Good morning. Happy Friday.
The Asian/Pacific markets were split but mostly unchanged. India was strong; Japan and Malaysia were weak. Europe, Africa and the Middle East are split a little changed. Denmark and Turkey are up; The UAE, Finland and Switzerland are down. Futures in the States point towards a slight up open for the cash market.
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My interview with WorldClassPerformer.com
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The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Blowout payrolls
Another stellar non-farm payrolls report is likely on tap this morning, with the Labor Department set to release numbers for April at 8:30 a.m. ET. Non-farm payrolls are forecast to have increased by 978,000 in April, following a 916,000 jump in March, which marked the largest increase since last August. The unemployment rate is meanwhile expected to have slipped slightly to 5.8%, from 6% last month, driven by re-opening activity, a broad vaccine rollout and financial help from the federal government.
Some are even more optimistic: A snapshot of the restaurants and bar industry over the past two months is “reminiscent” of May and June 2020 when leisure and hospitality employment led the way to record readings, said Aneta Markowska, chief economist at Jefferies. “Other COVID-sensitive sectors, e.g. retail, health and personal services, are likely to enjoy significant increases as well given the easing of distancing restrictions in many states. Net, our bottom-up estimates put total hiring at 2.1M.” Nomura chief economist Lewis Alexander is also forecasting a “monster U.S. payroll number” today, due to a recovery in some of the industries hit hardest by the pandemic.
Given inflated prices, supply concerns and logistical logjams, the main economic concern right now is, ironically, enough workers to keep up with rising demand. “We know per recent qualitative data that companies are starved for employees at the moment. We can see that in both ISM reports (manufacturing and services) as well as in the Fed’s Beige Book,” wrote economists at RBC Capital Markets. “Moreover, we know that continuing claims (not-seasonally adjusted) made a sizable improvement when measured between the payroll survey weeks, and that underpins our forecast.”
Worries remain: “A big segment of the workers are still concerned about the pandemic. We estimate roughly 1.6M workers want a job but didn’t look for a job recently because they were still concerned about contracting the virus, or other factors around the pandemic,” added Bank of America U.S. economist Joe Song. “On top of that, you had some workers citing that childcare was still a big factor for their decision not to participate in the labor market.” As of last month, the economy was 8.4M payrolls short of pre-pandemic levels, but if economists’ estimate for April hiring proves accurate, the U.S. will be 1M jobs closer to a full economic recovery.
Financial Stability Report
The Federal Reserve painted a generally sunny picture of the financial system in its latest semi-annual Financial Stability Report, but cited particular examples that may warrant further attention. Some asset prices “may be vulnerable to significant declines should risk appetite fall,” the central bank cautioned, saying that “episodes of high trading volumes and price volatility for so-called meme stocks” were among signs pointing to “elevated risk appetite in equity markets.” Hedge funds were also singled out over their slightly higher-than-normal leverage, as well as their available data that “may not capture important risks” (e.g. the collapse of Archegos Capital Management).
Quote: “Vulnerabilities associated with elevated risk appetite are rising,” added Fed Governor Lael Brainard in an accompanying statement. “Stock prices are high compared with earnings, and the appetite for risk has increased broadly, as the ‘meme stock’ episode demonstrated.” Fed Chairman Jerome Powell also described parts of the market as “a bit frothy” last week. “I won’t say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy.”
Nevertheless, other parts of the financial system appear resilient. Banks remain well-capitalized and household debt is manageable, according to the report, while leverage is low among broker-dealers and businesses are better able to service their obligations as interest rates remain low and earnings recover. The COVID-19 pandemic meanwhile remains one of the biggest near-term risks to the stability of the global financial system, per the assessment, “despite substantial progress with vaccinations.”
Go deeper: Many investors argue that high stock valuations aren’t a problem as long as interest rates stay low and corporations continue to report strong profit growth. In fact, much of the money made in the stock market in recent memory has been from companies whose shares have elevated price/earnings ratios. The current bullish sentiment has been reflected in expectations of a rapid economic rebound from the pandemic, as well as promises by the Fed to keep rates near zero through 2023 (and $120B in asset purchases per month). Next up may be a boxing match between markets and central bankers over whether those commitments can stay intact as inflation pushes higher.
Peloton damage control
It’s been a whirlwind week for Peloton (NASDAQ:PTON) and its investors. The company sells high-end exercise bikes and treadmills (think thousands of dollars) that are touted for their library of workouts and access to live classes. Things for the company really took off during the pandemic as consumers sought the convenience of at-home and on-demand workouts, sending shares of the company up 434% in 2020.
Trouble hits: Back in March, Peloton CEO John Foley disclosed that a child had died in an accident involving one of its treadmills, but challenged any recall request, saying “children, pets, and objects need to be kept away from the Tread+ at all times.” That didn’t last long. The U.S. Consumer Product Safety Commission subsequently issued a warning for the device, citing 39 incidents and “serious risks to children for abrasions, fractures and death.” Since the notice on April 19, PTON shares tumbled about 22% to $83, and plunged even further on Wednesday after company decided to take action.
Recall: As part of the agreement with the CPSC, Foley acknowledged Peloton made a mistake when Peloton initially refuted the regulator’s claims. While the recall will knock $165M off FQ4 revenues, the company has still forecast quarterly sales of $915M and an annual total of $4B (not far off previous annual guidance for $4.08B in sales). “We’re going to take some short-term financial pain to be able to invest in building something that will last for decades,” Foley added on yesterday’s earnings call.
Speaking of earnings… Investors turned positive on them – after the stock initially plunged – by looking past a quarterly loss and the recall. Revenues more than doubled from a year ago to $1.26B, while connected fitness subscriptions jumped 135% Y/Y to 2.08M and paid digital subscriptions soared 404% to 891K, both exceeding analyst consensus estimates. Peloton also said delivery times for its original exercise bike have returned to pre-COVID-19 levels and “we see significant growth opportunities in a broad range of international markets.” In premarket action, Peloton shares are up 7% to retake the $90 level.
#PlantBased
There are battles being waged in the plant-based theater, driven by a shift in consumer appetite toward environmentally friendly products. However, dairy and meat plant-based items aren’t the only alternative protein rage. Lab-grown meat, as well as fermentation startups, are still in the early stages, and some have been hit store shelves as they look to ramp up production.
Earlier this week, Tyson Foods (NYSE:TSN) made a second attempt at penetrating the market by expanding its Raised & Rooted brand. It had launched the product line back in 2019, offering “blended” animal meat and plant-based substitutes, but the product receives a lackluster response from consumers. Now, the American meat giant is revamping the range, launching three new completely vegan-friendly products: 100% plant-based burgers, sausages and ground beef. Some tensions have surrounded Tyson’s foray into plant-based production and the company sold its stake in Beyond Meat (NASDAQ:BYND) ahead of the industry leader’s IPO in 2019.
