A daily market update from FS Insight — what you need to know ahead of opening bell

“They always say time changes things, but you actually have to change them yourself.” ― Andy Warhol

Overnight

China, Russia reach agreement with Houthis on Red Sea shipping (BBG)

First human transplant of a genetically modified pig kidney performed (NPR)

Apple accused of monopolizing smartphone markets in U.S. antitrust lawsuit (RT)

Switzerland becomes the first major economy to cut interest rates (UPI)

Reddit share jump nearly 70% in trading debut (CNBC)

Short-sellers ramping bets against commercial real estate (BBG)

Bank of Canada officials says quantitative tightening will likely end in 2025 (BBG)

Two more BOE hawks drop calls for more rate hikes, leave rates unchanged at 16-year high of 5.25% for fifth time in a row (BBG)

NATO may take over some U.S. responsibilities for Ukraine aid (Semafor)

U.S. backs $50 billion bond for Ukraine using Russian bank assets (BBG)

India stops taking Russian oil delivered on Sovcomflot tankers (BBG)

SMIC ‘potentially’ broke law if it made Huawei chip, U.S. says (BBG)

Chart of the Day

First news

• Sanctions slowly but surely constricting Russia’s banking system, squeezing out rogue partners
• Union workers in the U.S. earn more over time; a viable alternative to college
• MrBeast’s Feastables, launched a short while ago, seen gaining on out-to-lunch Hershey in leaps and bounds.

MARKET LEVELS

MORNING INSIGHT

Good morning!

Today, 3/22, we hold our monthly webinar on the Top 5 Super and Bottom 5, Sleeper ideas within our Large Cap Granny Shot and SMID Granny Shot portfolios. We also provide a Macro Update.

If you have not yet registered, sign up here.

To download the slide deck for our Granny Shots Webinar, please click HERE.

MACRO: Fed confirms dovish regime, 5 implications of a dovish Fed.

The rally since the March FOMC press conference (post-2:30pm ET on Wed) confirms our view that there is not only a meaningful level of skepticism (see our notes from our recent trip to Latin America and our conversation at a multi-strategy conference) but there is also a significant amount of dry powder.

Click HERE for more.

TECHNICAL

Arista Networks continues to be a Super Granny. For the month of March, it’s shown an ability to escalate in a parabolic fashion. In the last few days, ANET has broken out of an ascending triangle pattern, which began back in February.

This is a very bullish technical development, and likely leads it up to $300, with further resistance targets at $325, and then $340 as resistance. In the short run, any pullback should be seen as a chance to buy dips, and only a move under $272 would postpone the rally.

Bottom line: barring any evidence of technical deterioration, Arista Networks remains quite bullish technically, and we continue to endorse this name.

Salesforce Inc. has been a standout, maintaining its position as a formidable force in the market. Despite a recent stall near its all-time highs from November 2021, there is no indication of a downturn.

The uptrend, consistent since late 2022, signals strength and potential for surpassing previous peaks. The three-week consolidation phase appears to be concluding, setting the stage for an anticipated rise beyond its February peak of 318.71, aiming for a target of 376, aligned with Fibonacci resistance levels.

Support lies at $276 and until/unless this is breached, it’s right to expect CRM can continue to trend higher.

Click HERE for more.

CRYPTO

• According to a Fortune report, the SEC is allegedly going on an “energetic legal campaign” to declare Ethereum as a security. The SEC has not verified the claims, but it would align with their lack of engagement with ETF issuers surrounding pending applications. The SEC has been investigating the Ethereum Foundation surrounding Ethereum’s shift to a proof-of-stake network in 2022, which enabled users to stake ETH tokens in return for rewards and governance rights, potentially classifying it as a security. If the SEC wants to deem ETH a security, the decision would be somewhat contradictory given the agency’s prior actions. The CFTC approved Ether Futures contracts, implying that Ether is a commodity. Then, the SEC approved the futures-based Ether ETFs, implicitly acknowledging the declaration of ETH as a commodity. The futures-based ETFs were also approved in October 2023, over a year following Ethereum’s shift to PoS. ETH briefly fell following the headlines before rallying over 10% to over $3,500 in Wednesday’s trading.
• Blackrock has unveiled its first tokenized fund on the Ethereum Network. The fund will trade under the ticker BUIDL, short for “Blackrock USD Institutional Digital Liquidity Fund.” BUIDL will provide qualified investors with an opportunity to earn USD yields on-chain. BUIDL plans to invest all assets into cash, U.S. Treasuries, repurchase agreements, and pay monthly dividends to investors’ wallets as new tokens. BUIDL tokens will be traded 24/7 and be transferrable to other qualified investors. Securitize will act as the transfer agent and tokenization platform, managing the tokenized shares and reporting on subscriptions, redemptions, and distributions. BNY Mellon will help ensure interoperability between traditional and on-chain markets, while Coinbase was also cited as a key infrastructure provider for the fund. Initial investors include industry veterans Anchorage Digital, BitGo, Coinbase, and Fireblocks, all of whom are industry veterans. Given Blackrock’s prestige, the offering serves as a significant milestone for Ethereum and overall tokenization.

