Good morning. Happy Friday.
The Asian/Pacific markets where split. China, India and Malaysia did well; South Korea, Taiwan and the Philippines were weak. Europe, Africa and the Middle East are currently doing well. Poland, Turkey, Russia, Greece, Finland, Spain, the Netherlands, Italy and Austria are leading. Futures in the States point towards a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Energy showdown
It doesn’t look like the Russian gas taps going to Europe will get turned off today, though there is always the possibility of some surprises. Germany and Austria have already begun preparations for rationing, while the bloc of EU countries warned that they were preparing for all contingencies. Russian gas sales to Europe are estimated at $350M a day, and unlike oilfields, gasfields are relatively easy to turn on and off without damaging them.
Backdrop: When Vladimir Putin first announced a ruble payment demand from “unfriendly countries” last week, G7 nations rejected it, saying it would violate contract terms. Since then, the Kremlin has outlined a payment mechanism that would allow foreign buyers to convert their dollars and euros via non-sanctioned Gazprombank. The state-controlled institution would send along rubles to energy giant Gazprom (OTCPK:OGZPY), which has a monopoly on Russian gas exports by pipeline. Putin said the goal was to prevent western governments from seizing payments made in foreign currency and strengthen Russia’s sovereignty.
“For us, with regard to Putin’s threat or announcement or plan – one doesn’t really know what to call it anymore – to get paid in rubles, the main point is that the contracts are being kept,” German Economy Minister Robert Habeck declared. “In any case, it remains the case that companies want to, can and will continue to pay in euros,” added Chancellor Olaf Scholz. Germany is the biggest importer of Russian gas in the European Union, which gets around 40% of its natural gas needs from the now heavily-sanctioned nation.
Go deeper: “I think ultimately Russia wanted to send a message that as long as its gas is being paid for in time and in full [irrespective of which currency is used] the gas will continue to flow,” said Katja Yafimava, Senior Research Fellow at the Oxford Institute for Energy Studies. “If Europe were to lose supplies of Russian gas it would be not because of Russia cutting them off but because of Europe not paying for them.” (13 comments)
Non-farm payrolls
The second quarter is kicking off with the closely-watched jobs report and strong figures could give the Fed more impetus to continue on a rate hike cycle that it hopes will cool inflation. Non-farm payrolls are expected to show 490,000 jobs were added in March, following a 678,000 gain in February. The unemployment rate is expected to fall to 3.7% from 3.8%, while wages are forecast to rise 0.4% M/M and 5.5% Y/Y (from 0.0% and 5.1%).
Snapshot: Positive jobs growth in March would mark the fourteenth consecutive month of expansion for the U.S. workforce and bring the number of employed Americans closer to pre-pandemic levels. Non-farm employment is now only down by 2M payrolls, or 1.4%, compared to its 152M level notched in February 2020. At the height of the COVID employment crisis in April that year, non-farm payrolls slumped to 130M nationwide.
“Transportation still seems to be pretty hot, certainly the hospitality sector, but over the last couple of months, it’s been pretty widespread. We’re seeing jobs gains across most of the jobs sectors,” explained Marvin Loh, senior global macro strategist at State Street. “I would look at retail because when you get these higher gas prices it’s the consumption categories that get hit first.”
Market reaction: Futures linked to the major indices are around 0.5% higher this morning after closing out their worst quarter in two years. The Dow and S&P 500 fell 4.6% and 4.9% during Q1, while the Nasdaq slumped more than 9%. There’s been somewhat of a rally in recent weeks, but fears of inflation, inverted yield curves, oil prices and the war in Ukraine continue to rattle investors.
Union drives
Corporations are still debating how to approach intensifying labor campaigns across the country as the union drives draw some serious media attention. More than 130 Starbucks (SBUX) locations across 26 states have filed for union recognition since the first victory seen in Buffalo in December. Battles are also heating up at Amazon (NASDAQ:AMZN), with union votes held at warehouses in New York and Alabama in recent weeks.
JFK8: An early tally shows a potential victory for organized labor at the Staten Island warehouse, which would create the first-ever union at an Amazon facility in the U.S. At the end of counting on Thursday, the Amazon Labor Union was ahead by a margin of 1,518 votes to 1,154, with the process likely to conclude today. Amazon has worked hard to oppose the effort at its largest fulfillment center in New York, tapping PR firm Global Strategy Group to thwart the effort.
BHM1: Another defeat appears to be in the cards after the National Labor Relations Board ordered a rerun of a vote at the Bessemer warehouse. “No” votes totaled 993 to 875, though 416 ballots remain challenged by Amazon and the RWDSU (meaning things can change in the coming weeks if the NLRB decides to open and count them). The first time around, Amazon was found to have improperly polled workers’ union support during mandatory company meetings, as well as installed a mailbox at the facility that could have intimidated workers by giving a false impression that Amazon was conducting the election.
