Turbulence (7/8/22)

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Ryan Duffy, Rachael Zisk & Mo Islam
July 08, 2022

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Navigating Turbulent Markets

Ed. Note: This is a vastly abridged version of Payload’s “Secret Monthly Newsletter” that you can unlock by referring just one new subscriber! This month’s newsletter included access to a larger macro presentation that includes this—and much more.

In less than a week, the June CPI (Consumer Price Index, an index that tracks the price of goods and services and is a key measure of inflation) number will be released. July 13 is a date worth marking on your calendars. 

If the CPI print comes in over expectations (it was last clocked @ 8.7%), then we’ll likely see another leg down in equity markets. High CPI → central bank interest rate hikes.

Two weeks after the June CPI print, we’ll get Q2 GDP data. Why is that so important? Well, you may recall that Q1 GDP growth was -1.6%. The technical definition of a recession is two successive quarters of contractionary real GDP growth. If that Q2 number comes in under 0.0%, it means the US economy is in a technical recession. 

Consider also...

  • The June University of Michigan Consumer Sentiment Index reached an all-time low for the survey.

  • Conditions across car- and home-buying (also U. Mich surveys) have fallen off a cliff and bottomed out  at 10-year lows.

  • We're in a global food crisis, fueled by the war in Ukraine. For the first time since 1972, both food and energy prices are rapidly increasing simultaneously. 

  • The average stock in the NASDAQ, Russell 1000 Growth Index, and the Russell 2000 Small Cap Index is down 40%-50% from peak levels.

  • Markets are repricing “real world” and “digital world” assets, giving a premium to products directly tied to US infrastructure and discounting companies linked to software, fintech, cloud, social media, and the much-ballyhooed metaverse.

In the midst of the macro turmoil…

…a bright spot is aerospace and defense.  A&D has outperformed the S&P 500 by 14+% and NASDAQ by 22+%. The conflict in Eastern Europe has accelerated both defense spending and the race for space supremacy.

However, it has been a tale of two cities

At first, some saw the SPAC market as a harbinger of new space startups and their investors having “made it.” SPACs created liquidity for a sector that historically did not have clear exit opportunities. 

Instead, the reverse merger phenomenon created poor incentive mechanisms that allowed for misguided behavior between management teams and financial institutions. And we now see a clear bifurcation between traditional aerospace and the new space model.

What's next?

Our best guess: a culling of the herd and consolidation. Many players went public too early in their lifecycle, failing to realize that as a public company, forecasts need to be met or your stock price suffers quarterly (or daily, for that matter). 

However, not all hope is lost! This is a healthy shakeout. Consider it a course correction for the industry, which will pave the way for more efficient business models and illuminate the path to profitability..

We at Payload continue to firmly believe that the global space race is one of the most important technological contests of the decade. The financial upside case is just beginning.

+ For more, catch Payload’s most recent Pathfinder episode, where Ryan and Mo digest this data and unpack what it means for space. 

In Other News

  • A missile test-launched from Vandenberg Space Force Base exploded seconds after launch on Wednesday night. 

  • Russia launched a fourth GLONASS-K satellite to continue replacing the older generation of its navigation constellation. 

  • SpaceX flew its 50th Starlink mission. The company also tied its record for booster reflights. 

  • CAPSTONE conducted a successful trajectory correction maneuver yesterday morning. 

  • Speaking of…NASA attributed the spacecraft’s comms issue to an improperly formatted command that operators sent to CAPSTONE. The craft’s autonomous software cleared the fault and resumed communications with the ground. 

  • Rocket Lab’s ($RKLB) Lunar Photon, which deployed CAPSTONE, passed the Moon. 

Geek Out: Astronaut Bones

SpaceX Cargo Dragon. SpaceX tweeted this pic Friday, in an announcement noting that NASA has ordered six additional ISS resupply missions.

Astronauts in microgravity are losing weight in all the wrong places. 

A recent study in Scientific Reports found that astronauts who spent months in space returned with major losses in bone density, which wasn’t always immediately or fully restored.

  • Funded by the Canadian Space Agency, researchers followed 17 American, European, Canadian, and Japanese astronauts before, during, and after tours at the ISS. 

  • The TL;DR—weight-bearing bones only recovered partially in most astronauts a year after returning to Earth.

  • “This suggests the permanent bone loss due to spaceflight is about the same as a decade worth of age-related bone loss on Earth,” said Leigh Gabel, lead author of the study, in a press release. 

Microgravity can take a toll 

We’re accustomed to our Earthly conditions, which include having to push with a certain amount of force against the ground to keep ourselves upright against gravity. NASA knows that astronauts’ bone mass decreases while in microgravity, and prescribes 15 hours of exercise a week to help combat that problem. It can take three to four years for astronauts to fully regain their bone density, if it happens at all.

That’s not the only health risk NASA tracks: Astronauts also frequently get kidney stones on orbit. But we’ll save that topic for another day…

What to do?

As more humans live and work in space—and LEO we need to be ready to keep a lot more people healthy in microgravity.

The ISS exercise regime does some good to counteract the effects of microgravity, but a stubborn fact remains: Bones get less load-bearing in LEO. The study’s authors wrote that deadlifting and jumping exercises will do more to preserve bone density than running, cycling, squats, or heel raise exercises, none of which had an observed impact on bone density or recovery. 

To all the commercial space station developers reading this: might want to add more squat racks into your designs?

The View from Space

Image: NASA, CSA, and FGS team

Tired of waiting for the JWST images? NASA released a sneak peek: This view of bright stars against a backdrop of galaxies is, for now, “the deepest image of the infrared sky,” per the agency.

During a May stability test, JWST’s Fine Guidance Sensor (FGS), developed by the Canadian Space Agency, captured 72 exposures over 32 hours to create this image. It wasn’t taken with a science goal in mind—since FGS doesn’t use color filters, scientists can’t age the galaxies shown here. But this is only a preview of what Webb can do–its first full-color images will be revealed on Tuesday.

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