Good morning. Happy Friday. Happy Quad Witching Day.
The Asian/Pacific markets leaned up. Japan, China, Hong Kong, South Korea and New Zealand did well; Australia and the Philippines were weak. Europe, Africa and the Middle East are currently mixed and little changed. Turkey, the UAE, Spain and the Netherlands are up; Finland is down. Futures in the States point towards a slight down open for the cash market.
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Leavitt Brothers Overview –>> here
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The dollar is down. Oil is down; copper is up. Gold and silver are up small amounts. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Fed ethics review
The Federal Reserve is examining its ethics rules for financial holdings after two Fed presidents came under fire for some of their recent transactions. Those dealings were widely panned for the potential conflict of interest at a time when the Fed is already in the spotlight over unprecedented pandemic market interventions that critics say led to elevated stock prices and benefited richer Americans. The appearance of self-dealing could also prove problematic for an institution tasked with oversight of U.S. employment, inflation, interest rates and liquidity markets.
Backdrop: Last week, disclosures filed by the Fed’s 12 regional presidents revealed some had actively traded stocks in 2020 that may have been susceptible to rising Treasury yields due to their high valuations. Robert Kaplan, a Fed voting member on rates last year, made several million-dollar-plus stock trades, while Eric Rosengren faced scrutiny over equity transactions tied to real estate, an industry he had been commenting on and was impacted by the pandemic (other presidents also held million-dollar financial positions). Since then, Kaplan and Rosengren have said they would offload all their stocks, but Senator Elizabeth Warren pushed further, saying regional Fed banks should adopt rules that would prevent their leaders from any trading activity.
“Fed Chairman Jay Powell has directed staff to take a fresh and comprehensive look at the rules to identify ways to tighten those standards and will make changes as appropriate to the Fed’s code of conduct,” said a spokesman from the central bank. “The trust of the American people is essential for the Federal Reserve to effectively carry out our important mission.”
The pandemic and subsequent recession amplified the Fed’s power in 2020, giving it a leading role in the U.S. economic recovery. It also magnified the Fed’s influence in financial markets as the central bank cut its short-term benchmark interest rate to zero in March 2020, and moved deeper into its purchases of corporate debt, even buying bonds of industry stalwarts like Apple (AAPL), Verizon (VZ), Visa (V) and Home Depot (HD). It has since purchased trillions of dollars in Treasurys and MBSs to hold down longer-term rates, which has made stocks a more attractive investment.
How far will it go? Under current rules, Fed officials cannot invest in banks since many of them are supervised by the Fed. They are also prohibited from making trades during the 10-day blackout period before each FOMC meeting and are not supposed to hold a security for less than 30 days. The Fed’s overall structure is also complex, with the 12 regional banks chartered as private organizations, but are overseen by the Fed’s Board of Governors in Washington. While regional banks have their own codes of conduct, they are largely identical to the rules that govern the Fed’s board, which have similar guidelines on investing and trading as other government agencies.
500-mile club
Sending shares of the startup automaker up 6% on Thursday, the EPA awarded Lucid Motors’ (LCID) Air Dream Edition with an official rating of 520 miles of range on a single charge. At that level, the EV would beat Tesla’s (TSLA) Model S Long Range by more than 100 miles, the previous record for how far a car could go on a single charge. Lucid is still feeling the investor love this morning, with the stock up another 5% premarket to $22.34.
Thought bubble: The electric car industry is still in its infancy and how far an EV can go before they have to be plugged is a crucial factor for any vehicle’s success. A battery can take hours to be fully charged, depending on the car and charger.
“Crucially, this landmark has been achieved by Lucid’s world-leading in-house EV technology, not by simply installing an oversize battery pack,” said Lucid CEO Peter Rawlinson, a former Tesla engineer. He credits aerodynamics, motor efficiency and other components for being the first to the 500-mile club.
Outlook: Tesla is still one of the market leaders in EVs, producing around two-thirds of electric vehicles sold in the U.S. Lucid’s cars also occupy a luxury niche, with the Air Dream Edition starting at $169K before federal and state incentives. Lucid hopes to eventually offer more affordable versions of the Air, like one that will sell for about $77K, and the company is also working on an SUV.
Macau meltdown
The latest crackdown in China is still making headlines, with Macau now in the regulatory crosshairs of the CCP. The largest gambling market in the world has historically operated as a special administrative region, meaning it was at least an arm’s length away from Beijing. But the area known for casino gambling is also plagued with money laundering and loan-sharking, triggering a fresh look from the Chinese government.
Market movement: Casino stocks like Wynn Resorts (WYNN), Melco Resorts & Entertainment (MLCO), Las Vegas Sands (LVS) and MGM Resorts (MGM) suffered big losses on Wednesday and Thursday on word of increased government supervision. Any step in that direction could also raise concerns on how the gaming license renewal process will shake out. The latest development adds to existing concerns about Macau’s pandemic recovery on the heels of a COVID-19 outbreak in Fujian.
