Good morning. Happy Friday.
The Asian/Pacific markets did very well. Japan, China, Hong Kong, South Korea, Taiwan and Australia did great; the Philippines were weak. Europe, Africa and the Middle East are currently doing well too. The UK, Poland, France, Turkey, Germany, Greece, the UAE, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy and the Czech Republic are up 1% or more. Futures in the States point towards a relatively big gap up 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 down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
No guarantee
Check out original Seeking Alpha show The Weekend Bite! This week we discuss one big stock idea for the year, why the ARKK fund is a sell (or maybe even a short) and the upcoming Russell reconstitution. With Chris DeMuth Jr., Founder of Sifting the World, a Seeking Alpha Marketplace service.
The Senate has finally confirmed Fed Chair Jerome Powell for a second four-year term following delays surrounding other nominees the Biden administration had pitched for the central bank. In his first term, Powell has had to battle two major crises, including the COVID pandemic and 40-year high in inflation, recently turning to tighter monetary policy to combat the price pressures. “Chairman Powell presided as Fed chair during some of the most challenging moments in modern American history,” Senate Majority Leader Chuck Schumer said after the bipartisan 80-19 vote, which also saw the confirmations of Fed Vice Chair Lael Brainard and governors Lisa Cook and Philip Jefferson.
Snapshot: A tricky economic environment has been in place since the onset of the coronavirus pandemic. When consumer price inflation started to climb shortly after the deflationary shock in March 2020, the Fed had assured America that inflation was “transitory” as extraordinary accommodative monetary policy took hold. Since then, “transitory” quickly became unpopular as inflation surged to levels not seen since the 1980s, causing the central bank to swiftly shift gear to more hawkish actions. At the previous FOMC meeting in the beginning of May, the Fed’s policymaking arm even increased the benchmark target range by the most in 22 years.
“Inflation is just way too high here in the United States,” Powell later said in an interview on American Public Radio’s Marketplace program. The central bank’s tools for taming that inflation are only focused on demand, and “supply is a big part of the story here.” There are additional factors such as the war in Ukraine and new lockdowns in China to limit the spread of COVID-19, so there is no guarantee “whether we can execute a soft landing or not… it may actually depend on factors that we don’t control.”
Outlook: If the economy performs as the Fed expects, the central bank will raise the interest rate an additional 50 basis points at each of the next two meetings. “If things come in better than we expect, then we’re prepared to do less. If they come in worse than we expect, then we’re prepared to do more,” Powell continued. “I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like.” (15 comments)
Twitter deal on hold
“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Elon Musk wrote in a tweet early this morning. The headline sent shares of Twitter (TWTR) into a tailspin, collapsing 25% to around $34, with the stock still trading violently at the time of writing. In somewhat of an inverse relationship, Tesla (TSLA) is trading higher this morning, up 6% to $770, with the EV maker likely to get more of Musk’s attention if the Twitter deal would fall apart.
What happened? Musk referenced Twitter’s 10-Q filing from May 2 – which noted that spam and fake accounts account for fewer than 5% of monetizable daily active users – though it’s unclear why this would have such an impact as to halt his takeover bid of $54.20 per share. Even if 5% of DAUs were bots, Twitter would still have 217M users in the first quarter who were served up advertising. Before the latest announcement, Twitter shares were trading near the $45 level – well below the $54.20 premium – on concerns that the deal could fall apart.
Fresh reports further suggest that Twitter is freezing hiring amid uncertainty about the company’s takeover. CEO Parag Agrawal announced the decision this week and will rescind some employment offers that were already made, according to an internal memo disclosed by Bloomberg. The measures will add to other cost-cutting in travel, consulting and marketing, while uncertainty reigns high as employees wonder whether their teams or projects will survive a change of leadership.
Two senior leaders are exiting: Head of Consumer Product Kayvon Beykpour is leaving after seven years with the company and revenue chief Bruce Falck is departing as well. Jay Sullivan will take over as head of product and interim head of revenue. “The truth is that this isn’t how and when I imagined leaving Twitter, and this wasn’t my decision,” Beykpour declared. “Parag asked me to leave after letting me know that he wants to take the team in a different direction.” (125 comments)
Formula shortage
The White House has announced a raft of measures to alleviate the ongoing baby formula shortage, which has worsened in recent weeks because of a major product recall and supply chain problems. In fact, during the first week of May, 43% of baby formula supplies were out of stock across the country, compared to 31% two weeks prior, according to retail pricing data website Datasembly. Many stores have also implemented quotas on how much formula one person can buy at a time, while pediatricians are recommending not to dilute formula (which could be harmful to the kidneys) or switching to other brands.
Flashback: Abbott Nutrition (ABT), the nation’s largest baby formula manufacturer, shuttered its production facility in Sturgis, Michigan, in February following reports of contaminated formula that was linked to the deaths of at least two infants. A voluntary recall was issued for Similac, Alimentum, EleCare and other products as the company implements “corrective actions and enhancements” to resume operations. Following FDA approval, Abbott can resume production at the facility within two weeks and make the product available in about six to eight weeks.
