Short-sellers’ Shortcomings

Plus: Don’t look now but your Amazon bill’s going up. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

January 30, 2023

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Good morning.

Normally about this time of year, people would be pretty much done with their winter wonderland appreciation as blankets of snow morph into ugly piles of jagged ice, dirt, and slush. Only this winter, the snow never came.

East Coast cities like New York, Philadelphia, Baltimore, and Washington D.C. are all reporting snowless winters, a rarity for that part of the country. NYC broke its record for longest time without snowfall on Sunday at 326 days, a length not seen since 1973. Looks like Snow Miser took the year off.

Morning Brief

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Not everyone loves the recovering market.

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Birkin takes on MetaBirkin.

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Amazon continues to get more expensive.

Investing

Fortunes Turn for Short-Sellers in 2023

What happens when the Big Short comes up way short?

When rapid inflation and high-interest rates weighed on some of the world’s biggest companies like a pair of cement sneakers last year, short-sellers made a killing. But through the first month of the New Year, they’re out of luck.

The Really Big Short

Perhaps it’s an immutable law of finance physics. With notable exceptions, like meme stocks, what crashes down must eventually claw back higher. Last year, short-sellers scored $300 billion in mark-to-market profits on average short interest of $973 billion, according to data analytics firm S3 Partners. That’s a fourfold increase compared to gains in 2018, the last year short-sellers scored a profit.

Pessimism isn’t paying out nearly as much lately. For example, surefire 2022 short bets Tesla and Coinbase have rebounded a respective 44% and 74% so far this month. In fact, the 50 most shorted stocks in the Russell 3000 are beating the S&P 500 so far this year, gaining 15% vs the index’s 6%, according to Goldman Sachs.

That’s a good sign of a market in recovery, but bad news for the investors who tend to view a glass as half-empty. They’re necessarily adjusting:

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Short-sellers have already incurred $81 billion of mark-to-market losses this month through Thursday, S3 Partners told The Wall Street Journal. With a possible inflation cooldown creating expectations of a Fed pivot from its rate-hiking offensive, risky assets are regaining their appeal — forcing short-sellers to cut losses and close out bear positions to avoid the so-called short squeeze.

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Overall, growth companies have returned to trading at a slightly more palatable multiple for value investors of roughly 22 times earnings in the past 12 months, down from 37 at the February 2021 peak, according to FactSet.

Soft Served: Thanks to a strong domestic labor market, China’s reopening, and faster-than-expected GDP growth, “People are now more willing to price in the soft landing,” David Lefkowitz, Americas equities chief at UBS Global Wealth Management, told WSJ. Yet some continue to warn a Fed change, of course, could lead to a 1970s-style stall out. In other words, short-sellers may be suffering but that doesn’t mean everyone’s not worried about a recession.

– Brian Boyle

Crypto

Hermes vs. NFT Artist Could Help Define Legal Landscape for Digital Assets

Help! He stole my purse… ’s intellectual property rights.

Starting today, a blockchain entrepreneur whose MetaBirkins NFTs look strikingly similar to the ultra-expensive actual Birkin handbag will be going head-to-head in court with luxury designer Hermès. The case could create a precedent for digital assets and copyright law in a burgeoning world of cryptocurrencies, metaverses, and all those other things your nephew is somehow still into.

How Do You Solve a Problem like NFT?

Mason Rothschild debuted the MetaBirkin NFT, digital images of furry handbags sporting designs like the Mona Lisa, zebra hide, and smiley faces, in 2021. And despite not being able to physically carry your phone, wallet, or compact, one of the most expensive MetaBirkins goes for 100 ethereum – that’s more than $160,000 and comparable to some actual Birkin bags. Hermès is suing Rothschild for trademark infringement. His defense: The First Amendment and artistic expression.