Look to Vegas? “We have a favorable view of the LV Strip, as we envision a strong recovery there, with near-term leisure/transient demand bridging the gap to a return of convention/group business starting in 2H21 and picking up steam into 2022-2023. For LV Strip stocks (MGM, CZR), we could envision today’s solid leisure/transient demand combining with a gradual group recovery to drive a prolonged beat/raise cycle into 2023,” Wells Fargo wrote in a research note. J.P. Morgan also said it prefers domestic regional/Las Vegas Locals casino operators like Boyd Gaming (BYD) and Red Rock Resorts (RRR) in the near term for their positive fundamental profile, growth trajectory, strong free cash flow, and potentially increased capital return.
Supply chain troubles
Supply chain issues have been roiling the globe since the coronavirus pandemic began last year and retailers are still facing challenges with volatile production, COVID business restrictions and shortages of numerous goods. A great example of this can be seen in Vietnam, where many manufacturers had moved production during the trade war years of the Trump era to diversify and avoid tariffs. However, Vietnamese authorities this week announced an extension of restrictions in Ho Chi Minh City, the country’s business hub and COVID outbreak epicenter, sending shockwaves down the supply chain.
Snapshot: Factory shutdowns in Vietnam led Wall Street research firm BTIG to downgrade Nike (NYSE:NKE) shares last week, while high-end furniture chain RH (NYSE:RH) had to delay the launch of its contemporary furniture collection until next spring. Some companies have even gone as far as to announce they are bringing production back to China, like footwear producer Designer Brands (NYSE:DBI), which said six years of supply chain work was undone in six days. “When you think about the amount of effort everyone was putting into getting out of China, and now one of the only places where you can get the goods is China,” CEO Roger Rawlins declared. “It really is crazy, the roller coaster everyone has been on here.”
Commodity prices and trading have also been a hot topic given the constraints seen in Vietnam. The nation is the No.2 coffee producer in the world, but is battling its worst COVID outbreak since the start of the pandemic. In August, Vietnamese coffee exports fell 8.7% from July to 111,697 tons, continuing a downward trend seen since January. As a result, benchmark arabica coffee futures (KC1:COM) have jumped by nearly 47% this year, a price that has also been affected by waves of frost and drought in No.1 producer Brazil. Coffee prices could stay “relatively high” through 2022 due to the constrained supply, according to Fitch Solutions.
Future supply chain? In a twist of irony, China formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on Thursday. The initial 11-nation Asia-Pacific trade pact (originally known as TPP) was crafted under the Obama administration to “let America, not China, lead the way on global trade.” President Trump pulled out of the deal in 2017, calling it a “job killer,” while President Biden has said the pact needs to be renegotiated before he would consider joining CPTPP.
Today’s Economic Calendar
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
Companies reporting earnings today »
What else is happening…
Invesco (IVZ) in merger talks with State Street (STT) asset management biz.
AMD (AMD) eyes making chips based on Arm architecture.
Seattle to require COVID vaccinations, testing for indoor activities.
Newly published study on COVID-19 boosters reignites benefits debate.
Big Oil called by House panel to testify on climate disinformation.
Gold sinks in metal’s sharpest daily drop in nearly six weeks.
GM (GM) extends Bolt production halt due to battery pack shortage.
Sports betting revenue could soar to $40B if all states get on board.
U.S. miners blast proposal in Congress to set royalties on federal lands.
Evercore finds favorites in surprisingly strong retail sales report.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned down. India, Australia and the Philippines posted gains; Japan, China, Hong Kong, South Korea and Taiwan were weak. Europe, Africa and the Middle East are currently mostly up. The UK, France, Germany, the UAE, Greece, Switzerland, Spain, the Netherlands, Italy, Sweden and the Czech Republic are up; South Africa and Portugal are down. Futures in the States point towards a down open for the cash market.
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Leavitt Brothers Overview –>> here
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The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
The new moonshot technologies
BofA Global Research released a 152-page research report identifying 14 “radical technologies that could change our lives and accelerate the impact of global megatrends.” The technologies have a $330B market size today that could grow to $6.4T by the 2030s, strategists led by Haim Israel say. “These moonshots could transform and disrupt multiple industries, contributing to the next big cycle of technology-driven growth.” Israel says. The 14 are:
6G: “The next generation of telecom networks will be needed in less than a decade as data continues to grow exponentially and 5G reaches its upper limit capacity.”
Brain Computer Interfaces: “As we reach a point where humans are unable to keep up with computers and AI, brain computer interfaces could help ‘level up’ humans with computers. Shorter term, brain computer interfaces hold solutions for paralyzed individuals and promise a new wave of innovation in gaming.”
Emotional Artificial Intelligence: Also “known as ‘Affective Computing’ and ‘Cognitive Computing’ (it) is designed to capture, analyze and respond to human emotions and simulate human thoughts. EAI can potentially collect, analyze and respond to completely new varieties of data and situations and predict or simulate human thought, leading people to take action.”
Synthetic Biology: “At its core, ‘synbio’, as the field is commonly referred to, takes advantage of the vast diversity of nature to make biomolecules that traditional chemistry cannot.”