In response to public outcry, President Biden spoke yesterday with the CEOs of Walmart (WMT), Target (TGT), Reckitt (OTCPK:RBGLY) and Gerber (OTCPK:NSRGY) to explore ways to tackle the worsening crisis. Among the solutions discussed were cutting red tape to get more formula to store shelves faster and urging states to provide consumers flexibility on the types of formula they can buy with WIC dollars. Biden also called on the FTC and state attorneys general to crack down on price gouging, as well as upping supply via increased exports (about 98% of U.S. supply is produced domestically).
Defense Production Act? “There are a range of – there are a range of options, including that, under consideration, but I would note the issue here is that a manufacturer was taken offline because they did not produce a safe baby formula,” Press Secretary Jen Psaki said at a White House briefing. “So what we’re doing here at this point in time is working with other manufacturers who can produce safe baby formula. We’ve had success in increasing our productivity – their productivity over the last four weeks, and we’re going to continue to work on that.” (72 comments)
What’s next?
It’s been quite an interesting week in cryptoland, with stablecoin TerraUSD (UST-USD) losing its dollar peg (it’s now worth 10 cents) and sister token Luna (LUNA-USD) crashing to $0. Bitcoin (BTC-USD) also plunged to as low as $26,292, losing 32% of its value since the beginning of the month, before rebounding as much as 12% overnight to $30,947. The crypto sector has been swept up in broad selling of risk assets like tech stocks, as well as worries over the industry as a whole and fears of more liquidations.
Commentary: “Over half of all Bitcoin and Ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share,” analysts at Morgan Stanley wrote in a research note. “For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress.”
As mentioned earlier this week, another long-term incentive was that crypto could provide a store of value via anonymous transactions and wallets, but not only have governments gotten better at tracking the assets, they are on the verge of regulating them big time. While early investors are still likely to be in comfortable positions, traders who bought crypto as prices surged last year are finding themselves in a difficult situation. For example, someone that bought Bitcoin after Matt Damon’s viral Fortune Favors the Brave commercial – which first aired on October 28, 2021 (and was replayed during the Super Bowl) would be sitting on losses north of 50%.
Stronger together: All of the industry worries are prompting some big players to look at combining their resources. Sam Bankman-Fried, the billionaire founder of crypto exchange FTX, just disclosed a 7.6% stake in Robinhood (HOOD), sending the beaten-down shares of the popular retail brokerage up 20% in AH trading on Thursday. While Bankman-Fried has no “intention of taking any action toward changing or influencing the control of [Robinhood],” he might call for the company to consider “strategic alternatives or operational or management initiatives.” Robinhood recently jumped heavily into crypto space with many currencies, wallets and an international presence, while FTX opened a wait list for a new stock trading platform in February. (3 comments)
Today’s Economic Calendar
8:30 Import/Export Prices
10:00 Consumer Sentiment
11:00 Fed’s Kashkari: “Energy and Inflation: Drivers and Solutions”
12:00 PM Fed’s Mester Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Mortgage rates now at 5.3%, moving closer to the 6% mark.
New meme stock? Online auto retailer Carvana (CVNA) surges 25%.
WeWork (WE) narrows quarterly loss, 2022 guidance improves.
Boeing (BA) sinks to 52-week low on latest string of depressing news.
Crypto bull: Cathie Wood loads up on the collapsing Coinbase (COIN).
Affirm (AFRM) soars on profit guidance, Shopify (SHOP) pact extended.
Six Flags (SIX) rides higher on jump in prices, park visitors.
Starbucks (SBUX) gains as interim CEO Schultz buys $10M worth of stock.
GM (GM) agrees to 8.5% wage hike at giant truck factory in Mexico.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets suffered big losses. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, Malaysia, Indonesia, Singapore, Thailand and the Philippines – all down big. Europe, Africa and the Middle East are current getting hit hard. The UK, Denmark, Poland, France, Turkey, Germany, Greece, the UAE, South Africa, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Saudi Arabia, Sweden and the Czech Republic – all down big. Futures in the States point towards a down open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
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…
Role reversal
It already happened once during the intraday session on Monday, but Saudi Aramco (ARMCO) has officially topped Apple (NASDAQ:AAPL) as the world’s most valuable company. The state-owned energy giant closed the session yesterday with a market capitalization of $2.43T, while the iPhone maker ended the day valued at $2.37T. In fact, it’s a trend that has accelerated this year, with the energy sector buoyed by a surge in oil prices following an inflation surge that has curbed demand for high-flying tech stocks (Aramco shares are up 30% YTD, while Apple’s stock has slid 20% since the start of the year).
Commentary: “While Apple’s stock has held up better than most peers, it is still subject to the great tech multiple compression, which has been witnessed as a result of central bank tightening and ramping inflation,” explained Neil Campling of Mirabaud Securities. “Investors will now worry if consumers’ belt tightening will lead to lower appetite to buy the ultimate consumer accessory, the iPhone.”
Some say the correlation is not exactly identical since Aramco’s float is less than 2%, compared to the 84% of Apple shares that are held by the public. Others point out that Aramco only trades on the Saudi Stock Exchange, known as Tadawul, making the connection somewhat of an apples (no pun intended) to oranges comparison. Saudi Aramco is also the only non-American company in the top 10 market cap rankings, and if U.S. investors want to scoop up shares they face limited choices, such as buying into the iShares MSCI Saudi Arabia ETF (NYSEARCA:KSA) that has Aramco as 5% of its holdings.