That’s not all: The world’s biggest meat processor, JBS (OTCQX:JBSAY), recently agreed to acquire Dutch meatless brand Vivera for €341M, with analysts cheering the company’s move into the sector. JBS “is back in M&A mode,” BTG Pactual wrote in a note, while Ernst & Young warned that “substantial disruption” will ensue for meat giants that fail to “consider a more diverse portfolio.” Back in March, Israeli startup MeaTech (NASDAQ:MITC) also became the first lab-grown meat company listed on Wall Street, while Singapore became first country to approve lab-grown meat in December.
Don’t forget about dairy: Nestle (OTCPK:NSRGY) is taking on Danone’s (OTCQX:DANOY) Alpro and plant-based milk brand Oatly (OTLY), which filed for an IPO several weeks ago and is backed by TV personality Oprah Winfrey. Nestle’s pea-based milk alternative, called Wunda, will be available in European markets in the coming weeks, and an expansion into other dairy-free products like yogurt could follow. Does it taste like peas? Far from it, says the company, describing the milk as having a “great neutral taste” that can be “drunk straight, poured over cereal, used in hot beverages or cooking, and much more.”
What else is happening…
Dogecoin (DOGE-USD) on watch as Elon Musk hosts Saturday Night Live.
Germany’s Merkel opposed to lifting IP protections on vaccines.
Norwegian (NYSE:NCLH) ships are unlikely to sail this summer.
Jeff Bezos sold $2B worth of Amazon (NASDAQ:AMZN) shares this week.
The New York Times (NYSE:NYT) has a new suitor: The Athletic.
Herbalife (NYSE:HLF) holder Carl Icahn is said to sell last of his position.
Teladoc (NYSE:TDOC) falls after Walmart (NYSE:WMT) buys telehealth provider MeMD.
Jessica Alba’s Honest Company (NASDAQ:HNST) pares post-IPO pop.
Thursday’s Key Earnings
AMC (NYSE:AMC) +2.7% AH seeing a favorable environment for movie-going.
Beyond Meat (NASDAQ:BYND) -7% AH weighed down by lockdown pressures.
Dropbox (NASDAQ:DBX) +2.2% AH posting a set of Q1 beats.
Energy Transfer (NYSE:ET) +5% gaining sharply from Texas freeze.
Expedia (NASDAQ:EXPE) +4.8% AH with travel demand ‘roaring back.’
Kellogg (NYSE:K) +7.1% on earnings beat, raising FY2021 outlook.
Moderna (NASDAQ:MRNA) -1.4% with U.S. backing a waiver for vaccine protections.
Peloton (PTON) +5.6% AH predicting only short-term effects from recall.
(NASDAQ:REGN) +3.4% with double-digit top and bottom-line growth.
Roku (NASDAQ:ROKU) +9% doubling gross profits.
Shake Shack (NYSE:SHAK) -7.9% AH on a set of mixed results.
(NYSE:SQ) +2% AH with Seller GPV up 144% in April.
ViacomCBS (NASDAQ:VIAC) -2.4% despite ad and subscriber strength.
Today’s Economic Calendar
8:30 Non-farm payrolls
9:00 Fed’s Barkin Speech
10:00 Wholesale Inventories (Preliminary)
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned to the upside. Japan, Hong Kong, South Korea, India, Taiwan, Singapore and Thailand did well; China, New Zealand and Australia were weak. Europe, Africa and the Middle East are currently split. Poland, Turkey, the UAE, Greece and Hungary are up; Denmark, Finland, Norway, Portugal and Sweden are down. Futures in the States point towards a flat open for the cash market.
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BLOG: Comparing the NYSE and Nasdaq Internals
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The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up slightly. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Vaccine chatter
Stocks of COVID-19 vaccine developers are trending lower after U.S. Trade Representative Katherine Tai announced support for a waiver of intellectual property protections. “We are for the waiver at the WTO, we are for what the proponents of the waiver are trying to accomplish, which is better access, more manufacturing capability, more shots in arms,” she said during an interview. Pfizer (PFE) is off 3.1% premarket on the news, BioNTech (BNTX) declined 4.3% (following a 3.4% drop in the previous session), while Moderna (MRNA) fell another 2.4% (after tumbling 6.2% on Wednesday).
Bigger picture: At the World Trade Organization, the Biden administration will engage in negotiations for the text of the waiver and push for support from other countries. Regarding the timeline of an outcome, “I am the first one to admit that what we are leaning into is a process that is not going to be easy,” Tai noted, saying the WTO is a member-driven organization that takes decisions based on consensus. The U.S. Chamber of Commerce is opposing the decision, along with others in the business community, stating, “it will take us off track in the ongoing and successful efforts to license and scale global production of vaccines that individuals can be confident are safe and effective.” We mentioned both sides of the argument earlier this week, but they are included again below for reference.
The case against an IP suspension: A number of large pharma companies, including vaccine developers Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NASDAQ:AZN), say waiving IP rights wouldn’t solve supply problems in the short term because contract producers lack familiarity with the new technology behind the shots (which isn’t shielded by patents). Obstacles to scaling up production also include the need to train technicians, source scarce ingredients and sensitive biological components. Quality checks are another concern, with a limited number of manufacturers capable of large-scale vaccine production.
The case for a suspension: Proponents of the waiver proposal say there are more than a dozen drugmakers in developing countries that could be equipped to produce the shots and have passed quality checks by the WHO and the FDA. It would allow the nations to make their own copies of the vaccines without fear of being sued for IP infringements. The U.S. government owns patents related to the vaccines because some of the technology behind the shots were developed at American government labs.
Cue the incentives
States and cities are now targeting Americans who might be reluctant to get a coronavirus vaccine as demand for the jabs slows across the nation. The U.S. is now averaging about 2.3M shots per day, which is down 32% from the peak last month, according to the CDC. Some public health experts are even concerned that the decline may jeopardize the ability for the U.S. to reach “herd immunity,” leading many localities to increase incentives for residents that take the jab.
On the table: Maryland is offering $100 to state employees that get fully vaccinated, Detroit is giving out $50 prepaid debit cards to anyone who drives a resident to a vaccine site, and in New Jersey, anyone over the age of 21 can take their vaccination card to a participating brewery for a free beer. Connecticut has a similar program, in which residents who have received at least one vaccine dose can get a free beverage at participating restaurants in the state.
