Good morning. Happy Friday.
The Asian/Pacific markets leaned down. China and Indonesia did well; Japan, Hong Kong, New Zealand and Australia were weak. Europe, Africa and the Middle East are mostly down. Denmark, Poland, France, Germany, Russia, Hungary, Spain, the Netherlands, Portugal, Austria and Sweden are down the most. Futures in the States point towards a big gap down open for the cash market.
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The dollar is up slightly. Oil is down; copper is up. Gold is down; silver is up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Spotlight on housing
Seeking Alpha wishes our subscribers a great holiday weekend and a Happy Presidents’ Day! Wall Street Breakfast won’t be published with markets closed on Monday, but tune back in Tuesday.
High inflation, strong consumer spending and a Fed that’s expected to raise rates multiple times this year is shaking up things in the housing market. The 30-year fixed-rate mortgage averaged 3.92% in the week ending Feb. 17, up from 3.69% the week before and higher than 2.81% a year ago, according to the Freddie Mac Primary Mortgage Survey. While rates are still near historic lows, the rising figures are putting some industry watchers on edge amid low inventories, elevated property prices and FOMO bidding wars.
Quote: “The 30-year fixed-rate mortgage is nearing 4%, reaching highs we have not seen since May 2019,” noted Sam Khater, chief economist at Freddie Mac. “As rates and house prices rise, affordability has become a substantial hurdle for potential homebuyers, especially as inflation threatens to place a strain on consumer budgets.”
Mortgage applications to purchase a home also saw a decline of 5.4% on the week, while refinancing applications fell to its lowest level since July 2019 (with rising rates negating many of those benefits). Homebuyers are now faced with a choice of paying more for borrowing costs, or finding a less-expensive home, which also isn’t easy, given that the median sales price of an existing home soared 17% over the past year. Rising mortgage rates could further discourage homebuilders from building new houses, while many may be hesitant to trade up for a bigger residence, leaving first-time buyers with even less potential inventory.
Analyst commentary: “Another year of strong economic growth combined with the Fed’s tighter policy stance will put upward pressure on rates,” explained Joel Kan of the Mortgage Bankers Association. “As the Fed reduces its MBS purchases, we also expect some volatility as other investors step into the market but without the steady purchase flow of the Fed.” (6 comments)
Moment of truth?
Stocks took another dive on Thursday after President Biden warned that the possibility of Russia invading Ukraine was “very high.” The S&P 500 ended the session down 2% as a risk-off tone spread across assets, while traditional safe-haven gold got a bid, topping $1,900 an ounce. Meanwhile, the VanEck Russia ETF (BATS:RSX), which tracks companies tied to the country, slumped around 5% as pro-Russia rebels and the Ukrainian army traded accusations of shelling in the eastern Donbas region.
Will they or won’t they? Officials in Moscow continue to deny a coming invasion, even calling it “hysteria,” but want security assurances that NATO will pull back its presence in eastern Europe and never allow Ukraine to join the military alliance. Ukraine has repeatedly insisted it won’t give into those demands, with recent discussions centering around other security issues like missile restrictions and measures to build confidence. U.S. intelligence also continues to maintain that Russia has in fact increased its forces near Ukraine by 7,000 troops, not withdrawn them, and is worried about an increase in “false-flag operations” that the Kremlin might use as pretext for an invasion. With Russia due to end its military drills in neighboring Belarus on Feb. 20, will there be a clearer picture after this weekend?
“In the short term, the market is just moving to the indications that it’s seeing out of Russia,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “That negativity and that additional cloud over the market definitely has a lot of weight right now.”
Next steps: Markets appeared to get some respite overnight as S&P 500 futures climbed 0.5%, with Russian Foreign Minister Sergei Lavrov agreeing to meet U.S. Secretary of State Antony Blinken in Europe for talks next week. Blinken will also meet counterparts at the Munich Security Conference this weekend, while Biden hosts a call with the leaders of Canada, the U.K., France, Germany, Italy, Poland, Romania, the EU and NATO. Elsewhere, the U.S. Senate passed a non-binding resolution of “unwavering” U.S. support for Ukraine, as well as condemning the 2014 annexation by Russia of the Crimean peninsula. (31 comments)
Pretty penny
How much did Spotify (NYSE:SPOT) shell out for podcast star Joe Rogan? Reports first suggested the deal was valued at $100M, but it now appears to be worth at least double that. According to the New York Times, the more than $200M contract at the streaming giant covered three and a half years of exclusivity, and despite recent backlash over vaccine misinformation, racism and other problematic themes, The Joe Rogan Experience still remains Spotify’s biggest podcast in more than 90 countries.
The thinking: Already a juggernaut in music streaming, Spotify was looking for a catalyst to propel its platform to the next level. Looking to “further challenge Apple (AAPL) and Google (GOOG, GOOGL), it wanted a superstar podcaster, much as Howard Stern helped put satellite radio on the map in 2006,” per the NYT report. Spotify executives came to view Joe Rogan as that transformative personality, and after an intense courtship, Spotify announced a licensing agreement to exclusively host the JRE in May 2020. Shares even soared 17% the week the deal was announced.
