This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
The Weekly Wrap-Up
If you’ve been asking, “how do I prepare for a bear market,” you’re not alone.
This week, Facebook parent Meta Platforms (NASDAQ:FB) announced its first-ever quarterly decline in user numbers. CEO Mark Zuckerberg saw $24 billion of his net worth disappear almost instantly.
Yet look hard enough and bright spots are everywhere. This week, Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) reported record revenues, capping off a stunning earnings season for non-Facebook tech firms. And even my deep value bets have stabilized. Value-focused investment research firm Value Line (NASDAQ:VALU) has seen its shares rise 85% since October.
This week has proved that the U.S. recovery is on a two-track system. And this is precisely the kind of environment top stock pickers love: the opportunity to earn alpha from diverging stocks.
$320 Million Wormhole Attack Makes a Case for Ethereum NFTs
When Ethereum co-founder Vitalik Buterin dismissed “cross-chain” bridges last week, outsiders might have seen the argument as self-serving. These bridges eliminate the need for crypto dominance in NFTs, reducing the importance of Ethereum.
But then February 2 happened.
On Wednesday, news broke that Wormhole — one of the most popular Ethereum/Solana bridges — had lost $320 million to a hack. Fraudsters had drained at least 120,000 ETH by generating “wrapped” Ethereum tokens for themselves.
Wormhole’s Twitter account immediately assured users that “ETH will be added over the next hours.” Seems like quite the bill to pay.
2. GameStop Chooses Immutable X Over LoopRing
This week, GameStop (NYSE:GME) finally chose its NFT host.
And it wasn’t Loopring (CCC:LRC-USD).
Instead, the gaming retailer picked Immutable X (CCC:IMX1-USD), a rival Layer 2 Ethereum protocol.
Prices of Loopring immediately went into a tailspin. By the end of the day, investors had lost another 10% on top of a previous 50% drop. And LRC’s founder, Daniel Wang, would be replaced by Chief Technology Officer Steve Guo.
It’s a strange turn of events. MarketWatch writer Thornton McEnery noted how a legion of Apes had been “essentially writing thirsty fan-fiction about how hot it will be when GameStop and Loopring eventually hook up.”
Still, it’s not the first time GameStop has surprised investors. The firm went from “dying mall retailer” to “superstonk” in three months. And now that GME picked its NFT host, investors can surely expect more fireworks to come.
3. Tesla Recalling 817,000 Vehicles Over Seat Belt Issue
Ordinarily, I wouldn’t think twice about Tesla (NASDAQ:TSLA) recall news. The electric vehicle maker has seen countless complaints about shoddy quality, from faulty trunk latches to disconnected back seats. In December, Barron’s suggested that up to 500,000 cars could get recalled.
But this week proved that even high estimates are sometimes not enough for a firm like Tesla. On Wednesday, the carmaker announced it would have to recall 817,000 vehicles over seat belt issues, the equivalent of nearly a year’s worth of production.
Though these issues are (supposedly) not that serious, pity the Tesla owner who has to haul their car into the garage for the nth-time this year.
4. Facebook Loses Users for the First Time in its History
When I wrote “What to Expect” on Monday, I predicted that Alphabet, Meta and Amazon would all do just fine. Expectations for Facebook were already relatively low, and other tech giants had already reported decent numbers.
But I was surprised, along with everyone else.
Facebook’s shares would drop 20% instantly, wiping out $240 billion.
The most significant shock was the decline in Facebook’s users. Analysts predicted the social media platform would count 3 billion monthly active users. The actual figure missed it by 90 million — about the population of the U.K. and Australia combined.
Still, the other tech reporters did well, as expected. Alphabet and Amazon would add over $300 billion to their market capitalization. Pinterest (NYSE:PINS) and Snapchat (NYSE:SNAP) also reported strong figures.
5. NFL Offers Free NFTs to Super Bowl Ticketholders
And finally, the NFL announced this week that all Super Bowl attendees would receive free NFTs to commemorate their tickets.
The reason for the league giving these is obvious. It costs virtually nothing for them to produce.
But why would anyone buy these digital commemorative tickets that don’t do anything? That’s harder to square.
Consider the market for used Super Bowl ticket stubs. For those wanting to remember other people’s experience, you can already purchase these slips of paper for a dollar or less. That’s more-or-less the price of a photocopy plus the card-stock it’s printed on.
So what happens when you can right-click and save these tickets instead? Perhaps then, the NFL will realize why so many young investors have started thinking that NFTs are all a scam.
Why are Markets Afraid of “Quantitative Tightening?”
By now, you’ve heard of “Quantitative Easing” (QE)… the practice of flooding an economy with easy money during recessions.
When the Federal Reserve first introduced the practice in 2008, few economists knew how QE might stimulate an economy.
Fortunately, the experiment turned out game-changing. The U.S. Fed would use QE again in 2014, 2020 and 2021 to stave off economic slowdowns.
But what happens when money gets taken out of the system?
Economists aren’t sure.
Some claim that “Quantitative Tightening” (QT) will be minor. Maturing bonds will naturally shrink the Fed’s balance sheet if the proceeds aren’t reinvested. Others worry that the process could end up “roiling markets… cutting off the flow of credit to consumers and businesses, hitting their confidence.”
Either way, it’s a long road to unwinding $9 trillion. Perhaps Wormhole could use the spare change?
My Bear Strategy for 2022
Many InvestorPlace readers have recently turned bearish about the market.
It’s easy to see why.
Some of the top tech picks have stumbled this year. Virgin Galactic (NYSE:SPCE), Tesla and Netflix are down a quarter or more.
But I have good news for you: I finally agree with Luke Lango’s bullish view.
Today’s market looks much like the “correction” of January 2018, when the S&P 500 sank 10% on virtually no news. Stocks recovered within two weeks.
We’re now seeing a similar trend. Yield spreads remain low (suggesting clear skies ahead) and GDP growth remains strong. Only the weakest stocks seem to be struggling for traction.
That’s why I’m selectively doubling down on high-quality Moonshots. If people don’t remember the correction of January 2018… then why should we worry about 2022?
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.