That’s not all. Looking to boost West Virginia’s vaccination drive, Gov. Jim Justice announced last week that the state would give $100 savings bonds to 16- to 35-year-olds who get a vaccine. Harris County, the Texas county that houses Houston, also just approved $250,000 to be used for gift cards and events, though some are saying the incentives do not put the U.S. in a positive light compared to the rest of the world. “When people are clamoring for vaccines in India and in Brazil, it just makes us look like a nation of sulky adolescents,” said Dr. Peter Hotez, dean for the National School of Tropical Medicine at the Baylor College of Medicine. “So if it’s absolutely necessary, sure, although it’s tough to swallow.”
Private businesses are also involved: Krispy Kreme is giving away free doughnuts to anyone who presents a vaccination certificate, while Budweiser (NYSE:BUD) is offering a debit card that can be redeemed for a free beer. There’s even a marijuana dispensary in Michigan, called Greenhouse of Walled Lake, that has been giving out free joints to vaccinated individuals, and recently extended the “pot for shots” program until the end of May.
Where do we go from here?
U.S. stock index futures inched up overnight, but not by much, as traders await the latest weekly update on the number of Americans applying for jobless benefits. A report from the Labor Department will likely show initial claims fell to 540,000, from 553,000 in the previous week, suggesting the numbers are still trending downward. It would also mark a fresh pandemic low given the pick-up in economic activity.
Snapshot: Unemployment is still a problem. More than 16.5M Americans were receiving jobless benefits as of mid-April, including more than 12M Americans on the federal Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs. Last month’s non-farm payrolls report also showed the U.S. economy is more than 8M jobs short of its pre-pandemic levels, but a fresh NFP figure will be published tomorrow.
On the earnings calendar, investors will get Q1 results this morning from Moderna (MRNA), Regeneron (REGN), Kellogg (K) and ViacomCBS (VIAC). After the bell, reports will be released by AMC (AMC), Dropbox (DBX), Expedia (EXPE), Square (SQ), Roku (ROKU), Beyond Meat (BYND) and Shake Shack (SHAK). Traders are also looking for signs that crypto craze may be cooling – Dogecoin (DOGE-USD) fell 12% overnight to $0.60 – though tokens elsewhere may be benefiting from the decline, like Bitcoin (BTC-USD), which rebounded 4% to the $57,000 level.
Other happenings: Many are paying attention to the divergence between value and growth stocks, with the Dow notching another record on Wednesday and Cathie Wood’s ARK Innovation ETF (ARKK) off almost 30% from its peak seen in February. “High valuations don’t do well when you see better GDP growth, a little bit more inflation,” said Stephanie Link, chief investment strategist at Hightower, while CNBC’s Jim Cramer recommended to resist the urge to sell following the recent tech selloff. “They’re currently out of favor in the Wall Street fashion show. I’m telling you it’s temporary. You have to resist the urge to believe that ‘FAANG’ is finished and dump it on the obituary chatter.”
Supply chain vulnerabilities
Risks of rising prices are intensifying across the economy as a growing number of companies warn that supply shortages and logjams will compel them to raise prices. In fact, tight inventories have seen prices surge for raw materials, ranging from semiconductors and steel to lumber (LB1:COM) and cotton (CT1:COM). Manufacturers are scrambling to replenish stockpiles to keep up with accelerating demand as eager shoppers take out their stimulus-filled wallets following a broad vaccine rollout.
Thought bubble: As commodities and materials become more expensive, the bigger question at the table is whether faster inflation sticks around. Putting it in perspective, a sheet of 3/4″ plywood at Home Depot (HD) is now selling for around $60 (depends on location), up from about $30 before the pandemic – that’s a 100% increase. Investors and policymakers alike are hoping that the price hikes prove transitory, though it’s still too early to predict the future, and Treasury Secretary Janet Yellen even made waves this week by suggesting tools that could combat an overheating economy.
“Straight price increases will continue to be an important element as we look at the back half of the year,” Colgate-Palmolive (CL) CEO Noel Wallace told investors after the company’s Q1 results. “I anticipate that you’ll see more price increases across the sector, given the headwinds that everyone has faced in this space.” Many other companies have also warned of price increases and supply chain disruptions on their earnings calls, including Apple (AAPL), Coca-Cola (KO), Proctor & Gamble (PG) and Kimberly-Clark (KMB).
The economic angle: Longer lead times and orders booked far in advance could result in a robust demand floor that could encourage companies to invest in ramping up production and capacity. That would be great for economies coming out of the pandemic, but the opposite could also happen, in which volatility and uncertainty destroy demand as prices become too high for consumers. The phenomenon, called the “bullwhip effect,” could end up damaging the economy in the short-term, with violent swings in a range of goods.
Trump suspension upheld at Facebook
Marking the most momentous decision of the body’s short existence, Facebook’s (NASDAQ:FB) Oversight Board has decided not to permit former President Donald Trump back on the social media network. However, the group did ding the company for inconsistent application of its rules and directed that it revisit and clarify the nature of the ban.
Backdrop: Facebook created the Oversight Board to insulate itself somewhat from what were becoming thorny decisions about content regulation on a network of billions of individuals and groups – and during a time when the president’s controversial posts became one of the most significant social issues of the Internet era. In what became an indefinite suspension, Facebook stopped Trump from posting to 35M followers after the storming of the US Capitol on Jan. 6, the day Congress counted electoral votes for the presidency. That came alongside bans of Trump on Twitter (TWTR), YouTube (GOOG, GOOGL), Snapchat (SNAP), Twitch (AMZN) and other platforms.
“Trump’s posts during the Capitol riot severely violated Facebook’s rules and encouraged and legitimized violence,” according to the Oversight Board. “The Board also found Facebook violated its own rules by imposing a suspension that was ‘indefinite.’” Within six months, the company must review the matter and “decide a new penalty that reflects its rules, the severity of the violation, and prospect of future harm.”
Go deeper: The latest decision doesn’t just have political implications for Facebook; reinstating Trump would have provided a tough-to-match engagement boost. For his part, Trump has frequently criticized social media companies’ power, saying they suppress conservative views. He has also denied claims he incited people to engage in destructive behavior at the Capitol and previously sought to revoke Section 230 of the Communications Decency Act during his time in office.
What else is happening…
SpaceX (SPACE) successfully lands Starship for the first time.
Blue Origin (BORGN) to auction off seat for first space tourism flight.
Under scrutiny in China, Tesla (NASDAQ:TSLA) increases data transparency.
Peloton (NASDAQ:PTON) stumbles after agreeing to a treadmill recall.