Outlook: Union supporters are calling for higher wages, better health coverage (like more support for injured workers), and a safer and transparent system for monitoring productivity. On the other side of the fence, Amazon feels that unions are unnecessary given its industry-leading healthcare, vacation time and recent move to raise average starting pay to $18 an hour. For both elections, a simple majority of the return vote is needed in order for the union to begin organizing. (4 comments)
Stock split craze
“Come on, shareholders. All the cool megacaps are doing it.”
GameStop (GME) is the latest company to publicize its intentions for a stock split following a similar announcement from Tesla this week and recent decisions by Apple (AAPL), Amazon (AMZN) and Alphabet (GOOGL). The split would help “provide flexibility for future corporate needs,” according to GameStop, which is looking to increase the number of authorized shares of Class A common stock to 1B from 300M to implement a split in the form of a stock dividend.
Back to the moon? Shares of the meme stock soared 18% to around $200 in premarket trading and up from the $150 level seen at the start of the week. It’s also up over 150% from the 52-week low of $78 hit on March 14. The meme craze has surfaced in recent weeks as traders pile back into riskier assets, though things could crash just as fast as they returned. Last week, GameStop Chairman Ryan Cohen increased his stake in the videogame retailer to 11.9% from 11.8% by adding 100K shares at prices ranging from $96.81 to $108.82.
As mentioned previously: Splitting a stock does not affect underlying fundamentals, but it could attract more investors by making shares more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. In fact, BofA Global Research notes that splits are “historically bullish” for companies, with their shares marking average returns of 25% one year later versus 9% for the overall market. (28 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
9:05 Fed’s Evans Speech
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
1:00 PM Baker-Hughes Rig Count
What else is happening…
U.S. to sell petroleum reserves, incentivize drilling on public lands.
Biden invokes Defense Production Act to boost EV battery production.
Subscription drive: Apple (AAPL) unveils another service for businesses.
SEC adds China’s Baidu (BIDU) to list of firms facing possible delisting.
Walgreens (WBA) indicates slowdown in Q2 growth as COVID impact wanes.
Bill capping insulin cost passes House, fate uncertain in Senate.
Supply chain crisis: Ford (F), GM (GM) halt production at two Michigan plants.
Soybeans slide as USDA sees farmers planting more beans than corn.
Ruble pares all losses seen since the Russian invasion.
Insurance costs from war in Ukraine could reach as high as $35B.
—————
Good morning. Happy Thursday.
The Asian/Pacific leaned down. China, Japan, Hong Kong and Singapore were weak. Europe, Africa and the Middle East markets lean to the downside. Turkey, Russia and the Czech Republic are up; Poland, France, South Africa, Finland, Norway, the Netherlands, Israel and Sweden are down. Futures in the States point towards a flat open open for the cash market.
————— VIDEO: Recent Trades —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Tapping more reserves
The Biden administration is weighing a plan to release around 180M barrels of oil from the Strategic Petroleum Reserve, in what be the largest release from stockpile since it was created in 1975. WTI crude futures (CL1:COM) tumbled 6.7% to $100.53 on the news, while Brent futures (CO1:COM) fell 7.3% to $110.23. The coming SPR decision would likely see 1M barrels released daily over the course of six months, but analysts are still debating the benefits and whether it would put a dent in the inflationary forces seen in the current environment.
Commentary: “Stocks of strategic oil have a limit and flows of commercial oil do not. Flows that stop are a bigger problem than strategic stocks can solve over time,” said Kevin Book, energy policy analyst at ClearView Energy Partners. “Historically, SPR releases have temporarily sent oil prices lower and are then followed by higher prices as the market prices in insufficient supply,” added Josh Young, chief investment officer at Bison Interests. “It is likely that oil prices rise after an initial temporary pullback, and that the SPR may have to be refilled at even higher prices.”
The White House could make the announcement at 1:30 p.m. ET, when President Biden gives a speech aimed at “lowering gas prices at the pump for American families.” According to data from AAA, the national average for a gallon of gas currently stands at $4.23 per gallon, down a penny from a week earlier, but up from $2.87 one year ago. OPEC+ is also scheduled to meet today, but is expected to stick to plans of boosting production by another 400K barrels a day in May despite U.S. pressure to pump more, while the IEA has called an emergency ministerial meeting for Friday to discuss oil supply and coordinate a global release by other countries.
