Good morning. Happy Friday.
The Asian/Pacific markets closed mostly down. Japan, South Korea, India, New Zealand, Indonesia and Thailand were weakest. Europe, Africa and the Middle East are currently mostly down. The UK, Poland, France, Germany, Turkey, Spain and Portugal are weakest. Futures in the States point towards a down open for the cash market.
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The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Big banks kick off earnings season
Banks are set to formally kick off the Q4 earnings season this morning, including results from JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC). It’ll be the first set of earnings since the Fed gave lenders the green light to resume share buybacks, which were halted in March 2020 and banned by the central bank in June on fears of a steep recession from the coronavirus pandemic. However, the top U.S. lenders ended 2020 in good shape amid strong mortgage demand, healthy trading revenue and an economy kept afloat by generous government stimulus. The banks are expected to announce $10B of stock repurchases in the first quarter of 2021, in a move that should please many investors.
Bigger picture: Shareholders will be analyzing the financials behind the share buybacks. In December, the Fed announced that banks could pay “up to a maximum of the average of the previous four quarter earnings in combined dividends and buybacks,” setting a cap on how much they could shell out in Q1. Banks may also give broader guidance on how they expect buybacks to progress for the rest of the year.
An interesting bank to watch will be Wells Fargo, whose earnings have been pretty low and will be most constrained on what it can do per Fed guidance. Analysts forecast the company will sharply increase its loan loss provisions, which may mean it could skip a buyback altogether this quarter in favor of a dividend. Its troubled financial situation has been compounded by the billions of dollars in costs (and tarnished reputation) related to its fake accounts scandal that came to light in 2016.
Analysis: The recent outperformance by financials, alongside energy, is part of a broader rotation in the market, which has begun to beat the sectors that outperformed last year such as consumer discretionary and technology, said Todd Gordon, founder of TradingAnalysis.com. “We’ve come a long way in the financials, all the way back to the pre-credit crisis high of 2007. If they do sell the news a little bit in earnings here in the next week or two, I will be looking to add, specifically in the dividend portfolios for a little bit of yield.”
Stimulus cheer + cost worries
President-elect Joe Biden began laying out his economic agenda last night, saying he would ask Congress for $1.9T in immediate relief to fight the coronavirus pandemic. The plan includes $1,400-per-person direct payments to most households, a $400-a-week unemployment insurance supplement through September, as well as funds for COVID testing, vaccine distribution and state and local governments. The proposal is the first phase of a two-part strategy, with a broader program to be unveiled in subsequent weeks focused on infrastructure and climate change.
Not only is further fiscal aid on the table, but Fed Chair Jerome Powell doubled down on the monetary side as weekly jobless benefit claims rose to their highest level since last August. “Now is not the time to be talking about exit” from easy money policies, he said in a webcast with Princeton University, pledging to give plenty of notice before scaling back the central bank’s bond buying program. In addition to high unemployment, inflation isn’t on a path to reaching 2% on a sustained basis, even though it might shoot higher this year.
Thought bubble: Biden’s plan includes ideas that Republicans have rejected, including raising the minimum wage to $15 an hour, while some legislation will need 60 votes in the Senate, which would require GOP members to get on board. “Joe Biden did not propose a COVID package tonight – he proposed a liberal takeover of the American economy,” said Rep. Jason Smith (R., Mo.), the top Republican on the House Budget Committee. “Americans aren’t asking for trillions of dollars in new spending. They just want our government to open our economy, get their kids back to school, and create jobs.”
Analysis: All three major averages rose on Thursday, only to give up their gains in the final hour of the trading session. Stock index futures were also lower overnight: Dow -0.5%; S&P 500 -0.5%; Nasdaq -0.3%. “Right now markets are celebrating the additional stimulus and see it as a stronger bridge to a fully reopened economy,” said Jeff Buchbinder, equity strategist for LPL Financial. “On the other side of it there’s the chance that markets will have to pay for this in the form of sharply higher interest rates or tax hikes that could cap equity valuations.”
IPO and SPAC interest surges into 2021
The furious pace of IPOs and SPACs is showing no sign of letting up anytime soon as savvy companies and big shot investors take advantage of the easy money sloshing around in financial markets. Case in point: Affirm (NASDAQ:AFRM), a company that helps consumers finance online purchases, finished its trading debut up 98% on Wednesday, giving a nice shot in the arm for Shopify (NYSE:SHOP), which holds about 20M shares through warrants. Petco (NASDAQ:WOOF) went public for the third time on Thursday, soaring 63% and valuing the retailer at more than $6B.
Bigger picture: Traders are hoping to cash in on current trends, given the solid performance of newly public companies. The Renaissance IPO ETF (NYSEARCA:IPO) smashed the return of the S&P 500 in 2020, climbing 110% in 2020, compared to the 18.4% advance for the benchmark index. The fund isn’t a catch-all for all new names, as it sticks with IPO stocks for a while – Peloton (NASDAQ:PTON), Uber (NYSE:UBER), Zoom Video (NASDAQ:ZM) and CrowdStrike (NASDAQ:CRWD) are all still listed as top holdings.
Another question entertained by companies is how they should go public. While the traditional IPO system can give favored clients the first-day “pop,” Wall Street banks charge a fee of around 7% to get a firm on an exchange. As a result, direct listings and SPACs have also seen outsized activity over the last year.
Why are SPACs becoming popular (besides the fees)? 1) They can offer liquidity at a time of stock market volatility; 2) The traditional IPO process can take anywhere from several months to a year – as negotiations with institutional investors play out – though some SPAC deals are reported to only take weeks and could provide better price support; 3) SPACs are light on the regulatory side (no S-1 filing) and aren’t subject to the IPO lockup rule.
