?? The SEC's Latest Approval
In this issue of the Peel:
Market Snapshot ??
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Macro Monkey Says ??
Man, You Facturing?
I gotta call my dad after this one because he’s a “carpenter” (allegedly), but based on the latest macro reports, the only thing he’s been constructing is a sh*ttier economy for all of us.?
Sure, he might’ve put me through college, but he and the rest of the fellas in the biz need to finish my first house before building their vacation house(s).
But it’s not just construction that’s slowing down the U.S. economy lately. Manufacturing data for the past few weeks and months has been less than exciting, leading us all to wonder why anyone’s mad about the southern border.
At least they’ll build stuff. Anyway, now that everyone’s nice and mad at both me and the economy, let’s get into it.?
The Numbers
Yesterday, a slew of construction, manufacturing, and for once, other non-AI-related macroeconomic data blessed the newsfeed of market watchers from sea to shining sea.?
Chief among these include the ISM’s manufacturing PMI for May. But we also got the latest data on U.S. construction spending and, at the end of last week, the Chicago Business Barometer. So, it’s time to take this alphabet soup and stew on it.
For starters, on Monday, the Institute for Supply Management reported a steep drop in U.S. manufacturing PMI, or Purchasing Manager’s Index, to 48.7%.
The PMI measures the health of the economy in a given sector. In this case, we’re focused on manufacturing, and according to purchasing managers, the rebound to expansion territory we saw early this year is already played out.
Any reading below 50% is a sign of contraction, but anything below 42.5% is a concerning contraction. So, we’re not in “sh*t your pants” territory yet, but certainly moving back in that direction.?
Diving into the data, the only variable of the overall PMI that declined further than new orders was prices. Don’t get me wrong, prices are still increasing, just slightly less fast than the prior month. Plummeting new orders, however, is the worst-case scenario for PMI.
Here, we can see that new orders have been diving for most of the past few months. Manufacturing tends to be a leading indicator—indicative of where the economy is heading—but within manufacturing, new orders are the leading indicator.
So, while production remained above 50%, the only data moving in the right direction was employment… somehow.
To sum up the rest, we had:
Meanwhile, construction data from the Census Bureau showed a slight contraction as well.
Total spending on construction declined 0.1% from the revised March figures… and yes, if you’re wondering, we’re talking about April’s data because the U.S. government still collects data like it did before color TV was invented.
Lastly, at the end of last week, the Chicago Business Barometer, which is basically the PMI for the midwest, declined to its lowest level in 4 years at 35.40% after suffering a hellish decline from the end of 2023.
The Takeaway?
So, across the board in the U.S., the physical economy is trending in the wrong direction.
Nvidia and the AI pumpers would have you thinking otherwise, but it turns out there’s more to the economy than data centers and ChatGPT writing your papers for you.
When overall manufacturing, construction spending, and the pulse of business activity in the heart of the nation’s manufacturing sector are all trending lower, it’s hard to have a positive outlook.
All of the above-mentioned readings are leading indicators, suggesting that while we might be okay now, we can’t expect the same for the latter half of 2024.
Combine these slowdowns with recent pullbacks from the drunk-gambler level of spending we’ve enjoyed over the past few years, and it only gets worse.
Given the increased uncertainty in macro conditions starting at the FOMC and moving all the way down Main Street, this could be a symptom of businesses pulling back in anticipation of a potential future slowdown.
It almost feels like we collectively think the U.S. economy deserves worse post-pandemic performance.
So, our higher rates and slowing inflation are 1) attempts to slow and 2) signs of a slowing economy. JPow’s evil plan to rescue the U.S. from high inflation seems to be working too well.?
Now, we don’t like to be doomers here at the Peel. This slightly concerning data is all measured on sample sizes smaller than the odds of me actually buying a house this year, so don’t read too much into it.
But as always, we want to stay on top of any threats to be on the lookout for. Consider us the CIA of markets and macro and, per our current report, we have to assassinate someone… now we just have to figure out who.
领英推荐
What's Ripe ??
Meme Stonks (GME) ??21.0%
Spotify (SPOT) ??5.7%
What's Rotten ??
GSK (GSK) ??8.7%
Boston Beer Company (SAM) ??3.5%
Thought Banana ??
