Ramp Report #7 - Inversion and the looming recession, OnlyFans SPAC, Jobs, and the Apple Streak
Growing expectations for more aggressive interest rate hikes have been pushing bond yields higher. On Monday, the 5-year and 30-year Treasury yields inverted for the first time since 2006. Then, later in the week on Thursday, the 10-year and 2-year treasury yields also inverted. When short-term interest rates are higher than long-term interest rates, a phenomenon known as an inverted yield curve, it can sometimes be a signal of recession.
If this is news to you, watch this short 3 minute video from Dion Rabouin, where he explains why the yield curve has been such an accurate predictor of recessions for the past 70 years. As he notes, the timing between an inversion and a recession varies from 6 to 24 months and stocks typically perform well during that time.
While many claim that the spread between the 2-year and 10-year is one of the most reliable leading indicator's for a recession, a couple Fed researchers and economists argue that it's a spurious relationship.
Ultimately, we argue there is no need to fear the 2-10 spread, or any other spread measure for that matter. At best, the predictive power of term spreads is a case of "reverse causality." That is, term spreads predict recessions because they impound pessimistic—often accurately pessimistic—expectations that market participants have already formed about the economy, and thus an expected cessation in monetary policy tightening. Thus, term spreads could have little or no economic impact in and of themselves. Nevertheless, as FDR might have pointed out, it can only make things worse if investors not only fear the prospect of a recession, but at the same time, are spooked by that fear itself, which is mirrored in inverted term spreads.
I guess if you're trying to find one silver lining of a recession it's that they are typically short-lived. The National Bureau of Economic Research (NBER) tracks the average length of U.S. recessions. According to NBER data, from 1945 to 2009, the average recession lasted 11 months. This is an improvement over earlier eras: From 1854 to 1919, the average recession lasted 21.6 months. Over the past 30 years, the U.S. has gone through four recessions, with the worst one arguably being the Great Recession of 2007-2009.
In a hypothetical world, say you knew 100% that a recession was coming, how would you change your spending and saving behaviors? Would you at all? I don't think I would alter my investment strategy (buy regularly and hold forever) but I would try to reduce any type of frivolous spending and make sure my garden was quadruple the size that year.
Whether or not the yield curve is signaling to us that a recession is coming, it won't stop us from memeing about it on Twitter in the face of financial ruin.
Barber: What you want?
Me: Lemme get that inverted yield curve.
Barber: Say no more fam.
— Ramp Capital (@RampCapitalLLC)
Mar 13, 2021
The unemployment rate fell to 3.6% in March, nearly matching the pre-pandemic rate of 3.5% in February of 2020, which was a 50-year low.
Also, 431,000 jobs were added in March. According to the WSJ, this report marked the 11th straight month of job gains above 400,000, the longest such stretch of growth in records dating back to 1939. The chart below shows the elevator down and stairs up mentality that happens quite often in the markets.
On Tuesday, it was announced OnlyFans held talks with multiple blank check companies, or SPACs, about a merger to take it public. According to Axios: OnlyFans wants to reposition itself less as a porn platform, and more as a place for fans to connect directly with creators — like a combination of Patreon and TikTok.
OnlyFans was founded in 2016 by British businessman Timothy Stokely and has grown exponentially since the pandemic as a result of more people being online and more people trying to take advantage of the creator economy. The service is particularly popular with sex workers and commonly associated with pornography, but it also hosts the work of other content creators such as fitness trainers, musicians, chefs, and others who provide behind the scenes access into their lives.
The growth of OnlyFans has been impressive. The company, which takes a 20% cut of its creators’ earnings, now hosts content from more than two million creators, who are watched by more than 180 million registered users, per a company statement in 2021. They're also projecting net revenue to hit $2.5B in 2022.
One of the most exciting things about OnlyFans potentially going public is wondering which ticker they would pick. $ASS $SIMP $BUTT, just endless possibilities for the meme economy. Obviously $FANS would be chosen because it's the easiest, safest, and lamest option.
I asked Twitter if they would be buying some OnlyFans stock if it goes public. Nearly 60% said no. I'll take the opposite side of this trade. Consider me a simp.
Poll: Will you buy OnlyFans stock if it goes public?
— Ramp Capital (@RampCapitalLLC)
Mar 30, 2022
Full stop, I'm not above launching an OnlyFans to put food on the table if we enter a recession.
Apple Streak Is Bananas
Apple broke an 11-day win streak, in which it returned 18.8% over that time span — an increase of a whopping $462 billion in market cap. To put this gain in perspective, the increase in market cap over this 18-day stretch was larger than the total market caps of all but 10 members of the S&P 500 index.
In that time, AAPL had traded back to even on the year. A beautiful ramp indeed.
That's all for this week. Thanks for subscribing and sharing.