Macro Dragon WK # 31: The Fed, China Tech [DIDI -42%, Tencent -12% but Weibo +44%!], Earnings from TSLA, AMZN, FB, MSFT plus Robinhood IPO [HOOD]

Macro Dragon WK # 31: The Fed, China Tech [DIDI -42%, Tencent -12% but Weibo +44%!], Earnings from TSLA, AMZN, FB, MSFT plus Robinhood IPO [HOOD]

Top of Mind…

• TGIM & welcome to WK #31…
• Hope everyone had a restful wkd & for those on full blown summer vacays… enjoy!
• Looks like these summer Fridays are giving us some pretty big spikes, as we saw off the back of those PMIs… real rates took a big leg lower.
  
  
  
• Suggesting that gold could have an easy pop to the $1850 to $1900 lvl from the c. $1800 Fri close… if these real rates lvls hold or go lower.
• Earnings: Big earnings wk for some of the household tech names, including Tesla, Microsoft, Apple, Alphabet Facebook, Amazon, AMD as well as other non tech names like Caterpillar.
• Our equity strategist Peter Garnry is away on some well deserved vacay, so KVP will be QBing on some of the earnings previews, as well as the upcoming robbing the poor to feed the HFTs & Citadels of the world Robinhood IPO. Worth noting Garnry already touched on the Robinhood IPO earlier in the month. Value vs Growth, earnings season, and Robinhood IPO.
• Speaking of Tech, SNAP $77.97 had a monster up session last wk with a full +24% on Fri (+32% for the wk). Contrast that with DIDI $8.06 that cratered -21% on Fri & -33% for the wk. The name is now down -42% from its IPO strike of $14 & -56% from its high of $18.01. As the China regulators continue to keep the name in their sights, as we previously flagged in the Dragon. There is going to be a LOT of lawsuits, because there is no way that senior DIDI executives, backers & the banks involved in this IPO “did not know” that this was not greenlighted by China regulators. If you play with the Dragon, you cease to play.
• On separate note, yet similar theme this Asia Mon morning, regulatory overhand continues to push HK shares lower & once again the China tech names, even those without ADRs like Tencent 509 -4.1% (post -6% last wk to 531), Baidu 165.60 -3.6% (post -4.2% last wk to 171.80) & JD.COM 274.60 -5.2% (post -3% last wk to 289.80).
• This despite weekly charts showing that we once again, were trying to make a low. Hard to see what is going to be a catalyst to change the sentiment in the space for now, outside of earnings. Its easy to take a “why are the regulators slamming down on these names” approach, but the bottom line is, these names would not be the dominant players they are if not for the regulations & entry to barriers to foreign players in the first place.
• Tencent is now c. -35% from its ATH of 773.39, at some point the space is a buy, so far we’ve been dead wrong on timing on the Dragon… yet still plenty of time left for 2H21. At some point would also expect some form of regulatory support in the form of language & guidance, i.e. these names are also held by domestics. Still on ADRs & education names, KVP would steer clear – some of these names dropped by -70% (TAL $6.00) & (EDU $2.93) -54%,
• Kudos to my man JT calling this beautifully… that’s a homerun trade right there. For context $17.50 strike puts purchased on Fri 16 of Jul for c. $1.50, would have yielded you a c. +8x rtn to $11.70. So say 25bp of risk on $10m book, for a premium outlay of $25K, which would have leaped to $195K or c. +2% of one’s overall capital in sub 2wks.
• Again, there are always profitable opportunities. And the best thing about trading, investing& life in general – unlike Pokémon – you don’t have to catch them all.
• Meanwhile the screaming dislocated outlier that is Weibo [WB $59.20 -1.8%], continues to stay aloft in a vacuum… still up +44% YTD at $59.20, despite significantly lower volume. Feels like someone/s are upholding this castle in the sand, or knows something that KVP does not. Still feel we’ll close the gap discussed in: Macro Dragon Reflections: Divergence in China Tech Names, WB +47% YTD vs. range of -6% to -18% to -27% on Tencent, JD.Com & DiDi
• Updated chart below shows the howling dislocation of outperformance of Weibo vs. the rest of the China Tech space. For context against something like Baidu, the relative outperformance is close to +80%, on Tencent closer to +55%.
  
