Good morning. Happy Friday.
The Asian/Pacific markets were mostly weak. Indonesia and Thailand did well, but China, Hong Kong, South Korea, Taiwan, New Zealand and the Philippines did poorly. Europe, Africa and the Middle East are currently mostly down. The UAE is up, but the UK, Denmark, France, Germany, Switzerland, Spain, the Netherlands, Italy and Austria are down. Futures in the States point towards a down open for the cash market.
————— Free Online Course: Mini Masterclass in Trading —————
The dollar is up. Oil is flat; copper is down big. Gold is up; silver is down. Bond are up.
Stories/News from Seeking Alpha…
Battle lines
The lock-in effect
Interesting dynamics have played out in the housing market since the Federal Reserve began raising interest rates to counter inflation. Some of these trends even go back further to the onset of the coronavirus pandemic, when the central bank dropped rates to zero at the same time people were seeking more space and lifestyle changes. The resulting effects have led to an increasingly expensive environment for housing and rent, and have even triggered an affordability crisis across many markets.
Location, location, location? Higher borrowing costs steepened the price of new construction, while supply is short due to the many real estate investors who have clamored into the sector. Landlords have also raised rents to keep up with the inflationary environment, and many retiring baby boomers are still living in their homes rather than downsizing or moving to retirement communities. However, one of the biggest cost drivers is called the “lock-in effect,” where people who locked into ultra-low interest rates before 2022 cannot move between markets or make traditional financial changes, which would increase liquidity and free up supply.
There have been many creative solutions to the current state of affairs, some of which are common across Canada, Australia, parts of Europe, and elsewhere. One of them is mortgage assumability, or where new owners of a house “assume” the mortgage terms of the seller (with full coverage of existing equity), and it already happens in the U.S. on a minimal scale with FHA and VA loans. A more touted remedy is mortgage portability, which permits buyers or sellers to simply “port” their existing mortgage terms to a new location and could really make a dent for both buyers and sellers of a transaction.
Possible in America? Land ownership in the U.S. is recorded and held at the local level, making things complicated if porting a mortgage to a different state, or even to a different county. Another factor is that the majority of mortgages are securitized and bundled with other sales, making it difficult to alter statements and terms, especially if things aren’t mitigated by origination premiums, a higher percentage of variable rates, or larger down payments. While there is appetite for new solutions, any major structural changes to the U.S. mortgage market would likely have to take place in Congress, as well as revamping entire systems that are currently in place for lenders and investors of mortgage-backed securities. (2 comments)
Freedom of navigation
Houthi militants are threatening to escalate attacks on ships in the Red Sea, leading to higher insurance costs and fueling calls for an expansion of forces. The latest drone strike has sunk a Greek-owned coal carrier, making it the second vessel confirmed to go down in the waterway. While the price for insuring ships sailing through the Red Sea has risen, it is still lower than the peak reached earlier this year when the Houthis increased their attacks. Vasileios Gryparis, head of EU’s Red Sea mission, now says the naval force tasked with protecting ships in the area needs to be doubled. (5 comments)
Missing out
SoftBank (OTCPK:SFTBY) founder Masayoshi Son regrets selling Nvidia (NVDA) shares five years ago, before the chip giant rode the AI wave to briefly become the world’s most valuable company. SoftBank’s Vision Fund sold its entire 4.9% stake in Nvidia in early 2019, recording a $3.3B return on an initial $700M stake. “I had to tearfully sell the shares,” Son said at the Japanese investment giant’s shareholder meeting, adding that “the fish that got away was big.” If the Vision Fund held on to its stake, it would have been worth around $160B at current prices. (5 comments)
More tariffs
Canada is planning new levies on Chinese electric vehicle imports, in line with the latest actions taken by the U.S. and EU. While a final decision is yet to be made, the Canadian government is expected to announce public consultations on the potential measures soon. Prime Minister Trudeau has been under pressure to follow the lead of the Biden administration, which quadrupled tariffs on Chinese EVs, but is moving carefully amid the threat of retaliation by Beijing. ING Economic and Financial Analysis notes that China is the biggest EV producer and dominates global supply chains of raw materials needed for EV batteries. (4 comments)
Today’s Economic Calendar
9:45 PMI Composite Flash
10:00 Existing Home Sales
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
1:00 PM Baker Hughes Rig Count
What else is happening…
Bank of England keeps rates steady, next move may be a cut.
