Before the Open (Apr 25 – 29)

Good morning. Happy Friday.

The Asian/Pacific did well overall, with outliers in both directions. China and Hong Kong were up big; South Korea, Taiwan and Australia did well too. India was weak; the Philippines was down big. Europe, Africa and the Middle East are mostly up. The UK, Denmark, France, Germany, Russia, South Africa, Switzerland, Norway, Spain, the Netherlands, Italy, Sweden and Austria are doing well. Only Turkey and the Czech Republic are down much. Futures in the States point towards a moderate gap down open for the cash market.

————— VIDEO: Thoughts on Free Speech and Elon Musk Buying Twitter —————

The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.

Stories/News from Seeking Alpha…

King dollar

Check out original Seeking Alpha show The Weekend Bite! This week we discuss recession warnings, what this earnings season means for the market, and macro implications of Russia’s continued invasion of Ukraine.

The greenback is at its highest level in two decades, climbing another 1% on Thursday to just under 104 in the U.S. Dollar Index, marking its strongest level since 2002. The gauge measures the U.S. currency’s strength against a basket of other developed world currencies, including the euro, yen, Canadian dollar and British pound. In fact, the greenback has advanced 7% since the beginning of the year, outpacing many assets from stocks and bonds to gold and bitcoin.

Commentary: “It’s clearly a ‘U.S. dollar is king’ world,” said Mingze Wu, a currency trader in Singapore at StoneX Group. “The dollar will continue to strengthen globally as long as rest of the world does not keep up in matching interest rate hikes.” The greenback is also getting a haven bid along with Treasuries amid concerns about economic growth and a possible recession.

Speaking of growth, GDP in the U.S. shrank for the first time since the pandemic, contracting 1.4% in the first quarter (vs. +1.1% consensus and +6.9% in Q4). The surprise was exacerbated by a widening trade deficit reflecting supply chain problems, as well as lower private inventory investment and fading government stimulus spending. The Fed is still likely to raise rates by 50 basis points next week amid strong domestic demand, though Treasury Secretary Janet Yellen has warned of further “large negative shocks” that are “likely to continue to challenge the economy.”

Growth vs. inflation: Strength in the dollar is also the result of weaker comparative currencies. The euro has been on the back foot due to the war in Ukraine, China’s severe COVID restrictions have led to a weaker yuan and Japan’s widening policy and trade gap has sent the yen into freefall this year. “We had two decades of the benefits of low inflation, but now central banks are trying to win back their inflation-fighting credibility,” noted Jordan Rochester, foreign exchange strategist at Nomura. “But the ECB is facing stagflation and will struggle to keep with the Fed, and the BOJ isn’t even coming to the party. With lower exposure to China, and lower exposure to Ukraine, the U.S. stands out as resilient.”

Tech industry

A tale of two tech giants hit markets after the close on Thursday as both Amazon (AMZN) and Apple (AAPL) reported first-quarter earnings. Traders were unimpressed by the results (maybe even spooked by them), sending shares of Amazon and Apple down by 9% and 2.2%, respectively, in after-hours trading. The reports are also weighing on the Nasdaq following a big recovery session on Thursday, with futures pointing 1% lower ahead of the open. The tech-heavy index is even on pace for its worst month since March 2020, down 9.5% before the last trading session for April.

Amazon: The e-commerce giant posted its slowest revenue growth on record, recording only a 7.3% Y/Y expansion due to a drop in online shopping, inflation and supply chain problems. Along with a $7.6B write-down of its stake in Rivian, the results led to the company’s first quarterly loss since 2015, with $3.8B of red ink (compared to a profit of $8.1B a year ago). A bright spot was company’s cloud business, Amazon Web Services, though looking ahead, Amazon said it expects Q2 revenue in a range of $116B to $121B (vs. $125.1B consensus) and CEO Andy Jassy commented on “unusual growth and challenges.”

Apple: The iPhone maker initially got a lift after a big earnings beat, before CFO Luca Maestri announced that supply chain issues could cost $4B to $8B in fiscal third-quarter revenue. CEO Tim Cook also noted that Apple could recapture some of the demand lost due to the lockdowns, but some of it may be lost forever. The Cupertino, California-based company still earned $1.52/share on $97.28B in revenue, boosted strength in the iPhone and an all-time high in Services, leading it to raise its dividend by 5% and boost its buyback by $90B.

Commentary: “Everyone is universally bearish [on Big tech stocks],” said Piper Sandler tech analyst Brent Bracelin. “Typically when you have all investors on one side of the boat, that is typically when the boat flips. There is probably more risk for the next two quarters around slight changes to the numbers, factoring in these increasing global risks. But from a sentiment perspective, it’s hard to see how things can get more bearish from here.” (169 comments)

Up in smoke

A third of all cigarettes sold in the U.S. could be taken off store shelves, according to a national ban proposed by the Biden administration. The measure, which targets menthol stoges and flavored cigars, would be the biggest move the federal government has taken to curb cigarette use since the FDA gained regulatory control over the tobacco industry in 2009. “We know the majority of smokers want to quit,” FDA Commissioner Dr. Robert Califf declared. “Prohibiting menthol in cigarettes will give them a better shot.”

Exceptions: The ban won’t impact menthol e-cigarettes, while case-by-case exemptions could be applied to certain products like heated-tobacco devices or cigarettes with very low nicotine levels.

The menthol cigarette ban would still take aim at a product representing more than $20B in U.S. annual sales. On watch are British American Tobacco (BTI), which owns Newport, the No. 1 menthol-cigarette brand in the U.S. (as well as Camel Crush), and Marlboro maker Altria (MO), which is the No. 2 seller of menthol cigarettes. About 12.5% of adults in the U.S., or 30.8M people, were cigarette smokers in 2020, according to the CDC.