Aiming to find a business that’s more profitable than music hosting (it pays two-thirds of every dollar to rights holders), Spotify also tested out video back in 2015, but nothing came of it. Its strategy eventually centered around becoming the biggest player in podcasting, like creating buzzy new programs on Spotify Originals. It also purchased entire content companies, Gimlet Media in 2019 and The Ringer in 2020, for slightly less than $200M, according to company filings.
Quote: “All music streaming services are offering the same plain vanilla ice cream at the same price,” said Will Page, former chief economist at Spotify. “The overarching issue is how do you make your customer proposition distinct.” (3 comments)
Listen up
Hawkish signals were heard at the latest round of Fedspeak on Thursday, with St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester taking the stage. “The Fed should move faster and more aggressively than it would in other circumstances,” said Bullard, who has advocated for a 100 bps move by July 1, and a balance sheet runoff beginning in the second quarter. He further said that tacking the highest inflation in 40 years may require the central bank to overshoot the neutral target interest rate, which he sees as about 2% (a neutral policy rate means that it’s neither boosting the economy nor hindering it).
No more accommodation: “High inflation imposes a real burden on households and businesses, especially those that do not have the wherewithal to pay more for essential goods and services,” added Mester. “Allowing inflation to remain at high levels can lead firms, households, and financial market participants to expect higher inflation over the longer term. Such a rise in longer-term inflation expectations could then spill over into wage- and price-setting dynamics, leading to even more persistent inflation. And persistently high inflation would undermine sustaining a strong and inclusive expansion.”
Interestingly enough, tensions in Ukraine fueled demand for Treasuries on Thursday, prompting front-end rates to edge lower. As a result, the overnight index swap (linked to the date of the March Fed meeting) displayed a benchmark of about 35 bps above the current effective rate of 0.08%. With the Fed moving in increments of 25 basis points, the odds of a 50 bps hike in March slipped back to 40%, from an almost certain chance at the start of the week.
More Fedspeak: Be on the lookout for more signals today from the central bank. Federal Reserve Board Governor Christopher Waller (more hawkish) will take part in a discussion on monetary policy issues at the University of Chicago Booth School of Business, while New York Fed President John Williams (somewhat dovish) will give a speech on the economic outlook at an event organized by New Jersey City University. (32 comments)
Today’s Economic Calendar
10:00 Existing Home Sales
10:00 E-Commerce Retail Sales
10:00 Leading Indicators
10:00 Quarterly Services Report
10:15 Fed’s Evans: U.S. Economic and Monetary Policy
11:00 Fed’s Williams: Economic Outlook
1:00 PM Baker-Hughes Rig Count
1:30 PM Fed’s Brainard: U.S. Economic and Monetary Policy
What else is happening…
Meta Platforms (FB) drops out of top 10 companies by market value.
Walmart (WMT) navigates through supply chain, pandemic challenges.
Mustang Mach-E (F) tops Model 3 (TSLA) at Consumer Reports.
Investor Day: No big profit margin gains for Intel (INTC) before 2025.
Tencent (OTCPK:TCEHY), Alibaba (BABA) land on U.S. ‘notorious markets’ list.
Affirm (AFRM) has lost 75%+ of its value since its high. Is it a buy?
Roku (ROKU) call: Supply chain woes causing multiple problems.
Goldman Sachs (GS) boosts targets for ROE, Asset and Wealth Management.
Here’s the cheapest ETF to play gold as it flirts with $1,900.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets were split. Hong Kong, New Zealand and Thailand did well; Japan and South Korea were weak. Europe, Africa and the Middle East are mostly down. The UK, Poland, Russia, Greece, Finland, Hungary, Austria and Sweden are down the most. Futures in the States point towards a big gap down open for the cash market.
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The dollar is up slightly. Oil is down; copper is flat. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Pandemic fades
Is the COVID pandemic finally coming to an end? It sure looks like it, based on latest guidance from Shopify (SHOP). After posting 86% revenue growth in 2020 and a 57% surge last year, the e-commerce software provider said its pace of growth won’t be as strong in 2022. Shares of Shopify slid 16% on Wednesday following the cautious update from the company, which dragged down related online retail stocks like Etsy (ETSY), eBay (EBAY), Wayfair (W) and Chewy (CHWY). Other pandemic favorites, like Roblox (RBLX), tumbled 26% for its worst day ever, as kids dialed back online activity and spent more time out of the house.
Quote: “We believe that the COVID-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term,” Shopify CFO Amy Shapero declared. While she noted that “for the full year, we see economic growth supporting the continued penetration of retail by ecommerce,” investors seemed entirely focused on the first part of the statement, given the recent lifting of pandemic restrictions and full reopening of the economy.
The sentiment is also being expressed at the highest level of government, with the CDC saying it “wants to give people a break from things like mask-wearing” and “get to a point where COVID-19 is no longer disrupting our daily lives.” Many states and localities that have long implemented restrictions have eased them in recent weeks, with Philadelphia and Seattle becoming the latest to rescind vax mandates for restaurants and Disney World (DIS) ditching masks for vaccinated guests. Many were also quick to point out that few attendees at the Super Bowl this year were seen wearing face coverings despite a California mandate and crowd of over 70,000 fans inside SoFi Stadium.