Click HERE for more.

FIRST NEWS

Russia’s Backdoor to Global Banking System Slamming Shut. As the U.S. and Europe aimed to cut off Russia from the Western financial system after its invasion of Ukraine, Moscow found workarounds through banks in the Gulf and Europe that maintained ties. Two years later, Washington’s efforts to close these loopholes now appear fruitful.

Dubai’s major state-owned lender, Emirates NBD, has closed some accounts held by Russian oligarchs and oil traders. Turkish banks are growing wary of Russia-related business. The U.S. has also put bankers in Vienna on alert after granting the Treasury greater power to sanction foreign banks over dealings involving Russia’s military-industrial complex.

Emirates NBD had been a key beneficiary of Russian businesses and wealthy individuals flocking to the UAE after the invasion. It handled sizable Russian oil trades and created a department serving Russians seeking a safe haven, poaching bankers from the former Soviet space. Over time, under U.S. pressure through visits by officials and new sanctions on UAE entities like oil trader Voliton, Emirates NBD reversed course. It shut its Russia unit, stopped accepting ruble transfers from Russia, and closed many Russian accounts that were linked to sanctioned entities or  exceeded $5 million.

Account closures hit a network of trading and shipping firms operated by Etibar Eyyub, a former UAE energy executive, including sanctioned Voliton and Bellatrix Energy – a key Russian oil export route. Emirates NBD also closed accounts for Russian fertilizer giant Uralkali and businessman Ivan Tavrin, sanctioned as a major Russian dealmaker.

Besides Emirates NBD, Egypt’s Banque Misr Dubai branch closed accounts for Coral and other firms in the trading network it had processed payments for. In Turkey, the climate has also changed as the U.S. has put pressure on Ankara over its growing economic ties to Russia, penalizing Turkish firms and urging sanction compliance. Turkish exporters have been complaining of troubles receiving Russian payments.

The U.S. also targeted Austria’s Raiffeisen Bank International, a regional hub that retains a Russian unit, sending a Treasury official recently to explain how its new sanction powers create “heightened risks for banks.”

While disrupting some of Russia’s energy exports crucial for funding its Ukraine war, the redoubled U.S. effort has yet to stop Russian oil flowing freely overall. Still, it marks progress in severing Moscow’s financial workarounds. WSJ

Of the Workers, by the Workers, for the Workers. A new analysis by the Center for American Progress, a liberal think tank, reveals a striking wealth disparity between unionized and non-unionized workers across all education levels.

It’s no surprise that unionized workers tend to earn 10-20% higher wages compared to their non-union counterparts, but the wealth gaps uncovered are far wider, suggesting the benefits of union membership compound over time.

Higher education remains one of the best routes to building wealth, but it seems that union membership offers an alternative pathway, especially for those unable or unwilling to obtain college degrees. The advantages include higher pay, greater job security, access to defined benefit pensions, and better health care benefits – factors that reduce the risks of falling into debt from medical problems or job losses.

The researchers examined data from the 2022 Federal Reserve Survey of Consumer Finances, focusing on working households with wage/salary earners aged 25 or older. They defined union households as having at least one worker covered by a union contract.

The key findings show unionized workers had a median wealth of $338,482 compared to just $199,948 for non-union workers. Union members also had higher homeownership rates (71% vs 65%) and were much more likely to have defined benefit pensions (60% vs 24%).

The wealth gaps even persisted across education levels. The unionized without high school diplomas had over three times the wealth of their non-union peers. Those with some college education had 2.5 times the wealth. Even among college graduates, union members outpaced non-union workers in wealth accumulation.

While the analysis establishes a strong association between union membership and higher wealth, it does not prove causation. Only 10% of the U.S. workforce belongs to unions, so these findings apply to a relatively small segment of American workers.