WhatsApp (NASDAQ:FB) launches peer-to-peer payments in Brazil.
Fox (FOXA) to acquire Outkick Media, led by Clay Travis.
Unilever (UL) shareholders back aggressive emissions reduction plan.
Positive initial data for Moderna’s (NASDAQ:MRNA) COVID-19 booster shots.
Square Online (NYSE:SQ) expands to offer on-demand alcohol delivery.
Google (GOOG, GOOGL) to allow more relocations and remote work.
Fed remains the biggest risk to U.S. economic growth – TS Lombard.
Wednesday’s Key Earnings
Barrick Gold (NYSE:GOLD) +1.1% defending focus on reinvestment.
Booking (NASDAQ:BKNG) unchanged AH following mixed results.
Emerson Electric (NYSE:EMR) -0.2% despite lifting guidance above consensus.
Etsy (NASDAQ:ETSY) -9.9% AH forecasting slower growth ahead.
Fastly (NYSE:FSLY) -17.5% AH on downside guidance, CFO transition.
General Motors (NYSE:GM) +4.1% giving confident outlook despite chip shortage.
New Residential (NYSE:NRZ) -0.9% missing earnings estimates.
PayPal (NASDAQ:PYPL) +4.7% AH boosting 2021 EPS growth rate.
Rocket Companies (NYSE:RKT) -13.2% AH slipping from strong Q4 levels.
Sunrun (NASDAQ:RUN) +4.1% AH trimming quarterly loss, raising guidance.
Twilio (NYSE:TWLO) -5.6% AH posting mixed Q2 outlook.
Uber (NYSE:UBER) -4.8% AH turning around after record gross bookings.
Zynga (NASDAQ:ZNGA) +5.2% AH topping estimates for bookings and users.
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:00 Fed’s Williams Speech
10:00 Fed’s Kaplan Speech
10:30 EIA Natural Gas Inventory
1:00 PM Fed’s Bostic Speech
1:00 PM Fed’s Mester Speech
4:30 PM Fed Balance Sheet
6:05 PM Fed’s Kaplan Speech
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Good morning. Happy Wednesday.
The Asian/Pacific markets are mostly down. South Korea and India are up, but Hong Kong, New Zealand, Taiwan, Malaysia, Singapore, Thailand and the Philippines were weak. Europe, Africa and the Middle East are posting solid gains. The UK, Denmark, Poland, France, Germany, Russia, South Africa, Finland, Switzerland, Spain, the Netherlands, Italy, Austria and Sweden are up more than 1%. Futures in the States point towards a moderate gap up open for the cash market.
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Online Course: Masterclass in Trading
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The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is unchnaged.
Stories/News from Seeking Alpha…
Who let the Doge out?
Another crypto craze is taking the market by the storm as a parabolic rally for altcoins (cryptos other than bitcoin) took the value of all digital tokens past $2.3T. Dogecoin (DOGE-USD), a crypto that started as a joke, is now changing hands at 68 cents, up about 63% in the past 24 hours, 131% over the past week, and over 11,000% so far in 2021. Dash (DASH-USD) also spiked 35% over the last 24 hours and Ethereum Classic (ETC-USD) rose almost 50%, helping crash crypto trading on Robinhood’s popular trading app, while Force DAO and Tierion (TNT-USD) surged more than 1,000%.
What’s happening? Some are pointing to Elon Musk’s upcoming SNL appearance as the “Dogefather,” as well as the future of DeFi and other crypto trends, but one of the more immediate catalysts appears to be a change in trading sentiment. Once upon a time, investors had talked about the time value of money and the advantages of compounding, but who’s looking for 10% a year, when one could make 50% or more per day? That kind of attitude, while risky, has been increasingly adopted by a new generation of traders, while institutions can take advantage of the price moves by easily entering and exiting positions.
The fact that “HODLing” is even a term in the cryptosphere, where investors buy and hold their positions regardless of price, has put a certain support under the industry that possibly cannot be rivaled in any other asset class. Throngs of new traders are also piling into the crypto arena, even with small positions, due to FOMO or “just in case” digital assets do eventually go mainstream. Enthusiasm is meanwhile building across social media, where the Winklevoss twins said the Gemini crypto exchange would now support Doge. “Yes, it’s a meme coin, but all money is a meme!” Cameron wrote on Twitter.
Outlook: While some see this as a mere opportunity to get in on the action, bigger believers say the current rally is a breakthrough moment that will provide cover against a future dollar devaluation. Others see the entire system as a kind of pyramid scheme, but even among the biggest backers of crypto, some see the current altcoin rally as unsustainable. Famed investor Mike Novogratz said recently he’d be “very, very worried” were one of his friends to invest in Doge, but thinks crypto returns “will beat the crap out of stocks, but not forever.” “They will hit an equilibrium, there’s no free lunch in the world,” he added. “Right now, it feels like there’s a free lunch because the government’s losing everything.”
Yellin’ about Yellen
“It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat,” Treasury Secretary Janet Yellen said on Tuesday, triggering a selloff in the tech sector which depends on low rates for its growth and expansion. The Nasdaq closed 2% lower on the news, before a correction was issued by the press office. “Let me be clear, it’s not something I’m predicting or recommending,” Yellen later explained at a WSJ event.
Following the less-than-earth-shattering comments, many were quick to highlight the clarification, while others pointed out that the real decision-making lies with Jerome Powell and Co. The Fed Chair has previously insisted that he’s “not even thinking about thinking about higher rates” until the labor market recovers from last year’s economic downturn. “Think of the comments coming from Yellen the Economist rather than containing any policy guidance,” added Mohamed El-Erian, chief economic adviser at Allianz. Sentiment today has shifted in favor of that outlook, with Nasdaq futures up 0.6%, following by a 0.4% gain for the S&P 500 and 0.3% advance for the DJIA.
Thought bubble: What’s wrong with an overheated economy? The bustling economic activity and increase in consumer wealth generally lead to high levels of inflation, asset bubbles and external economic shocks. The sharp rise in costs could also result in inefficient allocations as suppliers overproduce and create excess production capacity. When things slow down, a recession can hit, and central banks may attempt to raise interest rates before then to lower the amount of spending and borrowing in the economy.
More raw material… Yellen’s remarks came as commodity prices, a leading indicator of inflation, continue to rip higher. WTI crude oil prices are up more than 17% over the past quarter and have soared nearly 12% in the last month. Some commodities like copper and corn have even jumped to their highest levels in almost a decade as major economies rebound from the pandemic. Is this the start of a supercycle given recent inflation trends, or will commodity prices retreat as shortages and logjams are smoothed out along the supply chain?
