Good morning. Happy Friday.
The Asian/Pacific markets posted big losses. Japan did okay, but China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand, Malaysia, Singapore and the Philippines were down big. Europe, Africa and the Middle East are also doing poorly. Denmark, Poland, France, Germany, Greece, South Africa, Norway, Netherlands and Sweden are down 1% or more. Futures in the States point towards a gap down open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
The dollar is down. Oil is up; copper is down. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Market optimism continues to evaporate as headline after headline continues to roil investing sentiment. While there have been some relief rallies in recent sessions, or what some dub capitulation trades or a dead cat bounce, those have done little to affect the overall equity trade which has turned sour since the start of 2022. In its biggest one-day loss in two years, the benchmark S&P 500 Index plunged 3.6% on Thursday, the Dow lost 1,063 points and the tech-heavy Nasdaq closed the session down 5%.
Dose of bad news: First it was inflation and high oil prices, followed by the war in Ukraine. Then it was COVID lockdowns in China that triggered more fears about the supply chain. Lackluster guidance from earnings season didn’t help the situation, while Powell’s comments of “additional 50 basis point increases at the next couple of meetings” are still reverberating through the investing community. Yesterday’s sharp selloff saw the CBOE Volatility Index, a fear gauge known as the VIX, advance nearly 8 points to as high as 33.15, far above its long-term median of 17.63.
Markets were temporarily supported by comments from Jerome Powell revealed that the central bank wasn’t considering even bigger increases like 75 bps hikes (a move it hasn’t done since ’94), but “clearly, investors had second thoughts about the so-called ‘dovish hike’ from the Fed,” said Rob Carnell, economist at ING. There is an increased probability of “rate hikes coming thick and fast, but little if any prospect of a turn in inflation any time soon.” The flight to safety also did not materialize this time around (except for the dollar perhaps), with everything from gold to U.S. Treasuries joining the selloff on Wall Street.
Dimming the outlook: Powell is attempting to engineer a soft landing – in which interest rates are raised just enough that it doesn’t cause a recession – but those risks are piling up. On Thursday, the Bank of England raised rates to the highest level since the financial crisis and warned that the economy will slide into recession, essentially admitting that a downturn would be needed to bring down price pressures. Other Western nations, like the U.S., are also set to continue their policy tightening cycles over the course of 2022, making it exceptionally hard to achieve both growth and low inflation and spelling further pain for the economy. (3 comments)
Jobs Day
One of the things Powell emphasized during the FOMC meeting on Wednesday was the strength of the U.S. labor market. Today, we’ll see just how strong it was in April as the Employment Situation report is published at 8:30 a.m. ET. Economists are expecting the U.S. economy to have added 391K non-farm payrolls last month, marginally lower than the 431K added in March, which itself declined from a whopping 750K in February (prior revisions will also be on watch).
Snapshot: Some are saying that a deceleration may be welcome this time around as a labor market that’s too hot could intensify inflation or even lead to a wage-price spiral. “The labor market continues to barrel along. We need it, at this point in time, to slow down a bit because we’re going to blow past full employment and inflation is going to become a bigger problem than it already is,” explained Mark Zandi, chief economist at Moody’s Analytics. “Ultimately, we need to get to something that’s closer to no more than 100K a month.”
Meanwhile, the unemployment rate is expected to have ticked down to 3.5% – bringing it to its pre-pandemic low – from 3.6% in the previous month. “That’s why the Fed has put the labor market in their crosshairs and talked about reducing demand… but it’s hard to see how we get from 1.9 to 1.2 job openings per worker,” added Diane Swonk, chief economist at Grant Thornton. “It’s hard to see that happening without hammering demand and increasing supply.”
Other data points: With inflation at a 40-year high, investors and analysts will additionally be watching growth in average hourly earnings. The consensus estimate is a 5.5% Y/Y gain, easing off the 5.6% increase in March, though “inflation is going to eat away at that, so in real terms, year-over-year gains will likely be negative,” commented Beth Ann Bovino, U.S. chief economist at S&P Global Ratings. The last point of interest is whether more people come back into the workforce, with the labor force participation rate inking a 62.4% print in March, still below the 63.4% rate seen before the pandemic in February 2020.
Getting slippery
Lots of headlines flowed out of the crude market on Thursday, triggering volatility in the oil market. WTI crude futures (CL1:COM) spiked to over $111 a barrel, before pulling back 4% in the span of two hours, while the benchmark returned to previous trading levels overnight. Earlier this week, the European Union shook up the space by announcing an embargo on Russian crude imports, which account for 25% of all Europe’s oil needs. The latest:
Not adding up: After almost a year of the group marching ahead with monthly supply increases of 400K barrels per day, OPEC+ detailed plans of a modest output increase to 432K bpd. Importantly, it was generally agreed that the excess capacity in OPEC lies in Saudi Arabia and the UAE, so any genuine attempt to increase production would over-allocate quota to those countries. By changing course, the group appeared to acknowledge calls for more barrels, but the unserious details of the plan suggest OPEC+ is either unable or unwilling to increase production.