Coronavirus immunity passports
A tech and healthcare coalition that includes members like Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), Salesforce (NYSE:CRM) and U.S. nonprofit Mayo Clinic are working together to create a COVID-19 vaccination passport. The Vaccination Credential Initiative (VCI) would allow businesses, airlines and countries to check if people have received a coronavirus vaccine to “demonstrate their health status to safely return to travel, work, school and life while protecting their data privacy.”
How would it work? “VCI’s vision is to empower individuals to obtain an encrypted digital copy of their immunization credentials to store in a digital wallet of their choice. Those without smartphones could receive paper printed with QR codes containing W3C verifiable credentials.”
Some hurdles: Privacy and ethical concerns surround whether a person who can prove they are vaccinated should have more freedoms than someone who is not. Another obstacle is getting health centers to participate. Even if they would want to, they would need resources to incorporate these credentials to VCI’s digital standard (people in the U.S. are currently given paper cards when they get their COVID-19 vaccines, while patient information is logged in their state immunization registries).
Looking abroad, Israel is launching a “green passport” program to residents who have received a vaccine or those who have recovered from COVID with antibodies. The passport will lift some restrictions, including mandatory quarantine following exposure to an infected person or traveling abroad, and may even be used for visiting malls or attending cultural and sporting events. The country of 9M people has been lauded for deploying what is currently the fastest COVID vaccination campaign in the world, with 25% of its citizens inoculated with a first dose in just three weeks, as well as 72% of its population over the age of 60.
Another swipe at China
The Trump administration has added smartphone maker Xiaomi (OTCPK:XIACF) to a blacklist of alleged Chinese military companies, sending its Hong Kong-listed shares down 10.6% on Friday. The move means that Xiaomi is now subject to a November executive order restricting American investors from buying the company’s shares or related securities.
Statement from the DoD: “The Department is determined to highlight and counter the People’s Republic of China’s Military-Civil Fusion development strategy, which supports the modernization goals of the People’s Liberation Army by ensuring its access to advanced technologies and expertise acquired and developed by even those PRC companies, universities, and research programs that appear to be civilian entities.”
Response from Xiaomi: “The company reiterates that it provides products and services for civilian and commercial use. The company confirms that it is not owned, controlled or affiliated with the Chinese military, and is not a ‘Communist Chinese Military Company’ defined under the NDAA.”
Xiaomi’s stock has more than doubled in the past 12 months, and it has been rapidly gaining market share. In the third quarter of 2020, it surpassed Apple (NASDAQ:AAPL) to become the world’s third-largest smartphone maker, according to Gartner and Counterpoint Research.
Go deeper: Xiaomi has not been put on the Commerce Department’s Entity List, which restricts companies from exporting U.S.-origin technology to firms without a license. That means Xiaomi will be able to continue using chips from Qualcomm (NASDAQ:QCOM) and the Android operating system (GOOG, GOOGL).
What else is happening…
Mandalorian finale pushes Disney (NYSE:DIS) to top of streaming chart.
Fannie Mae (OTCQB:FNMA), Freddie Mac (OTCQB:FMCC) allowed to retain earnings.
Airlines gain after Delta (NYSE:DAL) hints at ‘cash burn positive’ spring.
Chipmaking capacity… TSMC (NYSE:TSM) plans up to $28B in capital spending.
Today’s Economic Calendar
8:30 Producer Price Index
8:30 Retail Sales
8:30 Empire State Mfg Survey
9:15 Industrial Production
10:00 Business Inventories
10:00 Consumer Sentiment
11:30 Fed’s Kashkari Speech
1:00 PM Baker-Hughes Rig Count
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Good morning. Happy Thursday.
The Asian/Pacific markets were mixed. Japan, Hong Kong and Singapore posted gains; China, Taiwan and Thailand closed down. Europe, Africa and the Middle East currently lean up. The UK, Germany, South Africa, the Netherlands and Austria are up; the UAE and Greece are down. Futures in the States point towards a positive open for the cash market.
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The dollar is up. Oil is down; copper is up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Impeachment, stimulus and the markets
Traders seem to be unfazed by the second impeachment of President Trump or even a possible conviction in the Senate. The events aren’t generally market moving, unless it impacts the ability of Congress to focus on its main legislative agenda – in this case to help the economy emerge from the worst pandemic in over a century.
According to market data from Dow Jones, the past two impeachments where market reaction can be tracked, including Trump’s own, haven’t resulted in major moves in equity prices. President-elect Joe Biden has also asked whether the Senate could “bifurcate” its schedule so the impeachment won’t forestall “getting my people nominated and confirmed in the Senate.” Major averages ended mostly higher on Wednesday, while stock index futures are pointing to a mixed session at the open: Dow +0.4%; S&P 500 +0.2%; Nasdaq -0.2%.
The charges: House Speaker Nancy Pelosi said President Trump “willfully made statements that, in context, encouraged – and foreseeable resulted in – lawless action at the Capitol, such as: ‘if you don’t fight like hell you’re not going to have a country anymore.'” Ten members of the GOP joined Democrats in the House vote.
Response: “It’s really a continuation of the greatest witch-hunt in the history of politics,” Trump told reporters. “For Nancy Pelosi and Chuck Schumer to continue on this path, I think it’s causing tremendous danger to our country and it’s causing tremendous anger. We want no violence. Never violence. We want absolutely no violence.”
Thought bubble: Forcing Trump to leave office might not be the most important aim, especially as he’s likely to depart the White House before a Senate trial begins (consensus among scholars is that a “late impeachment” is constitutional). Trump has indicated that he may run for president again in 2024, but if he was convicted by the required two-thirds supermajority in the Senate, the upper chamber could also vote to disqualify him from serving in future federal office via a simple majority.
