Inflation's slowing, Bed Bath and Bankruptcy, and Virgin Orbit fails to get its rocket up. Newsletter #6
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Inflation's slowing, Bed Bath and Bankruptcy, and Virgin Orbit fails to get its rocket up. Newsletter #6
16/01/2023
In This Issue:
Inflation takes a tumble
Bed Bath and Bankruptcy
Crypto on the rise
Virgin Orbit can’t get its rocket up
Inflation in the US and Europe slows (finally!)
The US Consumer Price Index (CPI) report, released last Thursday, showed that inflation in America is finally beginning to soften. Annual inflation declined to 6.5%, the lowest reading in a year. Whilst still near its highest point for decades, it’s a significant decline from the 9.1% inflation rates we saw in June last year.
Many traders believe the decline in inflation could mean the Fed will raise interest rates by just 0.25% at its next meeting in three weeks, as opposed to the 0.5% hike we saw in December.
An interest rate hike of 0.25% would be a welcome change for most investors after 2022 saw a string of 0.75% raises in an effort to tame inflation - one of the Fed’s most aggressive tightening campaigns in its history.
Inflation in the Eurozone is back to single figures as well. Eurozone inflation was 9.1% at the end of December according to Eurostat, down from 10.1% in November. Quite a fall in just one month, but still far higher than the European Central Banks target rate of 2%. However, most analysts seem to believe that this is the beginning of a changing trend in inflation and that it should continue to decline for the rest of the year throughout Europe.
Falling energy prices are the main reason for this, as well as slow wage growth relative to inflation. Lower wages mean less purchasing power and consumption, which leads to lower demand for products/services and lower inflation.
Unfortunately for employees, lower wages are often a good thing for investors; they reduce inflation whilst also increasing company profits.
Bed Bath and Bankruptcy
You’d be forgiven for thinking that Bed Bath and Beyond ($BBBY) had just announced it was being taken over after looking at their stock performance so far in 2023. Their share price is up 58% in just the first two weeks of January, so surely the company’s doing well, right? Nope.
On Tuesday, the company announced they were considering filing for bankruptcy. They also reported losses of nearly $400m for the prior quarter and said sales declined by 33%.
So why the boom?
It seems to be purely because of its perception as a meme stock - a stock whose value is based on retail investor hype and sentiment towards the company, rather than its performance or underlying value.
peaked at $5.24 on Thursday before falling 30% on Friday. Yet despite this, they’re still up 58% for the whole week.
The company clearly isn’t in a good place right now, and BBBY activity on the Wall Sreet Bets reddit forum, where many retail investors go to talk and post their latest ideas, has shot up in the past two weeks.
Meme stocks in general have started 2023 on a high. Other notable rises include Carvana (CVNA), which is up nearly 50% so far this month; Gamestop (GME) and AMC Entertainment Holdings (AMC) are up 11% and 24% respectively.
The reason for these retail investor led rallies is often unclear but it’s possible that slowing inflation has led to a to a higher appetite for risk. January and February also tend to be when retail traders invest the most.
Similar rallies in these stocks have failed to result in longer-term gains for investors, and I think it’s unlikely many of them will reach their previous highs of 2021.
Is this the end of the crypto winter?
Bitcoin shot past $20,000 a coin and is up more than 17% in the last seven days. It’s now at ~$20,500 per coin, its highest level since early November. Similar gains have also been seen in other major cryptos.
Few predicted the miserable 2022 that crypto had, so caution when trying to predict what might happen in 2023 is needed. Though I think it’s fairly safe to say that it’ll be much better than the previous year, which saw hacks, fraud, and massive declines in all the big cryptos.
Coinbase (COIN) stock has had an excellent start to the year, up 49% since January, congratulations to anyone that bought then! The exchange has cut 35% of its staff since June and CEO, Brian Armstrong, last week released a blog post saying the company needs to “make sure we have the appropriate operational efficiency to weather downturns in the crypto market.” Coinbase, despite its meteoric share price in the past 2 weeks, appears fairly sanguine about the prospects for 2023.
Binance on the other hand seems to be weathering the crypto winter relatively well. Its market share has increased in the past 12 months, and it’s planning to increase its workforce by up to 30% in 2023, taking the total number of employees to 10,000.
The different approach of the two companies to 2023 is stark. Binance seems to think 2023 will be a much better year for the crypto world than 2022, whilst Coinbase is still preparing for a difficult period and not getting excited, despite the good start to the year.
As always however, it’s important to be vigilant when investing in crypto. I read this week that 91% of cryptos from 9 years ago have disappeared; 9 more years from now this figure could be even higher.
Virgin Orbit fails to get its rocket up
Virgin Orbit, the company trying to be the first to launch satellites into space from Britain, failed its first rocket launch from the UK last Monday due to a “premature shutdown”. Thankfully, the rocket and its nine satellite cargo fell back to earth within a “pre-approved safety corridor.”
Its system uses a converted 747 jet to carry a rocket, known as Launcher One, to 35,000 feet where it’s released to continue its journey to space with its cargo - nine satellites in this case.
One of the destroyed satellites belonged to Horizon Technologies, a start up based in Reading and building satellites to monitor the oceans. The loss will cost the company around $4 million and could threaten its existence.
Virgin Orbit, founded by Richard Branson and based in California, has only a few launches in the US under its belt but aspires to be a global launch provider, and perhaps one day a competitor to SpaceX.
The company plans to launch in the UK again. When that will be is unclear but Richard Branson has said he hopes it will be this year. Its next flight will be from its main base in the Mojave Desert in California.
The company’s share price is down 25% in the last five days and 80% in the last year.
It’s a shame. The launch was a key step in the UK’s mission to become a global leader in the quickly expanding market for commercial satellite launches. It still has six other spaceports under development, and hopefully, these will help it become a leader in the field over the next decade.
Services such as broadband, weather monitoring, and communications will be delivered from low earth orbit, and the UK, with help from Virgin Orbit, had hoped to be the first country to launch a satellite from western Europe. There’s still time yet and hopefully later this year, the dream will come to fruition!
Articles/Videos:
What’s the difference: GPT 4 vs GPT 3 -
https://medium.com/inkwater-atlas/gpt-4-vs-gpt-3-whats-the-difference-af343dc5e0c0
What are meme stocks and are they real investments? - https://www.investopedia.com/meme-stock-5206762
The mystery of Changpeng Zhao, the founder of Binance - https://www.publish0x.com/simpleswap-blog/the-mystery-of-the-binance-founder-and-the-youngest-crypto-b-xnnwogx
Virgin Galactic Explained -