In anticipation of Wednesday’s inflation data, the rest of the market is sulking, but the meme-stock trade is thriving.
Our call of the day is a short position on another trade, as seasoned trader Kevin Muir, who was previously pessimistic about his native country, now goes in for the kill. According to Muir of the Macro Tourist blog, “I’m not a self-loathing Canadian who can only see the things we do wrong, but at the same time, I’m not blind to the macro forces driving global economies.”
Furthermore, his thesis predicts “immense” profits for a few major oil companies as well as other bettors against that economy.
In September of last year, Muir first presented his bear Canada case, pointing to the post-COVID stimulus’s deficiency and the risk of rate increases for indebted consumers. He recommended shorting US interest rate futures and purchasing Canadian front-end futures because he thought Canadian policy would deteriorate. Another strategy that proved effective, according to him, was buying US banks and shorting those in the north.
As time goes on, Muir is becoming “more aggressive” and has a “big time” short position in the Canadian dollar. In a recent post, he stated, “I expect ‘Canadian economic bad news’ to be front-page headlines in the coming months.”
Though a bigger portion of it is focused on immigration, there are indications that the United States may be slowing down, which could hurt Canada twice.
He cites Ben Rabidoux, a real estate expert in Canada, who reports that non-permanent residents have contributed significantly to the country’s 1.3 million-person population growth over the past year. Although the population boom helped Canada’s GDP by creating a large number of jobs for temporary workers after the pandemic, he said that as tight loan rates start to bite, the economy is slowing down.
Rabidoux also forecast that the population will fall from 3.2% to 0.6% in less than a year and a half, staying there until 2027, despite pressure on the government to reduce those numbers.
Muir claims that Canada is facing a “perfect storm,” with a large portion of the country’s economy based on real estate and the central bank remaining steadfastly hawkish. “The long and variable lags from a monetary policy that is too tight (due to the central bank’s inability to understand the differences in the Canadian economy) finally kick in just as our population starts falling,” Muir claims.
Muir, who is also a long-term bear on the US dollar, believes that the value of the Canadian dollar (USDCAD) will eventually drop to an all-time low compared to the US dollar. He makes the observation that many bulls in the loonie have been indirectly betting on commodities with their purchases of that currency.
However, there is a problem with that reasoning. He asserted, “We should already be 20% higher if the loonie was moving with oil.” “Just as gold can rise as interest rates rise, the loonie can fall while commodities rally,” he stated.
Muir also provides an additional strategy for playing Canada’s demise. “Canadian resource companies will print money if I am right that the loonie eventually falls to all-time lows while commodities like oil rally,” he stated.
Oil sands companies with “extremely long-life reserve assets” based in Canada and with local costs include Canadian Natural Resources CNQ, Cenovus CVE, and MEG Energy CA:MEG. “However, their profits will be enormous if the loonie is 1.65 and oil is $100+,” he remarked.
“I expect Canadian resource companies to massively outperform on a local currency basis, sure, you should hedge the currency for non-Canadians,” Muir stated.
The markets
Stock futures ES00 YM00 NQ00 are turning lower and Treasury yields rising after producer prices data. The dollar is slipping and gold GC00 has pared gains.
The excitement
Producer prices rose by a higher-than-expected 0.5% in April, suggesting persistent inflation. The event will feature remarks from Fed Chair Jerome Powell at 10 a.m., followed by Fed Gov. Lisa Cook speaking at 9:10 a.m.
A whirlwind of memes. GameStop GME has seen a significant increase of 160% following Monday’s surge, and its market cap is poised to surpass that of Best Buy BBY. The entertaining antics of Roaring Kitty continue to captivate the masses. AMC Entertainment stock has experienced a significant increase of around 150%. Additionally, it was revealed that the company sold $250 million of stock late Monday. Shares of Koss (KOSS) and BlackBerry (BB) also saw gains. Stay updated on the latest developments in the meme-stock revival.
Shares of Plug Power (PLUG) have surged 40% following the announcement of a highly anticipated funding news for the alternative-energy company.
Home Depot reported sales that fell short of expectations, although their earnings exceeded forecasts. Walmart, which reports Thursday, is reportedly planning to lay off hundreds of corporate workers and requesting others to relocate.
Alibaba shares BABA have taken a hit as the Chinese e-commerce group reported profits that fell short of expectations.
Uber is acquiring the Taiwan business of Delivery Hero and making a $300 million investment in the German company.
President Joe Biden unveiled a long-awaited plan outlining tariffs on various products, including China EVs, chips, medical gear, and more.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
| Ticker | Security name |
| GME | GameStop |
| AMC | AMC Entertainment |
| TSLA | Tesla |
| NVDA | Nvidia |
| NVAX | Novavax |
| HOLO | MicroCloud Hologram |
| NIO | Nio |
| BABA | Alibaba Group Holding |
| AAPL | Apple |
| BB | BlackBerry |
The chart
Bank of America’s global fund manager survey for May reveals investors the most bullish since November 2021, “driven by optimism on rate cuts rather than earnings per share.”
Cash levels are also at a three-year low and stock allocation is the highest since January 2022. Strategists say “risk assets [are] vulnerable to more evidence of stagflation.”
