The Hoot #8

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

I know I'm not the only one doing this the day before Valentines...

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)

• Jerome Powell, Chairman of The Federal Reserve, spoke last Tuesday and stated that the inflation is declining, but the tight labor market could result in additional rate hikes. NOT GOOD for the market.

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

• The US's goods & services trade deficit reached an all-time high in 2022, at $950 bn

• Big companies such as BP, Uber, Disney, CVS, PayPal, & Pepsi all reported earnings, causing some volatility across the market.

• Goldman Sachs' expectations of a recession in 2023 dropped from 35% to 25%. That's positive, but not market-changing kinda positive.

Elon's Blue Bird 🐦

From Bryanston High School in Pretoria, South Africa to acquiring Twitter - Elon Musk has quite a story. His fortune is derived from a number of companies, such as: PayPal, SpaceX, Tesla, Starlink, SolarCity, Neuralink, The Boring Company & quite recently, Twitter. He is a fascinating guy, with a peculiar personality. His management style is certainly something of interest, and was raised recently after he took charge of Twitter. 

Elon's reaction to this week's Hoot... 😏 

However, Twitter's financials seem to be the next hot topic 🌶️. Soon after taking over, Elon stated that Twitter was on track to post NEGATIVE cash flow of $3 billion. NEGATIVE. What in the hell was the last guy doing?!

Poor cash flow can be the achilles heel (or death) of any business - but thankfully, we now hear that it has done a full 180, and is on-track to breakeven soon. 

Turning the business around is great, but don't forget about the acquisition. Musk paid $54.20 per share ($44bn total) but used a leveraged buyout strategy, meaning $13bn was financed through bank loans. Bank loans which are costing Twitter about $1 bn a year in interest, making it the most expensive acquisition in tech history! 🤑

The Awesome News: Musk likes to think ahead, and as a result is a HUGE crypto advocate. There's even talk about in-app payments coming to Twitter, which will start off in USD but eventually be processed in various crypto 🤝🏼.  Apparently this is all part of Musk's plan to create a 'Super-App', one which has tons of capabilities from being social, to ordering food, to sending money etc. 

Chinese: Endgame 🇨🇳

Another story about the Chinese balloon... just kidding 🎈. Let's put a pin in that (for the 2nd time) and dive into China's end goal, and how the US 🇺🇸 interferes with that plan. Now, the specifics might change depending on the economist or historian you ask, but the bottom line is roughly the same. China's long term play is understood to be: Rewriting the rules of the global order not to be a superpower, but to be THE superpower. 

There are 4 widely accepted aspects of the Chinese Communist Party's (CCP) strategy that should be understood, each of which predate Xi Jinping's leadership. They are listed as follows: 

1). The ability to maintain its tight grip on power & control. 🫵🏼

2). Regaining lost territories, and making China geographically whole again. 🗺️

3). Creating a regional sphere of influence, one in which China is supreme. ♟️

4). Achieving global power and eventually, global primacy. 🎯

To reference my earlier point, the USA 🇺🇸 stands in their way on pretty much every aspect, making this the Battle of the Behemoths. In terms of global natural order, China represents the largest systematic threat. In my opinion, politics is a lot like the price movement in financial markets in that the prices (or power & control in this case) is a constant ebb & flow. Things adjust, shift and change every single day. The key 🔑 is to understand this and, more importantly, utilize it to your advantage. 

The Grammy Effect 🏆

We've all heard of Ticketmaster - the place where we all get our concert tickets. Now, last year when Taylor Swift’s concert tickets were released for sale, the demand was so high, it ended up bottlenecking and completely busting up Ticketmaster’s site. Thanks to all the diehard 'Swifty' fans, Ticketmaster ended up having to cancel the entire sale citing the demand and a backlog in the system which led to overselling the tickets.

Long story short, people were repaid & Ticketmaster ended up having to completely adjust its strategy and system to accommodate high demand like this in the future.

Now there is a concept called 'The GRAMMY Effect' - one which concludes that the awards ceremony (which was 8 days ago) boosts the downloads and ticket purchases of the respective artists (by as much as 330% 😧). For those who didn't watch the awards, Beyoncé won ANOTHER GRAMMY, breaking records for the most GRAMMYs ever won by an artist! She ALSO announced she will be doing a live world tour for her new album... oh no, here we go again 😬

Ticketmaster are bracing for impact but are positive that they are prepared for the sale. Good luck to those purchasing 🎟️ I guess only time will tell who has the bigger fan base…

Super Bowl or Super Ads?

This weekend marked one of the biggest events of the year in the American calendar, the Super Bowl. It is estimated that about 100 million people watched the game last night (and about 1.4 billion chicken wings were eaten 🍗). Another huge reason people watch the event is not necessarily for the game, but the commercials 📺 30 SECOND commercial slots during the 2023 Super Bowl cost $7 million. Considering commercials account for about 20% of total viewing time, that brings in a whipping $672 million... WILD 🤯

Last year's Super Bowl was FILLED with crypto-related ads such as Coinbase, FTX, and  Crypto.com (who had partnered with celebrities such as Lebron James & Mark Wahlberg), however there are ZERO 👌🏼 crypto ads this year. Some say its thanks to the mistrust as a result of the FTX saga last year (I think it's probably cause half of them are bankrupt now, LOL). Following the slew of states last year which legalized sports betting, it's also estimated that last night's event topped records and brought in more than $16 billion in gambling revenue 🎰

Another MYTH is that the players get paid potato sacks 🥔 worth of cash for winning (or even losing)... FALSE, they only make about $100-$150k - which is peanuts 🥜 relative to their average annual salaries of $2.7 million.

Congrats to The Chiefs on the win 🤝🏼.... crypto companies, let's try again next year 😔

Spare a thought for those we've lost in Turkey. ❤️

I'll 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.