Ep. 2 of the Joe Rogan, Spotify Drama

February 1, 2022 Good morning traders! Welcome back to The Daily Setup. Markets were up yesterday but ended January down overall. Here’s what’s on the docket today: - Nio to repurchase convertible notes - Spotify gets upgraded - Citrix goes private Let’s get to work. Nick How’d the markets look? Market Outlook 👀 DOW 35,131.86 +1.17% S&P 500 4,515.56 +1.89% NASDAQ 14,239.88 +3.41% BITCOIN $38,442.09 +2.45% Nio, the Fed, and Spotify BIGGEST MOVER Nio’s still a No-No Nio saw its stock jump [17.27%]( yesterday in a much needed win for the Chinese EV maker. January 2022 was a bear of a month for most tech stocks, and wanna-be Tesla was no exception to that, having fallen 34% YTD prior to yesterday’s turnaround. The turn of the calendar seemed to be a continuation of last year’s sh*t tornado that was Nio, posting an impressive [64% drop]( in 2021. So, what happened yesterday? - The automaker announced on Monday that it had completed its repurchase right offer on its [4.5% convertible senior notes due 2024]( (i.e. allowed it to expire). The fact that NIO didn’t ask to repurchase shares means it’s doing aight and inspires confidence in investors. - But many are skeptical of NIO’s future. The company was hit harder than its competitors (e.g. XPeng, Li, and [a little company named Tesla]() by stock market slumps, and [delivery trends]( point to NIO lagging behind most of its serious competitors this year. NIO’s run yesterday doesn’t make up for the yearlong slide that preceded it. That the company seems to be doing okay rather than very bad-- like it was doing all January, and for much of 2021-- doesn’t make it a buy for me. In all likelihood NIO is simply a less reliable, less stable stock than other EV makers and therefore [enjoys bigger swings](when the market recovers from a correction. I’m waiting till the February earnings report before I’m considering buying. Jerry Mortgage Rates Jerry when everyone’s mad at him for doing exactly what they told him to do After tapering asset purchases and bumping up the rate hike timeline (like everyone told him to) [J-Pow’s catching heat]( for driving mortgage rates through the, dare we say, roof. The issue is that tapering means [the Fed’s not buying mortgage bonds]( → demand for mortgage bonds goes down → mortgage lenders have to offer higher yields to raise demand → to afford higher yields, lenders have to raise the rates of the mortgages inside those bonds → you can’t afford a house. But at least inflation’s under control! - Okay, so it’s not all the Fed’s fault. [Home]( and [rent prices]( have hit record highs recently for a variety of reasons, including the pandemic-driven mass exodus of city rats to the suburbs and twin supply and labor shortages that seriously slowed down the construction of new homes. - But it is partly the Fed’s fault, because the bank owns over one third of the Treasury and mortgage markets (which are [linked](), bought [133%]( of the value of 2021’s new home market in mortgage-backed securities last year, and has run up a balance sheet accounting for 40% of U.S. GDP. So what it does with those assets matters. - J-Pow hasn’t been exactly clear how the Fed will handle the problem. Passive management (i.e. sitting on one’s thumb while mortgage bonds mature and expire) wouldn’t shrink the Fed’s balance sheet to a normal size for 5 years. But selling assets means everyone will have less cash on hand and demand will fall as supply rises, possibly reversing the problem the Fed started with. No way out, Jerome. End of the line. This is a complicated problem. The Fed successfully averted a recession in 2020-2021 with its aggressive asset purchases, and it deserves credit for that. But that created an inflation problem, and (mis)handling that problem is what produced the current mortgage lending issue. Add to that the supply chain uncertainties of COVID and you’ve got a very unpredictable future on your hands. That said, the rise in home prices [appears to be decelerating](, so don’t get too freaked out-- but wait a while to buy a house. Joe Rogan Be Like... Shares of Spotify (SPOT) rebounded harder than Ben Wallace in his prime during Monday’s trading session. The alpha of Apple Music, which closed last week lower by 11.5%, rallied to the tune of [13.46%]( following a key upgrade by Citigroup, an apology by Joe Rogan over Covid misinformation, and the company’s pledge to add a content advisory label to any podcast episodes dealing with Covid related topics. - Citigroup raised Spotify from "neutral" to "buy" citing their belief that the company will be able to