Analysis: “Keep in mind, we’re heading into earnings season where expectations are high,” said Chris Larkin, Head of Brokerage Product at E-TRADE Financial. “Companies have proven they can drive revenue and growth with lower cost structures due to low borrowing costs, remote work and reduced travel, so traders are likely eyeing the numbers more closely than what’s happening in Washington.”
Big stimulus plans
All eyes are on the price tag of President-elect Joe Biden’s stimulus plan, which will be announced today and is expected to range in the trillions of dollars. Many elements of the package are expected to be drawn from the House Democrats’ Heroes Act, which passed in May, but was blocked by the GOP-controlled Senate. Among the features are a range of support for state and local authorities, a boost in direct payments to $2,000 and expanded unemployment benefits, along with funding for vaccine distribution, reopening schools, tax credits, rental relief and aid to small businesses.
The upcoming broadcast is sending Treasury yields higher, up 2 bps to 1.11% and near levels not seen since late March. Despite the trend, Biden recently highlighted that the current historically low level of interest rates will bolster both the short-term and long-term growth outlook, saying it would “reduce our national debt burden” and “if we don’t act now things are going to get much worse.”
Quote: “My priority is to get, first and foremost, a stimulus bill passed,” he announced earlier this week when asked about concerns that impeachment could delay a relief package. “I’ve been speaking with some of my Republican colleagues about being able to move on a second package sooner than later.”
Outlook: Failure to win congressional approval could slam equities, which climbed to record highs last week amid expectations of the increased spending. Chuck Schumer is set to be Majority Leader in the Senate with the barest possible control of the chamber (Vice President Kamala Harris would cast any tie-breaking votes). Possible holdups may also be seen from deficit-hawk Democrats from conservative states, such as West Virginia’s Joe Manchin and Montana’s Jon Tester.
What does it mean for the vaccine trade?
Echoing comments from some other public health officials, Moderna (NASDAQ:MRNA) CEO Stephane Bancel said COVID-19 is likely to become an endemic disease, meaning it’ll always be present in the population, but circulating at lower rates. “SARS-CoV-2 is not going away,” he told a panel discussion at the JPMorgan Healthcare Conference. “We are going to live with this virus, we think, forever.”
Infectious disease experts will always have to be on the lookout for new variants of COVID-19 so that vaccines can be produced to combat these, he added. While several new variants of the contagion have already been detected in the U.K., South Africa, Brazil and Japan, Bancel believes Moderna’s current jab will prove effective against the mutations. He also claimed that the shot, which recently received emergency use approval in the U.S. and elsewhere, is likely to provide immunity for at least one year.
Quote: “I’m not worried for the short term but we are watching that very closely because I think that we might be moving into a world where we need new strains of vaccine down the road – but not in the short term.”
Vaccine talk: On the corporate side of things, some companies are entertaining the idea of paying workers to get inoculated. Dollar General (NYSE:DG) has become the first retailer to give its workers a one-time payment equivalent to four hours of pay after receiving a COVID-19 vaccination, as well as “additional store labor hours to accommodate their time away from the store.”
Intel gets a makeover
Intel (NASDAQ:INTC) is bidding farewell to CEO Robert Swan, who has been at the helm for two years, as the semiconductor pioneer faces pressure from activist investor Daniel Loeb. He’ll be replaced in mid-February by Patrick Gelsinger, a former chip designer and 30-year Intel veteran who has led software maker VMware (NYSE:VMW) since 2012. News of the shakeup sent Intel shares up 7% on Wednesday and the stock is ahead another 2.3% in premarket trade.
Backdrop: Intel has been grappling with the loss of leadership in producing ultrafast chips. It has ceded much of its market share to Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung Electronics (OTC:SSNLF), whose factory innovations allow computer chips to do more at a lower cost. Those issues have prompted activist hedge fund Third Point to recently acquire a stake in Intel and press for big changes at the company. It even went as far as to say Intel’s problems could force the U.S. to rely more heavily “on a geopolitically unstable East Asia” to power vital technology like PCs and data center hardware.
Outlook: KeyBanc analyst Weston Twigg writes that while he expects Gelsinger to be a strong CEO, the Intel “he left is not the Intel that exists today, as the company has stumbled badly with its technology and execution over the last several years.” He expects the appointment will likely increase chances Intel will remain with internal manufacturing, “which is not necessarily the best path” and prefers to see Intel focus on outsourcing its CPU tiles.
Private business in China
One of the most powerful businessmen in the world is Jack Ma – the founder of the e-commerce colossus Alibaba (NYSE:BABA) – but he’s found himself at odds with the Chinese government. After he criticized Chinese-state owned banks last year, Beijing retaliated with an antitrust investigation into Alibaba and pulled the listing of Ant Group, set to be the world’s biggest IPO, in which Alibaba owns a one-third stake.
What does this mean for the future of private business in China? It really depends on the outcome. If it ends up similar to a U.S. or EU monopoly case, at the end of which the company being investigated pays a large fine, agrees to certain remedies and carries on, it may not be as big of a deal as everyone is thinking. On the other hand, if Alibaba, Ant and Jack Ma are forced to radically change as a result of the probe (i.e. broken up, important units sold off to state-owned firms), it could be a landmark moment in the Chinese Communist Party’s relationship with the private sector.
Where is Jack Ma? He hasn’t made any public appearances since Oct. 24, and while there are rumors that he’s gone missing, his friends say he’s laying low for the time being. It’s unusual for a man of his profile, but there are a lot of ongoing and delicate negotiations between the companies and regulators that he’s not in a position to discuss.