End of an era for open outcry
Cue the scenes from Trading Places… CME Group (NASDAQ:CME) is permanently closing most of its open-outcry pits in Chicago, including trading of agricultural commodities like soybeans, wheat, cattle and hogs, as well as the trading of options on the S&P 500. In fact, the only part of CME’s trading floor that will remain open is its Eurodollar options pit (the interest-rate contracts still represent one of the exchange’s largest marketplaces). While many of the CME’s pits were already replaced by electronic trading, the remaining ones were temporarily closed in March 2020 to prevent the spread of COVID-19.
Quote: “I guess I am not surprised,” explained Dan Huber, an independent broker who spent 31 years on the trading floor. “Sad to see it end this way but we will all turn the page and move on. It was a good run.”
Some history: Options pits and floor trading for agricultural commodities stretch back 173 years in Chicago. They’ve long been part of the heritage of CME Group, which took its name from the Chicago Mercantile Exchange, now one of the company’s subsidiaries. With many exchanges adopting automated systems in the 1980s, floor trading was gradually replaced with telephone trading, and by the 1990s, those systems began to be replaced with computerized networks and electronic platforms. Most floor traders were replaced by the 2000s, and by 2015, open outcry had fallen to just 1% of CME’s total volumes.
If you still want to get a look at open outcry showmanship, there are some venues still available. Those include the New York Stock Exchange’s (NYSE:ICE) trading floor in Manhattan, and several options floors at Cboe Global Markets (NYSE:CBOE) – CME’s rival in Chicago. Across the pond, the London Metal Exchange is considering permanently closing its red sofa trading ring, which is the last open outcry floor left in Europe.
Forget about broadband
SpaceX (SPACE) has so far received more than 500,000 orders for its satellite internet service, which is designed to beam high-speed internet to consumers anywhere on the planet. The news came during the webcast of its 26th Starlink mission, which launched another 60 Starlink (STRLK) satellites into orbit. “Only limitation is high density of users in urban areas. Most likely, all of the initial 500k will receive service,” Elon Musk wrote on Twitter. “More of a challenge when we get into the several million user range.”
Backdrop: Starting in October, SpaceX began a public beta program for Starlink, with service priced at $99 a month. That’s in addition to a $499 upfront cost to order the Starlink Kit, which includes a user terminal and Wi-Fi router to connect to the satellites. While the company formally began accepting $99 preorders for Starlink in early February, SpaceX emphasized that the preorders are “fully refundable” since “placing a deposit does not guarantee service.” At the time, the company also disclosed that Starlink had “over 10,000 users in the United States and abroad.”
Race for global internet coverage: Facebook (FB) abandoned plans for Aquila in 2018, which aimed to deliver service via solar-powered drones, while Alphabet (GOOG, GOOGL) pulled the pin on Project Loon in January, a decade-old venture that planned to beam internet to Earth via giant balloons. The backdrop is prompting companies to increasingly look to space to blanket the globe in connectivity, allowing them to reach the other half of the world’s population that doesn’t have Internet. Those projects face steeper initial costs and take longer to deploy, but they might provide more consistency with longer lifetimes.
While Amazon’s (NASDAQ:AMZN) Project Kuiper and Facebook’s Athena are still mostly on paper, SpaceX has now launched more than 1,500 internet satellites of its planned Starlink fleet into low earth orbit. “Once we can predict cash flow reasonably well, Starlink will IPO,” Elon Musk wrote in a tweet on Feb. 9. He has also suggested that retail investors will get “top priority” in the coming offering.
What else is happening…
“Flippening” chatter is gaining steam in the crypto world.
JPMorgan’s (NYSE:JPM) Dimon is fed up with Zoom calls and remote work.
Full approval for Pfizer’s (NYSE:PFE) vaccine could come by end of May.
Jessica Alba’s Honest Company (HNST) prices IPO at $16 a share.
Virgin Galactic (NYSE:SPCE) gains as rival prices flights at $500K per seat.
Facebook (NASDAQ:FB) oversight board to announce decision on Trump ban.
Climate activists bombard BlackRock (NYSE:BLK) to move against Exxon (NYSE:XOM).
GE (GE) shareholders disapprove CEO Larry Culp’s pay plan.
Equinox in talks to go public via a Social Capital SPAC (NYSE:IPOF).
Krispy Kreme files confidentially for initial public offering.
Tuesday’s Key Earnings
Activision Blizzard (NASDAQ:ATVI) +5.4% AH on an easy beat-and-raise.
Caesars Entertainment (NASDAQ:CZR) +7% AH with “sold-out weekends in Vegas.”
ConocoPhillips (NYSE:COP) -0.3% paring gains after headlines in Malaysia.
CVS Health (NYSE:CVS) +4.4% as an improved outlook topped consensus.
Dominion Energy (NYSE:D) -1.2% posting mixed results.
DuPont (NYSE:DD) +1.6% with all business segments showing growth.
Lyft (NASDAQ:LYFT) +6.1% AH topping rider estimates, narrowing loss.
Match Group (NASDAQ:MTCH) +5.8% AH predicting a ‘summer of love.’
Pfizer (PFE) +0.3% boosting anticipated vaccine revenue.
Under Armour (NYSE:UAA) -1.2% despite earnings topper, guidance lift.
Prudential Financial (NYSE:PRU) +1.9% AH adding to buyback plan.
T-Mobile (NASDAQ:TMUS) +2% AH raising guidance across the board.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:30 Fed’s Evans: Monetary Policy
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories
11:00 Fed’s Rosengren Speech
12:00 PM Fed’s Mester: Economic Outlook
3:00 PM Fed’s Evans Speech
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Good morning. Happy Tuesday.
The Asian/Pacific markets were split with big movers in both directions. Hong Kong, South Korea, New Zealand and Australia did well; Japan, China, India, Taiwan and Thailand were weak. Europe, Africa and the Middle East lean to the downside. Russia, Hungary and Spain are doing well, but Denmark, Poland, Germany, Finland, Netherlands, Italy, Portugal and Sweden are weak. Futures in the States point towards a moderate down down open for the cash market.
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Online Course: Masterclass in Trading
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The dollar is up. Oil is up; copper is flat. Gold is up; silver is down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Value over growth
The Dow Jones Industrial Average started May on the right foot, with the index climbing over 200 points yesterday as growth names took a backseat. The trend continued overnight as DJIA futures inched up, though contracts linked to the Nasdaq and S&P 500 were off by 0.3% and 0.1%, respectively. Meanwhile, the latest data on the economy is set to arrive this morning, with U.S. factory orders expected to rise 1.3% in March, as consumers demand more goods and services and investors continue to pile into shares that would benefit most from a reopening.