  
• Only pathways that currently ‘make sense’ to KVP for the price to be up here are three:
  
  
  1. Pigs are flying outside & WB is “different this time” & does not fall under any regulatory concerns of China nor data issues, despite it being a social media & advertising firm.
  2. Someone knows something we don’t around the false take-over rumours, actually being true: Weibo denies report of plans to take company private. Or from Weibo’s own website & press release:
     
     “BEIJING, July 6, 2021 /PRNewswire/ -- Weibo Corporation ("Weibo" or the "Company") (NASDAQ: WB), a leading social media in China, noted a Reuters article issued today saying the Company's chairman Charles Chao and a state investor are in talks to take the Company private.  In response to the Company's inquiry, Mr. Chao informed the Company that the above information is untrue and he has had no discussion with anyone regarding privatization of the Company.”
  3. Weibo is going to have the mother of all earnings beats on Aug 13, when it is expected to announce results. The earnings & revenue expectations of 0.623 cents (+24% QoQ) & $524M (+35% QoQ) are going to be blown straight out the water, fully vindicating the stocks 19x fwd P/E valuation.  
• As always, could be dead wrong on this… yet still think the easy move is to close the gap & head to well under $50 from these c. $60 lvls. When names can drop by -20% to -70% on a session, you know the potential is there.

• Lastly big baller session Mon morning in Crypto land – still think we are in bear market price action until a significant break of the $40K lvl – as Bitcoin 38,395 +11% this morning & c. +20% over the last 5 trading days. Can expect to see the likes of MSTR $539.71 +3.2% & COIN $224.92 -0.0% to fly in the US session, if these gains hold.
• Narrative seems to be more tech CEOs tweeting bullishness on the space, with Twitter & Squares’ Jack Dorsey say Bitcoin to be a ‘big part’ of Twitter – folks, a bull market does not need tweets & talking heads to support it… let’s just leave it at that. For now, its all about respecting the price action if we managed to break out of this $40K to $29K trading range, that has been a series of steadily lower lows & lower highs… until today at least.

• Central Banks: Really all about the Fed’s FOMC meeting this Wed – again it will be about the statement, tone in the Q&A press conference with a focus around tapering.
• Worth noting that since last FOMC the breakout & concerns around the Delta variant have only climbed, plus we have seen a pullback (likely natural post super-hot numbers) in US economic activity. 2Q & almost certainly the 1H21 is going to capture peak growth & the Fed is going to have to measure the risks of restrictions coming back-on, as well as potential bigger than expected pullback in economic data, yet still persistent inflation figures [US Core CPI last months: Apr +3.0% May +3.8%, Jun +4.5%] & improving jobs numbers [over same months +269K, +583K & +850K].
• On the flipside, one could argue that at some points bad news = positive risk-on price action… i.e. the more concerns around the delta & the more restrictions we get globally (e.g. Sydney whose pop of 5.3M is c. 21% of Australia’s pop, is almost certainly going to extend restrictions that were set to expire this Fri… with some of our peers anticipating at least another month), the highest the probability of more fiscal stimulative measures, as well as a curb on hawkish central bank pivots.
• Econ data: Most key are likely inflation figures out of Australia 3.7%e 1.1%p, Canada 3.2%e 3.6%p,  & Russia on Tue. With the first 2Q GDP reading out of the US on Thu & the Fed fav. Core PCE index on Fri.
• Holidays: No major holidays on the radar.
• Other: Enjoy the Olympics folks & watch out for any potential tail-risks out of the US Debt ceiling discussions (check out US treasury Yellen letter to Congress).
• Plus also start to do the work on the rebuilding theme for a flooded Europe & other parts of the globe, any good German infra/builders come to mind? Ping the Macro Dragon.
• Have a great close to the month & wk ahead folks.

Recent Works to Keep In Heavy Rotation

• Viva la Revolucion! Saxo 3Q Outlook is out – make some time for it, we touch on the green revolution that is here to stay & having a structural impact on European Politics.
• KVP weighs in on a potential Asia investor skew into Europe, looking at the UK as a spin-off from the conglomerate & less effective EU. As well as highlighting China Tech’s underperformance in the 1H21,  vs their Global Counterparts especially in ‘Merica.
• Macro Dragon Reflections: Brazil, Commodity Rich, +210M pop, +$1.4T GDP, Hawkish BCB, 2022 Political Elections & Consistently Punching Below its Weight. Love it!
• Equities: Value vs. Growth, earnings season & Robinhood IPO.
• Dragon Interviews U-Tube Channel for easier play-ability…

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Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.

This is The Way

Namaste,
KVP