Go deeper: It would take at least two years for final legislation to go into effect, with the FDA needing public comment on the proposed rules and time to review them. Big Tobacco companies have also indicated that they might sue, which could kick the ban further down the road. “We strongly believe that there are more effective routes to deliver tobacco harm reduction than banning menthol in cigarettes,” said Kingsley Wheaton, Chief Marketing Officer at British American Tobacco. “Prohibition, at least through history, hasn’t worked,” added Altria CEO Billy Gifford. (142 comments)

Musk sells

In a series of SEC filings published yesterday evening, it was revealed that Elon Musk sold nearly $4B worth of Tesla (NASDAQ:TSLA) stock to fund his $44B deal for taking Twitter (NYSE:TWTR) private. The sales took place on Tuesday and Wednesday, with blocks of stock being sold at prices between $872 to $999 per share. “No further TSLA sales planned after today,” Musk tweeted after the filings became public (the 4.4M shares sold equate to 2.6% of his stake in Tesla).

Bigger picture: Musk has promised to chip in $21B of personal equity for the Twitter deal, with the rest of the cash coming from investment banks (after convincing them that Twitter produced enough cash flow to service the debt). $13B in loans will be secured against Twitter, as well as a $12.5B margin loan tied to his Tesla stock, making Musk America’s most leveraged CEO. Since banks require a bigger cushion for borrowing against high-beta stocks like Tesla, Musk will need to pledge about $65B in Tesla shares – or about a quarter of his current total – for the loan, on top of existing facilities.

“Pledging of shares by executives is considered a significant corporate governance risk,” said Jun Frank, managing director at ISS Corporate Solutions. “If an executive with significant pledged ownership position fails to meet the margin call, it could lead to sales of those shares, which can trigger a sharp share drop in stock price. This exposes shareholders to significant stock price risk due to an executive’s personal financing decisions.”

In terms of Tesla: Shares have already slipped 15% this week as investors fret over Musk’s stock sales and how much time he’ll be able to allocate to Tesla while being involved with Twitter’s operations and running SpaceX. At the end of last year, Musk also sold about 15.8M of Tesla shares, worth about $16B, divesting 10% of his stake in the EV maker to help pay a reported $11B tax bill. News of “no more Tesla sales” is helping the stock recover this morning, with shares advancing 4% to $913 in premarket trading. (35 comments)

Today’s Economic Calendar
8:30 Personal Income and Outlays
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices

What else is happening…

SPAC Digital World (DWAC) soars after Trump posts on Truth Social.

Twitter (TWTR) pulls guidance in light of Musk’s pending acquisition.

Beijing orders schools closed in tightening of coronavirus restrictions.

Moderna (MRNA) seeks FDA nod for COVID vaccine in kids under 6.

Caterpillar (CAT) tops estimates, but higher costs weigh on profits.

Intel (INTC) outlook suggests PC weakness may be in the works.

Baidu (BIDU) nabs first Chinese permit for autonomous ride hailing service.

Price hikes help McDonald’s (MCD) beat inflation, international sales shine.

Robinhood (HOOD) drops on shrinking revenue, fewer active users.

California subpoenas Exxon (XOM) over its role in plastic pollution.

Ukraine War Update: Germany drops opposition to Russian oil embargo.


Good morning. Happy Thursday.

The Asian/Pacific did well. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand and Malaysia all posted solid gains. Europe, Africa and the Middle East are also mostly up. The UK, France, Germany, the UAE, South Africa, Hungary, the Netherlands, Italy, Israel and Austria are doing well. Only Denmark is down. Futures in the States point towards a relatively big gap up open for the cash market.

————— VIDEO: Thoughts on Free Speech and Elon Musk Buying Twitter —————

The dollar is up. Oil and copper are down. Gold is up; silver is down. Bonds are down. Bitcoin is up.

Stories/News from Seeking Alpha…

Gas supply?

As the war in Ukraine goes on way longer than Vladimir Putin appears to have anticipated, the Russian leader is getting increasingly aggressive. Moscow has cut off key gas supplies to Poland and Bulgaria, threatening to do the same for other “unfriendly nations” that refuse to pay for fuel in rubles. Putin also issued one of his strongest warnings to date over the West’s “interference in Ukraine,” as the U.S. and its allies ramp up weapons transfers, war financing and intelligence sharing.

Why Poland and Bulgaria? While there have been other countries that have insisted on paying for gas in euros (under existing contracts), the two nations represent the weakest spots on the east that are the first to get gas as it transits into Europe. The countries also happened to be among the first whose payments were due the soonest, though the strategy may also aim at dividing the European Union by targeting some nations and not others. Poland has additionally been one of the most critical nations of Russia in the Western alliance and has been one of the biggest supporters of Ukraine in terms of refugee intake, military support and weapons transfers.

At issue: The Kremlin has outlined a payment mechanism that would allow foreign buyers to convert their dollars and euros via Gazprombank, an entity that has been carefully excluded from EU sanctions. The state-controlled bank would send along rubles to energy giant Gazprom (OTCPK:OGZPY), which would prevent Western governments from “seizing payments made in foreign currency and strengthen Russia’s sovereignty,” according to Vladimir Putin. The EU has debated whether the scheme breaches sanctions against Moscow as some countries make arrangements to comply with the new payment system out of fear that an embargo or blockade could tip them into recession.

“Gazprom’s announcement is another attempt by Russia to blackmail us with gas,” European Commission President Ursula von der Leyen said in a statement. Efforts are now accelerating to replace Russian energy with new sources, like LNG imported from the U.S. and the Middle East, gas piped in from Norway and North Africa, or an upcoming pipeline from Azerbaijan. In the meantime, solidarity agreements can be signed with other EU nations for any spare gas supplies they may have, sending gas to Poland and Bulgaria via reverse flows along the Yamal-Europe pipeline or importing gas from Greece and Turkey. Dutch TTF natural gas futures, a European benchmark, rose 4.1% on Wednesday to settle at €107.43, which is well below its peak in March, but still 5x more expensive than prices a year ago.

