Good morning. Happy Friday.
The Asian/Pacific markets leaned down. Malaysia and the Philippines did well, but Japan, China, Hong Kong and India dropped more than 1%. Europe, Africa and the Middle East are currently down big. Denmark, France, Turkey, Germany, Russia, Finland, Spain, the Netherlands, Italy and Sweden are down 1% or more. Futures in the States point towards a moderate gap down open for the cash market.
————— VIDEO –>> The Biggest Tell is the Movement of Individual Stocks —————
The dollar is up slightly. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Cue the volatility
Following a rally after Wednesday’s Fed meeting and the following morning, Wall Street indices turned south about an hour into the session on Thursday and continued to descend into the close. While investors were happy to see that the Fed took steps to address inflation, there are still a lot of questions about its long-term strategy. The Nasdaq fell 2.5% and rate-sensitive growth stocks fell sharply as an attempt by the central bank to strike a balance between stabilizing prices and supporting the economy could prove challenging.
Another wild card: Omicron is spreading fast within major cities like London, which is recording cases that are off the charts compared to any previous wave of the pandemic. The explosion in the U.S. is imminent too, with the positive infection rate in New York City doubling from 3.9% to 7.8% in just a few days. Offices are sending workers home again, long lines are being seen at testing centers, and there are studies that Omicron replicates 70 times faster than Delta in human airways.
So far, each wave of the pandemic has had a smaller economic effect than the one that preceded it. While traders are betting that will be the same with Omicron, it is still too early to tell. The symptoms seem milder, but it is extremely contagious, and that could prove to be very disruptive for the world economy. Take for example China, which has depended on a “zero-COVID” policy, and the potential for coming quarantines and lockdowns to further shake up the global supply chain.
Analyst commentary: “The bigger challenge for the Fed and for the markets is that they may not have the scope to raise rates as much as they say they do without inverting the yield curve and slowing down the economy more than they want,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “What the market’s telling you is the Fed doesn’t have much scope to go beyond two or three hikes.” (13 comments)
Line of attack
Central banks across the globe are taking divergent approaches to confronting inflation at the same time as trying to broaden out their pandemic recoveries. We’ve already seen the Federal Reserve’s monetary policy, which accelerated the tapering of its bond-buying program and projected three interest rate increases next year, but the normalization process for others are happening across a different time frame.
Bank of England: On Thursday, officials on the central bank’s Monetary Policy Committee unexpectedly voted eight to one to lift the policy rate to 0.25% from a record low of 0.1%. While a hike had been telegraphed, many had expected the BOE to hold steady until early next year to see if inflation would ease up and the effects of Omicron became clearer. “Monetary policy cannot solve supply-side problems,” Bank of England Governor Andrew Bailey declared, “but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations.”
European Central Bank: “I don’t think that something happening at the Fed is bound to happen [in Europe],” ECB President Christine Lagarde told a news conference. While the bank is ending its €1.85T pandemic emergency purchase program (PEPP) as planned in March, it gave itself flexibility by expanding a separate bond-buying program next year. It also said it wouldn’t increase its key interest rate until it ends its net bond purchases, meaning a “very unlikely” hike in 2022.
Turkey: In an entire league of its own and heavily influenced by President Erdogan, Ankara cut rates for the fourth time since September, to 14% from 15%. That’s despite soaring inflation and deepening a currency crisis that has had devastating impacts on its import-driven economy, as well as Turks’ earnings and savings. The unorthodox monetary policy has seen the Turkish lira lose 40% of its value against the dollar since September, making it one of the worst performing investments in the world.
Others: The Bank of Japan made no changes to its ultra-loose policy, but confirmed plans to scale back its emergency economic support program by March 2022. The Norges Bank raised its interest rate for the second time since September, and flagged another increase in March, after becoming one of the first central banks to hike rates since the start of the pandemic. Meanwhile, the Swiss National Bank kept interest rates at a record low of -0.75% and stuck to its description of the franc as “highly valued” following the currency’s latest advance against the euro.
Health IT
Oracle (ORCL) is said to be in discussions to purchase medical records company Cerner (CERN), according to reports from the WSJ and FT. With the transaction valued at around $30B, the deal would be the largest ever for Oracle, and push the enterprise-software giant further into healthcare. Shares are diverging in premarket trade, with Cerner up 16% to $92.26, and Oracle falling nearly 4% to $99.44.
Bigger picture: Cerner has been the subject of takeover speculation this year after a Betaville report in May suggested that the company may be a potential target. Some people following the matter predicted that potential buyers could include Microsoft (MSFT), Google (GOOG, GOOGL) and even Oracle. The takeover speculation dampened in August, when new CEO David Feinberg joined Cerner from Google, but recently heated up again as Hellman & Friedman and Bain Capital agreed to acquire Athenahealth for about $17B in November.
Based in Kansas City, Cerner designs software that hospitals, clinics and doctors use to store and analyze medical records. Per the company’s mission statement: “For 40 years, we’ve worked at the intersection of healthcare and information technology to connect people and systems around the world.” Oracle also has a significant presence in healthcare, offering technology that parses data to increase efficiency and improve patient outcomes.