Go deeper: “I have not seen a lot of companies who are prepared for post-pandemic,” said CNBC’s Mad Money host Jim Cramer. “I’ve seen a lot of companies that were kind of banking on a little more pandemic. We’re not in a world of the pandemic anymore [and just months away from wider availability of antivirals] – that’s the key, that’s the end.”
Avocado ban
Consumers and restaurants alike are facing another supply crunch after the U.S. suspended all avocado imports from Mexico. The action followed a credible death threat issued to a U.S. safety inspector, who denied permission for a shipment from the Mexican state of Michoacán. A warning was previously issued in 2019, stating that export privileges would immediately be revoked following an earlier threat to another safety inspector.
Get your guac in while you can: It’s lucky that the Super Bowl just passed, but avocados are still the single largest American fruit import. Over 90% of the nation’s avocados came from Mexico, which exports over 80% of its crop to the U.S. The market is even worth more than $2.5B each year, making it a major industry (and a target for crime groups).
Meanwhile, the monthly average price of an avocado has already climbed about 40% since January 2021, and consumers can now expect to pay about $1.36 per avocado, according to Zhengfei Guan, a food and resource economics professor at the University of Florida. If the suspension lasts more than two weeks, it can also weigh on the profit margins of companies that are highly dependent on the fruit as their stock runs out. Truist analyst Jake Bartlett estimates that avocados account for 5%-10% of Chipotle’s (NYSE:CMG) cost of goods sold and about 2% of El Pollo Loco’s (NASDAQ:LOCO).
Next steps: Staff from the U.S. Department of Agriculture Animal and Plant Health Inspection Service have been dispatched to Michoacán to “collaborate with local officials to get inspections back on track as soon as possible.” However, it will “remain in place for as long as necessary to ensure the appropriate actions are taken, to secure the safety of APHIS personnel working in Mexico.”
Fight over fees
Relations between Amazon (NASDAQ:AMZN) and Visa (NYSE:V) have been deteriorating for months, but the two companies have just worked out an agreement. At issue was a feud over swipe fees, which Amazon pays to accept the financial giant’s cards for e-commerce transactions. During the worst of the crisis, Amazon began adding surcharges to customers who used Visa credit cards on its Singapore and Australia websites, and even threatened to ban Visa cards from Amazon.co.uk.
Backdrop: Tensions over transaction fees have been ongoing for some time, but last October, Visa significantly upped the charges it takes for credit card payments made online between the U.K. and the EU. Amazon wasn’t taking any of it, especially since Visa oftentimes secures special pricing agreements for its top clients, which encourages them to send more volume over its network. In fact, Visa earmarked $8.4B for those incentives in fiscal 2021, 26% more than the previous year.
Playing some hardball, Amazon considered shifting its popular co-brand credit card – one of the industry’s largest co-branded portfolios – to rival Mastercard (NYSE:MA). It also flagged Visa’s policy of classifying e-commerce payments as “card not present,” which generally means higher fees. That’s on top of the surcharges introduced in Australia and Singapore, as well as the potential ban in the U.K., which is Amazon’s third largest market after the U.S. and Germany.
Outlook: The whole spat has put a spotlight on credit card transaction fees, and could eventually provide an opening for other payment options, especially upcoming fintech players. Account-to-account payments and ‘buy now, pay later’ option have been exploding in popularity – compared to the payment rails and traditional systems of Visa and Mastercard – and Amazon has been experimenting in the space, offering BNPL options to U.S. shoppers through third-party provider Affirm (NASDAQ:AFRM).
Unstablecoins
The Financial Stability Board is shaking up its stance on cryptos, which are “evolving and could reach a point where they represent a threat to global financial stability.” That’s due to their “scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system,” which vary across jurisdictions and may not be in compliance with applicable laws and regulations. The FSB also cited wider public policy concerns, like “low levels of investor and consumer understanding of crypto, money laundering, cyber-crime and ransomware.”
Flashback: The report is a big change from its previous stance published in 2018, which concluded that crypto did not “pose a material risk to global financial stability.” However, the FSB now sees the market as fast-evolving, underscoring the need for a timely and preemptive evaluation of possible responses. Take for example the recent advertising blitz at Super Bowl LVI, which saw new crypto brands and old-timers throw some skin in the game.
Crypto asset market capitalization even grew by 3.5x in 2021 to $2.6T, according to the Financial Stability Board, which monitors and coordinates financial rules for G20 economies since 2009.
Types of risks: “Increasing linkages between crypto asset markets and the regulated financial system; liquidity mismatch, credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves, with the potential to spill over to short term funding markets; the increased use of leverage in investment strategies; concentration risk of trading platforms; and the opacity and lack of regulatory oversight of the sector.”
Today’s Economic Calendar
8:30 Housing Starts and Permits
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:30 EIA Natural Gas Inventory
11:00 Fed’s Bullard: U.S. Economy and Monetary Policy
4:30 PM Fed Balance Sheet
5:00 PM Fed’s Mester: U.S. Economy and Monetary Policy
What else is happening…
Can Walmart (NYSE:WMT) close 2021 with a strong Q4 performance?
Cisco (NASDAQ:CSCO) posts earnings beat, $15B added to buybacks.