Snapshot: Retail stocks led the market advance on Monday, with Gap (GPS) and Macy’s (M) rallying more than 7%. Dillard’s (DDS) closed up nearly 10%, while Urban Outfitters (URBN), American Eagle (AEO), Nordstrom (JWN) and Kohl’s (KSS) all gained more than 5%. Many feel apparel retailers are poised for a big pickup in sales, as people order fresh attire to wear to the office or for going out to restaurants and attending other social events.
In fact, Jefferies analyst Stephanie Wissink forecasts 47.5% of American consumers are planning to purchase apparel over the next 60 to 90 days, citing data from NPD Group. A pandemic-era high for air travel was also recorded on Sunday, with over 1.6M people screened at airport checkpoints across the U.S. “Buying activity picked up within industrials… Boeing (BA) and Delta (DAL) saw heavy trading activity as investors may be taking advantage of depressed pricing and banking on reopenings,” declared Chris Larkin, Head of Brokerage Product at E*TRADE Financial.
More reopening optimism: States are continuing to relax pandemic restrictions due to a series of successful vaccine rollouts. New York Gov. Andrew Cuomo announced Monday that most capacity restrictions will be lifted across New York, New Jersey and Connecticut starting on May 19, while 24-hour subway service will resume in New York City later this month. “We are no longer in a state of emergency,” added Florida Gov. Ron DeSantis, who signed an executive order that immediately suspended the state’s remaining public health restrictions.
Vaccines for teens
The FDA is preparing to authorize the use of the Pfizer-BioNTech (PFE, BNTX) coronavirus vaccine in adolescents 12 to 15 years old by early next week, according to the NYT, opening up the U.S. vaccination campaign to millions more people. If it is approved, the CDC’s vaccine advisory panel is likely to meet the following day to review the clinical trial data and make recommendations for the vaccine’s use in young teenagers.
Thought bubble: The expansion would be a major development in the country’s vaccination campaign, but is likely to divide parents between those who are eager to expand the level of immunity and those that are skeptical about long-term side effects. With much of the world banking a surplus of vaccines made in the U.S., the use could also raise questions about whether the supply should be targeted to an age group that so far appears to be mostly spared from the severe effects of the disease.
Statistics: As of Monday, about 65M vaccine doses had been delivered but not administered, including 31M doses of Pfizer-BioNTech’s vaccine, nearly 25M doses of Moderna’s (MRNA) and 10M doses of Johnson & Johnson’s (JNJ). Pfizer is authorized for ages 16 and up, while Moderna is authorized for ages 18 and up. Moderna also expects results soon from its own clinical trial involving adolescents ages 12 to 17, followed by results for children 6 months to 12 years old later this year.
Deposit warning
Banks that are flush with cash is usually a good thing, as that generally means lots of lending, but something else is awry in the U.S. financial system. Banks like JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) have recently been advising large corporate clients to move their savings out of deposits and into money market funds. According to the FT, a wave of cash flooding bank balance sheets during the pandemic is responsible for the latest flows and could have profound effects on U.S. lenders.
What’s happening? In recent quarters, big banks have detailed weaker-than-expected loan demand and have pushed out the timeline of when they predict it to bounce back. In the absence of lending, extra deposits can be costly for banks, putting pressure on their regulatory ratios and eventually requiring them to hold more capital. Strategically moving the deposits to money market funds would be advantageous, as the instruments are managed via their asset management divisions and are not included in leverage ratios.
The four largest U.S. banks – JPMorgan, Citi, Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) – amassed nearly $1T in additional deposits last year due to the scale of fiscal stimulus. Their latest earnings report also revealed that deposits collectively grew by 15% to $6.9T as of March 31, but their combined loan holdings fell 10% to $3.4T. In fact, the loans-to-deposits ratio now sits at 61.5% for all banks in the U.S., the lowest ratio in 48 years. “Even if consumers do draw down to go on trips to Disney World, and companies draw down to build out new warehouse facilities and buy new equipment, they’re just not spending fast enough relative to what’s coming in,” added RBC analyst Gerard Cassidy.
How long will it last? It’s not so clear, but it could be the trend for a while given the scale of fiscal stimulus being released into the economy. Some analysts even think it could take up to seven years or longer for the Fed’s balance sheet to begin to come down and for there to be less cash in the system. The situation could also turn around, however, if loan growth or demand snaps back faster than most banks are currently expecting.
Separate ways
“After a great deal of thought and a lot of work on our relationship, we have made the decision to end our marriage,” Bill and Melinda Gates wrote in a statement on Twitter. The couple met at Microsoft (MSFT) in 1987, where Melinda had been working as a product manager, and the two had been married for 27 years. Though the pair in a statement assured the public that they will continue to work together at their foundation despite ending their marriage, the news could send shockwaves across their projects.
Meet the Bill and Melinda Gates Foundation Trust: In the latest 13F filing for the period ended 12/31/20, top holdings by value in descending order included Berkshire Hathaway (NYSE:BRK.B), Waste Management (NYSE:WM), Caterpillar (NYSE:CAT), Canadian National (NYSE:CNI), Walmart (NYSE:WMT), Ecolab (NYSE:ECL), Crown Castle (NYSE:CCI), FedEx (NYSE:FDX) and UPS (NYSE:UPS). Two stocks in which the foundation also has a large stake (more than 10% of shares outstanding) included Schrodinger (NASDAQ:SDGR) and Coca-Cola Femsa (NYSE:KOF). Most of the other holdings were below $1B in market value and their ownership consisted of less than 3% of shares outstanding in the associated stock.
Gates dropped out of Harvard University to start Microsoft with childhood pal Paul Allen in 1975. He was Microsoft’s CEO until 2000, but has since scaled back his involvement. He transitioned out of a day-to-day role in Microsoft in 2008, served as chairman of the board until 2014, and last year stepped down from the board to focus on philanthropy.
Outlook: The Seattle-based Bill and Melinda Gates Foundation is the most influential private foundation in the world, with an endowment worth nearly $50B. It has focused on global health and U.S. education issues since incorporating in 2000. SA readers may also recall when the world’s richest person, Jeff Bezos, and his partner Mackenzie Scott called it quits two years ago. This is how their wealth ended up split between them.
New market for high-end jewelry
Tiffany & Co. is introducing its first-ever men’s engagement ring amid a rise in gender-fluid fashion trends and same-sex marriages. The line is named after the company’s founder, Charles Lewis Tiffany, and will be available in three types of diamond cuts measuring up to 4.3 carats. The thicker bands, which come in either platinum or titanium, will also differentiate the rings from women’s styles. Will any of the Gateses be making a purchase for their next proposal?
