Making sense of the markets this week: September 11
Is beating the bank easier than fighting the fed?
The U.S. has its mighty Federal Reserve, and Canadians have the central bank called the Bank of Canada (BoC). And while we may pretend we have full autonomy over our monetary policy, in practice it would be very difficult for us to deviate much from that of our southern neighbour.
Consequently, it came as no surprise last Wednesday when the BoC announced that lending rates would be going up by 0.75% to 3.25%. This is the highest that rates have been since 2008.
In further guidance, the central bank pointed out that “the policy interest rate will need to rise further.” These stern warnings are notable in light of the fact that, last week, Canada’s gross domestic product (GDP) growth came in well below analyst forecasts.
Given there was speculation the BoC was going to take an even more drastic approach to cutting inflation with a 1% rate raise, it wasn’t a big surprise that Canadian equities moved upwards on Wednesday, with the most extreme policy stances seemingly off the table for the time being.
The Canadian Dollar continued its trend of negative news headlines, despite being one of the best-performing world currencies of the year. This is due to our constant comparison to the U.S. dollar and its ultra-strong performance in 2022.
I think those “experts” who predicted the imminent collapse of the U.S. dollar should return their crystal balls, as they appear to be broken.
When compared to the U.S. dollar, our beloved Loonie is down on the year, but we’re still one of the better performing currencies in the world.
With interest rates on fixed-income products creeping up, the MillionDollarJourney post on the best short-term investments in Canada might be useful to folks looking for a safe place to park some savings.
GameStop rollercoaster continues
The incredible tug-of-war over the share price of GameStop (GME/NYSE) continues to pit basic business fundamentals against a cadre of retail traders determined to buy shares of the company at any cost.
I have never seen another company announce yet more massive losses (the latest in a trend of quarters that have produced little-to-no-profits) and rally 10% at the conclusion of the announcement.
Gamestop’s quarterly earnings revealed:
- Total revenues were down to USD$1.14 billion from USD$1.18 billion a year ago.
- Losses were “up” to USD$108.8 million compared to last year’s USD$61.6 million.
- Losses per share were “up” to USD$0.36, relative to last year’s USD$0.21.
- Inventory is ballooning as demand decreases.
Yet incredibly, the stock rallied 10% in after hours trading!
Management’s much ballyhooed plan back to prosperity appears to be based on becoming a trading place for non-fungible tokens (NFTs) and hoping the world enters a time warp back to 2007—back when the company actually made money.
All of that appears to be irrelevant considering what some people are willing to pay for the shares. Because analysts predicted the company would lose USD$0.41 per share, some investors decided that a company that can’t make any money is still worth USD$7.31 billion. With the stock down only about 36% so far this year, where it goes from here is completely unknown.
Share prices of another meme stock fell drastically this week after a tragic personal event. Law enforcement sources confirmed to CNN that Bed Bath & Beyond (BBBY/NASDAQ) CFO Gustavo Arnal jumped to his death last Friday. Arnal and Ryan “Chewy” Cohen had both recently been named as defenders in a class action lawsuit that alleges the company “pumped and dumped” shares of Bed Bath and Beyond. Cohen is also the current Chairman of GameStop.
In other earnings news, DocuSign (DOCU/NASDAQ) posted earnings of USD$0.44 share (versus a predicted $0.42). Shares rallied in after hours trading on Thursday, but are still down over 60% year-to-date.