FAA head, who supervised Boeing (NYSE:BA) safety and 5G, steps down.
Russian state media reports Ukrainian armed forces fired on Donbas.
Social media slumps as Google (GOOGL) limits Android tracking.
Hasbro (NASDAQ:HAS) activist seeks 5 board seats, urges Wizards spinoff.
Lumber rallies as ‘unprecedented’ challenges prompt production cuts.
Higher pricing leads Kraft Heinz (NASDAQ:KHC) to top estimates.
DoorDash (NYSE:DASH) soars in relief rally following earnings topper.
Paramount (PARA) plunges as streaming investments spook investors.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets did great. Japan, Hong Kong, South Korea, Taiwan, Australia and New Zealand gained more than 1%. Europe, Africa and the Middle East lean to the upside. Turkey, the UAE, Russia, South Africa, Norway, Hungary, the Netherlands, Israel and Saudi Arabia are leading. Futures in the States point towards a down open for the cash market.
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The dollar is down. Oil is up; copper is down. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Washington, we have a problem
With markets laser-focused on the situation in Ukraine this week, investors seemed to shrug off the latest figures on red-hot inflation. Stocks powered higher yesterday despite a PPI that showed U.S. wholesale prices in January soaring 9.7% from a year ago, more than twice analyst estimates and just short of the largest jump on record seen in May 2021. A slew of more important data is on tap for today, like retail sales, industrial production, the housing market index and FOMC minutes, which could shed further light on how price pressures are impacting the economy.
No peak in sight: “The latest inflation data continue to decimate the ‘inflation is purely transitory’ theory,” noted Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management. “After pricing in less than one Fed hike as of last September, markets and Fed watchers now expect between 6 and 7 hikes over the next year, with some arguing for a 50 basis point move and not just 25.”
Besides causing a stir at the Federal Reserve, Congress is starting to prepare for some action on the fiscal side, though things are getting partisan ahead of midterm election campaigns. Democrats have introduced legislation that would suspend the federal $0.18 per gallon gas tax until next year and are considering pulling some pieces out of the stalled Build Back Better agenda to address prescription drug prices and childcare costs. However, Republicans were quick to criticize the gas-tax holiday, saying Democrats now realize that they were on the wrong side of the energy issue as well as “dumping trillions of dollars in left-wing spending on a recovering economy that already had the preconditions for some inflation.”
Soaring everywhere: One example of how inflation is affecting the housing market can be seen on Airbnb’s (NASDAQ:ABNB) earnings call yesterday, with co-founder and CEO Brian Chesky saying the current landscape may “empower more individuals to become hosts as a source of earning additional income.” Heineken (OTCQX:HEINY) also issued a warning in its quarterly report, outlining that price pressures are “off the charts.” “In my 24 years in the business I’ve never seen anything like it, not even close,” CEO Dolf van den Brink said on a call. “Across the board we are faced with crazy increases, so it’s anybody’s guess what the impact is going to be on volumes. There’s no model that can handle this kind of inflation.”
Raskin ties
Things are getting even more heated on Capitol Hill as a Republican refusal held up a Senate committee vote on the appointment of Sarah Bloom Raskin and Federal Reserve Chair Jerome Powell. Raskin was slated to become the Fed’s Vice Chairwoman of Supervision, or the government’s most influential overseer of the American banking system. The GOP flagged concerns about her business dealings, and their absence from the vote meant the necessary quorum was not there to confirm the nominees.
Quote: “Important questions about Ms. Raskin’s use of the ‘revolving door’ [between politics and corporate interests] remain unanswered largely because of her repeated disingenuousness with the Committee,” declared Senate Banking Committee ranking member Pat Toomey (R-Pa). “Committee Republicans aren’t seeking to delay her vote. We’re seeking answers.” He specifically flagged concerns about Raskin’s prior work for Reserve Trust, a fintech where she worked after departing the Obama administration.
The delay not only affects Raskin, but prolongs the confirmation process for Jerome Powell’s second term – as well as Lisa Cook and Philip Jefferson for Fed governor seats – as the country deals with soaring inflation. Democrats had hoped to confirm all of them as a package, but the latest delay could theoretically push the Biden administration to ditch Raskin. If the GOP indefinitely holds up the committee vote, she could be “discharged” without recommendation, and force the White House to go for a less controversial pick.
What’s the issue? After leaving her role as Treasury’s deputy secretary, Raskin went on to lobby Kansas City Fed President Esther George in 2017 on behalf of fintech Reserve Trust, looking to score a special account at the central bank (it previously denied access to its payments system). Following her personal intervention, the Kansas City Fed approved the company’s second request in 2018, but it maintains the reversal was not the result of Raskin’s call. Having a “master account” still remains Reserve Trust’s largest selling point to customers and it even advertises as such on the homepage of its website.
Spaceflight commercialization
Shares of Virgin Galactic (SPCE) shot into the stratosphere on Tuesday, with the stock skyrocketing 32% to end the session at $10.74. The catalyst was the opening of ticket sales to the general public for the first time, which will move the company closer to spaceflight commercialization. It was a much-needed boost for the stock, which has been battered over the last year, and has dropped over 80% from a high of nearly $56 seen in June 2021.
