🗑️ Hedge Funds & Dumpster Divers

Any #traders interested in a Copper pair trade? Check it out. May 20, 2024 | Peel #713 In this issue of the Peel: - 🏘 The U.S. housing market isn’t going to improve anytime soon… - 🐵 The stock market degeneracy continues as GME stock tanks. - 🤡 Any #traders interested in a Copper pair trade? Check it out. Market Snapshot 📸 Banana Bits 🍌 - Microsoft may take one giant leap for AI-kind [this week]() - What if I told you the scariest kind of nukes are [underwater](=) - Net income, profits, and margins are [up in Q1]() - Hysterical—having more followers is [correlated with less skill among financial influencers](), clearly explaining why I have so few subscribers Smart Resumes, Smarter Careers Elevate your first impression in the finance world with WSO Academy's smart resume services. Harness the power of AI to craft resumes that don't just list your experiences but highlight your potential. Our AI-driven approach analyzes and optimizes every detail, ensuring your resume speaks directly to finance industry leaders. Combine this with our AI-enhanced LinkedIn profile reviews, and you're set for a smarter, more strategic career path. Step into the era of intelligent career tools with WSO Academy. [Click here to join the WSO Academy Waitlist. Limited slots only.]() Macro Monkey Says 🐒 JPow’s Hard Hat We always figured Fed Chair Jerome Powell was an avid reader, fan, and groupie (probably) of The Daily Peel. But it was nice to get confirmation that that’s true. We’ve been asking him to throw on the hard hat and build some houses for a while, and it turns out he looks pretty good in orange: Just kidding. But, shoutout to ChatGPT-4o for visualizing my *literal* dream. It only took about 15 tries for the model to understand what “put an orange vest over his suit” means. Anyway, JPow might not actually be running job sites across America, but prospective homebuyers did get lucky last month with an uptick in residential construction. Let’s get into it and find out if this data really matters. The Numbers Last week, the Census Bureau released its latest data on new residential construction here in the United States. And, it was (mostly) good news. [Source](=) The good news: There were more housing units either starting or finishing construction in April than in the month prior. The bad news: There were also fewer permits for future housing authorized in April. All told, we’ll take it. But, it wasn’t good enough for housing stocks like Zillow and Builder’s First Source in the [WSO Alpha](=) portfolio, and others not fortunate enough to count us as shareholders. This is mostly due to Mr. Market’s usually high expectations. Housing starts are generally the most watched segment of this reading, and in April, starts grew 5.7% to 1.36mn while markets were looking for a little more at 1.41mn. Once again, this is both good and bad news, depending on the timeline you view this market through. Going back to March, housing starts fell worse than Joe Biden getting off a bike, registering a 17% decline at the time. But last week’s market reaction is symptomatic again of the market’s tendency to price assets over their expected performance in the next quarter and maybe the next year. Looking longer term, starts are still moving in the right direction: [Source](=) Single-family housing starts, the most important line item in the whole report, jumped 17.7% since April 2023, although they did retract slightly on a monthly basis. Multi-family housing starts were equally confusing, increasing 31.4% for the month but declining 32.9% from the year at the same time. Keep in mind—the 1.36mn number above represents what would get built in the U.S. if construction continued at the same rate over the next 12 months. It’s an annualized figure. The same is true for permits and completions. Housing completions grew 8.6% in March to 1.62mn, annualized. In total, that’s a 14.6% jump, but completed single-family units grew 15.4% at the same time. Meanwhile, permits fell 3.0% for the month and 2.0% for the year, which I can appreciate for at least being consistent. The Takeaway? What’s new is old again in U.S. housing. While there are some constructive signals (no pun intended) in April’s data, housing supply remains woefully below demand. Wannabe homeowners like me love to see completions and start growing, but falling permits is a bad omen. Permits are the most forward-looking measure of supply, for (hopefully) obvious reasons, but declines in April indicate that not only is demand still above supply, but demand is still growing faster than supply as well. This means the trend and level are working against prospective homebuyers. Unsurprisingly, this led to the median sale price of a U.S. home reaching all-time highs once again. [Source]( Long story short, the U.S. housing market isn’t going to improve anytime soon. The only thing that fixes this is getting supply and demand back together. That’ll be difficult after a particularly brutal divorce back in 2008, but time heals all… right? More homes or less demand are the only solutions here. Both will take multiple years or require draconian, Soviet-style legislation dictating who gets a home, and I don’t know about you guys, but I’d rather not be homeless. So maybe it’s not a bad idea to get JPow on a job site or two. Hell, his term as Fed Chair ends in May 2026, so maybe we can find a carpenter to come run sh*t instead by then. At least we’d be confident in their ability to Build Back Better. What's Ripe 🤩 Robinhood (HOOD) 📈12.2% - Even I know that if you want to buy something, you act like it costs less than it does. Bank of America took a different strategy with Robinhood. - The firm hyped up Robinhood with a double upgrade, moving shares from Underperform all the way to Buy based on the recent uptick in retail trading. - Now we’re not sure Bofa wants to buy this thing, but it seems like one of the big banks with no young clients should, right? Either way, rookie mistake. Reddit (RDDT) 📈10.0% - Like Pete Davidson dating Ariana Grande, Reddit looks a lot hotter now that they’ve paired up with OpenAI. Shares are back near post-IPO highs. - The firms