Looking for a refill: The Biden administration laid out plans to replenish the strategic petroleum reserve, minutes after IEA chief Fatih Birol said “we can release more oil if needed.” Despite the mixed messaging, both statements should support crude markets as the government sells down a record 180M barrels from the SPR this year to tamp down energy prices. Under the new plan, the U.S. would initially buy back 60M barrels of crude in the fall, with the future delivery window “likely” to take place after the fiscal year that ends in September 2023.
Suing OPEC+: Versions of the legislation have failed for more than two decades, but the Senate Judiciary Committee passed a bill to bring antitrust lawsuits against OPEC and their allies. The No Oil Producing and Exporting Cartels bill, or “NOPEC,” is designed to protect U.S. consumers from higher gasoline prices as a result of OPEC+ collusion, but even if it became law, enforcement would be challenging. White House Press Secretary Jen Psaki said the Biden administration had concerns about the “potential implications and unintended consequences” of the legislation, particularly amid the Ukraine crisis. (222 comments)
Testing the waters
Investors haven’t heard too much on the IPO market these days, and for good reason. Stocks have been under pressure since the beginning of the year, leading many companies to postpone their public debuts or look elsewhere for funding sources. In fact, the Renaissance IPO ETF (IPO), designed to offer exposure to a portfolio of the largest, most liquid, newly listed U.S. IPOs, is down 42% in 2022, compared with the 13% YTD decline for the S&P 500.
Commentary: “The second quarter so far has been brutal for IPOs, as rising interest rates have an especially large impact on the intrinsic valuations of growth stocks,” explained Matthew Kennedy, an analyst at Renaissance Capital. “The dramatic fall in prices is also tied to excessive valuations we saw last year. So stocks have had further to fall.” Just $3.3B has been raised for IPOs this year, compared with more than $56B in the same period in 2021, per data from Dealogic.
Looking to buck the lackluster listing trend, eyecare company Bausch + Lomb (BLCO) is trying its luck on public markets, listing today on the New York Stock Exchange. The firm is being spun out of Bausch Health (BHC), which will remain a majority shareholder following the deal. “Our mission is simple, yet powerful: helping you see better, to live better,” according to the prospectus from the company, which makes contact lenses and solution, as well as surgical products, vitamin supplements and prescription eye medications.
By the numbers: Things are coming in lower than expected, with Bausch + Lomb pricing its stock at $18, below its targeted $21-$24 range. It’s still selling 35M shares to raise $630M, valuing the eyecare giant at $6.3B to become the second-largest listing of the year. Revenues of $3.8B climbed 10% Y/Y in 2021, while net income came in at $193M vs. a loss in the prior year, though profits could feel some pressure in the near-term due to some debt that’ll be inherited following Bausch’s separation from its parent company. (11 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
9:15 Fed’s Williams Speech
11:00 Fed’s Kashkari Speech
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit
3:20 PM Fed’s Bostic Speech
7:15 PM Fed’s Waller Speech
7:15 PM Fed’s Bullard Speech
8:00 PM Fed’s Daly Speech
What else is happening…
Musk expected to be Twitter’s (TWTR) temporary CEO after deal.
Boeing (BA) to move headquarters to Virginia area from Chicago.
ConocoPhillips (COP) earnings: strong results, higher payouts and capex.
Delisting fears weigh on NIO (NIO) investors; EV maker considers Singapore.
Elizabeth Warren seeks answers from Fidelity on adding Bitcoin to 401(k)s.
DoorDash (DASH) rallies after delivering sales, EBITDA above expectations.
Peloton (PTON) reportedly seeking to sell a major stake in the company.
Walgreens (WBA) strikes $683M opioid settlement with Florida.
FDA limits use of J&J (JNJ) COVID vaccine due to risk of blood clot.
Pessimistic print from Etsy (ETSY) exacerbates e-commerce erosion.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. China, Taiwan, Australia, New Zealand and the Philippines did well; Hong Kong and Malaysia were weak. Europe, Africa and the Middle East are currently doing well. The UK, Denmark, France, Turkey, Germany, Russia, Switzerland, the Netherlands, Italy and Portugal are up 1% or more. Only Austria is down much. Futures in the States point towards a moderate gap down open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
The dollar is up. Oil is up; copper is down. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Fed calm
The Federal Reserve struck a more balanced tone that ignited a relief rally in stocks and bonds yesterday, assuaging fears that even bigger rate hikes would slam the brakes on the economy. The FOMC raised the fed funds rate by 50 basis points to a range of 0.75%-1%, the biggest hike in 22 years.
But with one phrase Fed Chairman Jay Powell let the markets know that while inflation was the central bank’s chief concern, there was no need to use what some have called the “nuclear option.” The Fed “is not actively considering a 75-basis-point rate hike,” Powell said at the post-meeting press conference, although he also said 50-basis-point increases were on the table for the next couple of meetings. While still hawkish it was enough to curb the headless chicken behavior of a Wall Street that had been debating hikes of up to 200 basis points over the summer and inter-meeting moves.
The Fed “intentionally or unintentionally decided that the market has had enough stress for now and clamped down on the more hawkish potential near-term paths for policy,” Deutsche Bank’s Jim Reid said.