Backdrop: While Tiffany’s is an expensive luxury retailer – now owned by LVMH (OTCPK:LVMHF) – it is also a trend-setter for the industry. In 1886, Tiffany introduced the engagement ring as we know it today, with the introduction of the Tiffany Setting, which remains one of its best-known styles to date. The company even did more than $4B in jewelry sales last year, with women’s engagement rings representing about 26% of total revenue.
“Following in the footsteps of its iconic sister, The Charles Tiffany Setting honors the jeweler’s long-standing legacy in love and inclusivity, paving the way for new traditions to celebrate our unique love stories and honor our most cherished commitments to one another,” the company said in a press release.
Some history: With some notable cultural exceptions, most men did not even wear wedding bands until the early 20th century. During the World Wars, companies marketed the rings to young Western men fighting overseas as a comforting reminder of their wives and families back home. By the end of the WWII, 80% of grooms wore wedding bands, but it was only in the 1950s that the exchange of rings became a prominent wedding symbol.
What else is happening…
Warren Buffett names Greg Abel his successor at Berkshire Hathaway (BRK.B).
Down to $5B… Yahoo and AOL leave Verizon (NYSE:VZ) for Apollo Global (NYSE:APO).
Tyson (NYSE:TSN) challenges Beyond Meat (NASDAQ:BYND) with plant-based burgers.
Kroger (NYSE:KR) joins drone delivery race with grocery pilot.
Apple (NASDAQ:AAPL) vs. Epic: Key takeaways from the antitrust trial.
Sizzling interest sees Ethereum (ETH-USD) surge above $3,400.
Lumber gets jacked as prices push further into record territory.
U.S. COVID-19 vaccine demand dips as vaccination rate climbs.
Under Armour (NYSE:UAA) pays $9M to resolve SEC accounting probe.
DuPont (NYSE:DD) loses overwhelming vote for transparency on plastic pollution.
Monday’s Key Earnings
Enterprise Products Partners (NYSE:EPD) -0.3% despite strong Q1 results.
Omega Healthcare (NYSE:OHI) +0.6% AH showing ‘modest improvements.’
ON Semiconductor (NASDAQ:ON) -3.7% as investors shook off Q1 beats, upside outlook.
Realty Income (NYSE:O) +0.7% AH on pace to reach investment guidance.
Today’s Economic Calendar
Auto Sales
8:30 Goods and Services Trade
8:55 Redbook Chain Store Sales
10:00 Factory Orders
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets closed mostly down. Japan, China, Hong Kong, South Korea, Taiwan, Malaysia, Indonesia, Singapore and Thailand were weak. Europe, Africa and the Middle East are currently doing well. The UK, Denmark, France, Germany, Switzerland, Norway, Spain, Italy, Portugal, Israel, Austria, Sweden and the Czech Republic are doing well; Poland, Russia, South Africa and Saudi Arabia are down. Futures in the States point towards a moderate gap up open for the cash market.
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My interview with WorldClassPerformer.com
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The dollar is down. Oil is flat; copper is up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Sell in May?
Enthusiasm for stocks couldn’t be higher, with individual investors holding more equities than ever before, fueled by a blowout earnings season, the prospect of an economic recovery and extra savings like stimulus checks. Stockholdings among U.S. households even rose to 41% of their total financial assets in April, the highest level on record, according to data from JPMorgan and the Federal Reserve. That kind of optimism has led the S&P 500 to hit 25 records this year alone, while logging its third straight month of gains in April by adding more than 5% to the index.
Sell in May and go away? The investment strategy posits that equities tend to underperform in the six months through October, so investors should convert to cash at the start of May and then buy into a dip later in the fall. “With stocks at record highs, some investors may be tempted to follow the old adage,” UBS wrote in a research note. “In the U.S., a stay invested strategy has tended to outperform, particularly in recent years. Market composition, with the U.S. market more tilted towards growth stocks, partly explains the outperformance.”
Others, like billionaire investor Leon Cooperman, have “an eye on the exit.” The self-described “fully invested bear” is worried about market valuations and thinks “we should recognize were pulling demand forward and the longer-term outlook is not particularly favorable.” He also expects an upcoming rise in taxes and inflation, which may force the central bank to signal action before the end of 2022.
Starting the new month: U.S. stock index futures climbed overnight, with the Dow up 0.6%, and the S&P 500 and Nasdaq ahead by 0.4% and 0.2%, respectively. The Manufacturing PMI and ISM Manufacturing data for April will be released this morning, shedding light on the economic situation before Friday’s big non-farm payrolls report. Investors will also be watching the next batch of corporate earnings, including Q1 results today from Enterprise Products Partners (EPD), ON Semiconductor (ON), Realty Income (O) and Omega Healthcare (OHI).
Epic showdown
A high-profile legal battle set to begin today between Apple (NASDAQ:AAPL) and Fortnite creator Epic Games will determine how a “market should be classified in the digital age.” It’s one of the biggest cases brought against Apple since the company was founded in 1976, and the consequences could be huge. A verdict could see developers no longer having to do app “checkouts” with Apple, or having to pay a 30% “app tax” to the tech giant, which would dent its fastest-growing Services business segment.
Backdrop: The legal fight started last year when Epic created its own direct payment method within Fortnite, circumventing fees paid for App Store purchases. Apple then issued a warning to Epic regarding the workaround, but the latter refused to remove it, and Apple kicked the developer off its platform. A lawsuit then emerged, which is finally seeing its day in court. Executives testifying at the trial will include Epic CEO Tim Sweeney and Apple CEO Tim Cook, though neither side wanted a jury trial, leaving the decision to U.S. District Judge Yvonne Gonzalez Rogers.
Epic’s argument: With over 1B users across the globe, the iPhone market – is itself a market. Meaning, developers can only reach this massive demographic via the App Store. Apple is essentially “forcing” them to use its mechanism (to have the app downloaded) and its app payment system (to have people pay for purchases).
Apple’s defense: The company feels it built an ecosystem where app developers of all sizes formed multi-million or even billion dollar businesses over the last decade. Anyone that doesn’t want to pay the 30% commission is asking for a free ride in a market it created, which it updates and maintains via new features and security details.
Apple seems to have the edge in terms of legal precedent, but the tech giant ended the week with an antitrust warning from the EU, which said Apple “abused its dominant position for the distribution of music streaming apps through its App Store.” That decision, which followed a complaint from Spotify (SPOT), was preliminary and Apple will have time to respond. But if the finding holds in the final decision, Apple could face a fine of up to 10% of its annual revenue and be forced to make changes to its App Store business model.