struck a deal allowing the ChatGPT maker to license Reddit content, which is not too surprising given OpenAI CEO Sam Altman’s ~$680mn stake in the social media site. - No financials were released, but markets loved it. Any involvement with LLMs - whether licensing or creating your own—is seen as a gold mind… for now. What's Rotten 🤮 GameStop (GME) 📉19.7% - Tell me you think your stock is too high without telling me you think your stock is too high, GameStop. Are your CEO’s day trading skills not enough for you? - What a joke. Thankfully, GameStop shares tanked another 1/5th in response to the highway robbery that the firm is attempting by selling another 45mn shares. - I can think of at least 45mn reasons not to buy. But can’t blame them for wanting to cash in on a fresh pump of shares. Meanwhile, AMC fell 5.2%. Snowflake (SNOW) 📉1.9% - Not all AI news is created equal, apparently. Snowflake shares fell as the market ostensibly admitted that—yes—there is a “too high” even in AI. - Snowflake is in talks to acquire Reka AI, a firm developing models competitive with ChatGPT, Llama, Gemini, Claude, etc, for $1bn. - Founded in 2022 by researchers from Deepmind, Meta, Baidu, and more, Reka specializes in creating industry-specific LLMs, like to answer why your model is so #REFfing wrong. Talks are early, but Mr. Market is a hater already. Thought Banana 🤔 Dumpster Divers & Hedge Funds Nvidia this, BTC that, my personal credit card debt—these are all things that have risen dramatically in the past year or so. And, we can’t stop talking about it, especially if you’re JPMorgan Chase and you issued a credit card to a 24-year-old “writer” who deactivated his phone number. But, perhaps even more important than any of those explosive growers is another that seems to have flown under the radar until the last couple of weeks. U.S. copper prices are through the roof, and in addition to that guy I always see collecting scrap metal in dumpsters, hedge funds are pumped. What Happened? Since lows seen in late July last year, copper prices have exploded nearly 60%. [Source](=) According to the FT, U.S. copper prices breached an all-time high, and that’s causing trouble on the global commodity stage. This is a combination of speculative technical trades along with f*cked-up supply chains for a material so important to the green energy transition that it’s more sought after than Livvy Dunne. Starting with the technical side, the real news here is the explosion in U.S. copper prices relative to that of global benchmark prices, traded in London. Here, we’ve seen U.S. prices explode to >$1,000 more per ton than global benchmarks. [Source]() This brings U.S. copper prices to over $11k/ton at the end of last week. And while I agree anything American deserves an enormous premium over its British counterpart, this is pretty egregious. The sharp explosion was mostly triggered by speculators betting that the U.S. would lose its premium, much like the bets of loyalists back in 1776. Speculators squeezed out those bets in a rush for U.S. traders to get their hands on the physical material in order to cover short bets, triggering a further squeeze leading to prices exploding higher. Much of this is due to the Chicago Mercantile Exchange’s reputation as the more fun market, making speculative trades a lot easier to place. London contracts are complex and require actual brainpower, driving speculation and price spikes to the U.S. Another complicating factor here is supply disruption. Both the Panama Canal and that bridge in Baltimore have experienced… difficulties… lately (the latter much more extreme), leading to a chronic undersupply of copper in the U.S. China and Russia have been busy making out this weekend with Xi and Putin meeting, but most of the rest of the world’s supply is domiciled in those countries, the former being too low quality for delivery in the U.S. and the latter being sanctioned out of the market. [Source]( Copper demand was already rising for an actual reason, too, led by the importance of this metal in the global renewable energy game. If Usain Bolt was a non-ferrous transition metal, he’d be copper because this sh*t is one of the best conductors of electricity known to man. Basically, that means it is clutch in transmitting electricity. That means that, besides skipping school and yelling at the WEF, copper is one of Greta Thunberg’s favorite things. It’s a crucial metal for companies looking to lead or remain relevant during and after the green transition, like Australian miner BHP in their ongoing attempt to take over Anglo American, ironically a British company that mines platinum, copper, and more. The Takeaway? Dumpster divers have been in this trade for a long time, likely using advanced climate and commodity price models to project out prices of this metal. Now, hedge funds and energy companies are following them into the same trade. The insane disconnect will eventually get arbitraged back to its usual range of +/- $90/ton between U.S. and global prices, but we have a long way lower to go. However, this is mostly a supply chain issue. Temporary constraints + secular demand from the green energy transition + greedy dumpster divers and hedge funds speculating on prices has led to this explosion in price. 💭 The Big Question 💭: How long will U.S. copper prices remain radically disconnected from reality? Who’s making money here, and can anyone go bankrupt/not deliver on a trade? Banana Brain Teaser 💡 Previous 🗓 Last year, Joe grew 1 inch and Sally grew 200 percent more than Joe grew. How many inches did Sally grow last year? Answer: 3 inches Today 🕐 Three printing presses, R, S, & T, working together at their respective constant rates, can do a certain printing job in 4 hours. S and T, working together at their respective constant rates, can do the same job in 5 hours. How many hours would it take R, working alone at its constant rate, to do the same job? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.” — Jesse Livermore How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA]() // [ACADEMY](=) // [COURSES](=) // [LEGAL](=) [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States