Go deeper: For the past two years, investors have been laser-focused on “pandemic winners” in the technology sector. However, a historic collapse in energy investment during the coronavirus crisis has led to shortages of oil, gas, coal and refining capacity, leading some to believe the energy sector could be the next “pandemic winner.” In addition, the Saudis, who are one of the world’s top crude exporters, have been under pressure to raise output following Russia’s invasion of Ukraine and subsequent sanctions against Vladimir Putin’s regime. (5 comments)
Inflation nation
Tech stocks got hammered again on Wednesday after the closely-watched Consumer Price Index soared 8.3% in April, which was more than the 8.1% estimate and close to the highest level in more than 40 years. Furthermore, core CPI (excluding food and energy) was higher than expected, rising 6.2%, while shelter costs – which account for one-third of the CPI – advanced at their fastest pace since 1991. There was also a big jump in underlying services inflation, which has been climbing in recent months, suggesting that price pressures are becoming more entrenched in the economy.
Quote: “We’re starting to see energy pull back a little bit, but it’s not enough,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “The markets were hoping for a better number and it’s not good enough to rule out more Fed tightening.”
Some even think that deep-rooted inflation could prompt a 75 basis point move from the central bank, though Fed Chair Jerome Powell has set the bar quite high for such an increase. The likelihood is for 50 bps boosts at coming meetings until the price pressures display a real peak and make their way out of the economy. Meanwhile, the 10-year Treasury yield climbed back above 3% following the release of the CPI report, but then eased back below the threshold.
More commentary: “With the annual rate ticking down from 8.5% to 8.3%, it can be tempting to say we’ve seen the peak, but we’ve also been head-faked before as was the case last August,” declared Greg McBride, chief financial analyst at Bankrate. (244 comments)
House of Mouse
Shares of Disney (DIS) initially moved higher after the bell on Wednesday, but then extended a selloff seen in the prior session by falling 2.6% to $102.40 in AH trading. The new 52-week low saw investors focus on the company’s top and bottom line misses, as well as widening losses at its direct-to-consumer segment. Operating losses for Disney’s streaming business, which also includes ESPN+ and Hulu, tripled to $877M from a year ago, driven by higher programming and production expenses.
On the bright side: The House of Mouse reported 7.9M new Disney+ subs to reach 137.7M subscribers, avoiding a slowdown that has recently plagued streaming rival Netflix (NFLX). CEO Bob Chapek also affirmed the “very achievable” targets of signing up between 230M-260M subscribers to Disney+ by September 2024, and having the streaming video-on-demand business achieve profitability before then. A slate of big-budget productions will additionally be released in the coming months, like Black Panther and Avatar sequels, Toy Story prequel Lightyear, and a new Star Wars franchise series called Obi-Wan Kenobi.
“To get their streaming business to scale, at least the way they’ve built it, they need to expand the aperture of the service beyond Disney-branded content,” wrote Morgan Stanley analyst Ben Swinburne. “They’re spending significantly less than Netflix is. There’s an opportunity for them to spend more efficiently on content, and lean on this strong library of familiar IP that they have, but they just have to go out and prove it.”
More magic: A strong rebound was seen at Disney’s parks, experiences and products segment, with revenue more than doubling to $6.7B during the quarter. Operating profit of nearly $1.8B, which was close to pre-pandemic levels, beat analyst estimates by 18% and compared to a year-ago loss of $406M. With regards to the legal tussle down in Florida… Disney leadership wasn’t asked any questions on the conference call after the state’s legislature repealed special tax privileges related to the district that houses the Walt Disney World theme park. (104 comments)
Defense spending
Finland’s President Sauli Niinisto and Prime Minister Sanna Marin have announced that the country should apply to join NATO “without delay,” forgoing a decades-long policy of military neutrality following Russia’s war in Ukraine. That position is sure to be seen as an escalation by Russia, which shares an 830-mile border with Finland (and would double the amount of “land borders” it shares with NATO territories). The Finnish government is set to debate the NATO application over the weekend, while parliament is expected to give its final approval as early as Monday.
Upping the rhetoric: Overnight, European Commission President Ursula von der Leyen warned that Russia was the “most direct threat to the world order with the barbaric war against Ukraine.” She also cited Moscow’s “worrying pact” with China and “their call for new, and very much arbitrary, international relations.” Meanwhile, G7 nation Japan voiced its agreement at the EU-Japan summit in Tokyo, with Prime Minister Fumio Kishida saying the situation “must not be tolerated.”
“The pumping of Ukraine by NATO countries with weapons, the training of its troops to use Western equipment, the dispatch of mercenaries and the conduct of exercises by the countries of the alliance near our borders increase the likelihood of a direct and open conflict between NATO and Russia instead of their ‘war by proxy,'” responded Dmitry Medvedev, Deputy Chairman of Russia’s Security Council (he also served as Russia’s president from 2008 to 2012). “Such a conflict always has the risk of turning into a full-fledged nuclear war. This will be a catastrophic scenario for everyone.”
