Manufacturing & construction are taking a hit

October 10, 2022

Read time: ± 6 minutes

Hello and welcome to Alts Cafe!

This is everything you need to know about what’s going on in the world of alternative assets, best enjoyed with your morning coffee.

The Big Picture

Equities continued to slide, while volatility rose again last week.

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It’s time for construction and manufacturing to take a hit, as indices across the board for those closely related industries are tumbling.

While still growing in America, manufacturing is in a precarious spot, with the PMI just 0.9 points above the contraction threshold.

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It looks likely to go below 50 next month.

US Construction is not doing any better, with spending growth going negative in August — the biggest drop in eighteen months.

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Federal government construction spending fell 6.6%.

Over in Europe, the S&P Global’s final manufacturing PMI for the bloc fell to a 27-month low of 48.4 in September (from August’s 49.6, further below the 50 mark that separates growth from contraction).

It’s looking bleak pretty much everywhere.

From Reuters:

Manufacturing activity shrank in Taiwan and Malaysia, and grew at a slower pace in Japan, India and Vietnam, as rising raw material costs and the darkening global outlook weighed on corporate sentiment. The surveys came after China’s factory and services activity data on Friday pointed to further cooling in the world’s second-largest economy as strict COVID lockdowns disrupted production and dampened sales.

Meanwhile, things are apparently chugging along nicely in Russia (if the numbers can be believed). I guess they have a lot of tanks to build.

Bullish News

  • The US payrolls report beat estimates slightly with a headline number at 263k. The unemployment rate dipped to 3.5%, while average hourly earnings rose, as expected, at 0.3%.

Bearish News

  • US manufacturing activity grew at its slowest pace in nearly 2.5 years in September, as the PMI dropped to 50.9 against a forecast of 52.2.
  • Manufacturing employment contracted last month for the fourth time this year. Manufacturing accounts for 11.9% of the US economy.
  • US shippers are seeing a 20% drop in ocean freight orders. Carriers are canceling as much as 50% of sailings to rebalance vessel capacity to demand, as freight prices are down as much as 80% from last year.
  • Futures pricing Friday pointed to an 82% chance of a 0.75-point move in November, then a 0.5-point increase in December, followed by another 0.25-point move in February.
  • Job openings declined by over 1m last month in the US.
  • OPEC cut oil production last week as it signals closer alignment with Russia. The move could extend the war just as Ukraine looked like it had the upper hand.

What are we doing?

Fractional Alts picks:

No changes here.

ALTS 1 fund news:

No changes here.

Crypto

Here’s what you need to know:

Crypto is delightfully boring these days — just chugging along mostly sideways (though it was up last week) as the rest of the world whipsaws around.

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The same goes for crypto sentiment — the Fear and Greed Index ticked down slightly last week, but it’s mostly just staying within the mid-twenties.

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The fear and greed index is often a (slightly) leading indicator of where crypto is moving.

Bullish News

  • Bitcoin nudged above $20k last week for the first time since mid-September.
  • McDonald’s has started to accept payment via crypto in a small Swiss town as an experiment.
  • Over 12,000 Brazilian companies declared cryptocurrency holdings in August, the largest amount ever recorded.
  • Troubled exchange Sushi rallied 10% last week after a major hedge fund announced a $5m investment.

Bearish News

  • Kim Kardashian, who has a net worth of $1.8b, was fined $1.26m by the SEC for pumping crypto.
  • Dapper Labs suspended Russian accounts after new EU sanctions.
  • Bitcoin miner revenue has fallen 80% from its peak.

What to do with that info:

Watch out for Bitcoin over the next few weeks.

It looks like it wants to pump up.

Real Estate

Here’s what you need to know:

Most of the news is bad, and even the good news (housing inventory) is bad —

  • Listings 📉
  • Closed transactions 📉
  • Median sales price 📉
  • Close-to-list-price ratio 📉
  • Days on market 📈
  • Inventory 📉

I’m writing a real estate insider tomorrow, which will go into the market further, so I’ll keep it concise today.

This tweet sums it up nicely —

tweet

Bullish News

  • It’s a great market if you’re a cash buyer who can find a motivated seller.

