Friday, Mar 25th 2022

The Macro: Uber, Bitcoin, and Memes


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/ Software sellout. This week began with a “Merger Monday,” as private equity firm Thoma Bravo announced a deal to acquire software company Anaplan for $10.7 billion. With software stocks having taken a hit in the last several months, there was little doubt PE buyers would be circling the space looking for good companies to buy at discount prices. The initial reaction to Monday’s announcement suggested maybe, perhaps, the floor had been reached in terms of investor disinterest in the space. Results from Adobe later in the week, however, disappointed and shares were summarily punished, falling 9% during Wednesday’s trading session. The amount of capital raised by buyout firms in the last several years suggests more deals will get done. But the market reaction to Adobe’s quarter suggests investors will still harshly judge any signs of slowing growth at this point in the cycle.

2/ BTC goes OTC. Hang around the crypto markets enough and you’re likely to hear someone note “we are so early.” On the one hand, the value of all outstanding cryptocurrencies is in the trillions. Definitely a big market, maybe not that early. On the other hand, crypto firms are putting out press releases because they did a trade with Goldman Sachs. On Monday, Galaxy Digital announced it executed an OTC, or over-the-counter, crypto options trade with Goldman, which the firm called the first transaction of its kind for a U.S. bank. In contrast to an open market transaction, an OTC transaction means the two parties worked out the terms and structure together because the deal was more complicated than, for example, “I would like to buy some of this using that.” In the traditional finance world, there is nothing special about an OTC deal. In the crypto world, big firms are just starting to get comfortable with what would otherwise be a garden variety deal. Which does seem early.

3/ Uber 🤝 NYC. Starting this spring, every New York City taxi will be eligible to be booked using Uber. The company said Thursday it hopes in 2025 to have every taxi in the world listed on its platform. This agreement, Uber said, will help the company deal with a lack of driver supply to meet current rider demand. Investors appeared to like the deal, with Uber shares gaining over 4% on Thursday. A prestige TV drama covering Uber’s origins is currently on the air; “Super Pumped” tells the story of how the company flaunted rules, regulations, and viewed incumbent transportation services as the necessary losers in its quest to change how we move. We suppose it’s only fitting that this is the time at which that journey comes full circle.

The two meme market —

Whether one considers recent events the second, third, or fourth epoch of the meme movement that began in early 2021, we believe we can say with some clarity that what remains of this theme revolves around two stocks — GameStop and AMC.

Over the last 30 trading sessions, these stocks have moved in the same direction 28 times.

Where one goes, the other tends to follow. Which is leading might change, though the distinction may also not matter much.

And in the last month, the public face of each company has made a move to extend their influence beyond the confines of their primary association.

In early March, GameStop chairman Ryan Cohen sent a letter to the board of Bed, Bath & Beyond disclosing that he’d built a nearly 10% stake in the business and offered suggestions to increase shareholder value. This is a standard activist investor playbook — acquire a large stake in a business, send a letter to management requesting a meeting or changes or seats on the board, and find an agreement somewhere in the middle that results in the stock price going up. Shares of Bed, Bath & Beyond are up over 30% in March.

Over at AMC, CEO Adam Aron announced in mid-March the company had acquired a 22% stake in a gold mine, with the company’s press release bringing together the themes of retail investing, crypto, precious metals, and Spider-Man: No Way Home all in one place.

The involvement of both Cohen and Aron at GameStop and AMC, respectively, predates the meme market mania that broke out in January 2021. And these are not the only companies that have used their newfound status as a “meme stock” to raise capital, announce new business plans, or reinvent their brand.

But like most category defining brands, GameStop and AMC have almost become verbs in the financial lexicon. If you want to let someone know that something strange is happening to a certain company’s stock, you might say it’s “pulling a GameStop” or is “acting like AMC.” And that kind of status has a value all its own.

One thought for the weekend —

In 2005, Jimmy McMillan founded The Rent Is Too Damn High Party, running for mayor of New York City and governor of New York on one issue — the rent being too damn high.

McMillan retired from political life years ago, but we could not help but hear his famous intonations as Fed chair Jay Powell this week told an economics conference that inflation right now is “much too high.”

The suggestion from Powell is that after raising interest rates by 25 basis points earlier this month, the Fed may be inclined to act more aggressively in the coming months to tamp down consumer price increases. In a note to clients published earlier this week, economists at Morgan Stanley said they now expected a 50 basis point, or 0.50% increase, in the Fed’s benchmark interest rate at the central bank’s meetings in May and June.

The public presentation of McMillan and Powell’s message, of course, could hardly be more different — there is little humor and showmanship in the world of central banking.

But as this economic cycle continues and consumer prices remain elevated, the Fed’s dual mandate appears to be narrowing on a single focus. Because inflation is simply much too high.

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