Outlook: Sweden is also anticipated to make a decision on joining NATO this weekend, with the alliance expected to take an expedited track to approve their membership. All 30 NATO nations have agreed to spend at least 2% of their GDPs on defense by 2025, and while only a third of those members have met the threshold, the latest developments should accelerate a drive for achieving their targets. The buildup is also likely to be another boon for defense stocks like Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC), which have had a phenomenal year on the back of the increases in military spending. (52 comments)
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Producer Price Index
10:30 EIA Natural Gas Inventory
1:00 PM Results of $22B, 30-Year Note Auction
4:00 PM Fed’s Daly Speech
4:30 PM Fed Balance Sheet
What else is happening…
FDA allows Abbott (ABT) to release baby formula from plant amid shortage.
Robinhood (HOOD), Block (SQ) fall as COIN outlook dims crypto swoon.
Rivian (RIVN) backs production guidance despite supply chain headwinds.
Lorie Logan, head of Fed’s balance sheet, named Dallas Fed president.
Google (GOOGL) shows off smartwatch, phones at I/O developer conference.
Coming in 2022? Instacart (ICART) said to file confidentially for U.S. IPO.
Internal prob: Moderna’s (MRNA) new CFO departs just 2 days into the job.
Duke Realty (DRE) rejects $24B buyout offer from Prologis (PLD).
Beyond Meat (BYND) extends losses as margins collapse, losses widen.
Musk reportedly draws SEC probe over Twitter (TWTR) stake disclosure.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. China and Hong Kong did well; Japan and the Philippines were weak. Europe, Africa and the Middle East lean the upside. France, Greece, South Africa, Hungary, Spain, Italy and Austria are up; Denmark, Turkey, the UAE and Saudi Arabia are down. Futures in the States point towards a down open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
The dollar is up slightly. Oil and copper are up. Gold is up; silver is down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Nearing a peak?
Investors today are bracing for another inflation report north of 8%, though the number may provide some relief for those looking for the CPI to start cooling off. While April’s Consumer Price Index is expected to come in at a flaming 8.1% Y/Y, the figure would be down from the 8.5% print seen in March, which marked the highest inflation level seen since the early 1980s. The CPI provides a snapshot of overall prices – meaning costs of certain goods can continue to rise – so also keep one eye on the core inflation figure (which excludes food and energy), as well as sub-sectors like cars and rent.
Quote: “I want every American to know that I am taking inflation very seriously and it’s my top domestic priority,” President Biden said Tuesday before the closely-watched report. “The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw supply chains and demand completely out of whack… And this year we have a second cause: Mr. Putin’s war in Ukraine.”
Biden went on to propose solutions like “lowering everyday costs for hard-working Americans” through Medicare price negotiation and caps, improving operations at ports to reduce supply chain logjams and promoting competition to get smaller companies into the market. Lowering the deficit will also be a priority by “asking large corporations and the wealthiest Americans to not engage in price gouging and pay their fair share in taxes.” With regards to cutting high energy prices, Biden said he had “led the world in the largest release of oil from our stockpiles in history,” allowed biofuels in gasoline, and is driving green investment at the same time as near-record domestic crude production. Oil companies will also not get a “free pass” for unused oil leases (numbering 9,000 nationwide) and will be required to pay taxes on them if they don’t produce more oil.
Not about one report: “I wouldn’t say [today’s] CPI matters by itself. I think the combination of March, [today’s] and May’s data will kind of be the big inflection point,” said Ben Jeffery, a fixed income strategist at BMO. “I think it will either reassert the selling pressure we saw that took 10s to 3.20%, or I think it will inspire more dip-buying interest for investors who have been waiting for signs that inflation is starting to peak.” (27 comments)
The Luna bin
It’s not easy to engineer a new currency, especially an algorithmic stablecoin. Terra (UST-USD), the world’s third-largest stablecoin, lost its peg to the U.S. dollar on Monday, dropping to as low as 69 cents and causing a swathe of investors to liquidate their holdings. Things recovered somewhat yesterday, before it tumbled below 40 cents overnight, causing widespread panic as the controversial stablecoin (which has a circulating supply of nearly 17B tokens) went into freefall.
Snapshot: There are basically two types of stablecoins, which use distributed ledger technology to attach the value of tokens to something that already exists. One is backed by cash and assets to maintain their value, like Tether (USDT-USD) and USD Coin (USDC-USD), while others do not have any collateral behind them like algorithmic stablecoins. Instead, the pegs on which these coins are built are supposed to be maintained through an arbitrage relationship with another cryptocurrency (in the case of Terra, it relies on a sister token named Luna (LUNA-USD)).
The problem is that it hasn’t been working (at least for the past few days). The relationship solely depends on the belief that there is a particular floor to the currencies, hoping that one can always exchange (or print) Luna to guarantee the $1 peg for Terra. Aware of this dynamic, Do Kwon, the founder of Terraform Labs (which powers the Terra blockchain) has been diversifying into Bitcoin (BTC-USD) reserves for currency support – in case confidence eroded in Luna and Terra – but that could also be dangerous if Bitcoin becomes devalued as it has over the past six months. “Close to announcing a recovery plan for $UST. Hang tight,” tweeted Kwon in response to the crisis.