Investors are also starting to question whether Alibaba can pull off a sale of as much as $8B in offshore debt which was planned for as early as this week. That’s due to the uncertainty surrounding Ma, as well as the Trump administration’s possible ban on investments in Chinese securities, though recent reports suggest Alibaba, Baidu (BIDU) and Tencent (OTCPK:TCEHY) might be excluded from the DoD trading blacklist.
What else is happening…
Snapchat (NYSE:SNAP) will terminate President Trump’s account on Jan. 20.
Dorsey’s Trump ban explanation morphs into plug for Bitcoin.
Shopify (NYSE:SHOP) racks up a paper gain as Affirm (NASDAQ:AFRM) IPO skyrockets.
Petco Health and Wellness (WOOF) set for public trading debut.
Nordstrom (NYSE:JWN) tumbles as holiday sales plunge 22%.
Delta (NYSE:DAL) likely to post first annual loss in more than a decade.
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Import/Export Prices
9:00 Fed’s Rosengren: “Recover Boston: The Road Ahead – Economic Issues in 2021”
10:30 EIA Natural Gas Inventory
11:00 Fed’s Bostic Speech
12:30 PM Jerome Powell Speech
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday.
The Asian/Pacific markets closed mostly up. Japan, South Korea, Taiwan, Malaysia, Indonesia and
Thailand did well. Europe, Africa and the Middle East are currently little changed. The UAE, Greece and Hungary are up; Poland is down. Futures in the States point towards a positive open for the cash market.
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VIDEO: Is This the Best Trading Environment in 20 Years
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The dollar is up. Oil and copper are up. Gold is up; silver is flat. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Who won the trade war?
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” reads a (now suspended) tweet from President Trump from March 2019. While there are a whole lot of metrics to measure the objective, nearly three years into the battle with China, who’s up and who’s down in the relationship?
Before the dispute began, 23% of all American imports came from China, roughly as much as neighboring Canada and Mexico combined. U.S. goods trade deficit with China reached a record $419.2B in 2018, and while that shrunk to $345M the next year (roughly the same level as 2016), the overall trade deficit did not. Unilateral tariffs on China diverted trade flows to other countries, boosting U.S. imports from Vietnam, Malaysia, Taiwan and even Mexico.
Economists have also found Chinese exporters generally didn’t lower prices to keep their goods competitive, meaning tariff duties were mostly paid by U.S. companies and consumers, and for China, it mainly led to a loss in export value. Beijing also made an ambitious vow to import $172B worth of U.S. goods in specific categories in 2020, but through the end of November it had bought just 51% cent of that goal, in part due to the slump in energy prices and trouble with Boeing’s planes.
Moving jobs back home? Not really, but it’s hard to measure. U.S. direct investment into China increased slightly from $12.9B in 2016 to $13.3B in 2019, according to the Rhodium Group, and more than three quarters of 200+ U.S. manufacturers in and around Shanghai surveyed in September said they didn’t intend to move production out of China. While retaliatory actions have also weighed on U.S. farm purchases, Chinese companies did pay a record $7.9B in intellectual property payments to the U.S. in 2019, up from $6.6B in 2016, and its courts imposed some record-breaking fines on IP infringement.
Recent quote from China’s President Xi: “The world is undergoing profound changes unseen in a century, but time and the situation are in our favor… This is where our determination and confidence are coming from.”
Outlook: President-elect Biden will have to decide whether to keep up the trade war. In a recent interview, he said he would review the Phase One deal and wouldn’t remove the tariffs immediately, but the conflict is quickly escalating. Sanctions and export restrictions imposed on Chinese-owned companies seem to be leading to a big conflict over technology, while getting tougher with Beijing on human rights abuses in Xinjiang and concerns over Hong Kong will make for a difficult balancing act.
Anyone flying into the U.S. will soon need to show proof of a negative test for COVID-19, according to a new requirement from the CDC, which expands on a similar one announced late last month for passengers coming from the U.K. The new order takes effect from Jan. 26 to give airlines and travelers time to comply.
How will it work? U.S. citizens, as well as foreign travelers, will have to get a COVID-19 test within three days of their flight and provide written proof of the results to the airline. Passengers can also provide documentation that they had the infection in the past and recovered.
Quote: “Testing does not eliminate all risk,” announced CDC Director Robert R. Redfield. “But when combined with a period of staying at home and everyday precautions like wearing masks and social distancing, it can make travel safer, healthier, and more responsible by reducing spread on planes, in airports, and at destinations.”
COVID-19 is raging across the U.S., with another grim milestone seen Tuesday as the death toll hit a new daily record of nearly 4,500. So far more than 22M cases have been reported to date, including more than 375K deaths. A massive vaccination campaign started in mid-December is also running behind, with just 9.9M people having received the first of two injections of Pfizer and Moderna’s vaccine. That’s prompting some changes. Health and Human Services Secretary Alex Azar said yesterday the federal government is changing the way it allocates coronavirus vaccine doses, which will be based on how quickly states can administer shots and the size of their elderly population.
Sheldon Adelson, the multibillionaire casino mogul and Republican Party megadonor, passed away on Tuesday from complications related to cancer treatment, according to a statement from Las Vegas Sands (NYSE:LVS), where he was chairman and CEO.
Backdrop: Starting in the late 1980s, Adelson moved into the casino business, purchasing the Sands Hotel and Casino in Las Vegas for $128M. The deal would eventually launch Las Vegas Sands into a global resort brand, with a string of lucrative casinos in the Chinese gambling enclave of Macao. Adelson built the $1.5B Venetian in place of the Sands building in 1996, while Las Vegas Sands’ most recent construction was the Parisian Macao, a luxury hotel fitted with a half-scale copy of the Eiffel Tower.