Bigger picture: CEO Michael Colglazier said Virgin Galactic aims to have its first 1,000 customers on board at the start of commercial service later this year, which he called an “incredibly strong foundation” as the company begins regular operations and scales its fleet. Spaceflight reservations will command a price tag of $450,000 (following an initial deposit of $150,000, customers will make their final payment before their flight).
Morgan Stanley also weighed in on the development by saying the additional ticket sales continue to prove that there is demand for space tourism, but warned that it does not change the execution risks facing the company. The ability for Virgin Galactic to deliver on the backlog depends on delivering reliable operations at scale, according to the firm, which also noted that the Eve mothership is still grounded for its 8-month enhancement period and Galactic has been “assessing the strength margins of materials for potential technical issues.”
Analyst Kristine Liwag: “In our view, demand is not a limiting factor for SPCE. Instead, we see the core challenge for Virgin Galactic centering on execution of its plans to scale operations to 400 flights per year per spaceport. While the opening of SPCE’s ticket window is encouraging, we continue to monitor for updates related to ongoing spacecraft enhancements and development of the company’s Delta class spaceship and next-gen mothership.”
Super ratings & gambling
It’s already a few days after Super Bowl LVI, when the LA Rams defeated the Cincinnati Bengals, but the statistics surrounding the big game are just starting to pour in. The matchup drew some 112M viewers, up about 14% from last year, boosted by remarkably close playoff games, as well as the Rams representing a major media market. About 99.2M viewers tuned in on NBC’s main delivery channel, with another 11.2M on streaming (including NBCUniversal’s Peacock), and about 2M on the Telemundo Spanish network.
Increased competitiveness: The figures wrap up a strong season for the National Football League. Viewership in the regular season rose 10% Y/Y to its highest point since 2015, and the two conference championship games each averaged nearly 50M viewers. NBC was part of the NFL’s landmark 11-year media rights deal reached last spring, netting the league more than $100B long-term and keeping most of the games on traditional TV through 2033.
Gambling on the Super Bowl this year also leaped to fresh records as legalized sports betting continues to boom across the U.S. According to the American Gaming Association, 45M more people had access to legal sportsbooks in their home states this year after 10 additional states gave a green light to the industry. Companies like DraftKings (NASDAQ:DKNG), FanDuel (DUEL) and BetMGM (MGM, OTCPK:GMVHY) are duking it out on the freshly cut field, with the hopes of being able to throw a stiff-arm or strip away market share.
Outlook: GeoComply, which monitors the sports betting industry, logged more than 80M transactions over Super Bowl weekend, more than double that of last year. It also recorded 5.6M unique accounts that accessed legal online sportsbooks, a 95% increase from 2021. Industry analysts say that sports betting and casino-style games are even poised to become as much as a $40B market as online gambling ads dominate TV, podcasting and streaming platforms.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Retail Sales
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:00 NAHB Housing Market Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
11:00 Fed’s Kashkari Speech
1:00 PM Results of $19B, 20-Year Bond Auction
2:00 PM FOMC Minutes
What else is happening…
Is $100+ oil dependent on conflict between Ukraine and Russia?
ConocoPhillips (NYSE:COP) is feeding a Bitcoin mine in North Dakota.
J&J (NYSE:JNJ) says bankruptcy is best way to resolve talc claims.
Roblox (NYSE:RBLX) plunges as metaverse company misses expectations.
Airbnb (NASDAQ:ABNB) soars on gross bookings, guidance comes in strong.
U.S. charges finance site Zero Hedge with spreading Russian propaganda.
Energy drink drama: Constellation (STZ) and Monster (MNST) talk merger.
Disney (NYSE:DIS) names executive to lead metaverse strategy.
Is Cathie Wood’s ARKK a bubble? Let’s look at history.
Judge says Altria (NYSE:MO) didn’t break antitrust rules with Juul investment.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned up. China, India, Malaysia, Indonesia and Thailand did well; Japan, Hong Kong and South Korea were weak. Europe, Africa and the Middle East are posting solid gains. The UK, Denmark, Poland, France, Germany, Russian, Greece, Finland, Switzerland, Spain, the Netherlands, Italy, Portugal, Israel, Austria, Sweden and Saudi Arabia are up big. Futures in the States point towards a big gap up open for the cash market.
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The dollar is down. Oil is down; copper is up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
13F
It’s 13F season, where hedge funds with at least $100M in assets under management disclose their holdings. The flurry of filings gives investors a chance to see what they bought and sold during the quarter, like long positions, and call and put options, though shorts aren’t included on the statements. Besides detailing where the “smart money” is being put to work, some may seek out vulnerabilities they can profit from… remember last year’s GameStop saga? It all started when a Reddit user flagged Melvin Capital’s heavy puts on GME, which eventually spiraled into the notorious short-squeeze enabled by WallStreetBets.