Some history: Washington has released oil from the SPR roughly two dozen times, but most of them have been on a small scale (around 1M barrels) and in the wake of local disasters or emergencies. Over the past six months, however, the Biden administration has coordinated two mega releases of 30M and 50M barrels, while the latest 180M would be a third. Prior to these, big drawdowns from the SPR were a rare event, only coming after supply disruptions during the Libyan civil war in 2011 and Hurricane Katrina in 2005. The SPR currently holds 568.3M barrels of oil, its lowest level since May 2002. (24 comments)
Largest single claim
Sanctions on Russia have been a headache for many companies doing business in the region, with the fallout spreading across many industries. A great example of this is AerCap (NYSE:AER), the world’s largest aircraft lessor, which has more than 100 jets stuck in the country following the invasion of Ukraine. Since the war started on Feb. 24, EU sanctions have forced the termination of the company’s Russian leases that account for 5% of its fleet by value.
Staggering statistic: “Last week we submitted an insurance claim for approximately $3.5B with respect to our aircraft and engines remaining in Russia,” AerCap CFO Peter Juhas told investors on an earnings call. Not only would the claim be the biggest among airplane lessors, but it could be one of the largest single claims ever submitted. It also likely means years of litigation between the lessor and insurers before any payouts are dished out.
“We plan to pursue all other avenues for the recovery of value of our assets, including other legal claims available to us,” Juhas continued. “It is uncertain whether these efforts will be successful. Ultimately, our economic exposure will also be offset by any recoveries that we obtain from insurance or other claims.” Shares of AerCap responded immediately, nosediving 8.4% on Wednesday after the results.
By the numbers: AerCap has only managed to repossess 22 aircraft and three engines located in Russia, out of a total of 135 planes and 14 engines on lease in the country. As of December 31, AerCap had a total of 3,701 aircraft, engines and helicopters on its books, and the company got even bigger last year after its acquisition of rival GECAS, or GE Capital Aviation Services.
Sharing data
Big Tech data practices are in focus again following a story from Bloomberg that put Facebook parent Meta (FB) and Apple (AAPL) in the spotlight. The two firms are said to have provided customer information like addresses, phone numbers and IPs in mid-2021 to hackers who masqueraded as law enforcement officials. Snap (SNAP) was also the recipient of a forged request, but it is not clear if the company complied or responded.
What happened? It’s pretty common for police departments and federal agencies to request information from social media companies for investigations. Those applications are typically submitted with a search warrant or subpoena signed by a judge, unlike “emergency data requests,” which don’t require a court order due to the imminent danger involved. In this scandal, hackers gained access to the email systems of some of the tens of thousands of law enforcement agencies, assuming the identity of officials to submit inquiries.
Complicating matters is the “emergency data request” system, which is not centralized and often spans a patchwork of different email addresses and company portals.
Go deeper: It’s unclear who the hackers were, but some cybersecurity researchers have speculated that it could be a group of teenagers, like the team behind the Lapsus$ hacking of Nvidia (NVDA), Microsoft (MSFT) and Samsung (OTC:SSNLF) in recent weeks. It could also have been performed by the members of a cybercriminal group called Recursion Team, which joined Lapsus$ under different names after unit disbanded. According to Bloomberg, the information obtained by the hackers was used to carry out harassment campaigns or commit financial fraud. (47 comments)
Tough talk
Tamping down speculation that has surfaced in recent weeks, SEC Chair Gary Gensler has revealed that a potential deal for Chinese companies to avoid delistings in the U.S. is not imminent and only total compliance with U.S. audit inspections would allow the companies to keep trading on American markets. Earlier this month, the agency named five firms from China that could be delisted, including YumChina (YUMC), BeiGene (BGNE), Zai Lab (ZLAB), ACM Research (ACMR) and Hutchmed (HCM).
Flashback to Dec. 2020: A measure called the Holding Foreign Companies Accountable Act was signed into law that would kick foreign companies off U.S. stock exchanges if they fail to comply with auditing standards for three years in a row. The rules also required firms to prove that they are not owned or controlled by an entity of a foreign government and to name any board members who are Chinese Communist Party officials.
“There have been thoughtful, respectful, productive conversations, but I don’t know where this is going to end up,” Gensler said in an interview. “It’s up to the Chinese authorities, and it could be frankly a hard set of choices for them.”
Outlook: The remarks are similar to comments made last week by the Public Company Accounting Oversight Board. The agency said that while it’s meeting with Chinese regulators, it’s not clear if Chinese authorities will agree to permit U.S inspectors to fully review audit papers of companies. “If we’re in the same place two years from now,” Gensler continued, “many companies would be suspended.” (50 comments)
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Personal Income and Outlays
9:00 Fed’s Williams Speech
9:45 Chicago PMI
10:30 EIA Natural Gas Inventory
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet
What else is happening…
Energy crisis: Germany might be able to pay for Russian gas in euros.
Intel (INTC) CEO earned $178M in 2021, 1,700x the average worker pay.
New study finds Ivermectin does not lower risk of COVID hospitalization.
Apple (AAPL) allows some apps to link outside App Store for signups.
