The Hoot #7

My name is Matt Brimacombe. I'm a graduate student studying Finance, and an aspiring fund manager. The Hoot is a weekly newsletter that breaks down some of the biggest and most-relevant economic and business events; analyzes the financial markets; and touches on some sports news. Any feedback is greatly appreciated, and you can do so by responding to this email. Enjoy! 🦉

Meme of The Week

Classic, Sam-I-Am

Year-to-date Market Performance:

• The S&P 500 is up 7.73%

• The Dow is up 2.35%

• The Nasdaq Comp. is up 14.72%

• Bitcoin is up 41.32%

• Ethereum is up 38.17%

• The Scatt Capital Strategy is up 24.79% (up 21.63% since inception)

• The Fed hiked interest rates by an expected 25bps (0.25%)

• 82% of Scatt Capital's portfolio companies have beaten earnings expectations.

• The European Central Bank (ECB) & The Bank of England (BOE) hiked rates by 50 bps (0.50%)

• FAANG (Facebook, Apple, Amazon, Netflix, Google) are the 'heavyweights' in the indices. They all, barring Netflix, reported earnings last week. This, along with the rate hike, caused A LOT of volatility in the market this week.

• A tight labor market is NOT good for disinflation. Last week we had non-farm payrolls come in at 517,000, almost 3 times more than the expected figure of 187,000.

• Unemployment also decreased to 3.4% (the lowest in 53 years) against an estimated 3.6%.

Vitalik's Project

Ethereum: Bitcoin's younger, more versatile cousin. Vitalik Buterin, a Russian-Canadian national, identified the 'single-use' flaw with the Bitcoin network, and decided to build the multi-purpose blockchain.  From being a store of value, a means of payment, the ability to create NFT's, and building DeFi (decentralized finance) apps, Ethereum can do A LOT. The core component that Vitalik focused on when building Ethereum was scalability - and this is largely thanks to smart contracts. These are blockchain-based computer programs that are executed when predetermined conditions are met - basically meaning it allows people to make transactions without a central authority's approval (such as a bank). These smart contracts are the core of Ethereum.

Vitalik is truly the savior in this wild crypto world 🥲

Because of decentralization, blockchains need a way to verify transactions. There are 2 ways of doing so: The Proof-of-Work (PoW); and the Proof-of-Stake (PoS) mechanisms. BTC runs on PoW, which we discussed in The Hoot #4. Ethereum doesn't work that way though, or at least not anymore. Last September, Ethereum shifted to the PoS system. This mechanism allows owners of ETH to pledge their coins to be used to verify transactions, and in return for doing so they earn a small reward (around 4% APY). The PoS mechanism is WAY more environmentally-friendly than the PoW, requiring 99.99% LESS energy. ⚡️

Another aspect to consider is that the Ethereum network is SUPER popular. The most renowned NFT collections (including the monkeys that sell for millions of dollars) are all based on the Ethereum network. This has led the network to, at times, be incredibly expensive to use. Gas fees (transaction costs) can sometimes set you back more than $100, irrespective of the amount you're attempting to transact. But don't worry - remember that Vitalik built this with the core focus of SCALABILITY. There are currently programs being built, and several upgrades being scheduled which will ultimately make the network a more user-friendly chain.

Chief IT (Inside Trading) Officer

Warren Buffett, Charlie Munger, Ray Dalio, and Ken Griffin are some of the best investors in history. Nancy Pelosi outperforms them all. As you might know, Pelosi is the former Speaker of the House of Representatives. Just over a week ago, the US government filed an antitrust lawsuit against Google. 5 weeks ago on the 20th of December, 2022 - Nancy Pelosi sold $3 million of Google stock.

Now, there are likely 2 possibilities: 1). She can see into the future, in which case we should conduct experiments on her, or 2). She's using top-tier, high level information to trade, in which case an experiment also might be necessary.

The craziest part is that this has happened COUNTLESS times over her tenure, and the number of times she's been investigated I could probably count on 1 hand with ZERO charges ever being filed. Her mentality is quite clear with the Google trade: "We win even when we lose"

Like I said... the best to ever do it 📈

Petrodollar No Longer

The World Economic Forum meets once a year in Davos, Switzerland. Top government officials, finance ministers, big CEOs, and top fund managers all gather here to discuss urgent global issues and the general state of the world. The finance minister of Saudi Arabia, an attendee, stated here that the Kingdom is willing to settle oil and natural gas trades in currencies other than the US dollar 💵. Now understand that the dollar is largely known as the world's reserve currency - and the 'petrodollar' system (a rule that global oil trade is done only in US dollars) is a big driver of that. Ordinarily, when countries receive dollars for the oil they sell, this benefits the US as those dollars will eventually recycle back into U.S. investments, adding to liquidity in financial markets and therefore keeping interest rates low.

Saudi is currently the world's largest oil exporter, therefore giving this de-dollarisation scandal the potential to be a major problem for the US. The possible shift away from dollars decreases overall demand, and could then result in higher borrowing costs for consumers 😬 It is also being said that Saudi has been strengthening its ties with China, India, and Russia, and is open to joining BRICS along with Egypt later on this year.

What to walk away with: We've noticed an increased level of economic activity in the Middle East (particularly with their sovereign investment funds). This, along with their strengthened relations with China, Russia & the rest of BRICS is something to watch closely. The order is shifting, therefore presenting new opportunities.

The Real Lord of The Rings 💍

Tom Brady, a household name, announced on Wednesday last week that he is throwing in the towel - for real this time. Brady was drafted into the NFL when he was just 22 years old (199th pick in the 6th round, contrary to popular belief), and went on to play 23 seasons 😳. He played for 2 teams during his tenure: The New England Patriots, and the Tampa Bay Buccaneers. He's been in 10 Super Bowls, 6 of which he won with the Patriots, and 1 which he won with the Buccaneers. This gives him a total of 7 Super Bowl rings - the most in history 💍

Brady retired last year for about a week before announcing he was coming back for 1 final season. Boy, what a year it has been... He had one of the worst seasons in his career, his marriage with Gisele fell apart, and he lost up to $70m in the FTX scandal. Ouch. 🤕

All of that side: He truly is an all-star, and will forever be remembered as one of the greatest quarterbacks in the history of the game. Bravo Tom 👏🏼

*Fun Fact: He announced his retirement on a self-recorded video on the beach. A fan (a crazy one at that) then went and found the EXACT spot, and grabbed a jar of sand. The jar is now being auctioned on eBay, and currently has a bid of $100,000. 🤣

That wraps up the 7th edition of The Hoot. 

See you next week for another update. 🦉

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.