Market surges: Buyers shifted into high gear for stocks and Treasuries right after Powell’s 75-basis-point remark. The S&P 500 (SP500) (SPY) jumped 3%, its largest gain since May 2020, with 477 components in the green. The Dow (DJI) (DIA) tacked on 900 points. The Nasdaq (COMP.IND) (QQQ) fared the best, up 3.2%, as higher rates tend to hit growth companies the hardest. Treasury yields dropped as prices rose, with the short end of the curve sliding the most. The 2-year yield dropped 14 basis points. Driving those moves was a sense that the Fed was no longer in panic mode about being behind the curve.
Powell “mentioned a possibility that jobs growth would slow, one of the first Fed characterizations of the jobs market as anything other than ‘red hot,’” Standard Chartered strategist Steve Englander wrote. “He pointed to some slowing of inflation in monthly data (while indicating that the Fed wanted to see concrete indications that inflation was coming off). Overall, the tone was much more balanced than at the January and March FOMC meetings.”
Whether the gains can last is another question. Morgan Stanley said this week that the market was so oversold that any good news could produce a “vicious bear market rally.”
Not a dovish Fed: Not as hawkish as expected doesn’t equal dovish and Powell was explicit that fighting inflation is the chief objective. The market quickly repriced forecasts for the June and July meetings to take three-quarter-point hikes off the table. But there is at least 150 basis points more tightening to come in 2022 and the Fed likely won’t be done until the target rate hits 3% next year, according to CME’s FedWatch. Even this morning, Treasury yields are moving higher again, with the 2-year back above 2.7%.
“There are many factors out of the Fed’s control (supply chain disruptions and geopolitics, for instance), but we’ll be watching closely to see how the Fed’s tightening of financial conditions impacts the broad economy and employment levels, which are very firm today but can clearly soften alongside of aggressive inflation-fighting monetary policy,” BlackRock’s Rick Rieder wrote. “In straddling the line … on policy, this Fed looks clearly undeterred in reaching at least policy neutrality, and indeed potentially policy rate levels beyond that point, which is likely to be necessary to bring inflation closer to the central bank’s longer-run goals. The question we have is how long it takes and the impact of the consequences that may come alongside it.” (4 comments)
OPEC+ meets
Oil prices are drifting ahead of Thursday meeting of OPEC+ nations, with the cartel not expected to do much to curb a run-up in prices. WTI crude (CL1:COM) (USO) +0.2% is around $108/barrel and is up about 2.5% in a week. Brent (CO1:COM) (BNO) +0.4% is around $110.50/barrel. Prices have risen as the EU announced a ban on Russian oil.
A small production increase will be the likely result of today’s meeting, according to analysts. The group must balance the EU’s ban with a drop in demand from China due to COVID lockdowns. OPEC+ is also facing spare capacity issues, Bloomberg reported. OPEC March production came in about 85% short of growth targets. (1 comment)
Buffett snags more OXY
Berkshire Hathaway (BRK.A) (BRK.B) again loaded up on Occidental Petroleum (OXY) stock this week purchasing 5.9M shares for about $345M.
He purchased shares on Monday and Tuesday for average per-share prices ranging from $55.99 to $58.37, according to an SEC filing. The purchases bring Berkshire’s stake to 142.3 million shares. In the first quarter, Berkshire purchased about $7B worth of the Occidental. Buffett noted at the Berkshire annual meeting over the weekend that he was able to buy 14% of the petroleum refiner over only a two-week period. (61 comments)
Lyft plunges
Lyft (LYFT) shares plunged more than 30% on Wednesday after the ride-sharing company issued weak guidance and said it would boost spending to get more drivers to its platform, a move that caused several analysts on Wall Street to cut their price targets.
Wedbush Securities analysts Dan Ives and Ygal Arounian lowered their per-share price target on Lyft to $32 from $50, noting that the company’s practice of high spending on driver incentives and heavy investing in its platform won’t fly with investors.
“As a negative, Lyft is spending money like a 1980s Rock Star and this will have a violent negative reaction from investors in an already jittery market,” they wrote. (2 comments)
Activision sued
New York City has filed suit against Activision Blizzard (ATVI), alleging that the company’s CEO Bobby Kotick rushed into its $95/share deal to be acquired by Microsoft (MSFT) to escape liability for misconduct, Axios reported.
The city’s employees’ retirement system and pension funds for teachers, police and firefights pursued what’s known as a Section 220 complaint in Delaware court. Such complaints allow stockholders to pursue opening the books of a company to potentially expose wrongdoing. In New York City’s case, it’s demanding a long list of documents including information related to the Microsoft deal and information on five possible buyers that came up in sale negotiations. (23 comments)
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
Google (GOOG, GOOGL) to remove bi-annual performance reviews after workers complain.
Etsy (ETSY) spirals lower after weak guidance rattles investors.
Netflix (NFLX) shareholders sue over disclosures of subscriber decline.
Biden to discuss additional sanctions on Russia with G-7 leaders this week.
JetBlue (JBLU) said expected to continue to pursue Spirit (SAVE) after rejection.
Icahn in talks to settle with Southwest Gas (SWX) over board fight.
Caesars (CZR) said to seek buyer for Flamingo casino in Vegas for more than $1B.
Wheat Futures (W_1:COM) jump 3% as India weighs export restrictions.