Need for regulation: “[With stablecoins,] we see run risks, which could threaten financial stability, risks associated with a payment system and its integrity and risks associated with increased concentration if stablecoins are issued by firms that already have substantial market power,” Treasury Secretary Janet Yellen said at a hearing before the Senate Banking Committee on Tuesday. “A stablecoin known as TerraUSD experienced a run and declined in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks. We really need a consistent federal framework.” (2 comments)
@realdonaldtrump
Questions have swirled if Donald Trump will be allowed back on Twitter (TWTR) following Elon Musk’s pending $44B purchase of the company, and yesterday we got an answer: Musk said he would reverse the permanent ban on the former U.S. president, calling it “morally wrong and flat-out stupid.” Trump was barred from the platform in the wake of the U.S. Capitol attack on Jan. 6, 2021, after Twitter cited “risk of further incitement of violence” and “repeated and severe violations” of the network’s policies.
Free speech focus: “I do think that it was not correct to ban Donald Trump. I think that was a mistake because it alienated a large part of the country, and did not ultimately result in Donald Trump not having a voice,” Musk told the FT’s Future of the Car conference. “If there are tweets that are wrong and bad, those should be either deleted or made invisible, and a suspension – a temporary suspension – is appropriate, but not a permanent ban.”
While the measures Twitter took were legal – private firms aren’t subject to the First Amendment – they highlight more starkly than ever the companies’ influence over public speech and online conversation. Musk has referred to Twitter as the “digital town square, where matters vital to the future of humanity are debated,” and some are worried that limiting conversation could end up hurting society or prompt less interaction among a broad variety of views. That could force many users into like-minded echo chambers that could reinforce their own beliefs and further polarize the political landscape, but the alternatives of no moderation can be just as scary.
What is Trump saying? Well, the whole story is coinciding with the rollout of his TRUTH Social network, which is publicly trading under ticker symbol “DWAC.” Trump has previously announced that he wouldn’t return to Twitter, saying they had “gotten rid of a lot of their conservative voices,” but things could turn around quickly before coming election cycles. TRUTH Social has also been plagued by technical issues since its launch, as well as some executive departures. (210 comments)
End of an era
The MP3 player wars in the early 2000s were being fought by Archos, MiniDisc, SanDisk, Zune and others, until the iPod was finally embraced by the masses. Apple (AAPL) went on to win even more consumers with its robust lineup that included the iPod Classic, iPod Mini and Nano, iPod Shuffle, and eventually the iPod Touch. While the iPhone and the streaming era rendered many of the devices obsolete, the last iPod Touch stuck around over much of the last decade, until powering down – permanently.
Some history: Apple last updated the iPod Touch in 2019, keeping it around for a select demographic of users. Some people wanted the features of an iPhone (without actually having a phone) like sending iMessages and FaceTime via a Wi-Fi connection. However, the device that is now in its 7th-generation is coming to an end, with an announcement that last iPod Touch will only be available in store “while supplies last.”
“The demise of the iPod is probably the best example of Apple not being concerned about cannibalizing its own products,” noted Carolina Milanesi, principal analyst at Creative Strategies.
Corporate statement: “Today, the spirit of iPod lives on. We’ve integrated an incredible music experience across all of our products, from the iPhone to the Apple Watch to HomePod mini, and across Mac, iPad, and Apple TV,” said Greg Joswiak, Apple’s senior vice president of Worldwide Marketing. “Apple Music delivers industry-leading sound quality with support for spatial audio – there’s no better way to enjoy, discover, and experience music.” (17 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Consumer Price Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
12:00 PM Fed’s Bostic: “An Update from the Atlanta Fed: Economic Outlook and Monetary Policy”
1:00 PM Results of $36B, 10-Year Bond Auction
2:00 PM Treasury Statement
What else is happening…
Peloton (PTON) hits a new low as investors wait on recovery plan.
Earnings watch: Disney (DIS) streaming subscriber count, parks attendance.
R1T, R1S, electric van updates to come in Rivian’s (RIVN) Q1 results.
Pfizer (PFE) pays $11.6B for Biohaven to enter migraine market.
Senate approves Lisa Cook to serve on the Fed’s board of governors.
Appaloosa’s David Tepper: ‘I covered Nasdaq short.’
Nintendo (OTCPK:NTDOY) announces stock split, Switch sales top estimates.
Coinbase (COIN) drops as muted Q2 outlook follows big earnings miss.
Warehouse demand: Prologis (PLD) offers to buy Duke Realty (DRE) for $24B.
Roblox (RBLX) slides on bookings decline and wider-than-expected loss.
Electronic Arts (EA) ends three-decade partnership with FIFA.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets were mostly weak. China and Thailand did well, but Japan, Hong Kong, India, Australia, New Zealand, Indonesia and Singapore were weak. Europe, Africa and the Middle East are doing well overall. The UK, Denmark, France, Turkey, Germany, South Africa, Finland, Switzerland, Spain, the Netherlands, Italy, Portugal, Austria and Sweden are up, while the UAE, Norway, Hungary and Saudi Arabia are down. Futures in the States point towards a moderate gap up open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
The dollar is flat. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Financial stability
The Federal Reserve painted a somewhat concerning picture of the global financial system in its latest semi-annual Financial Stability Report, citing particular examples that may warrant further attention. Surging inflation and Russia’s war in Ukraine have supplanting the coronavirus pandemic, while a quick monetary policy tightening cycle may result in lower economic output and raise borrowing costs. In turn, that could lead to job losses, unsustainable debt levels for businesses and impact the housing market via higher mortgage rates.