Commentary: “We view the potential deal as a positive for CERN as it will allow the company to undergo its transition from an EHR to a healthcare platform within the cover of a far larger organization, and with the benefit of a premium takeout valuation,” noted SVB Leerink’s Stephanie Davis. “We are cautious on potential pushback from Oracle shareholders creating risk to a deal announcement, as the deal would mark a transition away from the company’s core organic growth acceleration story while the check size implies likely dilution to holders.” (5 comments)
mRNA wins out
A 15-member advisory panel of the Centers for Disease Control and Prevention has voted unanimously that messenger-RNA-based COVID-19 vaccines from Pfizer-BioNTech (PFE, BNTX) and Moderna (MRNA) should be the preferred over the shot from Johnson & Johnson (JNJ). In recommending the move, the panelists cited rare but serious blood clots linked to the vector-based COVID shot from J&J. While there were nine confirmed deaths due to rare clotting events following immunization with the latter’s jab, mRNA-based shots were more effective and posed no such risk.
Backdrop: After a brief pause in its use amid clotting concerns, U.S. regulators allowed the resumption of J&J’s single-dose shot in late April. The company maintains that its COVID-19 vaccine still remains an important option for many individuals, especially those in low- and middle-income countries. It also “remains an important choice in the U.S. for people who can’t or won’t return for multiple vaccinations or who would remain unvaccinated without an alternative to the mRNA vaccines.”
J&J further explained it is committed to education and generating awareness of rare events, such as thrombosis with thrombocytopenia syndrome, that has been seen with its vaccine. More than 200M Americans are considered fully vaccinated, including about 16M who got the J&J shot. It’s also important to note that the advisory committees of the CDC only issue non-binding recommendations, but the federal agency usually follows them for a final decision.
How they work: Messenger RNA vaccines use genetically engineered mRNA to give your cells instructions for how to make the S protein found on the surface of the COVID-19 virus. After vaccination, lipid nanoparticles prompt your immune cells to begin making the protein pieces and displaying them on cell surfaces, causing your body to produce antibodies. Viral vector vaccines use a different carrier, employing a human adenovirus with a COVID spike protein DNA code (actual viral material) that sets off an immune response against the coronavirus. (32 comments)
Today’s Markets
1:00 PM Baker-Hughes Rig Count
1:00 PM Fed’s Daly: Economic Outlook
1:00 PM Fed’s Waller: Economic Outlook
What else is happening…
Adobe (NASDAQ:ADBE) plunges 10% for second-worst day in past decade.
WHO and the EU could approve Novavax’s (NVAX) COVID vaccine next week.
Bruce Springsteen sells his albums and publishing to Sony Music (NYSE:SONY).
FedEx (NYSE:FDX) labor pressures easing, strong demand environment – COO.
Rivian (NASDAQ:RIVN) slides after cutting 2021 EV production expectations.
McDonald’s (NYSE:MCD) settles suit over former CEO’s inappropriate relationships.
Apple (NASDAQ:AAPL) is building team to produce wireless chips in-house – Bloomberg.
Churchill SPAC in talks to take India’s Byju public at potential $48B valuation.
Affirm (NASDAQ:AFRM) slides on CFPB inquiry into “Buy Now, Pay Later” credit.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets posted solid gains. Japan, China, South Korea, Taiwan, Indonesia, Thailand and the Philippines did great. Europe, Africa and the Middle East are currently up big. The UK, Denmark, Poland, France, Turkey, Germany, Russia, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Israel, Austria, Sweden and Saudi Arabia are up 1% or more. Futures in the States point towards a moderate gap up open for the cash market.
————— VIDEO –>> The Biggest Tell is the Movement of Individual Stocks —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Fed clarity?
Doves become hawks
Stock index futures are on the march higher this morning following the best Fed Day session in over a year. The S&P 500 rose 1.6% on Wednesday, erasing losses from the previous two sessions, and ended two points away from an all-time high. The upward movement came despite the central bank’s most hawkish policy pivot in years as it looks to put a lid on inflation (the pace of tapering will be doubled to $30B a month – with further reductions coming next year – while interest rate projections were updated to show a median forecast of three hikes in 2022).
Why are stocks going up? First of all, the market loves certainty. Knowing what to expect on the macroeconomic level next year goes a long way for investors that are closely watching their portfolios, as well as an assurance from the Fed that it is taking inflation seriously. Powell also balanced his rates outlook with a strong dose of optimism about demand and income, and confirmed that “we’re making rapid progress toward maximum employment.”
Heading into Wednesday, the 10-day average of the CBOE put-call ratio lingered near the highest level in 13 months. Even before that, total equities put volume over the past 50 days was already at an all-time high, meaning the market was ready for a bounce if sentiment shifted in that direction. Once equities found a floor, traders who bought into bearish options started to unwind them, propelling stocks in a late-day rally.
Analyst commentary: “We believe the initial positive equity market reaction is due to investors gaining confidence in the Fed’s willingness and ability to fight inflation. As a result, they are decreasing the odds of stagflation and policy error,” said Chris Harvey, head of equity strategy at Wells Fargo. “It seemed like there was some hedging demand into the event, perhaps relief that the event has happened, regardless of outcome,” added Danny Kirsch, head of options at Cornerstone Macro. “The event is gone, sell your hedge and move on.”
