Christmas without Santa

Are you ordering gifts for the winter Holidays? This year, the way things are going,  the best gift one could get for Christmas may well be a pizza delivered by Domino’s. Energy crisis, workforce depletion, shortage of supply and a dysfunctional globalised supply chain are just a few of the arguments behind this scenario. Does the economy face the risk of massive dislocation?

There is a significant probability that Santa Claus will come with an empty bag for Christmas. Moreover, Santa may get stuck in a petrol station waiting in a long queue to fill up his sleigh’s gas tank. Scarce labour is slowly dismantling business across the United States and most developed countries. In the US only over 4.3 million workers vanished throughout the pandemic and they seem not keen to go back to their old job. Retail and food industry are the most impacted and despite the fast digitalisation, it seems that there is no real solution to the problem. The labour crisis also damaged the logistics industry, leading to disruption to the supply chain.  The shutdown of the economy throughout the initial episode of the pandemic generated a shortage in commodities supply that ultimately led to an unprecedented bubble in raw materials’ price.

Seemingly, the economy may enter a downward spiral amongst the appeartnely rapid recovery. The real reason behind the above mentioned concerns is the unrealistic monetary policy pushed by central banks. Too much free money generated not only inflation but deterred people from going back to work.  

The only reasonable solution to exit this vicious circle is either to reduce demand, which will ultimately happen, or to deflate asset prices. A deflationary scenario will come at a cost and the financial system could be exposed to massive systemic risk. As they did during the 2008 credit crunch, central bankers will prefer to salvage Wall Street and sacrifice consumers.

The coronavirus pandemic has caused delays and other frustrations in businesses’ global supply chains, highlighting how vulnerable many are to unexpected disruption. [...] businesses should use the information collected from these digital tools to build a crisis management team. [...] companies should gain as much visibility as they can into the details of their supply chain. Lack of visibility can frustrate a company’s ability to plan ahead and retard the decision-making process. John Chambers, former CEO of Cisco and current CEO of JC2 Ventures

Market overview

The Dow Jones Industrial Average gained 1.1% in the last trading sessions getting closer to the all time high level record during the summer. Retail sales numbers above expectations contributed to the inflow of optimism in the market. Moreover, the leaf Wall Street financial institutions reported strong earnings, reassuring investors about the future of the banking sector.

Bitcoin continued its rally and climb above USD 60,000 propelled by the perspective of a potential ETF approval. While buying Bitcoin is still a risky bet,  a Bitcoin-based ETF would attract massive inflow of liquidity from the asset management and pension funds industry.

Focus:

Domino’s Pizza

Since the economy reopened in the summer, Domino's share goes through a constant decay. Food industry suffers from a workforce shortage. The sales are decreasing amid the recovery, while there is an increasing inflationary pressure on wages. Domino’s business model faces unforeseen challenges leading to a contraction in margins. Domino’s may need to overhaul its strategy to adjust to the new reality where low wage workers are a luxury.

Focus:

Merck

When Merck announced in early October the request for emergency FDA approval of its magic anti-COVID pill, investors rushed to buy the stock, resulting in a prompt spike. Since then the price entered into negative territory. The high cost of Merck’s treatment accounting for USD 721 delivered a negative signal. Moreover, the FDA seems not to greenlight  Molnupiravir, before the beginning of the next year. Safety concerns about the effect of the drug including  either birth defects or cancer led to a certain reluctance from investors.

Focus:

Ignite

After a long period of turbulence, Ignite, a Canadian company specialising in cannabidiol products found the right setup. Dan Bilzerian’s latest book propelled the share price on a positive pattern. After losing over USD 50 million in 2020, Ignite announced better results for the first two quarters of this year. Moreover, the company expanded globally and diversified the range of products and services. Ignite is leveraging the image of  his founder Dan Bilzerian and his massive Instagram follow. Investors are still cautious about the firm’s growth perspective, because the relationship between Bilzerian lifestyle and Ignite is ambivalent at best.

Market outlook

The Dow Jones Index ended the week on a bullish trend, surfing above 35,200. The above-average earnings bring short term momentum, but the long term perspectives expose investors to above-average risk.

Bitcoin’s price hovered near 62,000 USD, entering a new rally after a period of hectic errance. The perspective of a Bitcoin ETF getting regulatory approval brings more traction to cryptocurrencies.

The energy crisis triggered by a bubble in power, gas, and coal prices impacts oil prices. Thus, there are sound reasons to believe that Brent could climb above 100 USD before the end of the year.

The Gold ounce started to move North ending the week around the 1,770 mark.  The long-awaited gold rally may be closer than one could think.