Quote: “While the recent deterioration in liquidity has not been as extreme as in some past episodes, the risk of a sudden significant deterioration appears higher than normal,” the U.S. central bank said in the report, which is published each May and November. “Further adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system.”
Besides broad economic issues, the Financial Stability Report also looks at trends in trading and investing. “A sharp rise in interest rates could lead to higher volatility, stresses to market liquidity, and a large correction in prices of risky assets, potentially causing losses at a range of financial intermediaries. Declining depth at times of rising uncertainty and volatility could result in a negative feedback loop, as lower liquidity in turn may cause prices to be more volatile.” That could be particularly worrisome with the share of U.S. household wealth – that comes from directly or indirectly held stocks – hitting a record 41.9% through the end of 2021, more than double where it was 30 years ago.
Coming up: Treasury Secretary Janet Yellen is set to testify before the Senate Banking Committee at 10 a.m. to brief lawmakers on the annual report of the Financial Stability Oversight Council. “There is the potential for continued volatility and unevenness of global growth as countries continue to grapple with the pandemic [and] Russia’s unprovoked invasion of Ukraine has further increased economic uncertainty,” she said in prepared remarks. “The U.S. financial system has continued to function in an orderly manner, though valuations of some assets remain high compared with historical values.” (14 comments)
What’s next?
While equities are attempting to pare some of the big losses they saw on Monday, the cryptosphere is still in the gutter, with Bitcoin (BTC-USD) falling below $30,000 for the first time in more than a year. The souring sentiment has also weighed heavily on crypto miner stocks like Riot Blockchain (RIOT) and Marathon Digital (MARA), as well as exchange Coinbase Global (COIN) and Bitcoin leveraged firms like Michael Saylor’s MicroStrategy (MSTR). Even TerraUSD (UST-USD), the third largest stablecoin by market cap, lost its peg to the U.S. dollar, dropping to as low as 69 cents and causing a swathe of investors to liquidate their holdings.
The skeptics: While crashes have hit Bitcoin before, some say enthusiasm among dip buyers – that used to help prices quickly rebound – is fizzling. One of the biggest advantages of crypto was that it was supposed to provide a hedge against inflation, though that theory has gone up in smoke with Bitcoin getting even more devalued than real-world currencies in a time of red-hot inflation. Another long-term incentive was that crypto could provide a store of value via anonymous transactions and wallets, but not only have governments gotten better at tracking the assets, they are on the verge of regulating them big time.
The believers: Bitcoin and cryptocurrencies are widely known for their violent price swings, and have been selling off along with traditional markets due to macroeconomic uncertainty. “Crypto is going through the lull that the internet went through,” added billionaire entrepreneur Mark Cuban. “The use of Smart Contracts to improve business and profitability” will be the next driver, though “the chains that copy what everyone else has, will fail.” Meanwhile, El Salvador, the first-ever country to adopt Bitcoin as legal tender, bought the dip again, scooping up 500 more Bitcoins for $15.4M to mark its largest purchase of the crypto on record.
Statistics: The global market cap for the entire crypto market is now hovering around $1.5T, down 50% from the $3T milestone seen last November, according to data from CoinGecko.com. 40% of Bitcoin holders are also underwater on their investments, per Glassnode, and in the last month alone, 15.5% of all Bitcoin wallets fell into an unrealized loss. (12 comments)
Tougher stance
2020 and 2021 were boom years for special purpose acquisition companies, or SPACs, but the party seems to be coming to an end. Goldman Sachs (GS), the No. 2 underwriter of SPACs, is pausing its work in the industry, exiting most vehicles it has taken public due to regulatory concerns. Officials have released proposed rules that seek to boost transparency and bring SPACs in line with conventional public listings, making the mechanism less attractive to Wall Street.
What are SPACs? They’re basically empty shell companies that raise a lot of money by going public – without targeting a particular industry – and later use the money to buy a company. The backdoor IPOs can offer liquidity, are light on the regulatory side (no S-1 filings) and aren’t subject to lockup rules. The traditional IPO process can also take anywhere from several months to a year – as negotiations with institutional investors play out – though some SPAC deals are reported to only take weeks and could provide better price support.
Up until now, Goldman Sachs had free reign on the market, helping SPACs list on public exchanges with very little recourse if something goes wrong in the process. The SEC now wants to implement new liability rules for banks and underwriters, meaning they would be held responsible for the eventual merger and the company with which the SPAC merges. Investors would also have the right to sue blank-check companies if they issued exaggerated projections or inaccurate statements about the companies they planned to take public.
Outlook: The Goldman SPAC exit comes after it helped sponsors raise almost $16B last year. Bloomberg also recently reported that Citi (C) put a temporary hold on underwriting SPACs until companies can determine legal liabilities of the latest SEC proposed rules. All the news means that the public listing process will likely head back to the way things worked before the pandemic: SPACs were sidelined in favor of IPOs or direct listings (where a company floats its existing private shares). (7 comments)
Sharp declines
How’s this for a statistic? The biggest U.S. tech giants have shed over $1T in market capitalization over the past three trading sessions. Among the biggest losers were Apple (AAPL), which lost over $220B since last Wednesday, as well as Microsoft (MSFT), Amazon (AMZN) and Tesla (TSLA), which have all tumbled by around $200B. In fact, the Nasdaq 100 Index plunged another 4% on Monday, extending its decline to 10% since the Fed raised interest rates by half a percentage point last week (and vowed to continue hiking at that pace).