Tripadvisor (TRIP) shares jump as CEO touts strong summer travel demand.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets were partially closed. The Philippines did well; Hong Kong and India were weak. Europe, Africa and the Middle East currently lean down. Norway is up, but the UK, France, South Africa, Finland, Switzerland, Spain, Austria and Sweden are down. Futures in the States point towards a positive open for the cash market.
————— BLOG: Comparing Market Tops: The Dot Com vs The Financial Crisis vs Today —————
The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Spotlight on Powell
Federal Reserve policymakers have clearly telegraphed what they plan to do at today’s FOMC meeting before the latest blackout period began on April 23. Officials are set to hike rates by 50 basis points for the first time in 22 years, after lifting the benchmark rate by a traditional 25 bps (to a range of 0.25%-0.50%) during the FOMC’s last gathering in March. Chair Jerome Powell is also poised to announce plans for “quantitative tightening,” or allowing the central bank’s $9T balance sheet to run off at a pace of $95B per month, though outright sales of securities won’t be ruled out for the future.
Commentary: The question isn’t whether the Fed needs to be hawkish to combat inflation, it’s “only a debate as to what the right hawkish approach is,” wrote Evercore ISI’s Krishna Guha and Peter Williams in a note to clients. “I think he [Powell] will say that asset sales are a tool that could be used in the future but remind us that the plan is to use interest rates as the primary policy tool; QT runs in the background and the path of rates will be adjusted as needed given QT,” added Tim Duy, chief U.S. economist at SGH Macro. “Powell likely doesn’t want to feed into any hopes of a 75bp hike, but if he lends any credence to that story [at the press conference], even accidentally, market participants will rush to price in 75bp for the June meeting.”
Inflation has continued to gain steam since the Fed’s tightening cycle began in March, with Russia’s war in Ukraine pushing up energy and food prices, and China’s severe COVID lockdowns further roiling the supply chain. Strength in the U.S. labor market also supports the expected larger-than-usual hike. On Tuesday, the U.S. Department of Labor said job openings in March reached 11.5M – the highest level since it started collecting the data in 2000 – as companies struggle to hold onto workers. That has led to surging employment costs and higher wages, or factors that can further inflame the inflation situation.
Go deeper: After underestimating the severity of price pressures, Powell is attempting to engineer a so-called soft landing, in which rates are raised high enough to keep the economy from overheating but not so much that it triggers a recession. “While some have argued that history stacks the odds against achieving this, there are three episodes – in 1965, 1984, and 1994 – where the Fed significantly raised rates without a downturn,” the Fed Chair has previously said. “I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context.” Stock markets have been hammered as the Fed embarks on its QT cycle, especially the tech sector, which saw the Nasdaq plunge 13.3% in April for its worst month since 2008. (56 comments)
Oil import ban
The European Commission, the executive arm of the EU, has unveiled new sanctions on Russian energy, including a phase-out of crude oil imports within six months and refined products by the end of the year. Brent oil futures (CO1:COM) climbed as much as 5% to $109 a barrel on the news, while WTI crude futures (CL1:COM) advanced 4% to over $106/bbl. The EU also proposed that Sberbank, Russia’s largest financial institution, and two other major banks be disconnected from the SWIFT international payment system, while “three big Russian state-owned broadcasters will be barred from EU airwaves.”
Quote: “Let us be clear: it will not be easy,” European Commission President Ursula von der Leyen said during a speech at the European Parliament. “Thus we maximize the pressure on Russia, while at the same time – and this is important – we minimize the collateral damage to us and our partners around the globe… because to help Ukraine we have to make sure that our economy remains strong.”
The sanctions are aimed at denting one of Russia’s most important sources of foreign earnings, but lucrative gas sales will stay intact for now. Moscow could also find other buyers looking to take advantage of the substantial discounts on its crude, like India and Turkey. “It might be just a game of musical chairs,” declared Viktor Katona, an oil analyst at Kpler, while Rystad Energy even sees the Kremlin’s total oil revenue rising 45% to $180B in 2022 as a rise in fuel prices counters any decline in production.
Exemptions: Von der Leyen didn’t disclose any exclusions during her speech, but EU officials have privately confirmed that the commission’s proposal includes flexibility for Slovakia and Hungary, which are both highly dependent on Russian energy. Additional time will be given to the two countries to phase out crude imports, likely until the end of 2023. While around 25% of Europe’s oil is imported from Russia, there are big differences in the level of reliance among member nations (usually those closer to the Russian border are more dependent on its energy network). (13 comments)
Moving to pink sheets?
Hope you didn’t hold on to DiDi (DIDI) shares following last summer’s hyped $4.4B IPO. The stock is down 5% to under $2 in premarket trade after the ride-hailing giant – once China’s most celebrated startup – said it was under SEC investigation. In fact, shares are off 85% since its chaotic debut, which even prompted plans from DiDi in December to delist from the New York Stock Exchange to float in Hong Kong. Shareholders are set to vote on that decision later this month, but it may be suspended due to the latest developments.
The filing: “After our initial public offering in the United States, the SEC contacted us and made inquiries in relation to the offering. We are cooperating with the investigation, subject to strict compliance with applicable PRC laws and regulations. We cannot predict the timing, outcome or consequences of such an investigation.”