Bearish News

  • Investment in residential construction declined 0.9%, with spending on single-family projects plunging 2.9% in August.
  • Residential spending contracted at its steepest pace in two years in the second quarter.
  • Federal government construction spending tumbled 6.6%.
  • Average mortgage rates in the US hit 7.12%, their highest since 2001.

What to do with that info:

Make sure you’re signed up to get real estate updates – our issue on that is coming tomorrow.

Also, it really is a great market if you’re a cash buyer who can find a motivated seller. Also also, it’s not too late to short real estate.

NFTs

Here’s what you need to know:

NFTs are also flat at the moment as they sort of try to figure out what to do —

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Volume, while still anemic, has leveled off since late August, with $35m to $40m traded each week.

It won’t take much to move the markets with this little liquidity.

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Bullish News

  • Gaming veteran Atari launched its Web3 initiative, Atari X.

Bearish News

  • OpenSea’s new CFO has quit just ten months after taking the job.

What to do with that info:

We’re also publishing an NFT Insider this week with several ideas to make money from this NFT market, so make sure to follow the NFTs topic if you could use some inspiration —

Startups

Here’s what you need to know:

While the funding landscape is more of a hellscape this autumn, we are seeing some life in the acquisitions space.

And this makes sense — valuations are down across the board, there will be some babies that have been thrown out with that bathwater.

Amazon excluded, many bigger tech companies are on the lookout for acquisitions.

But it’s not just megacorps on the lookout for deals. With valuations through the floor, startups (even later-stage ones) have started dipping into venture debt more and more.

And bigger companies = bigger checks, which is attracting larger-scale investors.

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Venture debt is on pace for a record-setting 2022.

Bullish News

  • It looks like Elon might buy Twitter after all.
  • Naver, the South Korean search giant, announced it plans to acquire secondhand apparel marketplace Poshmark for $1.2b in cash.
  • Duolingo has acquired its first startup, an animation studio that has created art for the language learning app and for Amazon, Dropbox, Spotify, and Google.

Bearish News

  • Venture funding for the third quarter of 2022 totaled $81b, down by $90b (53%) year over year and by $40b (33%) quarter over quarter.
  • In September 2021, a dozen firms made ten or more investments in US-based startups. Last month there were only two: Gaingels* and Andreessen Horowitz.
  • Rivian, the electric vehicle company, is recalling nearly all the vehicles it has produced.
  • Amazon is abandoning its home delivery robot, the latest sign that the e-commerce giant is starting to wind down experimental projects (and likely acquisitions).

What to do with that info:

We’re on the hunt for acquisitions ourselves.

If you know of smallish companies in the financial services niche that are looking to sell, please reach out.

You’ll get a tidy finder’s fee.

Quick Hits

Sports Cards

No one has ever made a loss selling a Honus Wagner T-206 baseball card, and that streak held up over the weekend.

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In May 2021, someone purchased a PSA 1.5 version of the card for $2.3m from Heritage Auctions. Over the weekend, they flipped it for $3.7m. That’s more than a 50% (depending on fees) return in a deep bear market.

Michael Jordan’s 1986 Fleer rookie card, which I view as a sort of index for sports cards in general, held up at $180k in the same auction. The prices achieved during recent sales of the card have been remarkably (suspiciously?) stable in that range.

Comics

Comics were in the spotlight over the weekend as New York hosted its annual comic con.

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Issue #1 of The Boys, now an Amazon hit.

The buzz was all about film-driven speculation. Dealers and collectors alike are hoovering up obscure first editions and general first appearances in the hopes that content-starved streaming services like Netflix and Amazon will announce a new franchise.

That’s all for this week. Hope you enjoyed your coffee and this edition of Alts Cafe.

Any comments, questions or concerns – let us know.

Cheers,

Wyatt

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Author

Wyatt Cavalier

Wyatt Cavalier

With a background in finance & intelligence analysis, Wyatt has an unhealthy obsession with finding the best blue chip investment opportunities. His previous newsletter, Fractional, resonated deeply with subscribers, bringing actionable insights and unconventional trading strategies. His rare book collection specializes in banned editions. He currently lives in Spain with his beautiful wife, three young boys, and dog Monty.

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