WallStreetBets goes to Wall Street
Online message board Reddit (REDDIT) has confidentially filed to go public, submitting a draft registration statement with the SEC. Not too many other details were disclosed, like how many shares would be offered or the price range for the proposed listing. As for the timing, Reddit said the IPO is “expected to occur after the SEC completes its review process, subject to market and other conditions.”
Backdrop: Reddit was created in 2005 and Conde Nast Publications acquired the platform in 2006. It remained a part of the mass media company until it was made an independent subsidiary in 2011, and since then, Reddit has raised a series of funding rounds from venture capital firms. The most recent one came in August, when it raised $700M at a valuation of more than $10B (up from the $6B valuation recorded six months prior).
The shift to public markets will be interesting as Reddit looks to build on the attention it gained at the start of the year when the platform became a force on Wall Street. Its r/WallStreetBets forum transformed into a hot spot for retail traders who rallied around GameStop (GME), and coordinating their buying to drive up the prices of other stocks. The meme trading frenzy brought in millions of new users, as well as new advertisers, the source of the bulk of the company’s revenue. In fact, Reddit reached $100M in advertising revenue during Q2 of 2021, up 192% from the previous year.
Go deeper: Over 900 companies have gone public in 2021, raising nearly $300B in 2021, including high-profile names like Affirm (AFRM), Robinhood (HOOD) and Rivian Automotive (RIVN). Reddit’s IPO will come at the tail end of the banner year and CEO Steve Huffman hopes a lot of retail investors will participate in the listing. The message board platform, known for its “anything goes” ethos, had roughly 52M daily active users and over 100K communities, or “sub-reddits,” as of October 2020.
Stalled in the Senate
Democrats had been hoping to wrap up their roughly $2T social spending bill by the end of the year, but those efforts are faltering. The so-called “human infrastructure” package would cover areas like education, healthcare and climate change, and would need the support of all 50 members of the Senate Democratic caucus to pass. However, Sen. Joe Manchin (D., W.Va.) is still not on board with the bill, saying “budget gimmicks hide the true cost” and it would temporarily fund programs that Democrats intend to later make permanent.
Bigger picture: Manchin’s stance is somewhat in line with the latest estimate from the Congressional Budget Office, which found that a 10-year “permanent Build Back Better” would increase the budget deficit by $2.75T. That finding, released last Friday, evaluated the effect of the spending plan on the deficit if – at the time when provisions would otherwise expire – Congress were to extend them for the remainder of the 10-year period. Political wrangling immediately ensued and lawmakers retreated back to party lines.
“What we’re talking about here is a fake CBO score that is not based on the actual bill that anybody is voting on,” White House Press Secretary Jen Psaki said at a briefing. “This was an ask – request by Senator Graham to score a bill that is not currently being debated.”
Outlook: President Biden has spoken with Manchin at least twice this week, though the two are still at loggerheads over the expanded child tax credit and other issues. Democrats also haven’t solidified their opinion on the state and local tax deduction, and failure to pass the plan could have other long-term implications. The enhanced child tax credit will expire at the end of the year unless Congress extends it, while the developments could influence next year’s midterm elections.
Omicron-specific
A booster is your best chance to fight Omricon, according to White House chief medical advisor Dr. Anthony Fauci, adding that “at this point, there is no need for a variant-specific booster.” “So the message remains clear,” he continued. “If you are unvaccinated get vaccinated, and particularly in the arena of Omicron if you are fully vaccinated, get your booster shot.” Companies ranging from Pfizer (PFE) to Moderna (MRNA) were already researching shots that could be tailored specifically for Omicron and some had even forecast a delivery date in early 2022 if they were needed.
Statistics: The unvaccinated are 8x more likely to end up in the hospital and 14x more likely to die compared with people who are fully vaccinated, according to data from the U.S. Centers for Disease Control and Prevention. Director Rochelle Walensky also said that 36 states have detected Omicron so far, and the variant makes up about 3% of COVID-19 cases nationwide (and up 13% in New York and New Jersey).
Meanwhile, COVID-19 infections are soaring across the country and are starting to upend daily life in some places. NYU and Princeton just joined Cornell as the latest universities to cancel year-end events and move finals online (a major spike in infections has been seen at the schools despite them requiring vaccines). Lines at testing sights are also getting backed up, while Philadelphia’s Health Commissioner even urged households to cancel their upcoming holiday plans.
Grim milestone: The U.S. just passed 800,000 COVID deaths since the start of the pandemic and many hospitals across the nation are now close to capacity. “We expected this to be a three- to six-month crisis and then we expected it to be over – instead it’s 20 months,” noted Dr. John Goldman, an infectious disease expert at UPMC Harrisburg. “We have been very busy since essentially March of 2020. It is very hard for people to continue that level of intensity.”
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Housing Starts and Permits
9:15 Industrial Production
9:45 PMI Composite Flash
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
4:30 PM Fed Balance Sheet
What else is happening…
Rivian (NASDAQ:RIVN) set to report first quarterly results since going public.