Succession plan? The company already announced Rob Goldstein will become Chairman/CEO, which it expects will become permanent, but other impacts are being weighed out on Wall Street. “Over time, we would not be surprised to see a member of the Adelson family take over one of these roles, specifically with CFO Patrick Dumont a logical potential candidate,” wrote Morgan Stanley analyst Thomas Allen. “With regard to the stock, Mr. Adelson only directly owns ~9% of the company’s shares, with the majority of the family’s ~57% ownership either owned by his widow Dr. Miriam Adelson and in family trusts.”
Interesting fact: Las Vegas Sands is the largest gaming corporation in the world, employing more than 51,000 people worldwide, and is the only U.S.-based casino company to not lay off employees during the coronavirus pandemic.
Shares of Zoom (NASDAQ:ZM) quintupled in value last year as the stay-at-home trade saw investors dial up the video-calling service, but the stock has dropped considerably since peaking at $568.34 in mid-October. It’s off by 36% since then, when reports began surfacing that COVID-19 vaccines were highly effective and would be rushed to market. Zoom is still valued at over $100B, a level that software companies don’t typically reach until they have established multiple lines of business.
How is Zoom proving it isn’t a one trick pony? The company is already profitable and disclosed Tuesday that it has now sold 1M seats for its Zoom Phone service. The internet phone product replaces office telephone systems by allowing businesses to consolidate voice, video, conferencing and messaging communications on a single platform, and is a core part of the company’s larger unified platform (which includes Zoom Meetings, Zoom Chat, Zoom Rooms, and Zoom Video Webinars).
Signs also suggest Zoom is prepping for a serious expansion or acquisition. As of October, it had $730M of cash and equivalents (up from $283.1M in January), but that’s not stopping the company from raising more capital. It just priced a $1.75B offering of 5.1M shares, marking its first since going public in April 2019. A typical boilerplate explanation said the proceeds would be used for “general corporate purposes,” but “may also use a portion for acquisitions or strategic investments in complementary businesses, products, services or technologies.”
Outlook: In its latest earnings report in November, Zoom said that fiscal fourth quarter revenue growth will approach 330%. The figure already topped 350% in each of the last two quarters, but as the pandemic starts to fizzle amid a broader vaccine rollout, Zoom will have to contend with the likelihood that people will return to the office and plan accordingly.
Scrambling to deal with a sudden competitive threat to its messaging platform WhatsApp, Facebook (NASDAQ:FB) has released a statement clarifying the upcoming changes to its terms of service. The privacy concerns have already triggered users to turn to rivals in droves, according to data from Sensor Tower, with millions downloading apps like Signal and Telegram.
What will change with the latest updates? Facebook and WhatsApp will now be able to share certain payments and transactions data in order to boost advertising (think Facebook Shops). The changes also describe how merchants communicating with customers via WhatsApp can choose to store those chats in Facebook-hosted servers and use that data to inform their advertising on Facebook.
What won’t change? 1) WhatsApp cannot see private messages or hear calls, and neither can Facebook, 2) WhatsApp does not keep logs of who everyone is messaging or calling, 3) WhatsApp cannot see shared location and neither can Facebook, 4) WhatsApp does not share contacts with Facebook, 5) WhatsApp groups remain private, 6) WhatsApp messages can be set to disappear, 7) Users can download their WhatsApp data to see what information the company has on their account.
WhatsApp still shares a lot of information with Facebook, but that has been going on for years (since 2016 for most users, as well as those that didn’t opt out of a privacy policy update in 2014). That data includes account info like your phone number, logs of how long and how often you use WhatsApp, how you interact with other users, device identifiers, IP address, operating system, browser details, battery health, mobile network and your time zone.
Go deeper: When Facebook purchased WhatsApp for $19B in 2014, it noted that it and the company’s chat platform Messenger would operate as “standalone” products. The slow shift toward integration has been controversial internally, and may have contributed to the departures of WhatsApp cofounders Brian Acton and Jan Koum. A few months after leaving in late 2017, Acton co-founded the nonprofit Signal Foundation, whose encrypted messaging app Signal is becoming a rival to the initial company he founded.
What else is happening…
Latest from CES: General Motors (NYSE:GM) reveals flying Cadillac.
Tesla (NASDAQ:TSLA) drives into India with unit in Bengaluru.
Visa (NYSE:V) abandons Plaid takeover after DOJ antitrust concerns.
Doctor’s death after COVID-19 vaccine is being investigated – NYT.
Boeing (NYSE:BA) falls further behind Airbus (OTCPK:EADSY) in commercial plane deliveries.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Consumer Price Index
9:30 Fed’s Bullard: U.S. Economy and Monetary Policy
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 30-Year Note Auction
1:00 PM Fed’s Brainard: “The Economic Outlook and Full Employment”
2:00 PM Fed’s Harker: Economic Outlook
2:00 PM Treasury Budget
2:00 PM Fed’s Beige Book
3:00 PM Fed’s Clarida Speech
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Good morning. Happy Tuesday.
The Asian/Pacific markets were split. Japan and Hong Kong did well; South Korea and New Zealand were weak. Europe, Africa and the Middle East are currently mixed. Turkey, Finland, Norway and the Czech Republic are up; the UK, Denmark, Poland and Greece are down. Futures in the States point towards a flat open for the cash market.
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VIDEO: Is This the Best Trading Environment in 20 Years
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The dollar is flat. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Corporate America pulls political funding
Following in the footsteps of Marriott (NASDAQ:MAR), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C), a growing number of big businesses have decided to suspend or review their campaign donations in the wake of last week’s riot at the U.S. Capitol. The storming led to five deaths, including one police officer, prompting many C-suite executives to take action. There is widespread anger in the business community at what they see as a challenge against any disruption in the “peaceful transition of power,” or the democratic stability on which business depends.