Thought bubble: Cutting off energy to Europe is the biggest economic weapon that Putin can deploy as the Kremlin hopes to get Western nations to think twice before helping Ukraine. However, along with other moves that were intended to divide the bloc, the decision could backfire and instead strengthen the EU’s resolve. Once alternate sources of energy are acquired, it could deprive Moscow of billions of dollars in revenue it previously would have earned from such transactions. Oil and gas sales account for about 40% of Russia’s annual revenue and are its most lucrative source of foreign earnings. (35 comments)

User growth

Tech is up strongly this morning as Nasdaq futures advanced 2.6%, rebounding from a selloff earlier in the week powered by earnings from Facebook parent Meta Platforms (FB). Shares of the social network soared more than 16% in AH trading on Wednesday, becoming the latest tech giant to join the earnings parade down Wall Street. Up next are the quarterly results of Amazon (AMZN) and Apple (AAPL), which will complete the reports for Big Tech, or a stock group known as the MAMAA family (Twitter will also report this afternoon after agreeing to go private).

Back to Facebook: With the market locking its eyes on user growth (following last week’s Netflix disaster), numbers from Facebook appeared impressive despite the slowest revenue expansion since the company went public. Daily active users rose 4% to 1.96B, topping expectations there, while monthly active users rose 3% to a generally in-line 2.94B. Family daily active people – the metric that looks across Meta’s family of apps, including Instagram and WhatsApp – rose 6% to 2.87B on average for March, while family monthly active people also rose 6% to 3.64B.

Other figures were less impressive, like net income, which declined 21% to $7.5B (though expectations were for a 24% drop). Meta is also guiding Q2 revenues in a range of $28B-$30B, a bit shy of consensus for $30.69B. That’s due to a “continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine,” as well as expectations that currency changes would provide a 3% headwind.

Zuckerberg speaks: “Based on the strong revenue growth that we saw in 2021, we kicked off a number of multi-year projects to accelerate some of our longer term investments, especially in our AI infrastructure (to combat TikTok), Business Platform (think Instagram marketing) and Reality Labs (AR, VR and the metaverse). These investments are gonna be important for our success and growth over time, so I continue to believe that we should see them through, but with our current business growth levels, we are now planning to slow the pace of some of our investments. We made progress this quarter across a number of key company priorities and we remain confident in the long-term opportunities and growth that our product roadmap will unlock.” (175 comments)

House of cards

Archegos Capital Management founder Bill Hwang has been arrested in the U.S., a year after the collapse of his private investment firm sent shock waves across Wall Street. Hwang and his CFO were specifically charged with 11 accounts of racketeering conspiracy, market manipulation and fraud “with interrelated schemes to unlawfully manipulate the prices of publicly traded securities in Archegos’s portfolio and to defraud many leading global investment banks and brokerages.” Hwang was also convicted of wire fraud and insider trading charges back in 2012, when he ran Archegos’s predecessor called Tiger Asia Management.

Recap: In March 2021, Archegos defaulted on margin calls from several global investment banks, including Credit Suisse (CS), Nomura (NMR), Morgan Stanley (MS) and Goldman Sachs (GS). The fund had large, concentrated positions in ViacomCBS (now merged with PARA), Tencent Music (TME), Baidu (BIDU) and other stocks, but its use of total return swaps helped hide its high exposure from the lenders. Archegos also used as many as nine banks, making it appear that different parties were behind the trading activity.

Archegos eventually accumulated leverage of as much as 1,000%, holding massive positions via derivatives instruments that do not have to be disclosed in regulatory filings like traditional equity stakes. On March 22, ViacomCBS announced a secondary stock offering that led its share price to sink, dragging down the value of Archegos’ portfolio. Hwang and his team scrambled to stall banks from calling in their margin loans as the trades went sour, leaving banks with losses of $10B in the span of just 10 days.

Go deeper: The biggest source of banks’ trading revenue was once client commissions, but those have narrowed over the last decade, leading their prime brokerage businesses to grow. That’s where lenders provide financing for clients like hedge funds, as well as pooling trading and risk exposures to help drive profitability across their trading desks. However, banks have been struggling to handle a flood of deposits while trying to not increase their capital requirements – which can partly explain the appeal of total return swaps involving Archegos – showing that balance sheet exposures must be carefully managed by institutions and the ability to finance clients via prime brokerage does have its limits. (16 comments)

Right to repair

For anyone who has ever owned an iPhone and needed it repaired, the choices have been somewhat limiting. The options have been to either go to an Apple Store, or to a repair shop that Apple (AAPL) has given specialized tools to complete gadget fixes. That is now changing, with the launch of the company’s new Self Service Repair program in the U.S. (and rollout in Europe later this year).

Snapshot: The program will initially provide individual consumers with access to “genuine Apple parts and tools” for the mobile-phone displays, batteries and cameras in the iPhone 12 and iPhone 13 lineups, and third-generation models of the iPhone SE. Apple will follow that up with parts, supplies and manuals for Mac computers using the company’s M1 processor. Customers wanting to do their own repairs will need to first visit an Apple site that includes repair manuals to determine what parts they need to work on their particular devices. Tools to perform repairs can be purchased from Apple, though the company will also rent kits for $49 that can be used for one week.

Giving consumers the ability to do their own product repairs is a major change of policy for Apple. In addition to being highly secretive about its product pipeline, the company has often gone out of its way to make it as difficult as possible for people to make product repairs in their own home. Few examples of that have been more visible than Apple’s use of a “pentalobe” screw that Apple has used on iPhones and Macs since 2009, and for which a screwdriver or replacement screw is close to impossible to find at any hardware store.