Days after pricing its IPO at $14 per share, DiDi investors were shocked to find out that Chinese officials were probing the company for allegedly violating data privacy and national security laws. The authorities ended up blocking new users from downloading the DiDi app, suspending the internet giant from domestic stores. The move was part of a broad tech crackdown on China’s internet companies, while American regulators have also chosen to apply stricter enforcement of Chinese companies that don’t comply with U.S. auditing rules.
Other red flags? Wall Street underwriters including Goldman Sachs, Morgan Stanley and J.P. Morgan made about 2% on the total amount raised in DiDi’s IPO, or around $88M when spread out between them. Language about the risks of doing business in China started on page 7 of the IPO prospectus, while regulatory and anti-monopoly warnings appeared on page 11. While some say the disclaimers were enough, others expected a certain amount of deep expertise or specifics about the regulatory environment. (10 comments)
Twitter rumors
Elon Musk is telling investors that after taking Twitter (TWTR) private, he could take it public again not too long after, according to WSJ. That’s notable because investors and observers have tried to sort out Musk’s motivations for buying the company – and looking for a public exit in three years closely resembles more profit-oriented private-equity deals. It also informs on his intentions for private investors, which Musk is courting to help with the substantial equity portion of the deal that is his responsibility.
Other reports: Sources over at Reuters say Musk is in talks over new financing for his $44B bid for the social media company, with an eye toward tying up less of his own wealth in the deal. Musk had committed to spending some $21B of his own cash for the deal – and banks agreed to offer $13B in loans secured against Twitter – but the lenders balked at offering more than that because of the company’s limited cash flow. He has also secured a $12.5B margin loan secured against his Tesla (TSLA) stock, but is talking with big investment firms and high-net-worth individuals to perhaps trim the size of that loan.
“Twitter will always be free for casual users, but maybe a slight cost for commercial/government users,” Musk tweeted overnight, suggesting a new revenue stream for the social network. “Ultimately, the downfall of the Freemasons was giving away their stonecutting services for nothing. Some revenue is better than none!”
Outlook: The world’s richest person has said his offer to buy Twitter is not a way to “make money,” but instead part of an effort to make the platform an inclusive arena for free speech. “Twitter has become sort of the de facto town square, so it’s really important that people have both the reality and the perception that they’re able to speak freely within the bounds of the law,” Musk announced during an interview at the TED2022 conference. With all his outsized borrowing, the platform still has to make money, and is exploring changes to experimental subscription service Twitter Blue, the monetization of viral tweets, or even charging a fee for verified users or tweet embeds. (63 comments)
Today’s Economic Calendar
Auto Sales
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 Goods and Services Trade
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
What else is happening…
Starbucks (SBUX) suspends outlook as lockdowns hit sales in China.
Airbnb (ABNB) pops, then drops, amid ‘substantial’ travel demand.
Highest since ’08: Perfect storm lifts natural gas prices above $8.00.
Meta (FB) e-commerce efforts hit hurdles, with senior executives departing.
AMD (AMD) CEO says chipmaker reached a ‘significant inflection point.’
SEC almost doubles size of unit dedicated to shield crypto investors.
Transocean (RIG) rips higher as drillship dayrates could top $400K.
Pfizer (PFE) keeps guidance intact, prepared to modify COVID vaccine.
Biogen (BIIB) begins search to replace CEO amid Aduhelm write-offs.
Expedia (EXPE), travel stocks slide after Hilton’s (HLT) guidance disappoints.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets were mostly closed. Thailand and New Zealand were weak. Europe, Africa and the Middle East currently lean up. Finland, Hungary, Spain, the Netherlands, Italy, Austria and the Czech Republic are up; France, Germany, Greece and South Africa are down. Futures in the States point towards a positive open for the cash market.
————— BLOG: Comparing Market Tops: The Dot Com vs The Financial Crisis vs Today —————
The dollar is down. Oil is down; copper is up. Gold and silver are mixed and close to unchanged. Bonds are up. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Overturned?
In a rare breach of tradition and secrecy, the U.S. Supreme Court has voted to strike down the landmark Roe v. Wade decision, according to an initial draft majority opinion leaked to POLITICO. Once a public ruling is released, federal protection of abortion rights would come to an end, allowing each state to decide on the legality of abortion and procedures (at least 22 states already have laws on the books in the event the case is overturned). The high court is expected to announce its final decision within the next two months, though deliberations on controversial cases have been fluid in the past and multiple drafts or vote-trading could occur before then.
Some history: Roe v. Wade effectively legalized abortion across the United States in 1973 by striking down a Texas law that only permitted abortion for the purpose of saving a woman’s life. The majority opinion at the time declared that a woman’s right to privacy under the 14th Amendment superseded a state’s right to ban abortion and the court set different rules for each trimester. In the years since, Roe has been modified but not overturned, like in the 1992 case of Planned Parenthood v. Casey. In that decision, the court said that restrictions are “unconstitutional” if they place an “undue burden” on a woman, and quickly became the new standard by which new abortion cases were judged.