ETH’s Turn To Eat
In the immortal words of Royce da 5’9, “Everybody used to bite nickel, now everybody doing BTC.”?
Spot on. Especially when it comes to Wall Street in the first quarter of 2024, as institutional money poured into newly legal spot BTC ETFs starting in mid-January.
Now, like a dog spotting a squirrel, Wall Street’s attention is shifting to another—or maybe the other—legend of the digital asset game, ETH.
What Happened?
On May 23rd, the SEC shocked the nation with the approval of spot ETFs for Ether, or ETH, the digital that powers the ETH blockchain.
Some background: ETH, launched in July 2015 and founded by Vitalik Buterin, is the 2nd largest digital asset in the world by market cap. It works a little differently than BTC, with its main purpose to power smart contracts rather than a store of “value.”
The analogy that digital asset heads love to make is that ETH is like the HTTPS of web 3. Developers can build applications and send payments on and using the ETH blockchain, while maintenance of the network is incentivized by Ether.
If ETH was a company—and not set up as a non-profit as it currently is—its $452bn market cap puts it on par with UnitedHealth Group while BTC is closer to the size of Meta Platforms.
And on May 23rd, the SEC was surprisingly chill in their unexpected announcement to allow companies to list spot and futures-lined ETFs on the underlying digital asset.
ETH’s price boomed for about 5 minutes in response but leveled off on par with where it traded in early March. But, the big difference between ETH and BTC in the eyes of the SEC is the ability to earn income on the asset itself.
“Staking” is a process in which ETH owners can “lend” or lock-up their coins to the ETH blockchain in order to maintain the network and earn rewards for doing so. BTC uses proof of work, ETH uses proof of stake.
Proof of stake means that instead of competing to solve math problems to validate the network, ETH holders can “stake” or “lend” their ETH to the network and earn passive income on this every time their node of staked ETH validates a transaction.
Makes sense, right? No? Even better because, the SEC required ETF operators of future-ETH funds to ban staking within the ETFs themselves. There’s been a long legal battle between ETH and the SEC already, but we don’t have time for that today.
The spot ETH ETF providers list will look a lot more familiar to those of us paying attention to developments with spot BTC ETFs. Check it out:
Notice anything different? Neither did I because it’s the same crop of cronies that rallied against digital assets until they had a way to make real money off of them… minus Grayscale.
The biggest difference, however, is that investor appetite should find itself a lot less hungry for ETH ETFs than BTC, now that this staking feature is disallowed.
Spot BTC ETFs just track the price of the underlying digital asset. ETH ETFs will do the same, ETH holders that can figure out how to open a MetaMask wallet can earn 2-4% per year, without fees, just on staking alone.?
The Takeaway?
Spot BTC ETFs took away the need for investors to figure out the best way to get exposure to the asset class. Spot ETH ETFs are creating the same need to think about the best way to get exposed to ETH if it is something they want to invest in.
This is America, so choice-maximization is certainly something we can get behind. However, the irony has only grown deeper for people like BlackRock CEO Larry Fink who sounded like they’d sooner invest in MySpace than BTC back in 2021.
ETH ETFs won’t bring about the same boom for the asset that BTC did, but this deepening of the link between traditional and decentralized finance is already morphing into a strange reality.
We’ll see how it goes.
The Big Question: How will Ether perform compared to Ether ETFs? Do the same asset managers stand to gain the most here once again? How should retail investors get exposure to ETH?
Banana Brain Teaser ??
Previous ??
If n is a positive integer and the product of all the integers from 1 to n, inclusive, is divisible by 990, what is the least possible value of n?
Answer: 11
Today ??
The probability that event M will not occur is 0.8 and the probability that event R will not occur is 0.6. If events M and R cannot both occur, what is the probability that either event M or event R will occur?
Send your guesses to [email protected]
Wise Investor Says ??
“The main advantage of blockchain technology is supposed to be that it's more secure, but new technologies are generally hard for people to trust, and this paradox can't really be avoided.” — Vitalik Buterin
How Would You Rate Today's Peel??
??All the bananas? ? ? ? ? ? ? ? ? ? ? ? ???Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF
Happy Investing,
David, Vyom, Jasper & Patrick