Pausing all political spending: American Airlines (NASDAQ:AAL), Archer Daniels Midland (NYSE:ADM), BlackRock (NYSE:BLK), Boston Scientific (NYSE:BSX), BP (NYSE:BP), Charles Schwab (NYSE:SCHW), ConocoPhillips (NYSE:COP), Facebook (NASDAQ:FB), Google (GOOG, GOOGL), Kroger (NYSE:KR), Marathon Oil (NYSE:MRO), Microsoft (NASDAQ:MSFT), Union Pacific (NYSE:UNP), U.S. Bancorp (NYSE:USB) and UPS (NYSE:UPS).
Suspending donations to Republicans who objected to electoral votes: Airbnb (NASDAQ:ABNB), Amazon (NASDAQ:AMZN), American Express (NYSE:AXP), AT&T (NYSE:T), Comcast (NASDAQ:CMCSA), Dow Inc. (NYSE:DOW), General Electric (NYSE:GE), Mastercard (NYSE:MA) and Verizon (NYSE:VZ).
Some statistics: In the 2020 election, Republican candidates and committees received a total of $205M in campaign donations from corporate PACs, according to the Center for Responsive Politics, while Democratic candidates and causes received $155M.
Thought bubble: This is not the period in the political cycle when candidates are out raising money. Since most PACs donate closer to presidential and legislative votes, it’ll be interesting to see how much lasting pain Corporate America will inflict as the midterm elections approach in November 2022.
Next move for the market?
Equities took a breather on Monday following a rally that took major U.S. indexes to record highs, though the pullback does not seem to be lasting long, as futures look to start today’s session on the right foot. Dow +0.3%; S&P 500 +0.3%; Nasdaq +0.5%.
Quote: “This market refuses to traffic in everything that’s going wrong and instead focuses on what could go right,” Jim Cramer declared, adding that the positivity on Wall Street could also be seen in the way that numerous individual stocks exchanged hands.
Despite the Sriwijaya Air crash, Boeing (BA) shares finished well off their session lows after a Baird analyst in a new note called it a “top cyclical play on recovery,” while Tesla (TSLA) is up nearly 3% premarket after its first negative day in 12. Social media stocks also plunged Monday after banning President Trump from their platforms, but are all heading into the green this morning. The selloff in Bitcoin, which was down nearly 25% at one point, appears to have stabilized (for the time being), up 1% to the $36,000-level.
Outlook: Investors have largely ignored last week’s attack on the Capitol, Democrats’ move to impeach President Trump and countless headlines that have flashed “market bubble” warnings. Traders are also paying close attention to forecasts and corporate views of the economy as earnings season kicks off this week. Earnings for S&P 500 companies overall are expected to jump about 24% in 2021, according to data from Refinitiv, which includes strong rebounds for sectors like industrials, materials and financials.
The Social Dilemma
“Given the violent events in Washington, DC, and increased risk of harm, we began permanently suspending thousands of accounts that were primarily dedicated to sharing QAnon content on Friday afternoon,” Twitter (NYSE:TWTR) confirmed in a blog post. “We’ve been clear that we will take strong enforcement action on behavior that has the potential to lead to offline harm.”
Statistics: “Since Friday, more than 70,000 accounts have been suspended as a result of our efforts, with many instances of a single individual operating numerous accounts. These accounts were engaged in sharing harmful QAnon-associated content at scale and were primarily dedicated to the propagation of this conspiracy theory across the service.”
Citing its Coordinating Harm policy, Facebook (NASDAQ:FB) also announced it will remove content containing the phrase “stop the steal” from its services in the lead-up to President-elect Joe Biden’s inauguration on Jan. 20, but will allow “robust conversations related to the election outcome to continue.”
Sending a Signal
Cue the tweet from Elon Musk… Five days ago, the tech billionaire and avid Twitter (TWTR) user prompted his followers to “use Signal” – the encrypted messaging app that’s funded by a nonprofit and is seeing a surge in popularity. A recent policy change at WhatsApp saw the Facebook (FB) unit expand control over the user data it collects, while Signal has a history of fighting any entity that asks for information and adds features to further anonymize users where possible.
What happened? There was some confusion (and maybe a bit of stock gambling). Traders responded to Musk’s tweet by pushing up the price of Signal Advance (OTCPK:SIGL), a small component manufacturer whose stock trades over the counter and hasn’t filed an annual report with the SEC since 2019. Shares were trading at just $0.60 before the big tweet, but quickly climbed to $6.64 over Thursday and Friday. The stock shot up again yesterday to close at $38.70, resulting in a whopping 6,380% advance over the three trading sessions, as well as a market cap of more than $3B.
Flashback: A similar occurrence happened last year. The rising popularity of trendy video-calling service Zoom Video (NASDAQ:ZM) saw a sharp rise in the stock price of Zoom Technologies, which traded under “ZOOM.” The SEC later suspended trading of the wireless product distributor, partly because of the widespread confusion.
Fat-finger errors in the financial markets traditionally took place when an order to buy or sell was placed of far greater size than intended or other input errors. Traders may now be looking at similar style discrepancies when it comes to company names or ticker symbols.
Why don’t airlines live-stream black box data?
Days after Sriwijaya Air Flight SJ182 went down in the Java Sea, Indonesian Navy divers have recovered one of the black boxes from the Boeing (NYSE:BA) 737-500 airliner. As crash investigators await the second recording device, a common question is once again surfacing: Why don’t airlines stream their communications data?