Lithium shares spike as Biden could sign authority for battery minerals.
CVS (CVS) settles opioid claims with Florida for nearly $500M.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets mostly did well. Japan was weak, but China, Hong Kong, India, Taiwan and New Zealand did great. Europe, Africa and the Middle East are currently split. Denmark, Turkey, Russia, Norway and Portugal are up; France, Germany, Greece, Spain, Austria, Sweden and the Czech Republic are down. Futures in the States point towards a down open for the cash market.
————— VIDEO: Recent Trades —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Recession risk
The yield on the 2-year Treasury briefly exceeded the 10-year on Tuesday for the first time since 2019, in a warning sign that coming Fed rate hikes may trigger a recession. The inversion happened at a level of about 2.39%, but only lasted several minutes before things returned to a 5 basis point spread. A short-lived inversion also occurred in the summer of 2019 amid the trade war with China, and while that was followed by the COVID downturn of 2020, the last persistent inversion of the Treasury curve occurred in 2006-2007.
What it means: Yield curves typically slope upward, so when short-term yields return more than longer-dated ones, it suggests there is reason to worry about the long-term outlook. It can also signal that the high levels of short-term yields are unlikely to be sustained as economic growth slows, which can have an impact on a range of asset prices. “Historically, a recession has not happened without an inversion,” said Ben Emons, global macro strategist with Medley Global Advisors. “So likely, it will be a predictor of a future recession. Timing, however, is unknown. It could take up to two years.”
A series of inversions besides the closely-watched 2s/10s proxy have recently occurred as traders price in more and more rate hikes. 20-year yields topped 30-year yields last October, while the gap between 5-year and 30-year yields turned upside down on Monday. As the Fed embarks on a cycle of quantitative tightening, there are fears that it will reduce consumer spending and business activity as the central bank battles the highest inflation rates in a generation.
False alarm? “There’s reason to believe that this time around, yield curve inversion may not be as good of an indicator as it has been in the past, particularly given the enormous amount of quantitative easing undertaken by global central banks,” said Erin Browne, a fund manager at PIMCO. Moreover, Fed Chair Jerome Powell announced last week that he’s paying more attention to the first 18 months of the yield curve rather than anything that goes on afterwards. The inversion could also be more of a blip than a lasting trend, and in fact, the curve steepened overnight with the 2-year and 10-year yields hitting 2.31% and 2.40%, respectively. (9 comments)
Out of correction territory
U.S. stock markets have mostly shrugged off the latest news out of Ukraine over the past couple of weeks, suggesting investors are putting headlines related to the conflict on the back burner (for now). The three major indices have even fully recovered all of the losses they experienced since the beginning of the invasion, with the S&P 500 exiting correction territory on Tuesday. Global investors have also taken some comfort over the prospects of a potential peace deal as the two sides met for negotiations in Istanbul.
On the ground: Russia pledged to reduce military activity in Kyiv and Chernihiv as it refocuses its campaign on the eastern Donbas region, though President Volodymyr Zelenskyy responded that “Ukrainians are not naive people.” Remember that Russia announced it would return its troops back to base – following military exercises in neighboring Belarus – just before launching an all-out invasion of the country on Feb. 24. In terms of a potential settlement, Ukraine said it would agree not to join a military alliance or host foreign troops, but would rather demand security guarantees similar to NATO’s collective defense clause known as “Article 5.” In turn, Moscow would not oppose Ukraine joining the EU, though the fate of the Donbas would be determined by Putin and Zelenskyy, who would meet for the initialing of a treaty once negotiations were complete.
“This has been a nice ride,” noted Stephanie Lang, chief investment officer at Homrich Berg. “The market’s now up almost 10% in the last 10 days, so we’ve had a pretty incredible rally in a very short time, but I wouldn’t get too comfortable for the rest of this year, because I think we’re going to continue to see a lot of volatility.” S&P 500 futures are trending down this morning, inching 0.4% lower ahead of the final release of U.S. Q4 GDP data and the ADP National Employment Report.
Energy on watch: Germany has declared an “early warning” on natural gas supplies, calling on consumers and companies to limit consumption given risks of a full supply disruption from Russia. The emergency measure is the first of three stages, but does not yet mean state intervention is needed to ration gas supplies. Dutch TTF natural gas futures, a European benchmark, still soared on the news, climbing as much as 14% to €123.5 a megawatt-hour. (5 comments)
Icahn goes full ESG
Activist investor Carl Icahn has found his next target as he pushes for more humane treatment of pigs. The billionaire just submitted an intent to nominate two director candidates – Alexis C. Fox and Margarita Paláu-Hernández – to Kroger’s (KR) board, who will “take our concerns about deplorable animal suffering seriously and add proper oversight.” While the supermarket chain doesn’t produce pigs, they back the “terrible practices taking place at industrialized factory farms that are supported by Kroger’s patronage.”
