đź’µ The dominant dollar

Wednesday, May 18, 2022 by Robinhood Snacks |
Browsing the dollar menu (RubberBall Productions/Getty Images)

Browsing the dollar menu (RubberBall Productions/Getty Images)

Browsing the dollar menu (RubberBall Productions/Getty Images)

Browsing the dollar menu (RubberBall Productions/Getty Images)

Yesterday’s Market Moves
Dow Jones
32,655 (+1.34%)
S&P 500
4,089 (+2.02%)
Nasdaq
11,985 (+2.76%)
Bitcoin
$30,544 (+2.36%)

Hey Snackers,

E.T. phone home(land security): during the first UFO-related congressional hearing in more than half a century, Pentagon officials said reports of encounters with “unidentified phenomena” have surged — and some remain a mystery.

Stocks surged yesterday with tech, airlines, and banks leading the rebound. Investors were encouraged by positive econ news, including that retail spending jumped in April for the fourth straight month.

Buck

1. Stocks have been on a losing streak, but the dollar’s been winning — and that could help fight inflation

Exchanging USDs for gelato… A year ago, one US dollar would get you 0.82 euro. Today, you can exchange $1 for about 0.95 euro — the currencies are almost equal. That's because the USD has "appreciated," or gained in value, compared to the euro. In fact, the greenback has gained against many currencies (like the Japanese yen, the Chinese yuan, and the British pound). That's good for:

  • US imports: A strong dollar makes imported goods cheaper, which should help tamp down inflation (yay). The US = the world’s largest goods importer. Instead of spending $100 to buy 90 euros’ worth of Italian leather, an importer would now spend about $90.
  • American tourists: A stronger dollar means you get more foreign currency with fewer dollars. Paris trip = instantly cheaper.
  • Uncle Sam: A strong dollar is seen as a stable investment. That makes people more likely to lend money to the US gov't (think: buying Treasury bonds). No one wants to be paid back in a wobbly currency.

Moment of appreciation... for the golden currency of nations. The USD's stable rep has long made it the world's reserve currency for international purchases. Think: countries buy crude oil in USDs. But what's behind the recent appreciation streak? It all comes down to the “d” word: demand for dollars is higher.

THE TAKEAWAY

Everything’s relative… That’s literally true in the foreign-exchange world. USD demand has risen because (1) US interest rates are significantly higher than in other countries, which gives investors more reason to park their money in America, and (2) compared with other big economies, the US is looking peachy. Europe’s trade situation has been wrecked by Russia’s war on Ukraine, and China’s Covid crackdown has decimated chunks of its economy. The flip side: a strong dollar makes US exports pricier, which could check economic growth.

Sage

Some people love a bargain… Warren Buffett’s holding company, Berkshire Hathaway, has invested billions in battered stocks over the past few months, a recent filing showed. The Oracle of Omaha sat tight last year while stock prices soared, selling more than he bought. But now that markets have cooled, he’s buying again. Big time:

  • Spending spree: Berkshire added $42B of stocks to its portfolio last quarter, its biggest splurge since 2008. Among them: Buffett classics like Apple, plus relative rookies Citigroup, HP, Paramount, Activision Blizzard, and Ally Bank.
  • The “Buffett Bump” is real: Shares of Paramount jumped 15%, Ally rose 6%, and Citi popped 7% yesterday after Berkshire’s stakes were reported. Verizon and Kroger fell on news that Berkshire sold their shares.

When the going gets tough… Buffett gets buying. The 91-year-old guru famously seeks stocks that are low priced relative to their potential long-term value. But those “value stocks” were hard to find last year since (according to Buffett) everything was overvalued. So Berkshire ended the year with a near-record cash pile. Now it’s trading time:

  • In… oil. Berkshire doubled down on inflation-friendly stocks like Chevron and Occidental (energy is the best-performing category in the S&P 500 this year).
  • Out… pharma. Berkshire ditched stocks Bristol Myers Squibb and AbbVie, which spiked earlier in the pandemic.
THE TAKEAWAY

This is Warren-nomics 101… Thanks to Fed’s rate hikes, booming “growth” stocks have fallen back to Earth (#corrected). That’s created ideal conditions for Berkshire to shop for bargain-priced “value” stocks. Meanwhile, growth stocks — whose value often rests on distant returns — may keep struggling as the Fed keeps raising rates. To weather a downturn, even growth-hungry investors might jump on the Buffett wagon and invest in slow-and-steady stocks.

What else we’re Snackin’

  • Zero: Officials in Shanghai said the city’s Covid outbreak has been brought under control. Many residents are still barred from leaving home in a two-month lockdown that’s rocked the Chinese financial hub.
  • Spend: A tale of two retailers: Walmart missed earnings expectations, saying shoppers were pulling back on big-ticket items to pay for food, while Home Depot said inflation hadn’t dented home-improvement spending.
  • Peg: At least $7B has been cashed out from tether, the world’s top stablecoin, since it briefly lost its dollar peg last week. Tether’s stability has been questioned over what assets are backing the tokens.
  • Airlift: Gerber parent NestlĂ© is flying baby formula into the US from Europe to help ease the nationwide shortage. It comes as the FDA struck a deal with Abbott to reopen a formula plant in Michigan.
  • Cluck: Chicken-wing chain Wingstop said it’s considering buying or building its own poultry farm — the latest company to rethink its supply chain as a way to deal with soaring “input” costs.

Snack Fact of the Day

1 million seconds is about 12 days, and 1 billion seconds is about 31 years

Wednesday

  • Earnings expected from The TJX Cos., Target, Lowe’s, and Cisco

Authors of this Snacks own: shares of Berkshire Hathaway, Apple and Walmart

ID: 2207253