Under pressure: It’s a big U-turn for the iPhone maker, which up until recently, was still fighting shareholder proposals in support of “right to repair.” However, the Biden administration unveiled an executive action last summer, ordering the Federal Trade Commission to address “unfair anti-competitive restrictions on third-party repair or self-repair of items.” Environmental advocates separately filed a shareholder resolution this past September, stating that the high costs of repairs often prompt consumers to buy new products, resulting in a buildup of electronic waste. (25 comments)

Today’s Economic Calendar
8:30 GDP Q1
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $44B, 7-Year Note Auction
4:30 PM Fed Balance Sheet

What else is happening…

Boeing (BA) CEO Calhoun defends engineering culture after big Q1 loss.

Despite supply chain problems, Ford (F) reaffirms guidance for 2022.

Musk banned from tweets disparaging Twitter (TWTR) under new deal.

PayPal (PYPL) stock gains after Q1 earnings meet consensus.

Teladoc (TDOC) plummets on bottom line miss, revised 2022 estimates.

Spotify (SPOT) sinks all-time low after Q1 results raise margin worries.

Exxon (XOM) declares force majeure at Russia’s Sakhalin-1 project.

Kraft Heinz (KHC) leverages price increases to edge past estimates.

Pinterest (PINS) sees pandemic headwinds to MAUs coming to an end.

Qualcomm (QCOM): Strong results show ‘transformation’ is working.


Good morning. Happy Wednesday.

The Asian/Pacific leaned down. China and Hong Kong did well; Japan, South Korea, India, Taiwan, Australia, New Zealand, Malaysia and the Philippines were weak. Europe, Africa and the Middle East lean up. The UK, Denmark, Russia, Finland, Switzerland, Sweden and Saudi Arabia are up; Poland, Greece and Hungary are down. Futures in the States point towards a positive open for the cash market.

————— VIDEO: Thoughts on Free Speech and Elon Musk Buying Twitter —————

The dollar is up. Oil and copper are down. Gold is unchanged; silver is up. Bonds are up. Bitcoin is up.

Stories/News from Seeking Alpha…

Wall Of Worry

Some traders are attempting a brave climb up the “wall of worry” despite a multitude of negative forces that continue to spook the market. Overnight, U.S. stock index futures rose by 1% despite aggressive selling on Wall Street in the previous session, which saw the Nasdaq plunge nearly 4% and the Dow slide by more than 800 points. Among the big names that took a tumble was Tesla (TSLA), which lost $114B in value, or an amount worth the market cap of three Twitters (TWTR). What’s going on, and what are the factors behind the broad selloff?

Federal Reserve: “We’re in a world-wide tightening cycle now, and so we have to let the air out of many of these assets,” wrote Mace McCain, chief investment officer at Frost Investment Advisors. Futures now predict meaty 50 basis point increases at each of the next three FOMC meetings, fueling concerns about the economic outlook and even talk about a coming recession.

Geopolitics: Russia is upping its war rhetoric, calling the risk of a nuclear war “very real.” That can’t be good for anyone or anything, especially risk assets. Moscow has also threatened to halt gas supplies to Poland and Bulgaria, triggering stagflationary dangers for Europe, while the U.S. just announced it won’t rule out military action if China establishes a base in the Solomon Islands.

Inflation: Longstanding supply chain problems, combined with China’s severe COVID restrictions and the war in Ukraine, are adding to costs for consumers and businesses alike. “This amounts to the largest commodity shock we’ve experienced since the 1970s,” declared Indermit Gill, Vice President for Equitable Growth, Finance and Institutions at the World Bank.

Earnings season: There have been some notable performances, but many quarterly results are fueling concerns about a weaker outlook in the months ahead. Netflix (NFLX) was just one of them, whose stock price collapsed from $350 to under $200 over the past week after losing subscribers for the first time in a decade. “We may now be realizing the group that experienced a lot of growth, your tech companies, that growth may have been over-extrapolated,” explained Jason Pride, chief investment officer of private wealth investments at Glenmede. Facebook parent Meta Platforms (FB) is on deck to report today, as well as Boeing (BA), Ford (F), Kraft Heinz (KHC), PayPal (PYPL) and Qualcomm (QCOM). (8 comments)

Advertising concerns

Google parent company Alphabet (GOOGL) had already slipped 3.6% in the session prior to earnings, before posting Q1 numbers that missed expectations. The results dented the stock again, as shares fell another 2.7% in AH trading on Tuesday to $2,308.25. That’s well off the peak of 3,030.93 seen in November 2021 as tech continues to get hammered across the board. In fact, many large-cap tech stocks have already crashed at least 50% from their highs, and some have even plunged over 70%, like Netflix (NFLX), PayPal (PYPL) and Etsy (ETSY).

Counting the Alphabet: With some added expenses, net income at the company fell to $16.4B, from $17.9B a year ago. Headline profit numbers were hurt by an unusual swing in its “other income” category, where a year-ago gain on equity securities of $4.84B was replaced by a loss on equity securities of $1.07B. Revenues rose 23% overall to $68B on the back of strong results in Google’s Search and Cloud businesses, though YouTube growth fell short of estimates, with ad revenue up just over 14% (vs. estimates of 25%).

Many factors have been weighing on company’s appetite for spending money on advertising, including soaring inflation, costs linked to supply chain disruptions and Russia’s war on Ukraine. About 1% of Google revenues were from Russia in 2021, and that was primarily from advertising, but the outset of the war there has weighed on spend “particularly on YouTube in Europe.” The tech giant also saw a big ramp in activity for YouTube Shorts (30B daily views) – its answer to the video clips mastered by rival TikTok (BDNCE) – but acknowledged that it could provide a “slight headwind” to revenue growth as Shorts takes up an increasing part of the ad mix.

