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Stock Markets Shrug Off War
If you’ve noticed a lack of humor in my recent emails, you aren’t the only one.
The brewing crisis in Eastern Europe has left everyone at InvestorPlace.com in a somber mood.
Still, it’s our job to help you navigate the financial world we live in. And let’s not forget how we can put our own financial well-being to work helping those who need it most.
So let’s take a look at the five surprises that gave us both despair and delight over the past week.
The 5 Surprises This Week: 1. Markets Signal “Everything is Normal”
On Thursday, U.S. stock markets made a full recovery after President Joe Biden finalized sanctions against Russia. Rather than penalize all businesses, the White House carefully carved out exceptions for agriculture and energy — Russia’s two largest exports. Access to the SWIFT network remains intact.
Markets responded in kind. By 5 a.m. Friday morning, front-month Brent contracts had dipped back below $100 per barrel; stocks have regained virtually all the lost ground.
It’s hard to guess what will come next. But as this week has shown, the markets currently believe that Russia will eventually get what it wants.
2. Peloton Whiffs on a “Cosmetic Issue”
In these trying times, it seems I have another reason to worry about my stress eating.
Last week, revelations surfaced that exercise bike firm Peloton (NASDAQ:PTON) had hidden significant quality issues from customers. “Project Tinman,” as the internal plan was called, involved 120 employees covering up rust in at least 6,000 bikes.
The firm was already facing a host of problems. Average monthly workouts per subscriber have fallen from 25 in mid-2021 to 16 today (Apparently I’m not the only one skipping workouts). And one of Peloton’s poorly designed treadmill models resulted in at least one child’s death (The firm has since ceased selling them).
The new allegations will strike Peloton at its core. Although Peloton’s $30 stock might seem cheap at first glance, it’s a deal that’s not yet worth taking.
3. CryptoPunks Owner “Rugs” Sotheby’s
On Wednesday, a $30 million CryptoPunks auction was canceled just minutes before its scheduled offering time.
The seller, an anonymous investor known as “0x650d” on Twitter, sent a gleeful note:
“Nvm, decided to hodl,” the CryptoPunk owner tweeted. “Taking punks mainstream by rugging Sothebys [sic],” they posted in another.
While this wasn’t a typical rugpull, where investors are tricked into buying junk, “0x650d” certainly created a great deal of confusion. Perhaps someday, auction houses will start using escrows to prevent similar shenanigans. Until then, “decided to hodl” will remain a rallying cry for those sitting on more money than they know how to spend.
4. Kraken and Coinbase CEOs’ Twitter Fingers Upset Canadian Police
Tweets from Kraken CEO Jesse Powell and Coinbase (NASDAQ:COIN) CEO Brian Armstrong seem to have put Canadian authorities on edge.
“Please do not fund causes directly from custodial wallets,” tweeted Mr. Powell last week. “Withdraw to non-custodial before sending.”
“Self-custodial wallets are important!” said Mr. Armstrong.
The warnings seem to have struck a nerve. On Tuesday, the Ontario Securities Commission (OSC) flagged both posts to law enforcement agencies. Encouraging customers to circumvent governmental emergency powers, it seems, gets authorities upset.
Of course, those using cryptocurrencies on the dark web have long used anonymous accounts, mixers and crypto exchange laundering to cover their tracks. But as law enforcement will increasingly understand, having a shadow financial system means having money pop up in rather unexpected places.
5. Reverse Rug Pull
And finally, some good news… Slate reported this week that a group of NFT investors got revenge on scammers. In a saga worthy of a Netflix (NASDAQ:NFLX) mini-series, an online community managed to save the “Cool Kittens” NFT and thumb their noses at the perpetrators.
Here’s how the story unfolded:
In November, @CoolKittensNFT introduced a lineup of kitten-based NFT images, promising an electronic token, a purpose-built cryptocurrency (PURR-USD) and membership to a decentralized autonomous organization (DAO)…
…it turned out to be a classic NFT rugpull. The anonymous development group would vanish with $160,000 after minting just 2,216 NFTs.
But rather than suffer in silence, one community member managed to assemble an ad hoc team. With their own money, they took a digital snapshot of addresses that bought Cool Kittens, created a new set of 2,216 NFT “kittens,” and air-dropped new pieces into the scammed wallets.
Today, these new Cool Kittens trade upwards of $30,000 apiece, proving that creating value can often be more rewarding than stealing a half-baked project.
Low U.S. oil inventories pushing short-term prices higher
This week, InvestorPlace.com’s Eric Fry noted how crude oil is undergoing a short-term spike.
“This low reading doesn’t mean the U.S. is running out of oil, but it does mean that demand growth is outpacing supply growth, which is why the oil price had been moving higher until the Omicron variant knocked the knees out from under it.”
In other words, investors can expect high oil prices in the near-term, but don’t expect the disruption to last.
Stocks for the Long Run
After all these price gyrations, investors are probably wondering whether it’s time to buy the dip. The tech-heavy Nasdaq index remains in bear market territory (despite yesterday’s recovery), and even high-flying investors have been caught off guard. Cathie Wood’s ARKK Invest ETF (NYSEARCA:ARKK) is now just 12% above its pre-pandemic level after falling 55%.
For the long-term investors, it’s time to buy back in — selectively.
That’s because today quality matters more than size. Market-weighted ETFs like the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) naturally give a higher weight to overvalued stocks.
Meanwhile, it’s cheap Moonshots that stand to gain the most from a recovery. Stocks like POSaBIT (OTCMKTS:POSAF), Volt Information Sciences (NYSEAMERICAN:VOLT) and high-quality cryptocurrencies such as Ethereum (ETH-USD) will likely outperform their more richly-valued peers as broader indices rebound. Even in tumultuous times, there are opportunities for savvy investors to turn lemons into lemonade.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.