On the move: “We expect markets to remain volatile, with risks skewed to the downside as stagflation risks continue to increase,” wrote Barclays’ Maneesh Deshpande. “While we cannot discount sharp bear market rallies, we think upside is limited.”
Caution ahead: “The days of market whiplash are just beginning,” added Andy Kapyrin, co-chief investment officer at investment advisory RegentAtlantic.
Getting magnified: “Seismic activity in the stock market continues to intensify as all sizes and styles sink deeper into the red,” noted Sam Stovall, chief investment strategist at CFRA.
Bottom line: “The market doesn’t know how high the Fed has to go to control inflation, and we have the sense of a global slowdown,” explained Sebastien Galy, macro strategist at Nordea Asset Management. “There is a lot of negatives that are happening in the market.” (55 comments)
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
7:40 Fed’s Williams Speech
8:30 Fed’s Bostic Speech
9:15 Fed’s Barkin: “Why We Care About Inflation”
1:00 PM Fed’s Kashkari Speech
1:00 PM Results of $45B, 3-Year Note Auction
3:00 PM Fed’s Mester Speech
7:00 PM Fed’s Bostic Speech
What else is happening…
Tesla (TSLA) halts production in Shanghai due to supply issues – Reuters.
Match Group (MTCH) sues Google (GOOGL), alleging monopoly in app store.
Disappointing revenue and margin guidance sinks Palantir (PLTR) shares.
Hindenburg sees significant risk from Musk’s Twitter (TWTR) takeover.
AMC (AMC) slams doubters, looks to stronger slate ahead.
Tyson Foods (TSN) soars as consumers eat higher meat prices.
Philip Morris (PM) in takeover talks with Swedish smokeless tobacco giant.
Novavax (NVAX) plunges following Q1 top and bottom line misses.
With fear at a fever pitch, is it time to chase Chinese stocks?
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets posted across-the-board losses. Japan, South Korea, India, Taiwan, Australia, New Zealand, Malaysia, Indonesia and Thailand were down big. Europe, Africa and the Middle East are down even more. The UK, Denmark, Poland, France, Germany, the UAE, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria and Sweden are getting hit hard. Futures in the States point towards a big gap down open for the cash market.
————— BLOG: The Market is Running out of Places to Hide —————
The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is down big.
Stories/News from Seeking Alpha…
The everything bubble
Stonks only go up… until they go down. The so-called everything bubble, or the superbubble, is up against forces that are challenging the investing landscape, with the Fed pivoting on its “transitory” inflation stance last November. The shift commenced a monetary policy tightening cycle to combat price pressures, but it has continued to weigh on equities, along with a stronger dollar that is hitting earnings. Many have also warned that other industries and sectors have far exceeded fundamental value by a large margin, propped up by the Federal Reserve and the once-strong army of day traders that surfaced during the onset of the coronavirus pandemic.
Commentary: “Today in the U.S. we are in the fourth superbubble of the last hundred years,” wrote famed fund manager Jeremy Grantham back in January. “Even more dangerously for all of us, the equity bubble, which last year was already accompanied by extremely low interest rates and high bond prices, has now been joined by a bubble in housing and an incipient bubble in commodities. What is new this time, and only comparable to Japan in the 1980s, is the extraordinary danger of adding several bubbles together, as we see today with three and a half major asset classes bubbling simultaneously for the first time in history.”
A major selloff has plagued the Dow and S&P 500, while the tech-heavy Nasdaq has been in a bear market since March, with nearly half of the index’s constituents off more than 50% below their 52-week highs. Riskier crypto markets have also taken a hit (Bitcoin is down 50% from its highs) and elevated commodity prices remain subject to supply chain problems, as well as volatile supply and demand. Meanwhile, purchases of ETFs in April fell to their lowest level since the depths of the COVID crisis as inflows from institutional money and retail investors dried up.
No more diamond hands: “Yields are climbing because investors think inflation is out of control,” noted Peter Andersen, founder of investment firm Andersen Capital Management. “A lot of these guys started trading right around COVID so their only investing experience was the wacked-out, Fed-fueled market,” added Matthew Tuttle, CEO at Tuttle Capital Management. “That all changed with the Fed pivot in November, but they didn’t realize that because they have never seen a market that wasn’t supported by the Fed. The results have been horrific.” (50 comments)
Pending downturn
Recession fears continue to be rife amid fresh warnings from tech companies that aren’t helping the situation. Uber (NYSE:UBER) just became the latest to sound the alarm, announcing a hiring slowdown to address the severe swing in economic sentiment. Last week, Facebook (FB) also told staff it would stop or slow the pace of adding mid-level or senior positions, while Robinhood (HOOD) previously declared that it would slash its workforce by around 9%.
Excerpt: “After earnings, I spent several days meeting investors in New York and Boston,” Uber CEO Dara Khosrowshahi said in an email, which was obtained by CNBC. “It’s clear that the market is experiencing a seismic shift and we need to react accordingly. The average employee at Uber is barely over 30, which means you’ve spent your career in a long and unprecedented bull run. This next period will be different, and it will require a different approach.”