Backdrop: The potential proxy contest at Kroger comes just a month after Icahn nominated two board members at McDonald’s (MCD) amid a dispute with the company over its treatment of pigs. The issue is the same. Icahn wants McDonald’s to stop using pork that is sourced from gestation crates, something that he first brought up with the fast-food giant around 2012.
“Kroger’s inaction towards creating meaningful animal welfare policies and verification methods is totally out of step with consumer desire and current legislation,” Icahn wrote in a letter to Kroger CEO Rodney McMullen, which also discussed concerns over the disparity between his compensation package ($22.4M in 2020) and the supermarket chain’s median worker ($24,617).
The response: “While Kroger is not directly involved in raising or the processing of any animals, we are committed to helping protect the welfare of animals in our supply chain,” the company replied in a statement. “Kroger has an established Responsible Sourcing Framework to clearly define our policies, requirements and practices, including our Animal Welfare Policy, which articulates our expectation that all suppliers will have transitioned away from gestation crates by 2025.” (23 comments)
Trading 24/7
Shares of Robinhood (HOOD) spiked 24% on Tuesday as the company increased its extended trading session by four hours. Two hours were added to each side of its prior trading window, meaning customers will now be able to trade from 7:00 a.m. to 8:00 p.m. ET. Popular brokerages like TD Ameritrade (SCHW) already offer those hours, while other trading apps like Webull even feature a trading session that starts at 4 a.m. ET.
Bigger picture: The effort is part of Robinhood’s vision to enable 24/7 investing, and will likely mean more trading volumes (and profits) for the company. It can also be advantageous to traders that employ momentum strategies or catalyst-driven trading. For example, outsized price movements during earnings season are typically seen before the opening bell or right after the close, when companies disclose their quarterly results.
“Our customers often tell us they’re working or preoccupied during regular market hours, limiting their ability to invest on their own schedule or evaluate and react to important market news,” Robinhood wrote in a blog post. “In fact, we’ve seen a community of Robinhood early birds and night owls who log in exclusively outside of regular market hours.”
What happened until now? Crypto trades around the clock, and futures almost do as well, but when it comes to the U.S. stock market, many have felt that better price discovery happens when most Americans are awake. A shift to 24/7 trading would also make the lives of market makers, exchanges, brokers and financial professionals more complicated, and in many ways, they dictate the resources in the current trading environment. However, Robinhood has disrupted the market once before with commission-free trading, and it may now have the opportunity to do so again.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 GDP Q4
8:30 Corporate profits
9:15 Fed’s Barkin Speech
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
1:00 PM Fed’s George: Economic and Monetary Policy Output
Companies reporting earnings today »
Micron (MU) pops following FQ2 results, guidance top estimates.
Lululemon (LULU) beats expectations for holiday quarter, posts strong outlook.
Pfizer (PFE), Moderna (MRNA) win FDA nod for second COVID booster.
More contagious Omicron subvariant becomes dominant in the U.S.
Past two weeks: Cathie Wood’s ARKK triples rally of the S&P 500.
Alternatives? 3 FAANG-less tech stocks for the long haul.
FTC sues Intuit (INTU) over free tax filing TurboTax ads.
PlayStation (SONY) takes aim at Xbox (MSFT) with new subscription service.
Top oil execs refuse House committee request to testify on high prices.
E.ON (OTCPK:EONGY) replaces Russian gas with Australian green hydrogen.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets did well. Japan, Hong Kong, South Korea, India and Australia led while Malaysia and Indonesia closed down. Europe, Africa and the Middle East markets are up huge. The Uk, Denmark, Poland, France, Turkey, Germany, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Austria, Sweden and the Czech Republic are all up big. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Tax the rich
President Biden has laid out a $5.79T budget plan for the fiscal year starting Oct. 1, including a 20% minimum tax rate on U.S. households worth more than $100M, or the top 0.01% of Americans. Company executives would also be required to hold on to shares they receive for several years after a stock buyback, while the corporate tax rate would be raised from the current 21% to 28%. In 2020, there were fifty Fortune 500 companies that made profits of over $50B, but they didn’t pay anything in federal taxes.
Quote: “For most Americans, the last few years have been very hard, stretching them to the breaking point, while billionaires and large corporations got richer than ever,” Biden said in a statement. “Right now, billionaires pay an average of 8% on their total income, while a firefighter and a teacher pay double that tax rate. That’s not right, that’s not fair.”
Billionaires make most of their money from capital gains, which are taxed at a lower rate than the paychecks that the majority of American workers bring home. The ultra-wealthy also rack up huge fortunes without ever selling their assets – or what is called unrealized capital gains – which aren’t presently subject to income taxes. The new proposal would expand the tax code’s definition of “income” by taxing unrealized capital gains, which could mean hefty tax bills for some of America’s most prominent billionaires.