Investing aggressively: “We’ll keep investing in great products and services, and creating opportunities for partners and local communities around the world,” CEO Sundar Pichai said on a conference call. “We continue to make considered investments in Capex, R&D and talent to support long-term value creation for all stakeholders,” added CFO Ruth Porat. Google also authorized an additional $70B in stock repurchases, after spending $52B on shares in 2021. (222 comments)

Cloud demand

In contrast to Google (GOOGL), investors bid up Microsoft (MSFT) shares after the bell on Tuesday, rising 4.6% AH to $282.70. Chief Executive Satya Nadella spent most of the earnings call talking about the success of the software giant’s cloud services business, which made a lot of sense given the results. Both earnings (+13.8% to $2.22/share) and revenue (+18.5% Y/Y to $49.4B) beat Wall Street estimates for the fiscal third quarter, thanks in part to cloud-related sales rising 32% from a year ago.

Quote: “[Our] digital technology will be the key input that fuels the world’s digital output,” Nadella declared. “In an inflationary environment, the only deflationary thing is software. I don’t hear businesses looking to their IT budgets for cuts.” Further evidence of that could be seen in Microsoft’s Azure cloud business, where revenue grew 49% from a year ago and the number of deals worth at least $100M more than doubled during the quarter.

The “More Personal Computing Segment,” which includes Windows, Xbox, search advertising and Surface, also beat expectations with revenue growth of 11% to $14.5B. That dismissed some fears that a pandemic boom in PC sales had come to an end and Nadella was quick to note that the “PC remains an important category in people’s lives.” As the world continues to emerge from the pandemic, “the intensity of [Windows] usage has gone up, and with our large installed base, we have significant growth [opportunities]. Windows is a socket for Office 365. We just launched Windows 11, and we’ll stay focused [with Windows] on business customers.”

M&A: Back in January, Microsoft announced its biggest-ever acquisition with the $69B purchase of Activision Blizzard (ATVI), the developer behind franchises like Call of Duty, World of Warcraft and Candy Crush. The company anticipates the deal will pave its entrance into the metaverse, strengthen its Game Pass subscription service, and give it a lead in the emerging cloud-gaming sector. Activision Blizzard shareholders will vote on the transaction on Thursday, but in any event, Microsoft doesn’t expect the deal (which is being reviewed by the FTC) to close until next year. (45 comments)

Flipping the switch

The Biden administration is doing away with old-fashioned incandescent lightbulbs, 143 years after Thomas Edison patented the first commercially successful one in 1879. The move is aimed at making good on climate promises with the hope of preventing 222M tons of planet-warming carbon pollution from being emitted over the next three decades. The ban will impact incandescent bulbs that produce less than 45 lumens per watt, raise energy efficiency standards for various types of general service lamps, and eventually eliminate halogen bulbs as well.

Backdrop: The phaseout of incandescents was on track to begin in 2019 under a previous law that was signed during the Bush administration. Former President Donald Trump subsequently rolled back the requirements of more energy-efficient lightbulbs, citing factors like “protecting consumer choice” and ensuring Americans “do not pay the price for unnecessary overregulation from the federal government.” Under the new order, the Department of Energy announced that most of America is already using LED lights, which are said to use one-fifth of the energy of incandescent bulbs and last up to 50 times longer.

“The lighting industry is already embracing more energy efficient products, and this measure will accelerate progress to deliver the best products to consumers and build a better and brighter future,” Energy Secretary Jennifer Granholm said in a statement. “By raising energy efficiency standards for lightbulbs, we’re putting $3B back in the pockets of American consumers every year and substantially reducing domestic carbon emissions.” The Energy Department also detailed that it will allow companies to import non-compliant bulbs until January 2023 and permit companies to sell them until July 2023.

The critics: Lower-end retailers, like dollar and convenience stores, tend to stock their shelves with cheaper incandescent and halogen bulbs, meaning lower-income communities could be impacted (though they may save on LED bulb costs in the longer-term). Some manufacturers also claim the rapid change will damage their bottom lines or may lead to an excess of inventory that would no longer be eligible for sale. As of 2020, about 30% of all light bulbs sold in the U.S. were still incandescent or halogen, though sales of LEDs have been increasing.

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $24B, 2-Year FRN Auction
1:00 PM Results of $49B, 7-Year Note Auction

What else is happening…

GE’s (GE) Culp: ‘As challenging a macro backdrop as I’ve ever seen.’

3M (MMM) stuck with supply chain problems for the ‘foreseeable future.’

Analysts encouraged by UPS (UPS) earnings despite adverse reaction.

Mattel (MAT) jumps on report it’s held talks with buyout firms.

Musk’s purchase of Twitter (TWTR) has $1B termination fee for both sides.

Price hikes help Chipotle (CMG) push past earnings expectations.

JetBlue (JBLU) shares grounded as capacity cuts cloud earnings results.

Robinhood (HOOD) cuts number of employees by 9% as growth subsides.

Visa (V) fiscal Q2 earnings climb on robust spending, travel recovery.

Warner Bros. Discovery (WBD) trims forecast as it resolves ‘messy’ assets.

General Motors’ (GM) investors look past near-term supply chain issues.


Good morning. Happy Tuesday.

The Asian/Pacific leaned down. South Korea and India did well; China, Hong Kong, Australia and New Zealand. Europe, Africa and the Middle East are mostly up. The UK, France, Germany, Russia, South Africa, Finland and the Netherlands are doing well. Futures in the States point towards a down open for the cash market.

————— VIDEO: Netflix is Done – Possibly Forever —————

The dollar is up. Oil and copper are up. Gold is up; silver is down. Bonds are up. Bitcoin is up.