Apple (NASDAQ:AAPL) indefinitely postpones workers’ return to the office.
Visa (NYSE:V) discloses new $12B share repurchase program.
De-listing concerns: Alibaba (NYSE:BABA) leads Chinese stock losses.
Bitcoin (BTC-USD) rebounds as Fed doubles taper pace.
Xilinx (NASDAQ:XLNX) deal spread with AMD (NASDAQ:AMD) widens on China worries.
Delta (DAL) sets aggressive targets at Capital Market Day event.
Plant-based package maker goes public via SPAC Gores Holdings VIII (NASDAQ:GIIX).
—————
Good morning. Happy Wednesday. Happy Fed Day.
The Asian/Pacific markets were mostly weak. Japan did well, but China, Hong Kong, India, Australia, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently doing well. Denmark, France, Turkey, Russia, South Africa, Finland, Switzerland, Italy and Saudi Arabia are up; Poland and Spain are down. Futures in the States point towards a flat open for the cash market.
——- VIDEO –>> The Biggest Tell is the Movement of Individual Stocks ——-
The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Fed clarity?
U.S. stock index futures wavered between gains and losses overnight as investors looked for direction ahead of the Federal Reserve’s latest policy meeting. They’re not the only ones trying to get a grasp on the present economic landscape, with the central bank itself pivoting drastically in recent weeks. After maintaining that inflation was “transitory” for much of 2021, Fed Chair Jerome Powell “retired” the idea at the last FOMC gathering, and started emphasizing the other side of his dual mandate = “stable prices” over “maximum employment.”
Policy mistake? Strong inflation readings from March to May were understandable given the strong base effects from the prior year’s lockdowns, but by summer, “transitory factors” were being accompanied by longer-term issues (supply chains, labor shortages, etc.) The Fed still doubled down on its thesis, with the word “transitory” going from meaning a “few months” to a “few quarters,” and then eventually defined as “moving down significantly over the next year.” While the Fed doesn’t have the tools to unlock supply chains or increase the labor force participation rate, holding on to the “transitory” mindset risks unleashing another strong driver of future price increases and endangers a delayed reaction to the current price environment.
Many have still credited Powell and the central bank on navigating the economy through the coronavirus pandemic. He was able to move fast and aggressively compared to other Fed chairs that faced crises, leading to a strong economic rebound and the country nearing full employment. However, there remains a lot of uncertainty over how the Fed is viewing and defining inflation risks, so today’s FOMC meeting might give us some more clues.
What to expect: While benchmark interest rates are likely to remain unchanged at 0%-0.25%, the central bank could hint to an earlier start to interest rate hikes in 2022 (though that would come in the face of new worries over the Omicron variant and the potential hit to growth). Expectations are also high that the Fed will hint at a faster tapering of asset purchases, signaling an end to easy-money policies that have helped fuel this year’s stock market rally. That could weigh on higher valuations, such as technology and consumer-discretionary shares, however, there is a divide in the investor community if that is already priced in. On the fiscal side of things, the Senate just approved raising the debt ceiling by $2.5T (to $31.4T), but the decision was split along party lines over fears about its long-term effects on the economy.
Domino effect
vStarbucks (NASDAQ:SBUX) may have a union problem on its hands, but that depends on who you ask. Following a successful union vote at a Starbucks location in Buffalo last week, two Boston-area locations are beginning to take steps in a similar direction. Three more locations in Buffalo are also heading towards union elections, as well as another store in Mesa, Arizona that just filed for a vote.
Quote: “We want to ensure that our voices are heard and that we have equal power to affect positive change for our store, district, and company,” the Boston employees wrote in a letter to Starbucks CEO Kevin Johnson. “As partners and core contributors to the company’s success, we deserve respect.”
So far, 36 of around 47 employees at locations in Brookline and Allston signed cards indicating their intent to unionize, according to organizing committee members working with Workers United. The same union was responsible for the win in Buffalo last week, with some employees even calling for a national movement to unionize the labor force, particularly at corporations in food service. Starbucks workers in Victoria, Canada, also ratified a collective bargaining agreement with the company in July, nearly a year after voting to unionize.
On the table: Starbucks insists its 9,000 corporate-run stores across the U.S. function best when they work directly with employees, which it calls “partners.” The coffee giant feels it has cultivated a progressive brand more than its peers, closing stores to hold racial bias trainings, offering health benefits to part-timers and recently announcing it would implement a $15 minimum wage nationwide. Starbucks even brought in former CEO and Chairman Emeritus Howard Schultz last month to discuss the union happenings in Buffalo, where he told workers that “no partner has ever needed to have a representative seek to obtain things we all have as partners at Starbucks, and I am saddened and concerned to hear anyone thinks that is needed now.”
Buffett vs. Wood
In what could be called a tortoise (value) vs. hare (growth) matchup, the tortoise appears to be winning this year. In the past month, Berkshire Hathaway (BRK.B) has increased its lead on the more mercurial Ark Innovation ETF (ARKK), rising 1.4% compared to the latter’s 20% decline (and even exceeded the S&P 500’s gain of 0.2%). Of course, Berkshire could be getting a leg up from its biggest equity holding, Apple (AAPL), which makes up about half of the investment firm’s stock portfolio (as of Dec. 10).