Examples: The ten richest people in the U.S., including Tesla’s (TSLA) Elon Musk and Amazon’s (AMZN) Jeff Bezos, would pay up to $215B in taxes on unrealized stock gains (they currently pay next to nothing). Last year, Musk slammed a similar proposal from Senate Finance Committee Chair Ron Wyden, tweeting, “eventually they run out of other people’s money and then they come for you.” The Biden administration also hopes Congress will enact a Global Minimum Tax, which was agreed to by 130 countries last year to “combat multinational companies from shipping jobs and recording profits overseas to avoid paying taxes at home.” (46 comments)
Megacap stock splits
Apple (AAPL), Alphabet (GOOGL) and Amazon (AMZN) did it… Now, Tesla (TSLA) is doing it (again). Just two years after the electric vehicle maker divided its stock in a 5-for-1 split, it’s seeking board and shareholder approval for a similar resolution. This time around, it hopes to increase the number of authorized shares in order to enable a stock split, though it didn’t disclose the ratio or potential timing.
Bigger picture: Splitting a stock does not affect underlying fundamentals, but it could attract more investors by making shares more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. In fact, BofA Global Research notes that splits are “historically bullish” for companies, with their shares marking average returns of 25% one year later versus 9% for the overall market. Tesla surged 8% on Monday, adding over $100B to its market cap, and climbed another 3% in premarket trading to $1,124/share. It’s also up 128% since the split in 2020 – which boosted its valuation above the $1T level – though shares are still off 9% YTD.
Tesla picked up general momentum recently with the opening of plants in Berlin and Austin, which are expected to put it on a path for an annualized production run rate of 2M vehicles by the end of the year. The company has also not seen the same level of supply chain disruption as some peers as it navigates its journey in the post-pandemic world. Meanwhile, Hertz (HTZ) has added Tesla’s Model Y SUV to its electric vehicle rental fleet last week, according to a posting on the car rental firm’s website.
For the haters: News of the split came as the company temporarily suspended production at Giga Shanghai due to COVID lockdown measures, while Elon Musk tweeted he “supposedly” tested positive for the virus but with almost no symptoms. Moreover, Tesla AI Chief Andrej Karpathy just embarked on a fourth-month sabbatical as the company attempts to achieve full self-driving capability and produce a humanoid robot prototype. “This [stock split] could further fuel the bubble in Tesla’s stock that has been brewing over the past two years,” said David Trainer, CEO of investment research firm New Constructs. (205 comments)
Meme rally
The meme craze is making somewhat of a comeback as traders continue to pile into riskier pockets of the market. Stocks have been picking up overall since March 9 – despite volatility over the war in Ukraine and yield curve inversions – and some are now looking to drop cash into surprises in memeland. GameStop (NYSE:GME) even rose for a tenth consecutive session on Monday, notching its longest winning streak since April 2010 and recording a 143% return over the past two weeks.
Catalysts? Billionaire Ryan Cohen, chairman of GameStop’s board, bought another 100K shares of the meme stock last week, bringing his ownership stake in the videogame retailer to 11.9%. AMC (NYSE:AMC) CEO Adam Aron separately announced that the theater chain would shoot for more “transformational” deals where it can “reach for the stars and intriguing investments that have potentially attractive returns.”
While it is difficult to predict if a meme session will end in a rocket ride or a crash, the core sector usually trades as a group. Yesterday saw AMC surge 45%, GameStop rally 25% and Bed Bath & Beyond (NASDAQ:BBBY) climb 17%. Things are trending down this morning, though newly minted meme-stock Hycroft Mining (NASDAQ:HYMC) is still on fire, soaring 31% premarket after an 80% gain on Monday (AMC previously took a position in the precious metals producer).
Go deeper: The sentiment is quickly spreading to other riskier areas, like the crypto market. Bitcoin (BTC-USD) continued to make gains over the weekend and just turned positive for 2022 after climbing above the $48,000 level.
The World On Time
Talking publicly about retirement for the last few years, longtime FedEx (FDX) founder and CEO, Fred Smith, is finally stepping down. He’ll become Executive Chairman on June 1, while Chief Operating Officer Raj Subramaniam will be promoted to the top spot. Subramaniam has worked in various roles at FedEx since 1991, and most recently steered the company to embrace e-commerce while navigating a complicated divorce with Amazon (AMZN).
Quote: “FedEx has changed the world by connecting people and possibilities for the last 50 years,” Smith said in a statement. “As we look toward what’s next, I have a great sense of satisfaction that a leader of the caliber of Raj Subramaniam will take FedEx into a very successful future.” FDX +2.6% premarket.