“We have to make sure our unit economics work before we go big. The least efficient marketing and incentive spend will be pulled back. We will treat hiring as a privilege and be deliberate about when and where we add headcount. We will be even more hardcore about costs across the board. We have made a ton of progress in terms of profitability, setting a target for $5B in Adjusted EBITDA in 2024, but the goalposts have changed. Now it’s about free cash flow. We can [and should] get there fast. We are serving multi-trillion dollar markets, but market size is irrelevant if it doesn’t translate into profit.”
Earnings flashback: Shares of Uber fell 5% following the release of its Q1 results last Wednesday as the ride-hailing giant flagged margin concerns and warned of global regulatory risks. Top rival Lyft (LYFT), which reported earnings the same day, saw its stock collapse 30% following its quarterly results. (5 comments)
G7 unity
The last of the G7 nations has committed to gradually phase out imports of Russian oil as Japan ramps up the pressure on Vladimir Putin. Up until now, the resource-poor country had been reluctant to prohibit the imports, though the “unity of the G7” now outweighs the “very difficult decision.” Oil futures didn’t react much to the news, even falling 2.2% to $107.36/bbl, given that the world’s third-largest economy only imported 3.6% of its crude from Russia in 2021.
More sanctions: The show of solidarity saw the U.S. unveil even more penalties against Russia, including sanctioning 27 executives from Gazprombank, a bank facilitating business for Russian energy giant Gazprom (OTCPK:GZPFY). It also announced sanctions against three highly viewed Russian television stations, imposed some 2,600 visa restrictions on Russian and Belarusian officials, and prohibited Americans from providing accounting and management consulting services to any person in Russia.
Effectiveness? “This is not a full block. We’re not freezing the assets of Gazprombank or prohibiting any transactions with Gazprombank,” a senior Biden administration official told reporters. “What we’re signaling is that Gazprombank is not a safe haven, and so we’re sanctioning some of their top business executives… to create a chilling effect.”
Go deeper: The latest actions take effect ahead of Russia’s Victory Day, an anniversary commemorating the Soviet Union’s role in defeating Nazi Germany in World War II. “The West was preparing for the invasion of our land, including Crimea,” Putin said at one of the most important events on the country’s national calendar. “Defending the Motherland when its fate is being decided has always been sacred. Today you are fighting for our people in Donbas, for the security of Russia, our homeland.” (3 comments)
Defense spending
The Javelin has been a key weapon in Ukraine’s defense against Russia, with the self-guided portable missile system able to fire on tanks and vehicles from as far as 2.5 miles away. With a big Russian advance now taking place in Ukraine’s east, the country is asking for more arms and supplies from Western nations, though some are concerned about their own stockpiles amid rising costs, supply chain disruptions and labor shortages. Complicating matters is that some components are no longer commercially available, as well as the sourcing of questionable raw materials like Russian titanium.
Estimates: The U.S. has already sent over 5,000, or about a third, of its Javelin anti-tank missiles to Ukraine, which would take three or four years to replace, according to the Center for Strategic and International Studies. It has also given over more than 1,400, or about a quarter, of its Stinger anti-aircraft missiles, which would take at least five years to replenish at current production levels. Lockheed Martin (LMT) and Raytheon (RTX) jointly produce the Javelin, while the latter is the sole supplier of the Stinger.
As the war continues to drag on, Lockheed Martin is seeking to nearly double its production of Javelin anti-tank missiles. “We’re endeavoring to take that up to 4,000 per year, and that will take a number of months, maybe even a couple of years to get there because we have to get our supply chain to also crank up,” CEO Jim Taiclet said on CBS’s Face the Nation. The production ramp-up is starting even before the additional Javelins are ordered, because “we know there’s going to be increased demand for those kinds of systems from the U.S. and for our allies as well and beyond into Asia-Pacific.” Congress additionally needs to pass the Bipartisan Innovation Act that would propel U.S. design and manufacturing of microprocessors (each Javelin requires 250), reducing American reliance on foreign supply.
Commentary: “The depressing reality is that the last 30 years of [relative peacetime] might just be an aberration,” said Richard Aboulafia, an aerospace consultant at AeroDynamic Advisory. “[People thought:] ‘We won the cold war. Now, that’s the end of naked human aggression. Excellent! Let’s go start a unicorn petting zoo and everything will be fine.’ And it didn’t work.” LMT shares have risen 24% since January, in part due to the increases in defense spending. (14 comments)
Today’s Economic Calendar
8:45 Fed’s Bostic Speech
10:00 Wholesale Inventories (Preliminary)
12:30 PM Investor Movement Index
What else is happening…
Post-IPO lockup: Ford (F) to dump 8M shares of EV maker Rivian (RIVN).
Starbucks (SBUX) hit with government labor complaint alleging 200 violations.
Hospitals seek price hikes to offset rising nursing costs – WSJ.
Tracking COVID-19’s path through life insurers’ Q1 results.
Moderna (MRNA) urges court to dismiss patent claims on COVID-19 shot.
Rate lock volumes plunged in April as mortgage rates keep climbing.
Apple (AAPL) cuts trade-in values for Macs, iPads and Apple Watches.
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