Immortality: “Traditionally, aging has not been viewed as a disease that can be treated but this is changing. Actors in this space are increasingly looking to tackle the hallmark of aging via pathways such as genomic instability, telomere attrition, mitochondrial dysfunction, and cellular senescence among others.”
Bionic humans: “This could be invasive (e.g. implants) or non-invasive (e.g. exoskeleton). Biohacking is also an associated field which is essentially applying DIY biology to boost oneself e.g. RFID chip in hand for contactless payments.”
eVTOL: “Electrical vertical take-off and landing vehicles that could provide an alternative mobility transportation solution to outdated infrastructure and overly stressed roads in urban settings.”
Wireless Electricity: “As the IoT takes off, automating and creating near continuous charging solutions could provide convenience for consumers, while solving charging problems for the rollout of EVs and secure electricity supplies for remote communities.”
Holograms: “A technology capable of creating a simulated environment through light imagery projections that will allow everyone to come together in one virtual room, without having to leave their physical location.”
Metaverse: “A future iteration of the Internet, made up of persistent, shared, 3D-shared spaces linked into a virtual universe. It could comprise countless persistent virtual worlds that interoperate with one another, as well as the physical world and transforming markets such as gaming, retail, entertainment etc.”
Nextgen Batteries: “Whilst lithium batteries are the major EV technology, this does not necessarily need to stay true with alternatives such as solid state, vanadium flow, sodium ion etc provide promising additional attributes.”
OceanTech: “It seeks to answer: ‘How do we increase sustainability of the ocean economy while harnessing its benefits?’ Solutions could include ocean energy, land based aquaculture, and precision fishing using AI.”
Green Mining: “Transitioning away from a carbon-intensive economy will mean moving to a metal-intensive one. Green mining solutions like deep-sea mining, agromining, mining of wastewater and asteroid mining could provide less polluting and destructive solutions as the green economy’s thirst for metals grows.”
Carbon Capture and Storage: “All current zero-carbon pathways require some form of CO2 removal. CCS, alongside other geoengineering solutions, could act as part of the solution with long-term permanent removal of CO2 vs afforestation.”
Lower lifespan: The lifespan of S&P 500 (SP500) (NYSEARCA:SPY) incumbents is shortening and by 2027 components could last just 12 years before being replaced, BofA says. For Next Tech to succeed, first the innovation must have the potential to be economical, then it must solve a key problem or improve quality of life, and finally, there must be government support in some way. Risks to the 14 ideas include the tech not being commercially scalable, prohibitive costs outweighing the benefits and regulation limiting applicability.
Energy crunch
An electricity cable mishap has raised the real possibility of electricity blackouts in the U.K. if there are any more problems with the grid this winter. A major cable that supplied power from France has been shut down due to a Wednesday fire and will be offline until March.
“If anything goes wrong, we might not have anything left in the back pocket,” Tom Edwards, consultant at Cornwall Insight, which advises the government and utilities, told Bloomberg. “If a nuke trips offline or something else big, that could cause issues because we might not have anything to replace it.”
Electricity prices in the U.K. surged 19% yesterday to 475 pounds ($655.50) per megawatt hour.
U.S. Natgas surge
U.S. natural gas futures closed at another seven-year high, as soaring global gas prices keep demand for U.S. exports high and Gulf of Mexico production recovers slowly from Hurricane Ida more than two weeks ago.
Front-month futures (NG1:COM) settled +3.8% to $5.460/MMBtu, their highest close since February 2014 for the third day in a row.
Goldman and GreenSky
GreenSky (NASDAQ:GSKY) shares shot up 50% after the online lender agreed to be acquired by Goldman Sachs (NYSE:GS) for $2.24B, in a transaction that bolsters the Wall Street bank’s presence on Main Street. GreenSky stockholders will get 0.03 share of Goldman stock for each GSKY share they hold.
GreenSky works through retailers like Home Depot and independent doctors and dentists to arrange loans for such things as cosmetic surgery or construction products. It has a network of more than 10,000 merchants. The business will complement Goldman’s Marcus consumer banking platform, positioning it for further growth, Goldman said.
Cisco sales
Cisco Systems (NASDAQ:CSCO) said that it expects half of its sales will likely come from software and recurring revenue as it continues shifting into new areas beyond its long-time core networking products.
Scott Herron, the company’s chief financial officer, gave an assessment of Cisco’s business at a virtual meeting with Wall Street analysts on Wednesday.
Herron said an ongoing worldwide shortage in computing parts such as memory chips and power supply units will result in some pressure on the company’s hardware profit margins. Still, Herron said Cisco sees that part of its business continues to grow.
Drug price negotiation
The House Ways and Means Committee late this afternoon approved a portion of the Democrats’ $3.5T spending package that includes a provision for prescription drug price negotiation by HHS, The Hill reports. The provision would also cap price increases on some drugs at the inflation rate.
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Retail Sales
10:00 Business Inventories
10:30 EIA Natural Gas Inventory
4:00 PM Treasury International Capital
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
China Evergrande (OTCPK:EGRNF) woes raise worries for real estate, finance sectors in China.
