The S&P 500 gained ~16% over the past 36 trading days — one of the best short-term rallies of the last 30 years.

As our Chart of the Day illustrates, similar rallies occurred in early 2019, spring 2020, the 2007-09 recession, and the late 1990s dot-com bubble.

😅 Like many data points, it can be fuel for both bulls and bears. We’re going to do everybody a favor and stay out of the market prediction game altogether.

Santa Claus rally, anyone?

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• OPEC loses a member

• Popular influencer clothing brand sells for $1

• Argentina’s plans for privatization

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

😬 OPEC Loses a Member

13-1=12. That’s the math oil-producing countries are doing after watching OPEC lose a member, falling from thirteen participating nations to twelve.

If you’re unfamiliar with what that acronym actually stands for, it’s "the Organization of the Petroleum Exporting Countries.”

Join the club: The organization is often called a “cartel,” which, in an economic context (not the Narcos context), refers to a group of powerful market players who work together to manipulate prices.

• And you can imagine that such a group is a) very consequential to the global economy and b) highly political, as individual countries in the cartel vie for influence and try to maximize the best outcomes for themselves.

So, who’s leaving? A member who joined over 16 years ago and produces 1.1 million barrels of oil per day (of the roughly 28 million produced by the entire group) — Angola.

The dispute pushing them out appears to be over oil production quotas limiting how much oil the country can supply to global markets, a measure OPEC has pushed to offset declining oil prices (down about 20% in the last three months.)

• As Angola’s production capabilities have dropped more than 40% in the last eight years, its leaders took offense to the reduced production limits set for the country in 2024, below its current output.
  

• Instead, Angola’s liaison to OPEC rejected the quotas, promising to produce as much as possible. Bloomberg reports that the move is “purely symbolic,” representing that Angola’s relations with OPEC’s leadership have “broken down.”

Why it matters:

Angola’s departure from OPEC is consequential, but it’s more significant considering that it’s the third exit in recent years, with Qatar and Ecuador dropping out in 2019 & 2020, respectively. Indonesia fell off in 2016, too.

OPEC was founded in 1960 by Saudi Arabia, Kuwait, Venezuela, Iran, and Iraq. Evidently, it has expanded since and even works with “non-member” countries like Russia, forming a broader oil-market coalition called OPEC+.

• While a Real Housewives of Riyadh show would make for great reality TV, unfortunately, OPEC+ isn’t a streaming service (looking at you, Disney+, Paramount+, and Apple TV+.)

According to Reuters, Saudi Arabia acts as the group’s “de facto leader.” Meanwhile, Angola will “join other nations with relatively small oil output that have left in recent years.”

Read more

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👚 Influencer Clothing Brand to Sell for $1

Influencers carry enormous power, but that doesn’t always translate to viable business models. And in the fashion world — usually low margins, complicated supply chains, and quality-control issues — so much can go wrong in the blink of an eye. 

Arielle Charnas, who has over one million Instagram followers, launched a clothing brand, Something Navy, in 2020 with about $10 million from investors. 

Under fire: But debt piled up, and it’s being sold in a “fire sale” — when a company is sold at a very low price, typically because the seller is facing bankruptcy. 

• Something Navy is going for $1, which is common when a company is bought with such high liabilities. The $1 is only there to fulfill the requirements of a legal contract.
  

• A group of investors in apparel and real estate will buy the company.

A bad, no good year: It’s another cautionary tale after 2021, when virtually anyone with a big following could raise a few million bucks and start a company. 

•  “We believe there’s a lot of opportunity here,” one of the investors said. “She’s built a beautiful brand, a beautiful product, and she just needs the right manufacturing partner behind her.”
  

• Something Navy will unload $7.5 million in liabilities and $483,000 of outstanding bills, according to The Wall Street Journal.
  

• In all, 2023 was rough sledding for the clothing company, which closed its stores and paused social media. Staffers left. Bills went unpaid. The company had a “be right back” sign posted for months, and operations nearly halted this spring.
  

• This summer, one executive at the company remarked, “We built a great brand. It reached some difficult circumstances. I want it to live on.”