“Roe was egregiously wrong from the start. Its reasoning was exceptionally weak, and the decision has had damaging consequences. And far from bringing about a national settlement of the abortion issue, Roe and Casey have enflamed debate and deepened division,” Justice Samuel Alito wrote in the initial draft majority opinion. “Roe expressed the ‘feel[ing]’ that the Fourteenth Amendment was the provision that did the work, but its message seemed to be that the abortion right could be found somewhere in the Constitution and that specifying its exact location was not of paramount importance. The Constitution makes no reference to abortion, and no such right is implicitly protected by any constitutional provision.”
Is Corporate America getting involved? You bet, and it has the potential to make bigger waves than the “Don’t Say Gay” tussle between Disney (DIS) and Florida’s legislature. In 2019, Netflix (NFLX) threatened to pull projects from film and TV hub Georgia over its court-challenged law that would ban abortions as early as six weeks into pregnancy, while Amazon (AMZN) just promised to reimburse employees with $4,000 if they have to travel for procedures like abortions. Other companies also put up money after Texas’s Heartbeat Act went into effect last year, with Match Group (MTCH), Yelp (YELP) and Apple (AAPL) promising to help pay for out-of-state abortions, and Lyft (LYFT) and Uber (UBER) pledging legal defense funds for drivers sued under the new law. (117 comments)
Topping 3%
The 10-year U.S. Treasury yield has broke above 3% for the first time since December 2018 as the Federal Reserve is poised to hike interest rates and shrink its balance sheet to fight inflation. The recent climb higher has weighed on stocks, which were more attractive when rates were low under the so-called TINA trade (there is no alternative). Higher rates have also pushed up borrowing costs on mortgages and other long-term loans, raising worries about economic growth and a possible recession.
Commentary: “While it’s clear that this economy doesn’t need stimulative monetary policy, what is less clear is the speed at which this stimulus should be removed, and the reasons for choosing that speed,” said Alex Roever, U.S. rates strategist at J.P. Morgan.
The Federal Open Market Committee convenes today for its May policy meeting, with expectations of a 50 basis point hike coming tomorrow afternoon. Investors will be carefully parsing the language of the central bank’s statement for any change in its outlook, though the dip in Q1 GDP is not likely to prompt the Fed to ease up on tightening. Chair Jerome Powell is also set to lay out plans of reducing Treasury and MBS holdings as soon as next month, with the bank only willing to let the assets mature (i.e. “run off”) thus far.
Strategies? While rising yields have crushed treasury-related ETFs, there are ways investors can exploit a rising-rate environment. Market participants that are betting on higher yields can invest in inverse ETFs that are designed to bet against bond prices. Four examples and their YTD prices include the ProShares Short 20+ Year Treasury ETF (TBF) +21%, ProShares UltraShort 20+ Year Treasury ETF (TBT) +46%, ProShares UltraPro Short 20+ Year Treasury (TTT) +71%, and the Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV) +71%. (42 comments)
Flash crash
A flash crash on Monday morning that saw the OMX Stockholm 30 Index plunge as much as 8% in just five minutes spilled over into European stock markets, wiping as much as €315B in market capitalization off bourses stretching from France to Poland. Trading was halted momentarily in several locations, though things quickly recovered before finger-pointing ensued. Citigroup’s (C) London trading desk eventually claimed responsibility for the knee-jerk selloff and is currently in talks with regulators about the incident.
What happened? “One of our traders made an error when inputting a transaction,” a Citi spokeswoman said in a statement. “Within minutes, we identified the error and corrected it.”
The mistake could cause some reputational damage to Citigroup, which has had some trouble with untimely errors. In August 2020, Citigroup bankers accidentally paid the bondholders of client Revlon (REV) nearly $900M, while it was ordered by regulators to clean up its safeguards and fined $400M. Meanwhile, the U.S. Office of the Comptroller of the Currency just lifted a 10-year-old consent order that was tied to the lender’s compliance with anti-money laundering laws after CEO Jane Fraser pledged billions of dollars to transform its technology and internal systems.
Nerves of steel: “The reason was a sell event by a market participant,” said the exchange operator behind Nasdaq Stockholm, Nasdaq Helsinki and Nasdaq Copenhagen. “After review, Nasdaq has not seen any reason to cancel trades that were made during this event.” (28 comments)
Paring tariffs
U.S. tariff relief on China is now under consideration at the White House as the Biden administration confronts the strongest U.S. inflation readings since the early 1980s. At a basic level, some economists have found that Chinese exporters generally didn’t lower prices to keep their goods competitive, meaning tariff duties were mostly paid by U.S. companies and consumers. Others say the move would not target inflation at its core (tariffs have been around since 2018) and would do little while rewarding a “human rights-abusing, communist government.”
Quote: “Are they on the table or not? All tools are on the table,” U.S. Trade Representative Katherine Tai said during an interview at the Milken Institute Global conference in Los Angeles. “The question is ‘What do you do with them?'”
Last week, Treasury Secretary Janet Yellen also proposed the phasing out of Trump-era tariffs on merchandise imports from China to provide price relief to Americans. “While they may have created negotiating leverage, they serve no strategic purpose,” added Daleep Singh, deputy national security adviser for international economics. “From the beginning of the administration, we talked about how some of the tariffs implemented by the previous administration were not strategic and, instead, raised costs on Americans,” White House Press Secretary Jen Psaki further declared at a press briefing. “And our effort – which has been ongoing, of course – has been to ensure current Section 301 tariffs align appropriately with our economic and trade priorities.”