Like many aspects of the internet and digital currencies, NFTs are not highly regulated. What guidelines exist are influenced by previous federal laws, but there’s not one solid framework. Experts are hoping the Birkin case will create more of an understanding of these types of legal battles, which are likely to become more common:

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One of the first intellectual property rights cases involving NFTs was between Miramax and Oscar-winning director Quentin Tarantino. The grindhouse connoisseur had partnered with Secret Network to sell NFTs of his original handwritten script to Pulp Fiction, but the movie studio, which owns the rights to the film, claimed he violated copyright law. It was eventually settled out of court (with Miramax likely offering Tarantino something worth more than Marsellus Wallace’s briefcase) and further auctions for the NFTs were canceled.

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Nike is currently suing online sneaker resale marketplace StockX for counterfeiting and false advertising because virtual shoes on its platform feature the brand’s iconic swoosh. However, in this case, each NFT is linked to a physical item, meaning if you buy one of the NFTs, you technically own the actual sneakers too even if they’re not on your feet just yet. StockX argues it is a speedy way to verify ownership for sellers looking to flip shoes quickly.

“[The Birkin case] will give us more guideposts for what to do with NFTs,” Thomas Brooke, a lawyer at Holland & Knight, told The Wall Street Journal. “With any new technology the courts are often having to apply existing law and figure out what works.”

It’s About the Music: Though the NFT market may appear like a wacky fad and complicated version of schoolyard Pokemon trades, there are benefits to adopting blockchain technology. In the music industry, even if a song gets streamed plenty of times on Spotify, a lot of that revenue goes to record labels and publishers. Many independent artists have begun selling their songs as NFTs as a way for fans to support them directly. It’s the futuristic version of throwing a buck in a busker’s guitar case.

-Griffin Kelly

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E-Commerce

Amazon is Raising Delivery Fees for Grocery Orders

(Photo credit: Amish Patel/Flickr)

First they hook you, then they hose you.

Shoppers who skip the local supermarket in favor of Amazon’s Fresh delivery service are about to feel a bit more pinch. A year after increasing the annual price of Prime memberships from $119 to $139, the e-commerce mega-giant announced this weekend it is quadrupling the threshold to receive free deliveries on orders, from $35 to $150, starting on February 28. Clear up some pantry space, it’s time to start buying in bulk.

Cheaper by the Dozen

Amazon Fresh debuted in Seattle in 2007. Sixteen years, a $14-billion acquisition of a name-brand grocery chain, and a paradigm-shifting pandemic later, the company is still working out the kinks of its food delivery game. While Prime members originally had to pay an additional $14.99 per month for access to Fresh deliveries, Amazon dropped the extra subscription in 2019 to expand Fresh to all Prime subscribers — with delivery fees assessed at checkout for orders under $35 (or $50 for NYC shoppers).

The program’s expansion was soon met with an explosion in e-grocery shopping courtesy of the coronavirus. But now, shoppers in most markets will be paying delivery fees based on a new tiered pricing system — introduced just as the sector sees a decline in spending:

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Orders under $50 will carry a $9.95 fee, orders between $50 and $100 will carry a $6.95 fee, orders between $100 and $150 will have a $3.95 fee, and, finally, orders over $150 will have free delivery.

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E-commerce’s share of total grocery spending fell from 15% in December 2021 to 13% in December 2022, according to the most recent monthly Brick Meets Click/Mercatus Grocery Shopping Survey. Order frequency decreased 7%, while delivery sales fell from $3.3 billion to $3.2; still, order-and-pickup sales leaped from $3.8 billion to $4.4 billion.

Checking Out: Amazon is completing layoffs of 18,000 workers, with its brick-and-mortar stores division sustaining much of the damage. After years of sinking billions into building its ground game — via Whole Foods, Fresh-branded grocers, and Go convenience stores — Amazon still holds only some 2.5% of the overall grocery market share. That’s not the ‘instant’ delivery Amazon investors are used to.

– Brian Boyle

Extra Upside

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Cheapest Place on Earth: Union workers are likely to reject Disney World’s new contract.

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Queen of the Skies Dethroned: Boeing will deliver its final 747 to Atlas Air.

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