Snapshot: Ark Innovation had a sizeable lead on Berkshire in February when retail investors piled into popular stay-at-home trades like Coinbase (COIN), Roku (ROKU), Teladoc (TDOC), and Zoom Video Communications (ZM) – all stocks included in the ETF. Since then, all four tech names have lagged the S&P 500, with only Coinbase managing a gain for the year. Warren Buffett and Cathie Wood are the polar opposites when it comes to investing, with the Oracle of Omaha generally steering clear of disruptive, high-flying technology shares, while the latter is not able to get enough of them.
Buffett’s strategy: At a net worth of $100B, Buffett has had decades to amass a fortune from railroads and oil to consumer goods and industry stalwarts. He typically digs into the fundamentals of companies to find intrinsic value that isn’t appreciated, and favors businesses with easy-to-understand financials and reliable returns. Like Wood, the stock-picking legend has a cult following, with many flocking to “Woodstock for Capitalists” to hear Buffett’s wisdom at Berkshire’s annual meeting.
Wood’s strategy: Her investing approach usually starts by figuring out the total addressable market of a “disruptive” technology, such as artificial intelligence, crypto, DNA sequencing, energy storage and robotics. She then looks for companies that can benefit from the fast-growing area and “changes the way the world works.” While slipping this year, Wood’s Ark Innovation ETF has rallied 360% since its creation in October 2014, while Berkshire Hathaway’s B shares have advanced about 120% in the same time frame.
Corporate policies
While much of the tech industry continues to roll back return-to-work plans, Google (GOOG, GOOGL) is requiring its workforce to come into physical offices three days per week at some point in 2022. It’s also showing little patience for employees that refuse to get vaccines. According to internal documents viewed by CNBC, Google has told its workers that they will lose pay, and will eventually be fired, if they don’t adhere to the company’s COVID-19 vaccination policy.
The memo: Staff who haven’t complied with vaccination rules by Jan. 18 will be placed on “paid administrative leave” for 30 days. After that period, Google will place them on “unpaid personal leave” for up to six months, followed by termination. “Frequent testing is not a valid alternative to vaccination,” according to the memo, though workers can request exemptions for “religious beliefs or medical conditions” that will be evaluated on a case-by-case basis.
Other corporations are also looking to tighten pandemic-related policies for unvaccinated workers given the uncertainty surrounding federal mandates. Kroger (NYSE:KR), one of the biggest employers in the U.S., will no longer provide two weeks of paid emergency leave for unvaxxed employees who contract COVID-19, unless local jurisdictions require otherwise. It will also add a $50 monthly surcharge to company health plans for unvaccinated managers and other non-union employees.
Masks are back: As coronavirus cases rise nationwide, Apple (AAPL) is reinstating its mask mandate for customers that visit any of its U.S. stores, making it the first major American retailer to do so. In addition to reimposing the mandate, Apple will start to limit occupancy at “several locations” across the country. “We regularly monitor conditions and we will adjust our health measures in stores to support the well-being of customers and employees,” Apple said in a statement.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
10:00 Business Inventories
10:00 NAHB Housing Market Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
4:00 PM Treasury International Capital
What else is happening…
Senate hearing: Airline CEOs face questions on cancellations and staffing.
Peloton (NASDAQ:PTON) clarifies product development still planned for next year.
Biden said to evaluate new regulations on China’s largest chipmaker.
Lilly (NYSE:LLY), Regeneron (NASDAQ:REGN) therapies lose power over Omicron.
Pfizer (NYSE:PFE) study highlights effectiveness of COVID-19 pill against new variant.
Rumble SPAC (NASDAQ:CFVI) jumps after Trump social media partnership confirmed.
Musk unloads another $1B of Tesla (NASDAQ:TSLA) stock in latest round of selling.
Videogame sales slide 10% in November, breaking six-month streak.
Adobe (NASDAQ:ADBE) sinks as JPMorgan downgrades on valuation concerns.
Samsara (IOT) IPO: Analysis on the internet-of-things company.
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mostly weak. The Philippines did well, but China, Japan, Hong Kong, South Korea, Taiwan, New Zealand, Malaysia and Indonesia were weak. Europe, Africa and the Middle East lean down. Turkey and Spain are are up; Denmark, Greece, Norway, Hungary and Israel are down. Futures in the States point towards a moderate (S&P) or big (Nasdaq) gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil is down; copper is flat. Gold and silver are flat. Bonds are flat or up slightly. Bitcoin is up slightly.
Stories/News from Seeking Alpha…
Electric road trip
Shares of Harley-Davidson (HOG) soared as much as 14% on Monday after detailing plans to merge its electric motorcycle division with SPAC AEA-Bridges Impact Corp. (IMPX). The deal valued at $1.77B would result in the first publicly traded EV motorcycle company in the U.S. by listing on the New York Stock Exchange under ticker “LVW.” Harley-Davidson would retain a 74% stake in the company, with CEO Jochen Zeitz becoming chairman of LiveWire for up to two years following the completion of the listing.