Uranium hits nine-year highs as Sprott (OTCPK:SRUUF) resumes purchases.
Sibanye Stillwater (NYSE:SBSW) buys 50% stake in Nevada lithium project for $490M.
KKR-backed ForgeRock (NYSE:FORG) prices 11M-share IPO above range at $25.
Electronic Arts (NASDAQ:EA) rises 3% after reiterating FY22 bookings despite Battlefield launch delay.
Callaway Golf (NYSE:ELY) jumps to four-week high as volume soars.
Narrower drug pricing bill introduced in House by centrist Democrats.
Boeing’s (NYSE:BA) latest delivery totals suggest risk to full-year targets, analyst says.
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Good morning. Happy Wednesday.
The Asian/Pacific markets were mostly down. India did well, but Japan, Hong Kong, Taiwan, Singapore and the Philippines were weak. Europe, Africa and the Middle East currently lean down. The UAE and Norway are up, but France, Greece, Finland, Switzerland, Spain, Italy and Portugal are weak. Futures in the States point towards a positive open for the cash market.
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Masterclass Overview
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The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
China crackdown continues
New era of spaceflight
The first all-civilian mission to orbit Earth is set to take off tonight, within a five-hour launch window that opens at 8:02 p.m. ET. SpaceX (SPACE) will power the expedition, known as Inspiration4, using one of its Dragon capsules atop a reusable Falcon 9 rocket. It’ll also be proof of concept for the broader private spaceflight industry, which hopes to send many more people to space in the coming years and push even deeper into the solar system.
Bigger picture: Inspiration4 will be commanded by Shift4 Payments (NYSE:FOUR) CEO and accomplished pilot Jared Isaacman. While the civilian mission is part of a charity initiative to raise money for St. Jude Children’s Research Hospital, it’s being seen as a coming-of-age moment for an adolescent commercial spaceflight market. The crew of four will spend three days in orbit and perform a number of medical experiments like gathering data about their “movement, sleep, heart rate and rhythm, and blood oxygen saturation levels.” That information will be crucial for coming missions as more astronauts blast into the heavens (only 600 people have been to space in history).
The latest endeavor supported by SpaceX will go well beyond the International Space Station at a height of 360 miles above Earth. That compares to the recent flights of Virgin Galactic’s (NYSE:SPCE) Richard Branson (50 miles up) and Blue Origin’s (BORGN) Jeff Bezos (65 miles up), who squabbled over the definition of space during their suborbital flights in July. “We’d like to see aircraft like – airline, like – operations from a human spaceflight perspective, and so this chance to have our first commercial all-civilian flight is awesome,” said Benji Reed, SpaceX director of human spaceflight.
Snapshot: Interest in space has been growing at an exponential rate, especially in the public markets. Many space companies have already closed SPAC deals to go public this year, including Redwire (NYSE:RDW), AST SpaceMobile (NASDAQ:ASTS), Astra (NASDAQ:ASTR), Spire Global (NYSE:SPIR), Momentus (NASDAQ:MNTS) and Rocket Lab (NASDAQ:RKLB). Last month, satellite launch company Virgin Orbit announced another merger with SPAC NextGen Acquisition Corp. II (NASDAQ:NGCA), while Cathy Wood launched the ARK Space Exploration ETF (BATS:ARKX) earlier this year.
Funding the industry: From 2000 to 2018, space startups drew $22.6B in investment, but that number has jumped rapidly over the last few years, according to a report from BryceTech. Space startups saw $6.5B of inflows in 2019, while 2020 brought in about $7.6B in investment (around 6% came from going public via SPACs). In fact, 342 investors invested in over 120 upstarts last year, with nine companies bringing in 80% of the total funding.
Outlook: Congress has restricted the FAA from regulating the safety of commercial space flights since 2004 to help the sector develop without heavy compliance costs. The policy has been extended several times over the years and now runs until 2023. Crews today fly under a regime known as “informed consent,” meaning potential astronauts take on similar risks to skydivers and bungee jumpers. Companies are fighting for share in a space market that will triple in size to more than $1T in annual sales by 2040, according to Morgan Stanley, whose forecast assumes rapid developments in space tourism, moon landings and satellite broadband Internet.
Valuation expert and NYU professor Aswath Damodaran “cannot find” the good points that derive from the recent focus on “environmental, social and governance” for corporations and fund managers. In a series of tweets, the closely followed “Dean of Valuation” argued that the difficulty of determining whether a company or fund was “good” in terms of ESG made the measure difficult to apply and is why services disagree on ESG rankings and scores.
The thread: “It will not get easier over time, because we have different value systems. Your measure of ‘goodness’ will not match mine and the evidence on ESG’s effect on value is muddled. A stronger case can be made that companies should not be bad, (because they will face higher funding costs and failure risk) than that they should spend money to be good. If good firms have lower funding costs, arguing that investing in good companies will earn higher returns is internally contradictory, and incoherent, since the link between ESG & returns is more a reflection of pricing than it is of how ESG affects value,” continued Damodaran, who is also a Seeking Alpha contributor.