Some history: Black boxes have been on planes since the late 1950s, and now every commercial aircraft has two: A flight data recorder that typically collects information like basic speed and altitude, and a cockpit voice recorder that captures sounds and conversations. They are housed in a metal shell built to withstand extreme temperatures and pressure, and although they are referred to as black boxes, they are typically orange in color, making them easier to spot in murky or deep waters. While each box contains a beacon, the unit has only enough battery power to transmit a “ping” for 30 days.
Still, in our big data and cloud storage era, when smartphones can receive real-time traffic updates and NASA can monitor rovers on Mars, why aren’t commercial airliners tracked in real-time or their black box data streamed back to the ground?
1) Reliable inflight internet is still only in a small geographic subset of the world and the sheer amount of data collected by flight recorders is immense, meaning satellite time and storage would be very expensive. While there are some black box streaming services, they generally don’t send data continuously to ground-based computers, but rather activate in the event of an abnormal occurrence, and quickly send a torrent of data to the airline for analysis.
2) It’s not easy to retrofit new equipment to old aircraft from Boeing, Airbus (OTCPK:EADSY) and others, which are designed to be extremely precise. The aviation sector is also an extremely “long-cycle” industry, where things change very slowly.
3) There’s no regulatory requirement mandating live black box data on new aircraft models, and any changes would be slow and complicated. The NTSB has been recommending the use of video recording in cockpits for the past two decades, but pilots’ unions have fought against the efforts due to privacy reasons. They have also balked at the idea of making their voice recordings available to anyone beyond accident investigators.
What else is happening…
Pandemic fallout… Carnival (NYSE:CCL) set to post $2.2B quarterly loss.
Walmart (NYSE:WMT) makes a fintech play with new startup.
Crypto marketplace Bakkt to go public via SPAC deal.
Ford (NYSE:F) to end manufacturing in Brazil, sees $4.1B in charges.
BofA says chip picks ready to take off: ‘Let’s get cyclical.’
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:55 Redbook Chain Store Sales
9:30 Fed’s Bostic: “Economic Recovery and Addressing Inequality”
9:35 Fed’s Brainard: “Artificial Intelligence and Financial Services”
10:00 Job Openings and Labor Turnover Survey
11:00 Fed’s Kaplan: “Racism and the Economy: Focus on Education”
11:00 Fed’s Bostic: “Racism and the Economy: Focus on Education”
12:00 PM Fed’s Mester Speech
1:00 PM Fed’s George Speech
1:00 PM Results of $38B, 10-Year Note Auction
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were split. Japan, Hong Kong, India, Taiwan and Indonesia did well; China, New Zealand, Australia and Malaysia were weak. Europe, Africa and the Middle East currently lean down. The UK, France, Germany, Greece, Finland, Norway, Italy and Portugal are down. Futures in the States point towards a big gap down open open for the cash market.
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VIDOE: Is This the Best Trading Environment in 20 Years
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The dollar is up. Oil and copper are down. Gold and silver are up. Bonds are flat. Bitcoin is down big.
Stories/News from Seeking Alpha…
Tech tunes in to CES 2021
The Consumer Electronics Show kicks off today, the big industry event for consumer technology companies that’s normally held in Las Vegas. The show is always full of dazzling displays and latest innovations, but it will take place virtually this year due to the coronavirus pandemic. While over 170,000 attendees interacted with more than 4,500 exhibitors in 2020, this year’s program will feature around 2,000 vendors. The cost is also low for exhibitors, with most paying $1,200 to display their wares and without the inflated rates of staying and setting up shop in Las Vegas.
What are organizers doing to recreate the experience? There’s going to be a big fight for attention in cyberspace, so CES has introduced a sort of avatar with which attendees can have a digital presence. They’ll be able to virtually walk around a room full of startups, where they can check-in to interactive portals referred to as “digital activations” (i.e. Webex-style conferences where they can quickly speak to people and see material). The show will also feature a wide variety of keynotes and roundtable talks, a mainstay of CES for decades.
Companies are going to be pitching a lot of tech to help people cope with pandemic life. Be on the lookout for high-tech masks, smart air purifiers and devices to make working from home easier, while home entertainment vendors will be pitching the latest TVs (QLED, MicroLED, 4K and 8K) to a public that is still stuck in the living room. There are also set to be a number of announcements from the EV space, blockchain and 5G arena.
Thought bubble: It’ll be interesting to see what lessons can be learned from this year’s conference that become applicable in a post-vaccine world over the next five to ten years. This could be the year CES makes demonstrable changes that have an impact on conferences to come.
Free speech, WhatsApp exodus, #TwitterPurge
The weekend began with Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Snapchat (NYSE:SNAP) permanently banning and silencing President Trump, but the actions quickly spread across the communication and tech space. The top app stores from Apple (NASDAQ:AAPL) and Google (GOOG, GOOGL), as well as Amazon’s (NASDAQ:AMZN) web hosting service, kicked out Parler, a “free speech” platform that has grown in popularity among conservatives and to which many banned users were expected to emigrate.
Why are the tech companies taking action now? The firms cited “risks of violence” and “repeated and severe violations” of their policies following the storming of Capitol Hill, which led to five deaths including one police officer. They might also be foreseeing scrutiny risks. If there was a follow-up to the violence, the social media companies could be held responsible by the incoming Biden administration.
Bigger picture: While the measures taken are legal – private firms aren’t subject to the First Amendment – they highlight more starkly than ever the companies’ influence over public speech and online conversation. Many of the Big Tech giants own the keys to the pipes and plumbing of the internet, and without those services, many users may be forced to find other providers that will see less interaction among a broad variety of views. That could force many users into like-minded echo chambers that could reinforce their own beliefs and further polarize the political landscape, but the alternative of no moderation can be just as scary.
