CWS Market Review – September 19, 2023

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Expect the Fed to Pause

The Federal Reserve began its two-day meeting today. The policy statement will be out tomorrow afternoon at 2 p.m. ET. Don’t expect any hikes from the Fed tomorrow. They’ll almost certainly keep their target range for interest rates at 5.25% to 5.50%.

For November, I suspect that the Fed is leaning towards another pause, but that’s far from certain. There’s a lot of data due out between now and then. The financial world will be paying close attention to what Jerome Powell says tomorrow.

The Fed will also update its Summary of Economic Projections (SEP). In the last batch, a majority of the Fed saw the need for a rate hike before the end of the year, but futures traders aren’t so sure. In fact, the futures market doesn’t see the Fed making any moves for the next 10 months. There’s a very real chance that this is the highest the Fed will go.

While there’s been encouraging news on inflation, there are still some trouble spots. In particular, energy prices have been rising rapidly in recent weeks. Later on, I’ll discuss the dizzying rally in orange juice.

The bond market is sensing some pressure. Earlier today, the yield on the two-year Treasury reached its highest close in 17 years. The 10-year touched its highest close in 16 years.

There’s some talk on Wall Street that tomorrow, the Fed will offer a “hawkish hold,” meaning that the Fed will try to sound tough even though its actions may not back that up.

At one point today, the S&P 500 dropped as low as 4,416. That was the index’s lowest intra-day level since August 28. For the third day in a row, the S&P 500 closed below its 50-day moving average.

Instacart Goes Public

Shares of Instacart (CART) went public today. Today’s offering has received a lot of attention on Wall Street. The ticker symbol is CART.

For the first time in two years, there’s some buzz in the IPO market. The target range for CART was originally $26 to $28 per share. The underwriters then raised it to $28 to $30 per share. Last night, the shares were priced at $30, and the stock started trading today at $42 per share.

Investors are finally interested again in new issues. I’m not surprised that it’s taken some time. Many of the companies that went to the market two or three years ago were complete duds. There are few things as scary as a market hungry for anything new. To give you an example, in 2021, there was even talk of Instacart being worth $40 billion. At its height, DoorDash was worth $72 billion. (!!!)

Instacart’s underwriters sold 22 million shares for $30 a pop. That raised $660 million for Instacart. Instacart now has a market value of $10 billion.

You might think that’s a lot of money for a company that delivers groceries, and I would agree. The issue, however, is that Instacart isn’t in the business of delivering groceries.

Instead, it’s in the data business, and there are a lot of numbers to be gleaned from tracking how CART’s customers shop.

So technically, yes, Instacart will deliver groceries, but that’s merely a front for getting data which is hugely important to advertisers.

Advertising now makes up 30% of Instacart’s revenue. The company had sales of $740 million that didn’t come from shopping.

Making a service that’s a front for advertiser dollars isn’t something new. That’s largely the idea behind companies like Google and Facebook (sorry, Alphabet and Meta). Another company that’s worked to profit off data is our very own Intercontinental Exchange. The company has expanded into mortgage analytics, which is a field ripe for disruption. They want to own all the numbers.

Instacart was a big hit during the pandemic, but I’m not sure how long-lasting its success will be. According to the company, online shopping only makes up about one-eighth of grocery sales. The industry still has some problems it needs to work out.

Instacart had wanted to IPO several months ago, but a soggy IPO market and an active Fed helped put that on hold.

In its filings, Instacart said its revenues were up 31% to $1.5 billion during the first half of this year. CART had a new profit of $242 million compared with a net loss of $74 million last year. In my opinion, CART’s valuation is pricey but not outrageous.

Buying groceries online may prove to be different from shopping via Amazon. I suspect that there’s something people simply prefer about going to a store and seeing the items on display, especially something they’re going to eat.

There are more IPOs on the way. Birkenstock is looking to go public next month. Next year could be a big year for IPOs.

The Great Orange Juice Rally

While the stock market’s been fairly calm lately, the real action is going on in the commodity pits, especially orange juice futures. The price for OJ just hit a new all-time high.

On Wall Street, they trade just about anything, and that includes frozen concentrated orange juice, and in recent months, the price for OJ futures has soared.

Orange is apparently no longer the new black – it’s the new gold.

In the last year, OJ futures are up about 60%. The rally’s been spurred on by a combination of lousy weather and a nasty citrus disease. I hate to use the cliché “a perfect storm,” but that’s what’s happening. There’s simply not enough supply to go around.

Florida is the heartland of America’s citrus crop, and the Sunshine State was hit hard last year by Hurricanes Ian and Nicole. The Department of Agriculture said that Florida has its smallest orange harvest in over 100 years. Some farmers are selling their land, believing that they can get more for it than by growing oranges.

Originally, the USDA said that Florida was expected to produce 20 million boxes of oranges. That’s less than half the amount of the year before. Now they say it will be closer to 16 million boxes. Twenty years ago, they did 240 million boxes.

To meet demand, America has been turning to oranges from Brazil and Mexico, but the orange crops in those countries have been suffering as well. The free market has a nice little tool that it uses when supply forecasts fall short of demands — prices rise.

Shoppers are already seeing the effect in the supermarket. This could lead to long-term lower demand for OJ especially since consumers have been sensitive to higher prices thanks to the recent bout of inflation.

The orange juice rally is interesting to me because that’s the backdrop of Trading Places, which is probably the best movie about trading and financial markets.

In the film, the Duke brothers crookedly get early access to the government’s crop report. That leads them to corner the market for orange juice. Instead, Louis Winthorpe (Dan Aykroyd) and Reggie Valentine (Eddie Murphy) have switched the report with a phony version.

During the famous trading scene, once the market opens, the Dukes frantically buy orange juice. Other brokers see what’s happening and they start buying. The price for OJ skyrockets.

As the price soars, Winthorpe and Valentine start massively shorting. The trading floor becomes a frenzy. Then trading comes to a halt as the crop report is read on the air. The report says that the year’s crop will be normal. The Dukes realize they’ve been double-crossed.

The frantic selling continues and the price for orange juice plunges. In one trading day, the Duke brothers are wiped out and Winthorpe and Valentine have made a fortune.

The Duke brothers are loosely based on the Hunt brothers. These were two Texas brothers, Herbert and Nelson Bunker Hunt, who tried to corner the market for silver.

When they started their plan, silver was around $6 per ounce. By early 1980, it rose to $50 per ounce. Time Magazine estimated they made between $2 billion and $4 billion in just nine months. At one point, it was estimated that they held one-third of the world’s silver. Tiffany took out a full-page article to denounce them.

The Hunts were convinced that the Establishment was out to crush them, and they were pretty much right. The exchange changed the margin requirement which forced the brothers to put up much more collateral. One of my first jobs in this industry was making margin calls. That’s not a metaphor. I had to actually call people to tell them they had to sell or put up more money.

On March 27, 1980, the bottom fell out of the silver market. This is now known as “Silver Thursday.” The Hunts had to put up more money, but they couldn’t reach their margin requirement. The government was worried that Wall Street banks were so much in debt to the Hunts that if the Hunts went under, so would the banks. In other words, a silver panic could start a banking panic.

The Hunts had finally been broken, and even today, silver is still less than half its peak from 1980.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Posted by on September 19th, 2023 at 10:19 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.