Stories/News from Seeking Alpha…

Earnings in high gear

Wall Street ended sharply higher on Monday after Elon Musk’s deal to buy Twitter (see below) recharged traders’ risk appetite and gave a much-needed boost to the tech wreck. The Federal Reserve’s plan to quickly raise interest rates has seen the sector lose ground since the beginning of the year, while other macro factors like surging inflation and the war in Ukraine have weighed on the overall sentiment. The tech giants have also had to navigate evolving consumer spending, which was a boon during the year ago pandemic-driven quarter, but has since shifted toward in-person goods and services.

Bigger picture: The newly found FAANG family, now called MAMAA by Mad Money’s Jim Cramer (he coined the first phrase in 2013), includes Meta (FB), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Google parent Alphabet (GOOGL). The quintet will report earnings over the next several sessions, with many eager to see how the quarterly results will impact market direction given their heavy weighting in the S&P 500. Combined revenue of the group is expected to have surpassed $340B in Q1 of 2022, up by 7% compared with the same period last year.

The numbers will turn into headline news after today’s closing bell as Alphabet and Microsoft kick off the festivities. Online advertisers are expected to have spent heavily on YouTube and other Google services, though commissions on in-app payments will be watched closely, as well as comments on antitrust action that allege search dominance. Bumper results are also expected at Microsoft, which may divulge more details surrounding its $69B deal to buy videogame maker Activision Blizzard (ATVI) as one of its paths into the metaverse.

Commentary: “A third of the S&P is reporting [earnings] this week, and you’re probably going to see much of the same: lots of top and bottom line beats. Companies are going to talk about margin pressures and passing on price increases to the consumer, but they’re still going to highlight there’s still overall optimism about the economy,” said Edward Moya, senior market analyst at OANDA. “Technology companies have a free pass right now, because the sector’s down,” added Brian Belski, chief investment strategist at BMO Capital Markets. “It doesn’t mean that the earnings are going to suck. It just means that this is their opportunity to really set the bar lower and under promise and over deliver.”

It’s official!

Elon Musk has reached a deal to buy Twitter (NYSE:TWTR) for $54.20 per share, or $44B in cash, pulling off one of the biggest leveraged buyouts in history to take the 16-year-old social network private. The transaction will shift control of the platform to the world’s richest person, who plans to make Twitter a haven for free speech online after complaining about the service’s heavy-handed moderation approach. Here’s what some of the key players are saying:

Elon Musk: “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated. I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it. I hope that even my worst critics remain on Twitter, because that is what free speech means.”

Current Twitter CEO Parag Agrawal: “Some of you are very concerned; some of you are very excited,” he told employees. “I know this is a significant change and you’re likely processing what this means for you and Twitter’s future. In this moment, we operate Twitter as we always have… We constantly evolve our policies. Once the deal closes, we don’t know what direction this company will go in.”

Twitter Independent Board Chair Bret Taylor: “The Twitter Board conducted a thoughtful and comprehensive process to assess Elon’s proposal with a deliberate focus on value, certainty, and financing. The proposed transaction will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders.”

Former Twitter CEO Jack Dorsey: “I love Twitter. Twitter is the closest thing we have to a global consciousness. Taking it back from Wall Street is the correct first step. In principle, I don’t believe anyone should own or run Twitter. It wants to be a public good at a protocol level, not a company. Solving for the problem of it being a company however, Elon is the singular solution I trust. I trust his mission to extend the light of consciousness.”

White House: “No matter who owns or runs Twitter, the President has long been concerned about the power of large social media platforms [and] the power they have over our everyday lives,” Press Secretary Jen Psaki said in a press briefing. “He has been a strong supporter of fundamental reforms to achieve that goal, including reforms to Section 230, enacting antitrust reforms, requiring more transparency, and more. And he’s encouraged that there’s bipartisan interest in Congress. I still don’t have a specific comment on this specific transaction. And at this point, we don’t have any sense of what the policies will look like.”

Former President Donald Trump: “I will be on Truth Social within the week. It’s on schedule. We have a lot of people signed up. I like Elon Musk. I like him a lot. He’s an excellent individual. We did a lot for Twitter when I was in the White House. I was disappointed by the way I was treated by Twitter. I won’t be going back on Twitter.”

Lawmakers in Washington: “Today is an encouraging day for freedom of speech. I am hopeful that Elon Musk will help rein in Big Tech’s history of censoring users that have a different viewpoint,” tweeted Senator Marsha Blackburn (R-TN). “This deal is dangerous for our democracy,” responded Senator Elizabeth Warren (D-MA). “Billionaires like Elon Musk play by a different set of rules than everyone else, accumulating power for their own gain. We need a wealth tax and strong rules to hold Big Tech accountable.”

Analysts: “Locking a deal up may sound pretty appealing for someone who knows they are in possession of bad news,” Gordon Haskett said in a research note, referring to Twitter’s Q1 results that are set to be published on Thursday. Wedbush also noted that advertising models are slowing and expanding the user base has been a challenge, while MoffettNathanson even told investors to “take their money and run.”

Unanswered questions: Who will head Twitter going forward? Is Dorsey poised for a comeback? Makeup of the board? Terms of the transaction financing? How will the shareholder vote turn out? Subscriptions? Other product innovation to drive subscriber growth? (28 comments)

401(k) plans

Bitcoin (BTC-USD) slumped to a six-week low of $38,423 on Monday morning as investors pulled out of risk assets, but rebounded off its bottom following an intraday rally spearheaded by Elon Musk’s deal for Twitter. More positive news saw the popular crypto rally 5.6% to $40,641 overnight as Fidelity Investments announced plans to allow investors to put Bitcoin in their 401(k)s. It’s a big move for the industry, which to date has effectively limited crypto investing for company-sponsored retirement accounts.

Quote: “We have seen growing and organic interest from clients,” especially those with younger employees, said Dave Gray, head of workplace retirement offerings and platforms at Fidelity. “We fully expect that cryptocurrency is going to shape the way future generations think about investing for the near term and long term.”