Other happenings: Millions of users have jumped ship to Telegram and Signal in the past week, according to data analytics firm Sensor Tower, as WhatsApp told users they must share sensitive personal data with Facebook or have their accounts closed. Many on Twitter are also complaining of a #TwitterPurge that deleted scores of followers, though the company called it a routine audit, while Stripe stopped processing payments for the Trump campaign website and Shopify (SHOP) pulled Trump stores from its platform.
How many stimulus checks ended up in the stock market?
Direct payments have provided a financial lifeline to millions of Americans, but for others, they represent an opportunity to boost their savings. That is thanks to the $2.3T CARES Act and the latest $908B stimulus bill, which provided $1200 and $600 to all Americans making under $75,000 – regardless of their employment and financial situation.
In fact, securities trading was among the most common uses – across nearly every income bracket – for the government stimulus checks issued in May, according to software and data aggregation company Envestnet Yodlee. For many consumers, trading was the second or third most common use for the funds, behind only increasing savings and cash withdrawals. In fact, Americans that earned between $35,000 and $75,000 annually traded stocks about 90% more than the week prior to receiving their stimulus check.
Quote: “Where are the Robinhoodies going to invest their newfound wealth?” asked Mark Tepper, president and CEO of Strategic Wealth Partners. “Of course they’re going to buy a 10th of a share of Tesla (NASDAQ:TSLA). Of course they’re going to buy a sliver of Bitcoin (BTC-USD).”
The trend also illustrates how the fallout from the pandemic is dividing the U.S. economy. Claims for unemployment benefits averaged 1.45M a week last year, compared with about 220K in 2019, while at the same time the percentage of disposable income that households managed to stash away has increased, property prices have jumped and the stock market is soaring.
“I would rather support those that do not have a job. We don’t need the $1,200 check to everybody anymore because a lot of those people have now found work,” Kevin O’Leary, chairman of O’Shares ETFs and Shark Tank investor, said before the latest coronavirus aid package was passed by Congress. “I would prefer to have a transitional support unemployment for those that are leaving industries and sectors that are out of favor, like movie theaters, airlines, cruise ships and certain restaurants that are never going to come back.”
Bubble or buy the dip?
Nearly $170B was wiped off the cryptocurrency market in 24 hours as Bitcoin (BTC-USD) slumped as much as 20% to $34,130 after a huge rally and some profit-taking from investors. Other cryptocurrencies are selling off as well: Ripple (XRP-USD) -19.1%; Ethereum (ETH-USD) -17.2%; Bitcoin Cash (BCH-USD) -19.2%; Litecoin (LTC-USD) -20.5%.
Signs in Bitcoin’s technical chart point to a 25%-30% sell-off that’s likely to hit early in the new year, Miller Tabak chief market strategist Matt Maley told CNBC on Thursday.
Quote: “There’s no question it’s been a melt-up, and it could last a little bit longer. I think on a short-term basis it could continue a little bit longer, and I’m very bullish on it on a very long-term basis. But intermediate term, I’m a lot more concerned than I think a lot of other people. Part of the problem is the market’s excess liquidity… over the summer, the sideline money fueled the mega-cap tech rally, but now that those stocks have stabilized, it’s driving Bitcoin.”
Point of view: The same argument is taking place in high-flying shares and the equities market in general. “The Nasdaq from late 1998 to early 2000 went up over 200%. Now, we’re up almost 100%, and we may very well be on that same track,” long-time bull Edward Yardeni said Friday. “Everything I’m looking at points to a melt-up… it’s just part of the bull market in everything. It’s very important whether you’re in or not in bitcoin to just stare at the chart, and realize when it’s going straight up – it’s certainly a sign of exuberance, of speculative excess.”
U.S.-Sino tensions
The China crackdown seen on Wall Street is extending to the Far East, where Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) said they will delist 500 Hong Kong-listed structured products linked to China Mobile (NYSE:CHL), China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU), as well as local indexes including the Hang Seng Index. Last week, the Office of Foreign Assets Control clarified a November order from President Trump that banned Americans from investing in Chinese companies that the U.S. considers to have links with China’s military.
Global index providers MSCI (NYSE:MSCI), FTSE Russell and S&P Dow Jones Indices (NYSE:SPGI) already said they would also cut the three Chinese telco giants from benchmarks, wiping a combined $5.6B off the value of their Hong Kong-traded shares on Friday. After some flip-flopping, the New York Stock Exchange (NYSE:ICE) also announced it would delist the three firms’ U.S.-traded American Depositary Receipts starting today.
What happens if you own a share of a Chinese company that gets delisted? Removal of a stock from a major exchange doesn’t mean investors can’t trade it, but it comes with greater risk. Shares go “over-the-counter,” meaning they’re outside the system of major financial institutions and cannot guarantee sellers will quickly find a buyer without losing money.
Outlook: It’s still unclear how President-elect Joe Biden will handle financial flows and relations with China. A trade war commenced by President Trump just over two years ago has spilled into tech and finance, and last month he signed a law that would kick Chinese companies off American exchanges if they have failed to comply with the U.S. Public Accounting Oversight Board’s audits for three years in a row.
What else is happening…
Corporate America reconsiders political funding after storming of U.S. Capitol.
State Street (NYSE:STT) demands companies report diversity of boards – FT.
ARK Investment’s Wood will talk markets in big week for biotech.
Sriwijaya Air crash: Safety problems or another crisis for Boeing (NYSE:BA)?
U.S. urged to ramp up genome sequencing to detect new COVID variants.
Today’s Economic Calendar
12:00 PM Fed’s Bostic: Economic Outlook
1:00 PM Results of $58B, 3-Year Note Auction
6:00 PM Fed’s Kaplan Speech
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