“In the old model, companies focused on business, investment funds on returns, and shareholders chose how much, and who to give to, in society. In the ESG model, companies and fund managers make those choices instead… not clear how or why society benefits. Why is ESG being sold so aggressively? Because accountants, measurement services, fund managers & consultants are on the ESG gravy train, with stockholders & taxpayers paying. Corporate CEOs are buying into ESG, because it makes them accountable to no one. Bring your moral code into your own business & investment decisions, but investing other people’s money to advance what you view as ‘good’ is hubris. Accept that being good is more likely to cost & inconvenience, than to help, you, and be okay with that.”
Go deeper: In 2020, BlackRock (BLK) – one of the industry’s most prominent supporters of sustainable investing – pledged to put environmental stewardship at the heart of how it invests its nearly $9T in assets. While the company did make big progress on its goals last year, there has still been quite a bit of criticism. Some say the asset manager is still way behind its peers in Europe, which are being much harder on companies around climate change issues and stewardship, while the company has also been accused of “greenwashing” in the past. BlackRock has also pledged to integrate ESG into all of its actively managed portfolios, though more than half of its assets are managed passively.
Vaccines for kids?
At the Morgan Stanley Global Healthcare Conference on Tuesday, Pfizer (PFE) said expects to apply for U.S. authorization of its COVID-19 vaccine for children aged between six months and five years old in November. The timeline assumes “all of the data is positive,” noted Pfizer CFO Frank D’Amelio. The drugmaker, which developed its vaccine in partnership with BioNTech (BNTX), already said it planned to apply for approval from the FDA for children aged between five and 11 years old in early October.
Bigger picture: Rising COVID-19 infections and hospitalization levels in the U.S. have prompted calls for vaccines to be made available for children, especially as schools and childcare facilities reopen in the fall. Others are hesitant or more skeptical, especially for a population that is not as affected by severe cases of the virus.
According to the most recent data in the U.S., hospitalization rates among children aged four or younger were just 2.2 per 100,000, compared with 15.8 per 100,000 among over-65s. But in the week ending August 14, the hospitalization rate among children aged four and under was nearly 10x the level of the week ending June 26, per the CDC.
Less potent: In the clinical trials conducted by Pfizer/BioNTech, children aged between six months and five years old were given a 3 microgram vaccine. That compares to the 10 microgram dose for those aged five to 11, and 30 micrograms for adults 12 and older.
iEvent
Looking to fuel growth this holiday season, Apple (AAPL) hosted its “California streaming” fall hardware event on Tuesday, introducing its new iPhone 13 lineup, the Watch Series 7 and two iPad refreshes. Shares of Apple, as well as supplier stocks, dipped about 1% during the show, while AT&T (T) was quick out of the gate to offer promotions like free new iPhone Pros for some users. As the dust settled, Wedbush’s Dan Ives called the 1TB iPhone 13 a “potential game changer,” while Satori Fund’s Dan Niles said he was shorting Apple in the wake of its product announcements.
iPhone 13: The lineup will consist of four models, two base and two Pro, with the same sizes as last year’s iPhone 12 family. Entry-level models include the 5.4-inch iPhone 13 Mini and 6.1-inch iPhone 13 priced at $699 and $799, respectively, with 128GB, 256GB and 512GB storage configurations. As expected, the primary iPhone 13 upgrades are a bigger battery, camera improvements and the faster A15 Bionic processor, which Apple said offers “the fastest CPU in any smartphone, up to 50% faster than the leading competitor.” At the top of the price range, the iPhone 13 Pro will get 1 terabyte of storage for $1,499, while the 1TB Pro Max will have a price tag of $1,599.
iPad: The new base model (starting at $329) will include the A13 Bionic processor, offering “three times faster performance than the average Chromebook and six times faster than the bestselling Android tablet.” The base model also inherits ultrawide camera and Center Stage tracking, while featuring a powerful neural engine that will better support functions like Live Text. Apple separately updated its iPad Mini ($499) for the first time since early 2019, gaining 5G support, new color options, rounded corners, better CPU, and a screen size of 8.3 inches (from 7.9 inches). iPad sales have experienced a resurgence during the pandemic due to remote learning, streaming TV/movies and videogames.
Watch Series 7: The device, which was reportedly delayed by production issues, was announced at the event on schedule, but availability will be “later this fall” for $399. The main upgrade was the display size, with the smaller Watch model moving from 40-millimeters to 41-millimeters and the larger from 44-millimeters to 45-millimeters. The wearables also offer 18 hours of battery life, the same as the Watch Series 6 from last year.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
Companies reporting earnings today »
What else is happening…
Transitory relief? Core CPI rises 0.1% in August, smallest increase since February.
Macau casino stocks slump amid heightened government supervision.
Microsoft (NASDAQ:MSFT) boosts dividend by 11%, sets new $60B buyback.
Facebook (NASDAQ:FB) knows Instagram is harmful to teens, especially girls.
Palladium slides below $2,000/oz. to lowest close in 14 months.