Smith invented the concept of express delivery when he founded FedEx in 1971 by putting together an airline fleet that flew time-critical packages overnight. The company went on to become the first U.S. firm to hit $1B in revenues in its first decade without mergers or acquisitions, then expanded into trucking (Ground) and international markets shortly thereafter. The business now employs more than 600K people across the globe and notched $92B of revenue in 2021.
Market movement: Profits at FedEx have been squeezed in recent quarters as the pandemic boom in package volumes drops off. Higher labor and fuel costs have also weighed on margins, while its delivery network expansion and less profitable customers hit its bottom line. Over the past year, FedEx shares have slipped 18%, compared to the 15% advance of the S&P 500 and the 31% jump of rival UPS (UPS). (9 comments)
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 Fed’s Williams Speech
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Job Openings and Labor Turnover Survey
10:45 Fed’s Harker: Economic Outlook
1:00 PM Results of $47B, 7-Year Note Auction
1:00 PM Money Supply
9:30 PM Fed’s Bostic Speech
What else is happening…
G7 snubs demand for ruble gas payments; Abramovich possibly poisoned.
Apple (AAPL) cutting production over war, inflation concerns – Nikkei.
Shopify (SHOP) price spike said to be probed by NYSE.
Air Force looks like biggest winner in Pentagon’s planned $773B budget.
Uranium builds steam – Canadian provinces announce nuclear energy plan.
Remote work? HP (HP) buys workplace communications provider for $1.7B.
Coinbase (COIN) in talks for 2TM, Brazil’s largest crypto exchange.
Pot stocks cool off as lawmakers submit amendments to marijuana bill.
Walmart (WMT) stops selling tobacco products in some U.S. stores.
Goldman cuts semiconductor estimates on ‘challenging macro backdrop.’
—————
Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mixed. Hong Kong, Indonesia and Singapore did well; Japan, Taiwan and New Zealand were weak. Europe, Africa and the Middle East are currently posting big gains. The UK, Denmark, France, Germany, the UAE, Greece, Finland, Switzerland, Spain, the Netherlands, Italy, Portugal, Austria and Sweden are posting solid gains. Futures in the States point towards a flat open for the cash market.
————— Leavitt Brothers Overview –>> here —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
iScars
Apple (AAPL) broke a Hollywood barrier over the weekend at the 94th Academy Awards. An original drama it made for Apple TV+, CODA, became the first streaming-originated Best Picture winner ever. That trumped its bigger-membership streaming rival, Netflix (NFLX), which had led all studios in Oscar nominations for the third straight year – and whose The Power of the Dog was considered a favorite for the top prize. CODA won three awards in all, taking all of the categories for which it was nominated (including Best Supporting Actor and Best Adapted Screenplay).
Quote: “On behalf of everyone at Apple, we are so grateful to the Academy for the honors bestowed on CODA this evening,” said Zack Van Amburg, Apple’s head of Worldwide Video. “We join our teams all over the world in celebrating Siân, Troy, the producers, and the entire cast and crew for bringing such a powerful representation of the Deaf community to audiences, and breaking so many barriers in the process. It has been so rewarding to share this life-affirming, vibrant story, which reminds us of the power of film to bring the world together.”
The three Oscars for CODA were Apple’s first ever as it comes a long way in the movie business, with the company prioritizing prestige over profits, according to CEO Tim Cook. “We don’t make purely financial decisions about the content [on Apple TV+]. We try to find great content that has a reason for being,” he told analysts on a Jan. 27 earnings call. The stock might take that into consideration, with AAPL shares falling 1.7% premarket despite the achievement. Apple is also estimated to have spent more than $10M on the Oscars campaign for CODA, which is more than the film’s sub-$10M production budget.
Another big moment: Will Smith won Best Actor for Warner Bros (T) King Richard, after shocking the audience earlier by going on stage to slap Chris Rock, following a joke the presenter made about Smith’s wife Jada Pinkett Smith. “Richard Williams was a fierce defender of his family,” Smith said following the incident, while apologizing to the academy (but not Rock). “I’m being called on in my life to love people and to protect people and to be a river to my people. Art imitates life. I look like the crazy father, but love will make you do crazy things.” (15 comments)
Shanghai lockdown
The latest round of restrictions in China could have a profound impact on world markets as the country continues to pursue a zero-COVID strategy to combat a spiraling outbreak. Shanghai just launched a two-stage lockdown that will close down bridges and tunnels, and restrict highway traffic in China’s largest city. Residents will also be barred from leaving their homes, while many production plants will go offline, like Tesla’s (TSLA) factory in Shanghai.
Bigger picture: As of 5:00 a.m. on Monday, the city will lock down areas east of the Huangpu River for four days, including the financial district and industrial parks. The lockdown will then move to the other half of the city, in the west, for an additional four days. During that time, the Shanghai Stock Exchange will shift many services online, and extend the time window for listed companies to release statements or earnings.