Commentary: “The trouble with China is that it continues to act like a small country. Its policies often have the desired effect at home – say, reducing input costs to industry or one set of Chinese farmers or by increasing returns to another,” wrote Chad Bown and Yilin Wang, analysts at the Peterson Institute for International Economics. “But they can also be beggar-thy-neighbor, with China selecting the policy that solves a domestic problem by passing along its cost to people elsewhere.”
Today’s Economic Calendar
Auto Sales
FOMC meeting begins
10:00 Factory Orders
10:00 Job Openings and Labor Turnover Survey
What else is happening…
Spirit Airlines (SAVE) rejects JetBlue (JBLU) takeover bid.
Stellantis (STLA) adds to huge electrification investment in Canada.
Despite Russia writedown, BP (BP) posts highest earnings in over a decade.
Amazon (AMZN) workers reject union at second Staten Island warehouse.
Australian hikes interest rates for the first time in 11 years.
Reports suggest Musk is seeking extra financing for (TWTR) buyout.
Trump’s Truth Social (DWAC) available via web browser by end of May.
Did Beijing just flash a green light to buy Alibaba (BABA)?
Moderna (MRNA) expects COVID kids vaccine ready for FDA June review.
Omega Healthcare (OHI) tops estimates, but some operators still struggle.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly closed. Australia and New Zealand were weak. Europe, Africa and the Middle East are very weak. Denmark, Poland, France, Germany, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria, Sweden and the Czech Republic are down 1% or more. Futures in the States point towards a down open for the cash market.
————— BLOG: Comparing Market Tops: The Dot Com vs The Financial Crisis vs Today —————
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…
Woodstock of Capitalism
Thousands of Berkshire Hathaway (BRK.A, BRK.B) shareholders and other investors flocked to Omaha, Nebraska, this weekend to hear Warren Buffett and Charlie Munger speak at an event known as the “Woodstock of Capitalism.” The pandemic forced the conglomerate, which owns and invests in a wide range of businesses from insurance to industrials, to shift to an online format over the last two years, so the return to an in-person gathering garnered some extra attention. “It really feels good to be back,” Buffett announced at the beginning of the show, saying it “was a lot better seeing actual shareholders and partners.”
Back in action: Berkshire was a huge net buyer of stocks in the first quarter, loading up on $51.1B worth of equities. Those included big holdings in Occidental Petroleum (OXY) and Chevron (CVX), acquiring an 11.4% stake in HP (HPQ) and arbitrage play Activision (ATVI) (as Microsoft (MSFT) acquires the videogame developer). All of the buying shrunk Berkshire’s cash hoard to $106B, but echoed Buffett’s classic dip-buying he also conducted during the financial crisis. “One thing that won’t change is we will always have a lot of cash on hand,” added Buffett, who is known to be nimble when mispriced opportunities arise.
Also sitting on the dais were Greg Abel, Buffett’s successor and currently head of Berkshire’s non-insurance businesses, and Ajit Jain, the head of the company’s insurance operations. Assuring some investors, Buffett detailed that when the time comes for Abel to take over, the board will “put some more restrictions” on him, compared to the degree of carte blanche historically granted to Buffett. A proposal that would have stripped Buffett of his dual chair and CEO was also voted down at the meeting, along with other measures like one that would have required Berkshire to publish a yearly assessment of how it’s handling issues related to climate change.
Report card: Operating earnings at Berkshire Hathaway rose slightly from a year ago to $7B as manufacturing and retail businesses thrived, though net earnings plunged 53% Y/Y to $5.5B as insurance underwriting declined heavily. “The amount of investment gains (losses) in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire noted, pointing to its recent stock track record: While the S&P 500 has dropped more than 13% YTD, Berkshire’s stock is up more than 7%. Will it send a signal to some investors that are running for the exits, or even trigger a shakeout that could help some value investors? (95 comments)
No to crypto
Just a month after Peter Thiel called Warren Buffett the “enemy No. 1” of Bitcoin (BTC-USD), describing him as a “sociopathic grandpa from Omaha,” Buffett doubled down on his outlook of the popular crypto at Berkshire Hathaway’s (BRK.A, BRK.B) annual shareholder meeting. “Nobody wants their windpipe stepped on and I don’t blame them. I don’t like people to step on my windpipe, but I will say this,” declared Buffett, who has previously referred to Bitcoin as “probably rat poison squared.”
Quote: “If you said… for a 1% interest in all the farmland in the United States, pay our group $25B, I’ll write you a check this afternoon. For $25B, I now own 1% of the farmland. If you tell me you own 1% of all the apartment houses in the United States and you want another $25B, I’ll write you a check, it’s very simple. Now if you told me you own all of the Bitcoin (BTC-USD) in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rental and the farms are going to produce food. That explains the difference between productive assets and something that depends on the next guy paying you more than the last guy got.”