Starbucks (NASDAQ:SBUX) workers in Buffalo petition for union vote.
Winner of the electric pickup truck race: Rivian (RIVN).
Cathie Wood doubles down on $500,000 Bitcoin (BTC-USD) call.
Boeing (NYSE:BA) raises jet demand forecast on pandemic recovery.
Amazon (NASDAQ:AMZN) brings palm recognition to concerts at Red Rocks.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned down. Japan, South Korea and Indonesia did well while China, Hong Kong, New Zealand, Malaysia, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently mixed and little changed. Italy and the Czech Republic are up; South Africa is down. Futures in the States point towards a positive open for the cash market.
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Masterclass Overview –>> here
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The dollar is down. Oil is down; copper is up. Gold and silver are downs lightly. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
iEvent
Investors and techies alike will tune into Apple’s (AAPL) “California streaming” launch event today, which starts at 10 a.m. PDT. Industry watchers expect the company to debut its so-called iPhone 13 lineup, handsets that follow the launch of the first 5G iPhones last year and the resulting supercycle. The event will be the “biggest day of the year for hardware,” said Loup Ventures analyst Gene Munster in a research note released last week. Munster also expects a second launch day in October, with the new models announced at both events “accounting for about 40-50% of the company’s revenue over the next 12 months.”
What to expect: Reports and leaks have suggested the iPhone 13 family will include a faster A15 processor, an improved 5G modem and a smaller display notch. Camera upgrades will be the headline improvements with a video version of Portrait mode, better low-light performance and a new ultrawide lens on the Pro models. The new iPhones are expected to come in the same sizes as the iPhone 12 lineup from last year: 5.4-inch and 6.1-inch base models and 6.1-inch and 6.7-inch Pro models. Pricing could come in a bit higher than the $799 to $1,099 iPhone 12 range if Apple decides to pass on the higher production costs of foundry partner TSMC (TSM) amid the ongoing global semiconductor shortage.
“From an investor’s standpoint, the trajectory of the iPhone business over the next year has less to do about specs and pricing, and more to do with the age of the phone,” continued Munster. “Last year, we estimated the pool of iPhones three years or older to be 420M. That base will drive iPhone revenue growth in FY21 of about 40%, compared to a typical year of low single-digit growth.” Wall Street is looking for 5% growth and 260M units for next year, though Munster sees potential upside to that growth rate due to the size of the existing iPhone population. “The larger the upgrade pool, the bigger the potential tailwind.”
Performance: Some anticipate today’s event could provide more upside to the largest stock in America, while others see a case of “buy the rumor, sell the news.” AAPL shares closed slightly higher on Monday, but remain 5% below a record high set before last week’s Epic Games ruling. The company still commands a whopping $2.5T valuation and is worth 6% of the S&P 500 (though its shares have lagged the benchmark index by 6 percentage points in 2021).
High CPI
Another dose of inflation data will be released this morning, which has the potential to set the tone for the market before next week’s Fed meeting. While the central bank has maintained that price pressures will be “transitory,” the Consumer Price Index today is expected to show a 5% pace for the fourth straight month. Stronger inflation could also pose a problem in passing President Biden’s social spending package and its massive $3.5T price tag.
By the numbers: The CPI is forecast to have risen 0.4% month-over-month in August, translating into a year-over-year basis of 5.4%. That would be the same hot pace seen in July, which was among the fastest rates seen since 2008. Excluding food and energy, today’s CPI is expected to rise 0.3%, or 4.2% on an annualized basis.
“If it’s hotter than expected, I think the stock market’s going to continue to be soft. I think investors are trying to decide whether there’s more to this worry, than not,” noted CFRA chief investment strategist Sam Stovall.
Go deeper: If inflation comes in stronger than anticipated, taper expectations could also shift from November to December. Some analysts have already pushed back their expectations after the August jobs report showed a gain of just 235K, about half a million less than expected. A number of Fed officials still believe the central bank should start paring back its $120B a month bond purchases sooner rather than later, but Fed Chair Jerome Powell wants to see more strong employment reports before making an announcement.
Gensler grilling
Prepare to see some headlines about crypto regulation today as SEC Chairman Gary Gensler heads before the Senate Banking Committee for a grilling. Lawmakers are expected to show frustration over the lack of supervision in crypto markets and why it has taken so long to support them. He might also have to explain why the SEC seems averse to approving various crypto assets (Bitcoin ETFs?), as well as stablecoins and other digital assets.
Backdrop: In recent weeks, Gensler seemed to be more vocal about regulation, calling crypto the “Wild West.” It’s “rife with fraud, scams, and abuse in certain applications. If we don’t address these issues, I worry a lot of people will be hurt,” the SEC Chair said in a speech at the Aspen Security Forum. He’s also called for Congress to magnify the SEC’s power in order for it to be effective at managing the $2T digital currency market.
“We just don’t have enough investor protection in crypto finance, issuance, trading, or lending,” Gensler said in his prepared testimony. “Frankly, at this time, it’s more like the old world of ‘buyer beware’ that existed before the securities laws were enacted. We can do better.” The SEC is also working with the Commodity Futures Trading Commission, Federal Reserve, Department of Treasury, and Office of the Comptroller of the Currency with respect to investor protection in crypto markets.