Backdrop: Earlier this year, Harley-Davidson spun off LiveWire into its own standalone brand as the company looked to recapture market share. Its core baby boomer customer base is getting older, interest in motorcycling is not as popular as it once was, and there’s growing interest in greener vehicles. The company aims to launch multiple electric motorcycles under the LiveWire nameplate, starting with LiveWire ONE, a $21,999 bike with approximately 145 miles of range. Its first model, launched back in 2019, also did not require a clutch or gear shifting, simplifying the operation for new riders.
In an accompanying investor presentation, LiveWire forecast sales volumes of 100,961 electric bikes by 2026. The latest deal is also expected to raise $545M, including a PIPE of $100M from Harley and a similar amount from Taiwan-based power sports manufacturer KYMCO. LiveWire hopes to benefit from at-scale manufacturing, as well as distribution capabilities from Harley and KYMCO, and will also loop in STACYC (a kids electric bike company) into the operation.
Outlook: “If anything this underlines what we’ve been saying for a long time. Detroit, wake up! The train has left the station! EVs are inevitable,” Roth Capital analyst Craig Irwin declared. “Many traditional OEMs with emerging EV businesses can obviously do similar spinoff transactions.” While the electric vehicle SPAC frenzy has seen some successes, like Rivian (RIVN) and Lucid Motors (LCID), others have hit some speed bumps after going public, such as Lordstown (RIDE), Canoo (GOEV), and Nikola (NKLA).
Omicron roundup
Omicron continues to make headlines around the globe as the fast-spreading variant pushes to become the dominant form of COVID-19. Infections in the U.K. are estimated to be running at 200,000 a day, prompting the country to impose new restrictions, while it also became the first nation to publicly confirm a death from the heavily mutated variant. Meanwhile, Norway is banning alcohol in bars in restaurants to curb the outbreak there, while China detected its first Omicron case on the mainland in the city of Tianjin.
Latest research: Vaccine names rose on Wall Street yesterday as additional studies showed COVID shots can protect against Omicron. An Israeli study of 40 participants found that those who received a booster shot had a significant rise in antibodies, while a University of Oxford study also discovered increased protection from boosters. Last week, Pfizer (NYSE:PFE) and partner BioNTech (NASDAQ:BNTX) said preliminary research they conducted found that three doses of their vaccine were effective in neutralizing Omicron.
Over in the U.S., California is imposing a month-long statewide mask mandate for indoor public places regardless of vaccination status. Mandates are also hitting Philadelphia, with the city requiring proof of a COVID vaccine to eat inside a restaurant or food establishment starting from January. On the other side of the fence, some of the largest U.S. hospital systems like HCA Healthcare (NYSE:HCA) and Tenet Healthcare (NYSE:THC) have dropped COVID mandates for staff after a federal appeals court upheld an order blocking the White House’s mandate for healthcare workers and as the industry deals with a severe labor shortage.
Return to the office? Morgan Stanley (NYSE:MS) CEO James Gorman has walked back an order that employees should be back at the office by now, saying he was “wrong” about a widely publicized plan that was based on being out of the pandemic’s worst after Labor Day. “I think we’ll still be in it through most of next year,” he told CNBC. “Everybody’s still finding their way and then you get the Omicron variant; who knows, we’ll have Pi, we’ll have Theta and Epsilon, and we’ll eventually run out letters of the alphabet. It’s continuing to be an issue.”
Slower solar
Tough times could be coming for the solar industry due to supply chain constraints and rising costs for developers. The U.S. market is expected to grow 25% less than previously forecast during 2022, according to a new report by the Solar Energy Industries Association and Wood Mackenzie. Solar shipments were also disrupted for months after an anonymous group filed a petition with the U.S. Commerce Department asking tariffs to be extended to Vietnam, Thailand and Malaysia, though that the appeal was dismissed in November.
Snapshot: Costs related to utility-scale solar projects had declined by 12% between Q1 2019 and Q1 2021, but the recent spike in the price of materials has erased two years’ worth of cost declines. Despite the pressures, the U.S. installed solar capacity jumped 33% Y/Y to 5.4 GW, marking the most additions on record for Q3. America’s total generating capability now consists of 1,200 GW, according to the Public Power Association (though that represents the maximum amount of energy that installations can produce, not what they will necessarily generate).
“The U.S. solar market has never experienced this many opposing dynamics,” said Michelle Davis, principal analyst at Wood Mackenzie. “On the one hand, supply chain constraints continue to escalate, putting gigawatts of projects at risk. On the other, the Build Back Better Act [and extension of the Investment Tax Credit] would be a major market stimulant for this industry, establishing long-term certainty of continued growth.”
Other impediments: In a decision known as NEM 3.0, California regulators have proposed significant changes to the state’s solar incentive program. The policy would reduce payments to solar customers for the excess power they generate – known as net-energy metering – and add monthly charges for customers to connect to the grid. Solar companies and advocacy groups are slamming the proposal, warning that it would slow solar adoption, though proponents feel the current policy harms poorer ratepayers (solar installations are expensive to install) and also flagged a $600M fund to help lower income customers gain access to distributed clean energy.