“Assets, to have value, have to deliver something to somebody. And there’s only one currency that’s accepted. You can come up with all kinds of things – we can put up Berkshire coins… but in the end, this is money,” he announced, holding up a dollar bill. “Anyone that thinks the United States government is going to change the way they let Berkshire money replace theirs is out of their minds. Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t multiply, it doesn’t produce anything. It’s got a magic to it and people have attached magic to lots of things.”
Munger chimes in: “In my life, I try and avoid things that are stupid, and evil, and make me look bad in comparison to somebody else – and Bitcoin (BTC-USD) does all three. In the first place, it’s stupid because it’s very likely to go to zero. In the second place, it’s evil because it undermines the Federal Reserve system that we desperately need to maintain its integrity and government control… and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China, and with all of our presumed advantages in civilization, we are a lot dumber than the Communist leader in China.” (53 comments)
Politics and business
Geoff Morrell appears to be taking the fall at Disney (NYSE:DIS) as the chief corporate affairs officer, who helped architect Disney’s public response to Florida’s so-called “Don’t Say Gay” bill, decided to resign from the company. Morrell had only been three months into the new job before announcing his departure following prior stints as a spokesperson at BP (BP) and the Pentagon. Kristina Schake, who Disney hired earlier this month, will lead the company’s communications efforts going forward, while Disney General Counsel Horacio Gutierrez will pick up government relations and public policy. They will both report directly to CEO Bob Chapek, who has had to navigate the coronavirus pandemic – and a big hole left by longtime CEO Bob Iger – after taking the top spot in February 2020.
Backdrop: According to people who worked with him, Morrell set out to be more transparent than his iron-fisted predecessor, Zenia Mucha, who closely guarded Disney’s public image. With regards to “Don’t Say Gay,” Morrell guided Disney and Chapek to publicly explain why it hadn’t taken a stand regarding the legislation that limits some classroom instruction on sexual orientation and gender identity. “Corporate statements do very little to change outcomes or minds,” Chapek wrote, but the declaration opened up a can of worms that sparked company-wide protests and walkouts for employees that felt otherwise.
Instead of remaining quiet on the matter with no public position (a similar stance it takes with regards to China’s reported human rights abuses), Disney went on to double down on support for the “Don’t Say Gay” legislation. “This bill should never have passed and should never have been signed into law,” the company declared. “Our goal as a company is for this law to be repealed by the legislature or struck down in the courts, and we remain committed to supporting the national and state organizations working to achieve that.” What followed was an uproar that saw the Florida legislature revoke Disney’s special tax district status and a fight over who is liable to pay the $1B bond linked to dissolving the Reedy Creek Improvement District.
Go deeper: There is much debate in this case if public officials should target private companies, as well as if private corporations should comment on the public sphere. The bottom line is that top business leaders across Corporate America are now on alert for navigating charged topics. “The No. 1 concern CEOs have is, ‘When should I speak out on public issues?'” said Bill George, former CEO of Medtronic and current professor at Harvard Business School. “As one CEO said to me, ‘I want to speak out on social issues, but I don’t want to get involved in politics.’ Which I said under my breath, ‘That’s not possible.'” (32 comments)
‘Work from anywhere’
Many tech firms and other companies embraced remote work during the pandemic, only to wean off the model in favor of a hybrid approach or a return to the office once the initial waves of COVID-19 subsided. Not Airbnb (NASDAQ:ABNB). The home rental provider that changed the way people travel just announced a policy that will allow its employees to live and work from anywhere, calling it the “predominant way companies will work in 10 years from now.” The plan:
1. You can work from home or the office – whatever works best for you.
2. You can move anywhere in the country, like from San Francisco to Nashville, and your compensation won’t change.
3. You have the flexibility to live and work in 170 countries for up to 90 days a year in each location.
4. We’ll meet up regularly for team gatherings. Most employees will connect in person every quarter for about a week at a time (some more frequently).
5. To pull this off, we’ll operate off of a multi-year roadmap with two major product releases a year, which will keep us working in a highly coordinated way.
Quote: “We had the most productive two-year period in our company’s history – all while working remotely,” explained CEO Brian Chesky. “Two decades ago, Silicon Valley startups popularized open floor plans and on-site perks. Today’s startups have embraced flexibility and remote work.” Companies will also be at a “significant disadvantage if they limit their talent pool to a commuting radius around their offices. The best people live everywhere.”
Human connection? “The most meaningful connections happen in person. Zoom is great for maintaining relationships, but it’s not the best way to deepen them. And some creative work is best done in the same room. The right solution should combine the efficiency of Zoom with the meaningful human connection that happens when people come together. Our design attempts to combine the best of both worlds.”
Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
What else is happening…
U.S. housing affordability nears record low as mortgage rates keep climbing.
Novavax (NVAX) in notable setup ahead of key FDA meeting on COVID shot.
Trial of Pfizer’s (PFE) COVID pill did not meet infection prevention goal.
Bitcoin usage in El Salvador underwhelming, while U.S. dollar dominates.
Twitter (TWTR) spread indicates uncertainty on Musk closing $44B deal.
NIO (NIO) deliveries down almost 50% amid supply chain issues.
Supply fears top China lockdowns: Oil scores fifth straight monthly gain.
Inflation worries are hitting every income bracket – watch these stocks.
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