Starboard loses effort to block Autodesk (ADSK) shareholder vote.
Penn Entertainment (PENN) jumps on takeover interest from Boyd.
Stolen data from LendingTree (TREE) offered on the dark web.
WHO issues warning on fake versions of Ozempic (NVO).
BOJ rate hike incoming? Japan’s inflation accelerates in May.
Report: Spirit AeroSystems (SPR) nears deal with Boeing (BA).
Honeywell (HON) to acquire defense firm CAES Systems for $2B.
Tesla Master Plan may factor in China win to affordable EV race.
Exxon-Hess arbitration panel incomplete, stalling Chevron (CVX) deal.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets leaned to the upside. South Korea, Taiwan, New Zealand and Indonesia did well; China and Hong Kong were weak. Europe, Africa and the Middle East are currently mostly up. France, Turkey, Germany, Russia, Finland, the Netherlands, Italy, Portugal and Sweden are leading; Greece, South Africa and Israel are down. Futures in the States point towards a moderate gap up open for the cash market.
————— VIDEO: The Market is Higher but Breadth Still Sucks —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Battle lines
The globe is entering a dangerous new phase as the nations of the world pick sides in what appears to be becoming a precarious decade. Soaring defense spending and the stockpiling of weapons don’t make that picture look any better, but they may be necessary in a new era of conflict. The situation comes at a time when the West is struggling with diminished military recruitment, as well as pressure from higher interest rates and giant debt loads (see below), though some of those items may have to change soon to adjust to the new environment.
Quote: “Across Europe and Canada, NATO Allies are, this year, increasing defense spending by 18%, and 23 allies are going to spend 2% of GDP or more on defense,” NATO Secretary General Jens Stoltenberg said at a press conference with President Biden earlier this week. “It is also important for the United States to know that a lot of this money is actually spent here in the United States. Allies are buying more and more equipment from the U.S. So NATO is good for U.S. security, but NATO is also good for U.S. jobs.”
Stoltenberg separately revealed consultations about how many nuclear warheads should be pulled from storage warehouses and put on standby, and has pledged to boost the number of NATO troops on high alert by more than sevenfold to over 300K. Keeping its allies assured is also a top priority for the U.S. at the moment, as Russia seeks to challenge what it calls the “hegemonic and imperial West.” Alliances are being strengthened to create a more formidable anti-U.S. axis, with Russia reaching out to China, Iran, Cuba, Venezuela, and most recently – North Korea.
A new pact between Moscow and Pyongyang was signed during Wednesday’s meeting between Vladimir Putin and Kim Jong Un, which pledged military cooperation and outlined a new mutual defense pact that would assist either nation if one was attacked. It wasn’t long ago that the Biden administration allowed U.S. weapons to strike inside mainland Russia, and a formidable rival to counter the West-led NATO might finally be showing its face (not CSTO). Also presumed to be in the agreement were the flow of ammunition supplies and the technologies needed for advanced weapons programs.
Economically speaking: Other big features of the Comprehensive Strategic Partnership Treaty were ways to neutralize U.S.-led economic sanctions, as well as expanding cooperation in trade and investment. That may include the export of Russian consumer goods and energy supplies to North Korea, and other economic relationships that often prove to be advantageous in a long, drawn-out war. Last week, the G7 additionally approved the funding of $50B to Ukraine by using interest income from frozen Russian assets in Western financial institutions, which is sure to spark similar countermeasures and widespread legal challenges.
Top of the world
Nvidia (NVDA) has surpassed Microsoft (MSFT) and Apple (AAPL) to become the world’s most valuable company. The chip giant’s shares have risen 180% YTD and more than tripled in value over the past year, driven by surging demand for its AI chips. At the Seeking Alpha Investing Summit on Tuesday, Knox Ridley, portfolio manager at Tech Insider Network, said Nvidia “will own the AI market for the same reason Apple owned mobile,” and its market cap will likely reach $10T by 2030. Its current valuation totals $3.3T. (108 comments)
Hybrid…planes?