Where are the big guys investing their money? With the form required to be filed within 45 days of the end of a calendar quarter, hedge funds usually wait until the last minute to publish their holdings as not to let the public know what they are doing. Check out some of the top headlines on Seeking Alpha:
David Einhorn’s Greenlight Capital takes positions in Intel, Discovery
ValueAct adds Altus power; exits Lumentum, Rackspace Technology
Soros Fund Management adds Rivian exits Vici, boosts Aramark stakes
Daniel Loeb’s Third Point exits stakes in Paysafe, DiDi; takes new position in Grab
Paul Singer’s Elliott Management takes new stake in Switch; exits Frontier Communications
Ackman’s Pershing Square reduces position in Hilton Worldwide
Tepper’s Appaloosa takes new stake in General Motors; exits Paysafe, Twitter
Melvin Capital takes new stake in Uber; exits Mastercard, Activision Blizzard
Druckenmiller’s Duquesne adds WillScot Mobile Mini, exits Nektar Therapeutics
Activist investor Carl Icahn boosts his holdings of Icahn Enterprises units
Tudor Investment adds Rivian, TriState, exits Agnico Eagle Mines
While the transactions can be helpful, it’s important to remember that 13Fs don’t tell the whole story about what funds are doing. As noted above, bearish bets like short-selling are not included on the statement, so visible long core holdings could actually be hedges against those positions. In some instances, the reports can also reflect investment decisions made months ago, since they are only filed up to 45 days after the quarter is complete.
Case in point: Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) purchased a nearly $1B stake in Activision Blizzard (NASDAQ:ATVI) during Q4 as shares were beat down from the “frat boy culture” lawsuit filed by the California Department of Fair Employment and Housing. The stock fell to as low as $56, before Microsoft (NASDAQ:MSFT) announced its intent in mid-January to acquire the game developer for $95 per share. At Activision’s closing share price of $81.50 on Monday, Berkshire’s stake would be worth almost $1.2B – a solid profit, but who knows if the conglomerate is still holding the position?
Block trading probe
Federal investors have commenced an investigation into block trading on Wall Street and are said to be looking into whether banks improperly tipped off hedge fund clients before large share sales. The SEC has reportedly sent subpoenas to firms including Morgan Stanley (MS) and Goldman Sachs (GS), while the Justice Department is also investigating the matter.
Snapshot: Block trades are important business for Wall Street and there were nearly $70B worth of them last year. That’s a five-year high, according to data from Dealogic. The most active bank last year was Morgan Stanley, which scored more than a quarter of the deals (ranked by value) and earned upwards of $300M in fees.
The latest probe is part of a long-running investigation into stock transactions that are typically big enough to move markets. Regulators have been checking into similar irregularities since at least 2019, when the SEC first requested records from big financial institutions.
Example: Once a block sale hits the market (or even hours before), the stock being offloaded tends to go down due to the increase of share supply. That can give an opportunity to favored hedge funds – that were alerted to coming transactions as liquidity providers – to make money on a short sale, in which an investor sells borrowed stock and buys it back at a lower price. Things get even more complicated, as there are no definitive rules on how Wall Street firms can tell clients about coming block trades, as well as questions whether revealing such information – or acting on – is in fact illegal.
De-escalation?
European markets are getting a lift this morning from headlines out of Russia, where the country’s defense ministry announced the pullback of some forces after they completed military drills near the border with Ukraine. Units of the Western and Southern military districts will now begin returning to their permanent bases, according to the Interfax news agency. U.S. stock index futures are riding the de-escalation sentiment, with contracts linked to the Dow ahead by 1.1%, and S&P 500 and Nasdaq up 1.4% and 2%, respectively. Hopes of averting an energy crisis also sent crude futures (CL1:COM) down nearly 3% to $92.69 a barrel, retreating from the $95-level seen over the weekend.
Is it a ruse? The news comes a day after the U.S. warned that long-range artillery and rocket launchers were moved into “firing positions,” Russian units were shifted into “attack formation,” and an invasion could “essentially come at any time.” The Kremlin has consistently denied plans of an attack, saying movements of forces on its own territory are an internal matter. Russia is also continuing its largest drills in years in neighboring Belarus that are due to finish on Feb. 20.
Meanwhile, Ukraine appears to be doubting the “overstated” assessments as well, with security and defense council chief Oleksiy Danilov downplaying the threat of invasion. “Today we do not see that a large-scale offensive by the Russian Federation can take place either on Feb. 16 or 17,” he declared, though he did warn of the risk of “internal destabilization” by unspecified forces. “The situation is fully under control. They will not be able to do any harm to our country now without internal destabilization.”
Between war and peace: Adding to the confusion over the situation on the ground, Ukrainian President Volodymyr Zelensky, who had a career as a comedian before taking office, took to social media yesterday to say that “February 16 will be the day of the attack.” The apparently sarcastic quip triggered a brief bout of selling, with the S&P sliding 1.2%, before Zelensky’s chief of staff explained the remarks should be interpreted as irony. “It’s been a crazy day after a crazy week,” added Michael Purves, founder of Tallbacken Capital Advisors. “We are dealing with very twitchy markets. Geopolitical tensions come with lots of dramatic headlines.”
Another chip deal
Shares of Tower Semiconductor (TSEM) skyrocketed 50% in premarket trade after Intel (INTC) agreed to buy the Israeli chipmaker for $53 per share in cash, representing a total enterprise value of $5.4B. The acquisition advances Intel’s IDM 2.0 strategy as the company expands its manufacturing capacity, global footprint and technology portfolio to address industry demand. It will also accelerate its path to becoming a major provider of foundry services and capacity globally.