Besides another round of supply chain disruptions, the latest curbs hammered oil prices overnight, sending a barrel of WTI (CL1:COM) crude down 4% to under $110. Meanwhile, Brent crude futures (CO1:COM) tumbled by the same amount to as low as the $112-level. Both benchmark contracts are coming off their first weekly gain in three weeks, while there are reports that the U.S. could release more oil from the Strategic Petroleum Reserve.
Go deeper: In an attempt to control the outbreak, Chinese authorities recently locked down the tech hub of Shenzhen, which is the most economically strategic city to come under such restrictions since the pandemic began. “The failure of the targeted lockdown model is a big setback, as Shanghai has been the testbed for China to explore alternative models to minimize the social costs,” wrote Oversea-Chinese Banking analysts Tommy Xie and Herbert Wong. “This may delay China’s plan to ease its dynamic zero-COVID policy.” (21 comments)
Return to domestic priorities
Top White House officials, as well as President Biden himself, are clarifying comments he made during a trip to Europe, which could have been construed as a U.S. policy of regime change in Russia. “Ukraine will never be a victory for Russia. For free people refuse to live in a world of hopelessness and darkness,” Biden announced on Saturday. “We will have a different future, a brighter future, rooted in democracy and principle, hope and light, of decency and dignity, of freedom and possibilities. For God’s sake, this man cannot remain in power.”
Snapshot: Biden has previously called Vladimir Putin a “butcher,” as well as a “war criminal,” as the West braces for a rocky road ahead in a “new battle for freedom.” However, the administration was adamant the new remarks were not a sign of a policy change, but simply meant Putin should not be “empowered to wage war” against Ukraine or elsewhere. U.K., French and NATO officials also sought to distance themselves from the remarks, which capped a highly-televised speech in Warsaw to rally support for Ukraine.
“It’s not up to the president of the U.S. and not up to the Americans to decide who will remain in power in Russia,” responded Kremlin spokesman Dmitry Peskov. “The president of Russia is elected by Russians.” Many in the West feel differently, citing rampant electoral fraud under Putin’s rule, while independent media and political opponents are suppressed. Moreover, Biden’s statement will almost certainly be used as part of Russia’s latest propaganda.
On the home front: While the war in Russia has consumed much of the White House’s bandwidth, Biden will turn a spotlight onto some domestic priorities this week. A new budget proposal will be unveiled today that would level a 20% minimum tax rate on American households worth more than $100M. The added revenue could help trim the federal deficit and/or finance some safety-net programs, though it is far from certain the measure will be approved by Congress. (5 comments)
Trailing the S&P 500
S&P Dow Jones Indices has released its latest SPIVA report card, which sizes up the annual performance of “S&P Indices versus Active” managers (hence the name SPIVA). Some of the findings are startling, like one showing that 79% of active mutual fund managers underperformed the S&P last year. It also revealed that 86% of fund managers even lagged the benchmark index over the past decade.
Commentary: “It’s no surprise that in the last two calendar years a combined $400B flowed out of U.S. equity mutual funds, with the vast majority going into ETFs that are tied to the S&P 500,” said Todd Rosenbluth, CFRA senior director of ETF and mutual fund research. “It just shows you that it’s hard to outperform, and it’s hard to outperform because it costs more for active managers to compete with the S&P 500 which is essentially free through the ETF wrapper.”
Costs eat into whatever success active managers have, with the average active mutual fund charging 100 basis points, compared to as low as 3 bps seen by ETF rivals. That means the average active fund needs to earn an extra 1%, and that’s beside the tough competition. They may also be overconfident in their ability to pick winners, while market timing is impossible to get exactly right on a consistent basis.
More on the subject: Whether a fund is actively-managed or passively-managed, it’s still an investment fund where the manager uses pooled money from investors to buy and sell investment securities, such as stocks, bonds, or other assets, to be held in the fund. The investors then share in any returns that the fund generates. See Active Vs. Passive Funds: Benefits & Differences.
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:30 Dallas Fed Manufacturing Survey
11:30 Results of $50B, 2-Year Note Auction
1:00 PM Results of $51B, 5-Year Note Auction
What else is happening…
Latest peace talks between Kyiv and Moscow kick off in Ankara.
HSBC (HSBC) is removing references to a ‘war’ in Ukraine – FT.
Online payment gateway market estimated to grow at 14.8% CAGR.
AT&T (T) fills in details of spin-off in WarnerMedia/Discovery deal.
Mystery deepens around crash of China Eastern (CEA) flight.
Another momentum ETF launches: Are the funds worth it?
Fourth COVID shot could be offered to Americans as soon as this week.
—————