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Your Quiver | Tuesday, May 23, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

The People in the Room

Only they know how truly “productive” the Monday night discussions were. Meeting for an hour or so doesn’t seem very invested in getting a debt deal done. The sides are giving it a 50-50 chance in the next few days. I think most of us would like to hear about odds in the 90’s. But we think they would rather kick the can until Sept instead of defaulting, so that is a positive sign. But we remember 2011, when we started our fund, and even though politicians supposedly inked out a deal with 48 hours to spare before technical default, stocks still tanked after US debt was downgraded to AA+. Thanks to UBS for the picture below.

Getting Icahn'ed


I think we’re all waiting for what Carl Icahn is going to do, since he got Icahn’ed by short-seller Hindenburg a few weeks ago. Hindenburg alleges poor returns, failing shareholders, and mismanagement—plus dividends that won’t stay as high. We imagine that Illumina executives are having a good karmic chuckle, since they’re on the other side of this game with Icahn right now. Shares of Icahn Enterprises are down -43% from May 1. BBG notes that a dollar invested in his private funds a decade ago would be worth less than 50 cents today, so this is not a short-term problem. The funds are what typically gives him the firepower to go after companies, which is a costly battle.

Friday

Because of Memorial Day, Friday is the T+2 settlement day for equities this month. So, rebalancing will have to be today/tomorrow given expected lower liquidity levels as we reach the weekend.

Evolved Stays


Both Hilton and Marriott are launching new extended-stay brands, whereby guests can book longer stays to bridge the evolution in work/travel trends. You’ll get a kitchen, gym, laundry—amenities that people want if they extend their work trip. Planned for suburban areas, they also will pick up people who need temporary housing. At $80-100 a night, I imagine they also may divert some of their hotel business.

Keeping it Local

Apple announced a multi-billion dollar deal with Broadcom for US-made chips, specifically 5G radio frequency components.

A Loud Warning


Saudi oil minister Prince Abdulaziz bin Salman told folks to “watch out” if they’re speculating on the price of oil. OPEC+ is going to meet next on June 4th. My guess is that he wouldn’t say that if the price of oil was stronger, but we’ll see.

A Quieter Warning

You wouldn’t know it from watching equities, but credit investors are warning about corporate defaults. Repeat bankruptcies, according to BBG, are increasing at the fastest pace since the GFC. Borrowing costs are up. Lending standards are tightening. High yield spreads will have to move up. Also, balance sheets become a lot more important. YTD, GS stated that stocks with the healthiest balance sheets are up 14.5%, versus those with the highest debt +1.1%. But, I look at that and see that the number is still positive, which means that true pain is not baked in. Lookin’ at you—unprofitable big tech.

Lowe's Lows

The company cut its full year revenue forecast as DIY demand softens. Singing the same story as Home Depot.