Ethereum steals the limelight
Continuing to set fresh record highs, ether (ETH-USD) climbed above $3,000 on Sunday for the first time in history, and was last changing hands at $3,097.87, up 6.1% over the last 24 hours. Only a year ago, it traded for around $208, an increase of 1,359%, and this year alone, the crypto is up 310%. Adding to the gains… Ether surged 25% over the past week and the digital asset now has a market cap of about $350B, according to CoinMarketCap.com.
What’s driving recent demand? Crypto analysts are pointing to a broader awareness of ether’s smart contract platforms, which are powering the landscape for NFTs, Web 3.0 apps and decentralized finance (DeFi). In fact, the amount of capital locked in DeFi protocols just crossed $68B, which is up thousands of percent compared to the beginning of the year. Last week, the European Investment Bank even announced that it had issued €100M in two-year notes, using the ethereum blockchain for the first time.
“Flippening” has also re-entered the crypto conversation – a term that refers to the belief that ether’s market cap might soon top that of bitcoin (BTC-USD). Many bitcoin believers maintain that is outside the realm of possibility, though daily transaction count on Ethereum’s blockchain has increased by 22% to 1.376M this year. Market research firm Fundstrat further wrote in a recent research note that ether could hit above $10K by the end of this year, driven by a crypto narrative that’s shifting to ethereum from bitcoin, but it also expects the latter to reach $100K before 2022.
Outlook: While the Ether and Bitcoin have not de-coupled yet, correlations between the two are shrinking. Ether has quadrupled so far this year, while Bitcoin hasn’t even doubled, and the ratio between the currencies recently climbed to 0.052, the highest level since mid-2018. However, Bitcoin and Ethereum are still looked at as the reserve assets of DeFi (can earn interest on them or borrow against them), which creates leverage in the system and connects the two currencies.
Vaccine patents
Pressure is building on the U.S. and other Western governments to suspend intellectual property restrictions on COVID-19 vaccines as an explosion of coronavirus cases rocks India and other nations. Some 60 developing countries, led by India and South Africa, are drafting a new proposal to waive WTO rules, known as TRIPS (Trade-Related Aspects of Intellectual Property Rights), which could allow a significant increase in vaccine production worldwide. The new proposal will be put to the organization in the next few days and would echo an effort back in the 1990s that lifted patents on AIDS medications.
“We have to evaluate whether it’s more effective to manufacture here and provide supply to the world, or the IP waiver is an option,” White House press secretary Jen Psaki said last week. President Biden hasn’t yet made a decision on whether the U.S. will support the waiver – which is backed by more than 100 members of Congress and 170 former world leaders and Nobel Laureates – or to push for other means to speed up immunization in developing nations.
The case against a suspension: A number of large pharma companies, including vaccine developers Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NASDAQ:AZN), say waiving IP rights wouldn’t solve supply problems in the short term because contract producers lack familiarity with the new technology behind the shots (which isn’t shielded by patents). Obstacles to scaling up production also include the need to train technicians, source scarce ingredients and sensitive biological components. Quality checks are another concern, with a limited number of manufacturers capable of large-scale vaccine production.
The case for a suspension: Proponents of the waiver proposal say there are more than a dozen drugmakers in developing countries that could be equipped to produce the shots and have passed quality checks by the WHO and the FDA. It would allow the nations to make their own copies of the vaccines without fear of being sued for IP infringements. The U.S. government owns patents related to the vaccines because some of the technology behind the shots were developed at American government labs.
Outlook: While Pfizer and Moderna (NASDAQ:MRNA) have been known to drive a hard bargain when negotiating vaccine contracts, AstraZeneca and Johnson & Johnson have pledged to provide their jabs on a not-for-profit basis until the pandemic is over. Future profits for vaccines may also depend on how often or for how long seasonal boosters will be required. Given the number of vaccines in development, competition could keep a lid on costs, though if some shots prove more effective than others, profits could skew largely in favor of the successful vaccine makers.
Highlights from Capitalist Woodstock
“The U.S. economy was resurrected in an extraordinarily effective way” when the Federal Reserve took actions last year in response to the pandemic-induced recession, Warren Buffett said during Berkshire Hathaway’s (BRK.A, BRK.B) virtual annual meeting. The Fed “moved with speed” and demonstrated that they would do “whatever it takes” to restore bond market trading, which had frozen early in the pandemic. About 85% of the economy is now running in “super high gear.”
Energy: Asked about whether climate change rhetoric has become too irrational regarding investments in fossil fuel companies, Buffett said “people on both extremes are a little nuts.” “I would hate to have all the hydrocarbons banned in three years – it wouldn’t work… but I do think the world is moving away from them too,” he added. Buffett still has “no compunction in the least about owning Chevron (CVX).”
Tech: Mega-cap tech stock valuations are not “crazy,” he declared, outlining that Berkshire’s sale of some Apple (AAPL) shares last year “was probably a mistake” and “Charlie in his usual way let me know it was a mistake.” Charlie Munger is Buffett’s 97-year-old business partner and vice chairman of Berkshire.
SPACs: “It’s a killer,” Buffett said. “When the competition is playing with other people’s money… they’re going to beat us… We’re not going to have much luck as long as this continues.” He also likened the SPAC craze to gambling. “It’s shameful what’s going on. It’s not just stupid, it’s shameful,” added Munger.
Taxes: Buffett declined to speak about what he feels about the proposed federal tax changes – saying it’s not appropriate to express his views at Berkshire’s annual meeting – though he’s not worried about the possibility of higher corporate taxes. Buffett also said he voted for Biden in the presidential election.
Robinhood: “I’m looking forward to reading the S-1 [IPO prospectus],” Buffett said. “It’s become a very significant part of the ‘casino’ part” of the market. There’s nothing illegal about it, there’s nothing immoral. But I don’t think you build a society around it,” he added. Munger took a stronger stance, calling the gamification “deeply wrong.”
Crypto: Buffett declined to comment on bitcoin (BTC-USD), but Munger let it rip: “Of course, I hate bitcoin’s success… it’s creating a financial product out of thin air. I don’t welcome currency that is so useful to kidnappers and extortionists.”
Portfolio advice: “You couldn’t help but do well if you had a diversified group of equities. There’s a lot more to picking out stocks” than figuring out which industry is going to have a bright future, Buffett added. He then pointed out that in the 1930s there were more than 2,000 auto manufacturers in the U.S. “In 2009, there were three left and two went bankrupt.”
What else is happening…
Berkshire’s (NYSE:BRK.B) operating earnings jump, buybacks slow from Q4.