Why it matters:

Something Navy cracked the news this week while electric scooter company, Bird, filed for bankruptcy — cratering from a peak $2.5 billion valuation to just $1.5 million today, a tremendous fall for a startup that had raised over $500 million.

In 2020, Something Navy was pitched as the next $100 million clothing startup. It racked up $12 million in sales within six months, then doubled its business to $24 million in 2022, the kind of growth investors like to see. 

• But the products weren’t as quality as they looked on social media, and shoppers stopped buying them. Meanwhile, they spent millions to grow, opened stores in Dallas, New York, and Los Angeles (all have closed), and hired too quickly. Sound familiar?

“I think they grew too fast too soon,” said one analyst, echoing a common tale of the pandemic era.

Read more

MORE HEADLINES

💯 2022 has the lowest total unemployment rate of all time

🛴 Electric scooter company, Bird, files for bankruptcy after 2021 SPAC

🐔 How Chick-fil-A might be stronger than ever

🫣 The economic misery index is saying the worst is over

 🎾 Move over, pickleball — padel is the new fastest-growing sport

💬 The billionaire who wants to give his fortune to his former gardener

👀 Argentina’s Plans for Privatization

Argentina’s sweeping changes have meaningful global implications, but for our purposes, it’s a more fascinating case study on debt, currency, and economic systems.

From plans to eliminate the central bank, swap the Argentine peso for the dollar, and slash government spending (“shock therapy”) in a country with a chronic tendency to default on its debts, there’s been no shortage of stories to cover.

The latest? Argentina’s recently inaugurated new President, Javier Milei, is pushing forward with his reforms, now targeting state-run companies and aiming to turn them into more efficient, privately-run businesses.

It’s part of a broader plan to deregulate and shrink the government and hopefully make Argentina’s vulnerable economy more robust.

In Milei’s latest announcement, he called out Aerolineas, Argentina’s national airline, after the government has spent hundreds of millions of dollars a year to support it.

• The plan is to hand ownership shares to employees, aiming to make Argentina’s air travel industry more competitive through privatization.
  

• During his campaign, Milei also suggested privatizing rail networks, state-owned media companies, water and sewer businesses, and energy companies.
  

• In a public address, Milei stated, “The objective is to return freedom and autonomy to individuals and start dismantling the enormous amount of regulations that have impeded, hindered, and stopped economic growth."

Why it matters:

Presidential decree can only take you so far, though. Moving from the financial world to politics here, whether you agree with Milei’s economic strategies, he’ll need help from congress to bring them to fruition.

On that front, his party holds a minority position in congress, meaning it’ll likely be a struggle to approve privatization plans.

History lesson: It’s not the first time market-friendly reforms have been pushed in Argentina. After a bout of hyperinflation in the 1990s, ex-President Carlos Menem sold off government assets, but a crisis peaking in 2001 pushed leaders to re-nationalize industries.

• Aerolineas was actually made private in the ‘90s, nationalized in 2008, and now may be made private again. State-run oil driller & refiner, YPF SA, underwent a similar back-and-forth process, being re-nationalized in 2012.
  

• Despite being primarily owned by the government, YPF does have shares trading on the New York Stock Exchange, priced at a 20% discount to when the company was first seized by the state eleven years ago.
  

• However, YPF would be the hardest to privatize (again) due to a passed law requiring Argentina’s congress to specifically approve selling its stake in YPF with a two-thirds majority, instead of a simple majority.

Read more

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QUICK POLL

Yesterday, we asked: Do you own an electric vehicle?

— Most respondents either have an EV or might buy one at some point. “Hopefully, in the next six months,” someone said.

— Wrote another: “On our fourth Tesla. Insane specs. Super safe.”

—Added another reader, “I don’t think that going electric is the only way or even the best way to address car pollution.”

— “Bought our Model 3 in October of this year, and anyone who has doubts about Tesla charging network and its ability for everyday driving should really rent one to try them out…This is coming from someone who worked at a dealer for a few years driving all makes and models.”

— On the flip side, “It’s too expensive, and replacement costs are too high for parts. Also, charging is still not as accessible as gas stations.”

See you next time!

That's it for today on We Study Markets!

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