Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Wed, 23 Jun 2021, 10:49 AM

 

Wall Street Breakfast: Pipeline Disruption

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The U.S. government has declared a state of emergency to keep fuel supply lines open following the shutdown of Colonial Pipeline on Friday. The 5,500-mile conduit, whose owners include Shell Midstream Partners (NYSE:SHLX) and others, carries 2.5M barrels a day to the East Coast, or 45% of its supply of diesel, gasoline and jet fuel. While Colonial is working toward a restart of operations along the key artery, some smaller lateral lines between terminals and delivery points are now operational. In the meantime, the Biden administration is allowing drivers that transport fuel to work extra hours, while oil products could be permitted to be shipped in tankers up to New York.

Recap: Hackers stole almost 100 gigabytes of data from Colonial Pipeline's networks, before locking its computers with ransomware and demanding payment. Multiple sources have confirmed that a cybercriminal gang called DarkSide was behind the attack, and some evidence has emerged linking the group to Russia or elsewhere in Eastern Europe. The White House also formed a task force to probe the pipeline breach, and the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency is coordinating with Colonial Pipeline.

Fear of shortages: U.S. gasoline futures (XB1:COM) jumped more than 3% to $2.217 a gallon as trading reopened for the week, while WTI crude futures (CL1:COM) rose 1.3% to as high as $65.76/bbl. Besides connecting refineries to more than 50M people, the pipeline network serves major U.S. airports, including Atlanta's Hartsfield-Jackson. While the U.S. Department of Energy could tap its reserve of 1M barrels of diesel fuel in the Northeast, it's "little more than a Band-Aid," ClearView Energy Partners said in a research note

Outlook: The attacks are "here to stay and we have to work in partnership with businesses to secure networks, to defend ourselves against these attacks," Commerce Secretary Gina Raimondo told CBS's Face the Nation. The hack could also give renewed impetus for Biden's $2.3T infrastructure plan. In fact, the president this week is hosting top Democratic lawmakers at the White House, as well as a group of Republican senators who have proposed a separate $568B infrastructure plan, though Energy Secretary Jennifer Granholm has previously said Biden is willing to push through the "American Jobs Plan" without bipartisan support.

Stocks - Digesting the jobs report

The new week is starting with some familiar investing trends as cyclicals look poised to notch modest gains this morning with tech on the back foot. Dow futures are ahead by 0.3%, while contracts linked to the Nasdaq are off by 0.3% and the S&P 500 is hugging the flatline. The bet, known as the the reflation trade, would see stocks more sensitive to the economic cycle outperform their peers as businesses reopen following the coronavirus pandemic.

Not everything is rosy on the economic front. Data on Friday showed that U.S. jobs rose by 266,000 in April, trailing estimates for a one million jump, marking a huge miss by economists and raising questions over what data they're using. Despite the blunder, the news could be good for equities, as it may suggest the Fed may hold its accommodative stance for longer. Treasury Secretary Janet Yellen weighed in by saying the report "underscores the long-haul climb back to recovery, but still represents continued progress."

Analyst commentary: "We would not read too much into any one jobs report, and continue to think the labor market remains on track and will be more than enough to underpin consumer confidence and consumption," Wells Fargo's Sameer Samana declared. He thinks cyclical stocks will continue to be favored over defensive shares, and jobs growth still likely to accelerate in the months ahead.

Prices on the rise: Commodities are getting another dose of supercycle today, with gasoline and crude oil rising after a cyberattack forced the closure of the East Coast Colonial Pipeline. Iron ore futures and copper also jumped to fresh records, before a CPI report this week that is forecast to show U.S. prices rising further in April. Meanwhile, a slew of Fed speakers will discuss the recent price trends this week, as well as how inflation could affect monetary policy and economic growth.

Cryptocurrency - To the moon

Dogecoin (DOGE-USD) shed as much as 46% after trading as high as $0.74 before Elon Musk's appearance on Saturday Night Live. The crypto is now changing hands at $0.51, but fell to as low as $0.40 on Sunday. Musk has a history of comments that can influence stocks, markets and crypto, and many were expected similar outsized moves after his role on the late-night comedy sketch. The fun didn't stop overnight, as Musk tweeted SpaceX (SPACE) would launch a satellite name Doge-1 to the moon in 2022 (all funded by Dogecoin).

The skit: Musk was featured in satirical news segment Weekend Update, playing a character called "Lloyd Ostertag, financial expert," who dubbed himself "The Dogefather." At the beginning of the episode, Musk touted the benefits of cryptocurrencies and Dogecoin, saying the latter had started as an "internet meme... but has now taken off in a very real way." However, after cast members Michael Che and Colin Jost repeatedly asked him to explain, "What is Dogecoin?" Musk ended the episode by saying, "yeah, it's a hustle."

Before the highly-publicized appearance, Barry Silbert, a big player in the crypto sector, turned against the cryptocurrency. "Okay $DOGE peeps, it's been fun. Welcome to crypto!" he wrote over Twitter. "But the time has come for you to convert your DOGE to BTC [disclosure: we've gone short DOGE]." Silbert founded Grayscale Investments, which runs the popular Grayscale Bitcoin Trust (OTC:GBTC), as well as the Digital Currency Group, which owns CoinDesk.

Go deeper: Even at $0.51, the market value of Dogecoin is more than $70B, greater than the valuations of many blue-chip companies. The crypto is still up 10,000% in 2021, padding the accounts of some of its "early" investors, though many in the crypto community are debating the path forward. Will Dogecoin eventually make it to $1, or will traders bail on its rising popularity? Click through to join the discussion.

Trending - ARK ETFs

Cathy Wood is in the spotlight over her recent market returns, as well as her dealings with Archegos Capital Management. The flagship ARK Innovation ETF (NYSEARCA:ARKK), which focuses on high-flying growth stocks, is off 12% so far this year and has retreated more than 31% from its mid-February high, as a rise in U.S. Treasury yields and economic reopening plays led investors away from the sector. Just to note, ARKK still remains up nearly 94% over the last 12 months, a move that propelled Wood into an elite club of notable stock pickers.

What she's saying: "I love this setup," she told CNBC, following the sharp selloff in Tesla (TSLA), Shopify (SHOP) and other holdings in ARK's ETFs. "The worst thing that could have happened to us is to have the market narrowly focus on just our ilk of stock - the innovation space." She also reiterated her five-year time horizon, and now expects her strategies to produce a 25% to 30% compounded annual return (up from 15% forecast in February).

Some other details emerged in the conversation. Wood revealed that hedge fund veteran Bill Hwang provided seed capital for ARKs first four ETFs and his help was "crucial given the tough environment of securing funding for ETFs in the early 2010s." She continued to say that "I have not spoken to him" since the demise of Archegos, but did send him a note wishing him well. The hedge fund collapsed in late March, when its debt-laden and concentrated positions on certain media stocks unraveled.

Others are pointing fingers: Chris Irons, who tweets under the handle "Quoth the Raven," or QTRResearch, had what to say over the weekend: "Hwang seeds ARK, ARK buys TSLA, Mysterious OTM call buys in TSLA gamma squeeze the stock by 10x higher for 18 months... Hwang buys GSX, Mysterious OTM call buys in GSX gamma squeeze shorts and 4x the stock, Hwang blows up after gamma squeezes unwind... What's next for ARK?" For her part, Wood said she had "no idea if Hwang had remained a shareholder in ARK ETFs."

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