Later this year, employees at companies that sign up for the new offering will be able to transfer up to 20% of their account balances into a digital assets account that holds Bitcoin, though employers can impose lower caps. About 5% or less of the Bitcoin account will be held in a money market fund to provide liquidity for daily transactions, while fees on the account will range from 0.75% and 0.9%. Although the investments will be limited to Bitcoin initially, other digital assets are expected to be made available in the future.

Not so fast: Last month, the U.S. Labor Department, which regulates 401(k)s, outlined “serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.” The guidance went on to flag valuation troubles, volatile prices, obstacles to making informed decisions and the evolving regulatory landscape. “Cryptocurrency has gained mainstream popularity and notoriety, but there is still great uncertainty about how the market will develop, and little agreement on investing fundamentals relating to cryptocurrency.” (17 comments)

Electric pickups

Ford (F) is not joking around by saying the F-150 Lightning could be as big a product for the company as the Model T back in 1908. The Detroit auto stalwart plans to scale production of its electric pickup even faster than competitors, with plans to boost manufacturing at a plant in Dearborn, Michigan, to 150,000 units in the next year or so (up from an initial target of 40,000 vehicles). The F-150 Lightning is also way cheaper than rivals, starting at about $40,000 for a work-oriented version and $53,000 for a consumer pickup.

Quote: “In this market, being a first-mover is a very, very important move,” CEO Jim Farley told CNBC. “We didn’t know we’d be first, but we worked fast in case we were, and it’s worked out that way. I think it could be one of the most important advantages we have.”

Crucially, Ford has secured the lithium-ion batteries needed to meet its expected level of production and has plans to prioritize supplies of semiconductor chips. The first deliveries of the F-150 Lightning are earmarked for select commercial or fleet customers, perhaps within weeks, while more than 200,000 reservations have been made for the highly-anticipated electric pickup truck. Due to high demand, the current F-150 Lightning model year is no longer available for retail orders.

Outlook: In terms of scale, Ford could also have another edge over peers like Rivian Automotive (RIVN), whose smaller R1T electric pickup is priced starting at $67,500. That’s because the Lightning shares seats, doors and other parts of its interior with other gas-powered models made by the automaker in Michigan, helping it secure better pricing from suppliers and further helping with development costs. Meanwhile, Elon Musk (TSLA) recently announced that Tesla would begin production of its electric Cybertruck next year (but he said the same thing in 2021 and the year before). (42 comments)

8:30 Durable Goods
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
10:00 New Home Sales
1:00 PM Results of $48B, 2-Year Note Auction
1:00 PM Money Supply

Companies reporting earnings today »

What else is happening…

Ukraine War Update: Russia says threat of nuclear war is real.

Coca-Cola (KO) dazzles analysts with organic sales stunner.

Will PepsiCo (PEP) continue the trend of topping consensus?

Kohl’s (KSS) gains on report of $8.6B offer from JCPenney owners.

SpaceX (SPACE) returns first all-private astronaut mission from ISS.

Call of Duty trouble sees Activision Blizzard (ATVI) miss estimates.

Suburban office space: Blackstone (BX) buys PS Business Parks (PSB) for $7.6B.


Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific were got hit hard. Japan, China, Hong Kong, South Korea, India, Taiwan and Malaysia were all very weak. Europe, Africa and the Middle East are also down big. The UK, Poland, France, Germany, South Africa, Finland, Switzerland, Norway, Hungary, the Netherlands, Italy Austria and Sweden are posting moderate losses. Futures in the States point towards a down open for the cash market.

————— VIDEO: Netflix is Done – Possibly Forever —————

The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.

Stories/News from Seeking Alpha…


Things are getting serious over at Twitter (NYSE:TWTR) – at least according to the latest media reports. Elon Musk met with the crew in the C-suite on Sunday after Twitter went for the poison pill to block him from increasing his 9.2% stake. The ongoing drama saw Musk unveil a $43B bid for the social media platform only 10 days ago after declining a board seat, prompting the company to go on the defensive before shifting its posture towards striking a deal.

What changed? Musk has lined up $46B in financing to fund a buyout ($25B in debt coming from investment banks and $21B in personal equity). He is also rallying Twitter shareholders, like Thrivent Asset Management, to support the takeover following private meetings on Friday. A bigger fear for the board could be a tender offer, which could reveal Twitter shareholder support for Musk’s bid. While the poison pill would prevent them from tendering their shares (and require multiple years to gain board control), the company’s negotiating hand would weaken significantly if it was shown to be going against its investor base.

In the meantime, Twitter is working on estimating its actual market value to compare it with Musk’s “best and final” offer of $54.20/share. Executives also want breakup guarantees if the deal falls through, and are conducting due diligence into regulatory investigations against Musk that could risk the deal from being completed. The Tesla (TSLA) CEO has said he wants to “transform” Twitter into a “platform for free speech around the globe” by implementing improvements to its products and policies.

Lack of movement: Twitter went public in 2013, but its shares have hardly moved in the eight-and-a-half years since hitting the market. While the company had priced its IPO at $26 per share, the first trade that regular investors could take part in came in just north of $45. Today, Twitter shares are changing hands around $49 in premarket trading, up 7% from where Elon Musk first announced the potential takeover on April 14, but still 10% below his offer price. (5 comments)

Market trouble

The April market selloff is continuing apace with China stocks falling to their lowest level in two years on Monday. Overnight, the Shanghai Composite plunged over 5% for its biggest one-day drop since February 2020, while WTI crude oil slipped more than 4% to below $100 on demand concerns. Rising coronavirus cases are increasing fears of a wider lockdown in Beijing, and the country’s easy monetary policy may be no match for the effects of its zero-COVID policy.