Elsewhere: Speaking of a loose crypto framework and related volatility, Litecoin (LTC-USD) gave up a 20% surge on Monday following a fake press release sent out by GlobeNewswire. The announcement referenced a partnership with Walmart (WMT), saying the retailer would start letting its customers pay with the cryptocurrency. Walmart spokesman Randy Hargrove confirmed that the PR was not authentic, while the SEC said it does not comment on such matters.
Tax hikes
House Democrats spelled out a series of proposed tax increases on Monday, attempting to piece together enough votes for a sweeping spending package at the heart of President Biden’s economic agenda. Under the proposal, tax increases and enforcement would offset up to $3.5T in spending on the social safety net, like Medicare, childcare and a national paid-leave program. Also known as the “human infrastructure” side of a broader infrastructure proposal, the package would increase renewable energy tax breaks and establish a broader climate change policy.
What’s in the bill? The proposal would increase the top corporate tax rate to 26.5% (from 21%) and the top individual rate to 39.6% (from 37%), respectively. Meanwhile, the top federal rate on capital-gains taxes would be raised to 25% (from 20%), and – added to an existing 3.8% surtax on net investment income – the total tax bite would be 28.8%. The bill would also impose a 3-percentage-point surtax on people making over $5M and provide $78.9B in funding to the IRS to bolster tax enforcement for taxpayers earning more than $400K a year.
Getting to $3.5T… According to the Joint Committee on Taxation, the plan includes about $1T of tax increases on high-income households and about $1T on corporations. Democrats intend to generate another $120B from tougher tax enforcement and $700B from drug-pricing policy changes. The legislation also assumes another $600B in revenue from faster economic growth.
Outlook: The release of the tax details was the last major missing piece in the Democratic economic plan and will accelerate lawmakers’ negotiations over new spending. Republicans are expected to mount unanimous opposition to the proposal (which would reverse the 2017 tax cuts), while Democrats have few votes to spare in the House and none in the Senate. Just last week, Sen. Joe Manchin (D., W.Va.), an influential moderate vote, penned an op-ed questioning the spending package’s effect on inflation rates, budget deficits and overall debt levels.
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:30 Consumer Price Index
8:55 Redbook Chain Store Sales
Companies reporting earnings today »
What else is happening…
Natural gas surges nearly 6% as demand stays strong.
Corpus Christi refineries, terminals brace for tropical storm hit.
Oracle (NYSE:ORCL) posts soft revenues after ramping up cloud investment.
Intuit (NASDAQ:INTU) agrees to buy Mailchimp for about $12B.
Moderna (NASDAQ:MRNA) jab shows highest vaccine efficacy based on ER visits.
ViacomCBS (NASDAQ:VIAC) confirms Robbins to lead restructured Paramount Pictures.
Restaurant-tech company Toast (TOST) seeks $16B valuation in IPO.
Uber (NYSE:UBER) drivers are employees, not gig workers, rules Dutch Court.
Virgin Galactic (NYSE:SPCE) delays first commercial research space mission.
Bitcoin (BTC-USD) could reach $100K; Ether (ETH-USD) to $5K? – Bloomberg Crypto Outlook.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned down. New Zealand did well, but Hong Kong, Taiwan, Indonesia and Singapore were weak. Europe, Africa and the Middle East are currently doing well. The UK, Denmark, Poland, France, Germany, Russia, Switzerland, Spain, the Netherlands, Italy, Portugal, Israel and Austria are posting solid gains. 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 up. Oil is up; copper is down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
China crackdown continues
Chinese regulators continue to apply pressure on the country’s biggest tech companies, this time reportedly looking to split up Alibaba (NYSE:BABA) founder Jack Ma’s Alipay. Beijing is pushing for Alipay to create a separate app for its loan business.
Chinese stocks are coming off a choppy week where the worries about government crackdowns were exacerbated, not least by the vagaries of the actions. Gaming stocks Tencent (OTCPK:TCEHY) and NetEase (NASDAQ:NTES) faced the brunt of the focus the last couple of weeks as Beijing imposed restrictions on online gaming hours for children. Last week, the stocks dropped sharply on a report from the South China Morning Post that regulators were halting approval of online games, only to bounce back some after the paper later clarified the government is just slowing approvals for now.
Leader Xi Jinping is making these moves to address social inequality and “avoid an existential threat from an outsider of the Chinese Communist Party” that could challenge the hierarchy, Thanos Papasavvas, CIO at ABP Invest, said on Bloomberg TV earlier this month.
Christopher Wood, global head of equities strategy at Jefferies, says that the moves simply look like Beijing wanting its gaming limit of three hours per week enforced, but that the market reaction shows increasing nervousness in the sector.
“The problem remains that for many foreign equity investors, given the structuring of their portfolios, the internet sector is the private sector in China for all practical purposes,” Wood writes in his latest “GREED & fear” note. (Emphasis added.)