Tax evasion
A Paris appeals court ordered UBS (UBS) to pay around €1.8B for helping wealthy clients in France evade taxes, reducing the size of an earlier penalty of around €4.5B. The payment will consist of €800M in damages and interest, as well as the confiscation of €1B. In making the decision, the court upheld the guilty verdict against the Swiss banking giant in a case tried under French criminal law.
Flashback: Two years ago, UBS was found guilty of unlawful solicitation and aggravated laundering of the proceeds of tax fraud related to the bank’s cross-border business activities in France between 2004 and 2012. It was said to canvass clients at cocktail parties, hunting trips, sporting events and opera performances, looking for them to open accounts in Switzerland and avoid paying tax. The legal battle originated from visits more than a decade ago, and some bankers were said to even used “James Bond-like” tactics to travel covertly to France.
“We’re not happy about the guilty verdict. We still believe that we didn’t commit any wrongdoing, and that the law is in our favor,” announced Denis Chemla, a lawyer who represented UBS, though he said it was too early to say whether the bank would appeal the case to France’s highest court.
Bottom line: Fines in Europe for tax-related offenses have historically been lower than in the U.S., so the UBS case marks an exception that has been closely watched by other financial institutions.
Today’s Economic Calendar
FOMC meeting begins
6:00 NFIB Small Business Optimism Index
8:30 Producer Price Index
8:55 Redbook Chain Store Sales
What else is happening…
Biden-Harris release electric vehicle charging action plan.
Moderna (NASDAQ:MRNA) in pact with Australia to manufacture mRNA vaccines.
McDonald’s (NYSE:MCD) may launch Beyond Meat’s (BYND) McPlant nationwide.
Starbucks (NASDAQ:SBUX) investigates stores in China for using expired ingredients.
Bitcoin, Ethereum stumble as global crypto market cap tumbles to $2.1T.
Does Pfizer’s (NYSE:PFE) $6.7B acquisition of Arena Pharmaceuticals make sense?
Apple (NASDAQ:AAPL) gets close, but ends day just shy of $3T valuation.
MGM Resorts (MGM) to sell Mirage Hotel & Casino for about $1.1B.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mixed. China, New Zealand and Thailand did well; Hong Kong, India and Singapore were weak. Europe, Africa and the Middle East lean up. Turkey is up huge, thanks is a plunging currency. Denmark, Germany, Sweden and Saudi Arabia are also up; Russia and Hungary are down. Futures in the States point towards a positive open for the cash market.
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The dollar is up. Oil is down slightly; copper is up. Gold is flat; silver is up. Bonds are up. Bitcoin is up slightly relative to the stock market close Friday.
Stories/News from Seeking Alpha…
Lira collapse
The Turkish lira plunged as much as 7% overnight to a new record low near 15 to the dollar, as concerns snowball over President Erdogan’s risky monetary policy. He believes in an unorthodox approach that higher rates cause inflation, rather than prevent it, but despite the beliefs the annual figure reached 21.3% alone in November. Soaring inflation has had devastating impacts on Turkey’s emerging economy reliant on imports, while sharply eroding Turks’ earnings and savings.
Analyst commentary: “Last week’s apparent relative stability of TRY was artificial and non-sustainable. Now we see the build-up pressure unfolding, driving lira weakness to the next level,” Commerzbank said in a research note. “Ultimately, the CBRT needs to show the market some sign of caring about taming inflation,” added Henrik Gullberg, a macro strategist at Coex Partners. “What we have seen so far is not enough to stop the rout.”
The latest crash was prompted by the central bank’s fourth market intervention in two weeks, with the slide leaving the lira worth just half of the value at where it started the year. Under pressure from Erdogan, Turkey’s central bank is also expected to cut its policy rate by another 100 basis points to 14% this week, after slashing the rate by 400 basis points since September. Late on Friday, S&P affirmed Turkey’s long-term foreign currency rating at B+, but revised its outlook to negative on an uncertain policy direction.
Next steps: Erdogan is expected to hold talks today with central bank governor Sahap Kavcioglu, finance minister Nureddin Nebati, as well as the heads of state-owned banks. It’s uncertain where those will lead, as he has fired three central bank chiefs over the last two years due to disagreements over monetary policy. Brawls and fistfights have even broken out among lawmakers in the Turkish parliament as the opposition fight the government’s handling of the economy.
Tornado strike
At least 30 tornados teared across six U.S. states on Friday and early Saturday morning, with some even causing paths of destruction over 200 miles long. The worst of it happened in Kentucky, where Gov. Andy Beshear said the death toll could exceed 100. The storm was all the more unusual because it came in December, when twisters are normally limited due to colder weather.
Tragedy strikes: In Illinois, at least six people were confirmed dead at an Amazon (NASDAQ:AMZN) warehouse that was hit by a tornado. Another twister slammed into a candle factory in Kentucky, where 110 people were working on Friday night. Fatalities were also reported at a nursing home facility in Arkansas, while homes and businesses across the heartland were demolished and leveled.