improve its advertising business. Citi [also added a "buy" rating]( to agoraphobics’ favorite streaming service Netflix, which gained 11% yesterday. - In addition to the continued market volatility, Spotify was especially hard hit after musicians Neil Young, Joni Mitchell, and others pulled their music catalogs from the site in response to controversial misinformation regarding Rogan’s and some of his guests’ views on the Covid vaccine. In response, the Podfather himself took to IG to apologize [saying that he would]( "try harder to get people with differing opinions on right afterward" and "do my best to make sure I have researched these topics." Well, I’m satisfied. - The company will now join the ranks of Meta and others by placing content advisory labels on topics deemed controversial where the spread of misinformation could be seen as dangerous. Spotify’s stock saw major support in the [$210-$215]( area for much of 2021. With the about face in SPOT’s price movement on Monday, I will be looking for support to build above last Friday’s close of $172.98 before entering a long position with an upside target of the previously mentioned range. Funds Keep Pouring Money into FTX Token Talk FTX, a cryptocurrency exchange that offers derivatives and spot trading, announced that they have [raised $400M]( in their Series C funding round. FTX, which was valued at (only) $25B three months ago, is now estimated to be worth a cool $32B following this latest injection of capital. The Bahama-based company (never a red flag) has now raised $2B to date, which makes it a serious competitor to the likes of Coinbase and Binance. - Key contributors to the latest round of fundraising include Temasek, Softbank, and Tiger Global, all of which have invested in FTX’s sister company [FTX U.S.]( - The company’s user base has grown 60% since October 2021, while daily volumes have increased 40% to an average of $14B. - [FTX’s CEO Sam Bankman-Fried said](, “FTX’s international business will be licensed across ‘the bulk of the Western world’ by the end of this year.” FTX’s latest round of fundraising and valuation should be a clear sign that investors’ appetite for crypto has not waned. Despite [Bitcoin being off 46%]( from its November high, the interest in trading crypto derivatives continues to grow. If you haven’t already, it would be wise to educate yourself on a sector that saw [venture capital firms invest $30B]( into in 2021. A Private Connection Deals and Rumors Cloud-computing company, Citrix (CTXS), announced Monday that Vista Equity Partners and the private equity arm of Elliott Management Corp will be taking them private in a $16.5 billion all-cash deal. The $104 per share purchase price reflects a “24.3% premium to Citrix’s close on Dec. 20, [when talks of a deal were first reported](.” The stock closed Monday’s session down [1.57%]( in what appears to be a "sell the news" situation as the stock has rallied from $83.65 since late December. - Vista and Evergreen Coast Capital [intend to merge Citrix with TIBCO Software](, which is already in Vista’s portfolio. The new business will boast a customer base of 400k, including [98% of Fortune 500 companies](, with 100M users across 100 countries. The deal is expected to close mid-2022. - Citrix struggled to take advantage of the remote work environment brought on by the pandemic, and its share price suffered as a result. The company’s stock is now down [23.6%]( over the past year. PE firms tend to target companies with a lot of debt on their balance sheets. Software companies check that box, and as cloud computing continues to grow, deals like the one for Citrix may start to become more commonplace. I’m keeping my eyes and ears open for rumors of similar type deals on the horizon. As always, we at The Daily Setup will be sure to keep you in the know. Link Roundup 📿 Other News Other News Link Roundup - United we stand and get your name wrong – Starbucks employees are trying to unionize ([link]() - Might as well wear your paycheck – Cotton prices hit decade highs due to expected shortages ([link]() - Misery loves company – Cathie Wood’s ARK goes all in on Robinhood as both continue to struggle ([link]() - Back in black – Exxon consolidates chemical and refining businesses in cost-cutting coup ([link]() - Oligopoly comes to consoles – Sony acquires Bungie for $3.6B in third gaming industry acquisition of the month ([link]() - Charging up – Credit Suisse upgrades Tesla to buy ([link]() Happy Tax Szn everyone, [via @TheBig4Tweets]( Questions or concerns about our products? 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