Commentary: “There is no shortage of blood on the financial market dancefloor this morning,” SocGen’s Kit Juckes wrote in a research note. “A poor equity market close on Friday rather set us up for it, but the war in Ukraine, the threat to the Chinese economy of Covid restrictions, and the monetary policy rhetoric, led by the Fed but followed all over the world, make a potent cocktail. The straw to cling to, is that it’s Monday, and this is, mostly, an extension of a move based on last week’s concerns, rather than a new move. It’s not much of a straw because the key themes aren’t going to change.”

Traders are also preparing for the busiest week of earnings season, with 160 companies in the S&P 500 set to report quarterly results. Of particular note is the Big Tech companies, including Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (FB) and Microsoft (MSFT). Earnings are set to rise 6.6% Y/Y for the quarter, according to FactSet, but last week’s disaster at Netflix (NFLX) remains fresh in investors’ minds, with shares of the once-FAANG participant collapsing after losing subscribers for the first time in a decade.

Scratch the comeback: Following the rally in April, the S&P 500 is back in correction territory this month, down 11% from its high. The Dow Jones Industrial Average is only off by 2.5%, but the Nasdaq has plunged nearly 10% over the last several weeks and is down more than 20% from its record. (11 comments)

Digital Services Act

Following marathon negotiations over the weekend, European lawmakers finally approved regulation that will force tech giants to monitor online content more aggressively. The Digital Services Act will compel companies like Meta (NASDAQ:FB), Twitter (NYSE:TWTR) and Google (NASDAQ:GOOGL) to tell regulators exactly what they are doing to combat misinformation online and quickly rid their platforms of illegal content (such as incitement to terrorism and child sexual abuse). Tech giants will also be obligated to provide transparency about the algorithms they use to recommend content and can be required to take certain measures in the event of a crisis (like the Russian invasion of Ukraine).

Bigger picture: The new proposal, set to come into force as early as 2024, is the second part of the EU’s dual approach to protect internet users. The first, called the Digital Markets Act, has yet to be approved, but will go after the “unfair market dominance” of Big Tech. Failure to comply with the rules may result in a fine of up to 6% of a company’s global annual revenue, meaning multibillion-dollar penalties for violations.

This time around, there was even a big drive for an outright ban on “targeted advertising,” though Google and Facebook pushed back, arguing that it would end up hurting local businesses among other concerns. A compromise eventually came together banning the targeting of minors, or the use of gender, race or religion to target users. So-called dark patterns – manipulative schemes that drive people to click on content – will also be banned, while e-commerce players like Amazon (AMZN) will be obligated to prevent the online sale of illegal goods.

Outlook: The European Union is the first bloc in the world to comprehensively put together a digital agenda for how tech giants should operate, starting with GDPR privacy rules back in 2018. In fact, the EU has already leveled a combined €8.2B in fines against Google over antitrust violations, and has several active investigations into Amazon, Meta and Apple (AAPL). Lawmakers in the U.S., Canada and elsewhere are also looking to copy some of the key aspects of the EU’s tech regulation to protect user rights and prevent a fragmentation of the internet. (6 comments)

Macron victory

In a replay of the 2017 election, France’s Emmanuel Macron has defeated candidate Marine Le Pen in the second round of a runoff vote, marking the first time the country has re-elected a president in two decades. Official results showed En Marche’s Macron garnering 58.5% of the ballot compared to the 42% of Le Pen, marking a decisive, but smaller victory than the 32 percentage point win seen during the same contest five years ago. “An answer must be found to the anger and disagreements that led many of our compatriots to vote for the extreme right,” Macron declared during a victory speech at the Eiffel Tower. “The task is to reunite. It will be my responsibility and that of those around me.”

Market angle: The euro opened up 0.5% against the dollar following the Macron win, but quickly turned 0.8% lower to 1.0707. Stock markets are also not doing too well, with France’s CAC 40 starting the week down 2.3% and the Euro Stoxx 50 off by the same amount. “The negative aspect for the markets of this rather comfortable election could however come from a quick decision in favor of a Russian oil embargo which would exacerbate inflationary pressures and economic slowdown (stagflation scenario) in Europe,” said Frederic Leroux, fund manager at France’s Carmignac. The selloff is also in tune with the recent downtrend seen across the board amid the Federal Reserve’s tightening cycle, China’s worsening COVID situation and Russia’s war in Ukraine.

At home, Macron still faces challenges to his pro-business overhauls of the French economy. The “gilets jaunes” protests of 2018 – triggered by a green fuel tax and rising prices – hit his administration in the early days, and could resurface with inflation running at a record clip. Macron has also tried to get through pension reforms by raising the retirement age from 62 to 65, which saw nationwide strikes and protests in 2019 until the pandemic brought them to an end. Other issues to contend with include tax cuts, rules on hiring and firing employees, as well as the general high cost of living in France.

Up next: Much of Macron’s future governing style will be dependent on legislative elections in June, though Le Pen’s National Rally has a history of struggling to win parliamentary seats. If Macron scores another big majority in the National Assembly (like he did last time), he will be able to continue his agenda without paying too much attention to the other camp. Both sides also face competition from the La France Insoumise party on the far-left, with firebrand Jean-Luc Mélenchon nearly qualifying for the presidential runoff after winning 22% of the first-round vote on April 10. (25 comments)

Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey

What else is happening…

Renault (OTCPK:RNLSY) may sell big Nissan stake to fund EV shift.

ETFs on the radar as Big Tech gears up for earnings.

Goldman Sachs says steer clear of pure growth or pure value.

Streaming hits new high in Nielsen TV share measure.

U.S. mortgage delinquency rate dropped to a record low in March.

Airline stocks soared last week, but is turbulence ahead?

Top U.S. oil trade group drafts a carbon tax proposal.

Online ad players may face ‘volatile’ season amid macro pressures.

Bitcoin’s use as currency may just be getting started – Morgan Stanley.


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