Bigger picture: Many companies are looking to secure chip capabilities following a pandemic that saw a global semiconductor shortage snowball into a crisis. Early in the pandemic, many firms canceled their orders fearing a demand dropoff, but were pressed to secure supplies when it rebounded strongly not long after. Remote work and learning additionally saw a strong demand for computers, networks and electronics, as well as a large range of durable goods, like cars and trucks, which can require thousands of chips.
“This deal will enable Intel to offer a compelling breadth of leading-edge nodes and differentiated specialty technologies on mature nodes – unlocking new opportunities for existing and future customers in an era of unprecedented demand for semiconductors,” CEO Pat Gelsinger said in a statement.
Go deeper: In January, Intel announced a whopping $20B investment for a massive new manufacturing facility near Columbus, Ohio. The company will build at least two semiconductor fabrication plants, or fabs, on the 1,000-acre site, though it has the option to eventually expand it to 2,000 acres and up to eight fabs. Construction will begin this year and comes in addition to another $20B investment to build two fabs in Arizona.
Today’s Economic Calendar
8:30 Producer Price Index
8:30 Empire State Mfg Survey
8:55 Redbook Chain Store Sales
4:00 PM Treasury International Capital
What else is happening…
Fed’s Bullard wants to ‘front-load’ rate hikes to get inflation under control.
Texas sues Facebook owner Meta (NASDAQ:FB) over face recognition.
BP (NYSE:BP) is sticking with Russia as Ukraine crisis has ‘no impact.’
COVID vaccine makers decline following delayed FDA decision for kids.
Chip deal: AMD (NASDAQ:AMD) completes Xilinx (NASDAQ:XLNX) acquisition.
India bans 54 Chinese apps like Alibaba (BABA) and NetEase (NTES).
Ontario to end COVID vaccine passports, capacity limits by March 1.
3M (NYSE:MMM) expects demand for face masks to wane this year.
Besides bird flu, Barclays turns cautious on Tyson Foods (NYSE:TSN).
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Good morning. Happy Monday. Hope you had a great weekend.
The Asian/Pacific markets were weak. Japan, China, Hong Kong, South Korea, India, Taiwan and Indonesia all suffered big losses. Europe, Africa and the Middle East are getting hit hard. The UK, Denmark, Poland, France, Turkey, Germany, Russian, Greece, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Sweden and the Czech Republic are down more than 1%. Futures in the States point towards a down open for the cash market.
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The dollar is up. Oil and copper are down. Gold and silver are up. Bonds are down. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Pending invasion?
A weekend call between President Biden and Vladimir Putin didn’t produce any breakthroughs on the situation in Ukraine, though many analysts didn’t anticipate a resolution. The U.S. is not giving in to Russian demands – that NATO pull back its presence in eastern Europe or never allow Ukraine to join the military alliance – and in fact, sees that an invasion could be imminent. National Security Advisor Jake Sullivan announced that an assault could come “any day now,” meaning an incursion may happen in the middle of the Beijing Winter Olympics, which was previously seen as no go since the Games are being hosted by Russian ally President Xi Jinping.
Market spillover: The uncertainty has financial markets on edge, with the pan-European Stoxx 600 opening down 2.6% on Monday, while stock index futures in the U.S. also headed lower. In the energy sector, benchmark European gas prices soared as much as 14% on concerns that a conflict could rattle supplies, while crude oil continued its climb toward $100 a barrel. That could drive red-hot inflation even higher, sparking a cost-of-living crisis and weighing on global economic growth.
Meanwhile, the U.S. continues to threaten “swift, decisive and severe” economic sanctions should Moscow goes through with an invasion, though it will not send in troops in case of a conflict. Cutting Russia off from the international payments system SWIFT is also unlikely, but Biden has said Washington would “bring an end” to the Nord Stream 2 (Russia supplies about 40% of the EU’s natural gas supplies via pipeline). Over the weekend, Kyiv warned that Moscow had already commenced a “hybrid war,” which includes cyberattacks, economic pressure and false bomb threats, and might seek a pretext to send its army deeper into Ukraine.
Thought bubble: Whether Putin invades or not, he definitely likes being in the center of the spotlight. He’s been highly successful at attracting attention with an estimated 130,000 troops on the border with Ukraine, but many are hoping the coercive diplomacy won’t spiral into something bigger for the continent. Remember that the architecture for European security has been deteriorating for the last decade, and most recently saw the termination/withdrawal of the Treaty on Open Skies in November 2020, the Intermediate-Range Nuclear Forces Treaty in August 2019 and the Treaty on Conventional Armed Forces in Europe in March 2015.
Aerofail
Major defense names like Northrop Grumman (NOC) and L3Harris (LHX) rallied into the weekend on signs of Russian escalation in Ukraine, though another sector headline made waves on Sunday. Lockheed Martin (LMT) called off plans to acquire rocket engine maker Aerojet Rocketdyne (AJRD) under a $4.4B deal that was announced in late 2020. Aerojet is the only large, independent producer of engines for rockets and missiles in America, including liquid and solid booster propulsion, as well as air-breathing hypersonics.