Still, the report underscores how union membership, with its higher wages, greater benefits, and job protections, can offer a viable path to accumulating wealth long-term, especially for workers who forego college degrees. Axios

Beast’s Choco Feasts on Wonky Hershey. In July 2023, an outfit with the self-explanatory name of The Bear Cave published a controversial piece on problems at Hershey – writing, in part,

“Hershey faces rapidly growing competition from one of the world’s youngest, most talented, and most influential entrepreneurs: 25-year-old YouTube star Jimmy Donaldson, AKA MrBeast. His new chocolate brand, Feastables, has waged an all-out war against Hershey in retail and on social media – and is winning. The Bear Cave believes Feastables’ rapid growth will soon take a major bite out of Hershey’s profits.”

Since then, Hershey stock is down ~20%. With a ~$40 billion market cap, Hershey does roughly $11 billion in annual revenue, of which about $9 billion is from its North America Confectionery segment: your Almond Joy, Payday, and Mr. Goodbar, not to mention the flagship brands, Hershey’s and Reese’s – which MrBeast’s (MB’s) Feastables is best positioned to target.

The upstart confectionary company does not disclose financials, but in May 2022, four months after Feastables’ January 2022 launch, Business Insider reported that the product had sold over $10 million worth, pro-ratable to ~$30 million per year. At the September 2023 All-In Podcast Summit, speaking about the growth of Feastables, MB said, “This is our second year. We will do a couple hundred million.” He also hinted at rolling out a direct competitor to Reese’s: “The simplest thing is doing milk chocolate and then going down and maximizing chocolate, doing Reese’s cups and that kind of stuff.”

Launched in 2022, by 2023 Feastables was in multiple countries and may hit $500 million in annual revenue this year. MB has said that his overall revenues are about $600 million to $700 million a year, of which Feastables reportedly accounts for about 70%.

On a quest to mount a serious challenge to Hershey, Feastables is showing no signs of stopping. In January, the company hired a proper VP of Sales – Hershey vet Amanda Jones, who was the GM for Global Walmart Sales for nearly a decade. In October 2023, Feastables hired new CEO Alex Zigliara, previously CEO at Clif Bar for Mondelēz International, and before that was with Coca-Cola for 17 years, including as VP of the U.S. Walmart business.

A little over a month ago, MrBeast announced that Feastables had revamped its chocolate packaging and formula, and now had “the best tasting chocolate” across seven different varieties: Milk Chocolate, Peanut Butter, Milk Crunch, Peanut Butter Crunch, Almond, Dark Chocolate, and Dark Chocolate Sea Salt. 

Hershey and the Beast

MrBeast’s distaste for Hershey (about which he is not shy: a challenge in MB’s video titled “World’s Most Dangerous Trap” was to throw a Hershey’s bar in a trash can to win $100,000) combined with promotions of Feastables offerings in other MrBeast videos (he has 246 million subscribers on YouTube) and people’s genuine enthusiasm for the product (despite hundreds of millions in sales, nationwide distribution, and an experienced executive team, Feastables is still regularly selling out, causing people to empty Walmarts and Targets in border towns and then drive into Mexico or Canada and resell them) means that, crucially, while Hershey only has customers, Feastables boasts fans. After all, when is the last time someone drove across a border for a Hershey product?

What’s more, MB’s reach and depth of audience are unrivaled. Per Time, MrBeast “estimates he appears on a screen somewhere in the world about 30 billion times a year” and, at the end of 2023, his various social media accounts totaled ~550 million total followers. Even though MB says “This is just the beginning, I still have decades left in the tank” and is clearly a major threat to Hershey, none of the 22-plus analysts who cover the candy maker seem to have publicly brought up competition from Feastables.

The highway Hershey plans on following out of the predicament few believe to exist is, unsurprisingly, not a well-paved one. For the twelve months ending December 2023, Hershey disclosed a roughly 2% volume decline for its North America Confectionery segment, offset by price increases of ~9%, resulting in ~7% total sales growth. In Q4, however, volume declines for the segment were ~5%. In the press release accompanying the quarterly results, the company said they were “related to price elasticity in everyday candy,” which we take to mean that, knowing everything they know about the category they’re in, Hershey still refused to lower their prices. Naturally, that could be because they knew something about which we have scant idea. Or it could be because they don’t want to know about someone we now do know about.

MrBeast.