nothing in return.

In the sports betting world, the chase is all there is — the thrill of victory and the anguish of defeat. In financial markets, things are often more boring than not. And that can be a good thing.

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