What happened? The Federal Trade Commission sued to block the tie-up last month on the grounds that it could hinder competition. In fact, Lockheed Martin, the world’s largest defense company by sales, accounts for 33% of all of Aerojet’s sales. The commission also argued that Lockheed could use its control of Aerojet to hurt other defense contractors or harm markets that are critical to national security and defense.
“Our planned acquisition of Aerojet Rocketdyne would have benefited the entire industry through greater efficiency, speed, and significant cost reductions for the U.S. government,” Lockheed CEO Jim Taiclet declared, adding that terminating the deal was now in its shareholders’ best interest. Both sides likely anticipated some serious regulatory pushback since a termination fee was not included in the agreement in case authorities opposed the combination.
Outlook: Companies are broadly facing tougher approvals for mergers under the Biden administration, which has pushed for more scrutiny of corporate takeovers. Besides Lockheed’s blocked purchase of Aerojet, the U.S. Department of Justice is trying to disrupt American Airlines’ (AAL) domestic alliance with JetBlue (JBLU). Last week, Nvidia (NVDA) also pulled its planned acquisition of Arm Ltd. from SoftBank (OTCPK:SFTBY), citing “significant regulatory challenges.”
Emergency hike?
Speculation is surfacing over an emergency rate hike with decades-high inflation proving to be a more persistent problem than policymakers have anticipated. It’s everywhere. Food bills, energy, rent, used-cars, electronic components – you name it. Looking to protect profits, more and more companies are looking to pass along price increases to customers as inflation shows no signs of abating.
Gotta raise em’: The market is now pricing in a nearly 100% chance of a 50-basis point hike next month, when the Federal Reserve convenes for its March policy meeting. The percentage is notable given that odds were below 50% at the beginning of last week. Fed funds futures are also pricing in a near-100% chance rates reach 1% in three meetings, and by the end of the year, the benchmark rate could hit 1.75% or more.
Meanwhile, the Fed is meeting today to discuss the advance and discount rates “under expedited procedures.” While the “out of cycle” gathering was labeled as an “emergency meeting” by some on social media, the event takes place every month (even during ones that include scheduled policy meetings). In fact, the last time the Fed hiked rates between meetings was in April 1994, when the central bank embarked on a tightening cycle due to fears over inflation.
Analyst commentary: “Those were days when fixed income markets lorded it over equities and bonds could frighten policymakers,” said Societe Generale’s Kit Juckes. “That 1994 Fed hike was followed by a week of falling yields – even 2-year yields fell slightly – before the bear market returned with a vengeance. An intra-meeting hike when monthly CPI data came in a modest 0.1% higher on the month than expected, and we can all see that base effects will only turn helpful to the inflation outlook in Q2, could be interpreted as panicky and seems unlikely. A 50 bps is definitely less unlikely, if only because it is priced in.”
Ambassador Bridge
North America’s busiest trade link is open for business once again after Canadian police ended a six-day blockade spurred by the “Freedom Convoy” protests. The Ambassador Bridge connects downtown Detroit with Windsor, Ontario, and is responsible for 30% of $600B in annual two-way trade between the U.S. and Canada. All lanes were open for traffic as of 11 p.m. ET, and while normal border processing has resumed, Canada’s Border Services Agency advised against non-essential travel.
Snapshot: Police stepped up their presence on Sunday with more than 50 cruisers, buses and armored trucks, making arrests and towing vehicles to clear access to the bridge. A Canadian judge had earlier granted police permission to forcibly remove protesters following a petition from the City of Windsor and auto industry representatives. High-level consultations also took place, with President Biden meeting with Prime Minister Trudeau via video teleconference on Friday.
Carmakers like Ford (NYSE:F), General Motors (NYSE:GM) and Chrysler-maker Stellantis (NYSE:STLA) had to cut production over the last week since parts couldn’t be delivered. Canadian auto parts suppliers also started to cut output without being able to ship orders to the U.S. According to IHS Markit, the blockade could cost the industry as much as $850M, with the daily flow in vehicles and parts estimated at $141M per day.
Go deeper: While the demonstration on the Ambassador Bridge has come to an end, the protests are continuing elsewhere. Truckers and their supporters have been camped out in Ottawa for three weeks, disrupting life in the Canadian capital. Another “Freedom Convoy” continues to block access to the Coutts border crossing in western Canada, connecting the province of Alberta with Montana, while traffic has also been disrupted on the Peace Bridge near Buffalo and the Surrey border crossing in British Columbia.
Today’s Economic Calendar
No events scheduled
What else is happening…
Rams win Super Bowl dominated by crypto, EVs and sports betting.
Pfizer (NYSE:PFE) delays request for COVID shot for under 5-year-olds.
Cisco (NASDAQ:CSCO) makes $20B takeover offer for Splunk (NASDAQ:SPLK).
Videogame sales dip for third month despite hardware surge.
Soccer legend Ronaldinho partners with Graph Blockchain (OTCPK:REGRF).
Wells Fargo likens crypto frenzy phase to ‘internet’ in dot-com bubble.
Blackstone (NYSE:BX) wins Australia’s Crown Resorts after year-long pursuit.
Walgreens (NASDAQ:WBA) gives Boots buyers deadline for 1st-round bids.
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