“In this respect, the issue remains that foreign investors’ recent experience in Chinese equities is very different from investors in the mainland market,” he says. “This is because the portfolios of growth orientated foreign investors have traditionally been most exposed, in GREED & fear’s view, to the three sectors most at risk of continuing regulation. That is internet, education and healthcare.”
Tech makes up 38.7% of the MSCI China Index (NASDAQ:MCHI) and 13.6% of the MSCI Emerging Markets Index (NYSEARCA:EEM).
Retail fervor: While the sector is mostly driven by institutional money, “there is also evidence of late of bargain hunting on the part of American retail investors,” looking at the KraneShares CSI China Internet ETF (NYSEARCA:KWEB), tracking the CSI China Overseas Internet Index. “While the ETF’s price has declined by 50% from the peak reached in mid-February, its shares outstanding and market capitalization are up 222% and 64% over the same period to 149m shares and US$7.9bn respectively,” Wood says.
The problem with passive: As big companies get bigger, their outsize influence on indexes could become a vulnerability. “The Chinese regulatory campaign against the internet sector, in terms of changing the rules of the game, is also a salutary reminder that the ultimate problem with passive investing, otherwise known as investor socialism, is that everybody owns the same thing; a trend further exacerbated by the boom in investing in index tracking ETFs,” Wood asserts. And the problem isn’t confined to China.
“With the six Big Tech stocks now accounting for 24.7% of the S&P500 market capitalization, the risks are obvious if Washington ever summons the backbone to actually do something about Big Tech as opposed to just talking about it,” he adds. The “new head of the Federal Trade Commission, Lina Khan, clearly wants to do something about. But it is quite another question whether she will be allowed to.”
iPhone launch
Apple (NASDAQ:AAPL) will host a “California streaming” launch event on September 14 at 10 a.m. PDT and is expected to debut the so-called iPhone 13 lineup, handsets that follow the launch of the first 5G iPhones last year and the resulting supercycle.
The event will be the “biggest day of the year for hardware,” said Loup Ventures analyst Gene Munster in a research note released last week. Munster expects a second launch day in October, with the new models announced at both events “accounting for about 40-50% of the company’s revenue over the next 12 months.”
“From an investor’s standpoint, the trajectory of the iPhone business over the next year has less to do about specs and pricing, and more to do with the age of the phone,” wrote Munster. “Last year, we estimated the pool of iPhones three years or older to be 420M. That base will drive iPhone revenue growth in FY21 of about 40%, compared to a typical year of low single-digit growth.”
Wall Street is looking for 5% growth and 260 million units for next year, though Munster sees potential upside to that growth rate due to the pool of about 400 million iPhones that are three years or older.
Optimism on financials
Jefferies equity strategists map out their reasons for going bullish on Financials. With the U.S. yield curve steepening in the past two months and the U.S. breakeven curve flattening from deep inversion, “the market is beginning to recognize that both tapering and the rate cycle are appearing on the horizon,” write the strategists led by Global Equity Strategist Sean Darby.
U.S. bank stocks have been treading water during that time as forward earnings revisions have been stable. And before the Delta variant, surveys were indicating a shift to a lending cycle from an impairment phase, they noted.
Bitcoin to $100K?
The recent eye-catching rally seen in Bitcoin (BTC-USD), which started at $30K level at the end of July, could just be the beginning of an even larger surge to $100K, with Ethereum (ETH-USD) potentially reaching $5K, as both cryptos face increasing demand and diminishing supply, according to the Bloomberg Crypto Outlook, dubbed Onward and Upward. Ether leads Bitcoin on a month-to-month basis, outperforming BTC by almost three-fold year over year.
Bloomberg’s report said Bitcoin “is well on its way to becoming the digital reserve asset in a world going that way,” but keep in mind that in order for a world reserve currency to function as “money”, it must perform as a medium of exchange, unit of account, and a store of value.
Pfizer child vaccine
Amid surging Delta variant cases in the U.S., COVID-19 vaccines for children ages 5 to 11 could be available as soon as the end of October, The New York Times reports. The timeline is based on the expectation that Pfizer (NYSE:PFE) – BioNTech (NASDAQ:BNTX) will have enough data from clinical trials to seek emergency use authorization for that age group from FDA towards the end of this month.
Dr. Scott Gottlieb, a former commissioner of the FDA who also sits on the board of Pfizer said that getting the green light for younger children will require careful and expeditious review of the clinical data.
Today’s Economic Calendar
2:00 PM Treasury Statement
Companies reporting earnings today »
What else is happening…
Dynavax (NASDAQ:DVAX) under pressure after U.K. ends COVID-19 vaccine deal with collaborator Valneva (VALN).
NXP Semiconductors (NASDAQ:NXPI) picks TCS as a strategic partner to drive IT innovation.
Outer Banks,’ ‘Vivo’ pace Netflix (NASDAQ:NFLX) to another easy streaming ratings win.
Stand fast on Consumer Discretionary, BMO says; REITs still strong.
U.K. to terminate COVID-19 vaccine supply deal with Valneva (VALN).
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