Damage will easily be in the hundreds of millions, if not $1B, said Chuck Watson, a catastrophe modeler with Enki Research. Meanwhile, President Biden has directed FEMA and other agencies to respond to the disaster after Kentucky declared a state of emergency and activated the National Guard. “The federal government will do everything – everything – it can possibly do to help,” he said at a press conference, adding that he’d ask the EPA if climate change played a role in the devastation.
Amazon CEO Andy Jassy: “We’ve been closely monitoring the terrible situation in Edwardsville, and are heartbroken over the loss of our team members. Our thoughts are with their families at this difficult time,” he wrote in a tweet. “As this situation continues to evolve, I want our Edwardsville community to know we are working closely with local officials & first responders to support them.” Tornado winds ripped off the roof of the Amazon facility near St. Louis, and reduced an 11-inch thick concrete wall that was longer than a football field to rubble.
Swift action?
November’s consumer inflation reading of +6.8% in the U.S., the highest since 1982, is reinforcing a narrative that the Federal Reserve will have to do more to combat soaring price pressures. The central bank is set to quicken its pace of tapering asset purchases, which will set the stage for an earlier interest rate hike. FOMC policymakers will meet tomorrow and Wednesday, with investors hoping to gain insight from the release of the “Summary of Economic Projections,” especially the closely watched “dot-plot.”
Snapshot: Fed Chair Jerome Powell has already said it’s time to talk about speeding up the taper by a few months during his testimony to Congress on Nov. 30. Since those comments, the jobs picture (the other side of the dual mandate) has flashed mixed signals. The number of nonfarm payrolls created last month fell far below the consensus, but the unemployment rate was better than expected (at 4.2%, approaching its pre-pandemic rate of 3.5%) and an improved labor force participation rate.
“I think that their plan right now probably is three rate hikes next year, four rate hikes in 2023,” said David Kelly, J.P. Morgan Asset Management chief global strategist. SGH Macro Advisors Chief U.S. Economist Tim Duy even sees a “high probability that the Fed hikes rates in March,” though he doesn’t expect the policymakers will pencil in that timeline on the dot-plot. “Where the Fed is now and where the Fed is in three months are two different things,” he wrote in a note dated Dec. 7.
Go deeper: Investors globally are also preparing for 20 other central bank meetings this week, including the ECB, Bank of England and Bank of Japan. “The outlook of global monetary policy in transition across multiple geographies at varying speeds is a recipe for volatility, and one could argue so are increased risks around the virus,” declared John Briggs, global head of desk strategy at NatWest Markets. “All the noise and cross-currents means volatility is the most likely outcome.”
Cable news reshuffle
Veteran broadcast anchor Chris Wallace is leaving Fox News (NASDAQ:FOX) following 18 years of blunt and straight-talking interviews that have been a fixture of Washington politics. He’s departing the network to join upcoming streaming service CNN+ (NYSE:T), where he will host interviews “across politics, business, sports and culture.” Wallace was said to have grown frustrated at the tone at Fox – specifically regarding the network’s opinion side – marking the latest shakeup in the cable news world (CNN’s Chris Cuomo was fired earlier this month).
Quote: “I look forward to the new freedom and flexibility streaming affords in interviewing major figures across the news landscape – and finding new ways to tell stories,” Wallace said in a statement. “I want to try something new, to go beyond politics to all the things I’m interested in. I’m ready for a new adventure.” Wallace has won several major broadcasting awards, including three Emmy Awards and a Peabody Award.
This is a “major loss for Fox News, no question about it,” noted Howard Kurtz, host of Fox’s Media Buzz. Analysts have already questioned how the Murdoch family would position Fox News during the Biden administration, with CEO Lachlan Murdoch saying the company would not pivot politically. “We don’t need to go further right. We don’t believe America is further right… And we are obviously not going to pivot left.” Fox shares reached all-time highs this past year, rising above $40 in March and again in October, but closed Friday at the $34 level.
Thought bubble: Wallace’s move comes at a time when CNN is investing heavily in its pivot to direct-to-consumer streaming. The network is planning to hire hundreds of producers, contributors and developers for CNN+, which will include a mix of live shows and longer content like documentaries. AT&T acquired CNN parent WarnerMedia (which was known as Time Warner at the time) in 2016 for $85B, though the company announced a $43B deal to merge WarnerMedia with Discovery (NASDAQ:DISCA) back in May. AT&T shares have been on a downward trend since the summer, falling more than 20% over the last six months.
Today’s Economic Calendar
No events scheduled
What else is happening…
Long ideas? Check out 5 top tech stocks for 2022.
How will crypto miners fare with weaker Bitcoin prices?
Time running out for eToro to complete SPAC merger – Calcalist.
The coming melt-down in office REITs, according to Jonathan Litt.
Bill Ackman blasts CPI calculation, says inflation now in double-digits.
Biggest disruption to society… Should you invest in the Metaverse?
Jefferies picks stocks to add and avoid in a shifting inflation landscape
Apple’s (NASDAQ:AAPL) $3T market cap to be a ‘watershed moment.’
Dollar Tree (DLTR) proposed settlement with activist investor Mantle Ridge.
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