Hybrid vehicles are quite popular, so why not take it to the skies? GE Aerospace (GE) is making headway in developing a hybrid electric engine for narrow-body aircraft via a partnership with NASA. The project will embed electric motor/generators in a high-bypass turbofan, and initial component testing, as well as a baseline test of the engine before embedding hybrid electric parts, have been completed. If successful, the new technology could help lower the aviation industry’s carbon footprint, which accounts for over 2% of the world’s emissions.
Red ink
The federal budget deficit is expected to swell to around $1.9T this year, according to the Congressional Budget Office, which was higher than its previous estimate of $1.5T. This takes into account increased spending for student loans and Medicaid as well as the recently passed $95B foreign aid package. National debt is even poised to top $56T over the next 10 years, or 122% of GDP, surpassing the 106% seen in 1946 after World War II. Meanwhile, the eurozone is facing debt issues of its own, with the ECB warning eight of its members – including Belgium, France and Italy – over their excessive budget deficits. (25 comments)
Today’s Economic Calendar
8:30 Housing Starts and Permits
8:30 Initial Jobless Claims
8:30 Philly Fed Manufacturing Index
8:30 Current Account
8:45 Fed’s Kashkari Speech
10:00 Atlanta Fed’s Business Inflation Expectations
11:00 EIA Petroleum Inventories
4:00 PM Fed’s Barkin Speech
4:30 PM Fed Balance Sheet
10:15 PM Fed’s Daly Speech
What else is happening…
Policy divergence: Switzerland cuts rates for the second time.
U.S. urges allies to curb China’s access to chipmaking tools.
Death by Amazon? Barnes & Noble sets stage for a comeback.
Return of Boeing’s (BA) Starliner from space pushed back.
Senators blast CEO Dave Calhoun for ‘broken safety culture.’
Probed: HP Enterprise’s (HPE) $14B deal for Juniper (JNPR).
Netflix House (NFLX) to open in Pennsylvania, Texas next year.
Golden Goose pulls IPO last minute amid market turbulence.
Central banks seen buying up more gold in next 12 months.
BlackRock: No AI bubble and winners will drive market returns.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets mostly did well. Japan, China, South Korea, India, Taiwan, Australia and New Zealand all notched solid victories. Europe, Africa and the Middle East are currently mostly up. Russia is down, but the UK, Greece, South Africa, Hungary, Spain, Italy and Portugal are doing well. Futures in the States point towards a mixed and flat open for the cash market.
————— VIDEO: The Market is Higher but Breadth Still Sucks —————
The dollar is up slightly. Oil and copper are down. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
Higher and higher
Wall Street Breakfast won’t be published tomorrow with markets closed for Juneteenth, but tune back in on Thursday. Enjoy the holiday!
The S&P 500 (SP500) has notched its 30th record close of 2024, closing out the session on Monday at 5,473. In fact, the index is now up a whopping 15% only six months into the year, resulting in an additional $5.5T in market capitalization. A lot is going for U.S. stocks at the moment, with things like rising corporate profits, cooling inflation and an upcoming Fed easing cycle, as well as historically low market volatility, a likely soft landing, and of course – the notable AI rally.
Caught off guard: Analysts keep moving up their targets as bullish energy takes over the Street. Evercore ISI is out with a new 6,000 call on the S&P 500, up from 4,750, while Goldman Sachs and Citi moved their year-end goals to 5,600, from 5,200 and 5,100 previously. Others, like Seeking Alpha analyst Cavenagh Research, have been continuous bulls since the beginning of the year, delivering bimonthly forecasts of Buy recommendations, new bull market phases and rallies to new all-time highs.
It’s pretty clear that money is moving off the sidelines, but will it last? Those concerned about concentration risk point to the above-average share of megacaps, and should things go south in the sector, it could weigh on the broader market. It’s a legitimate worry as the Magnificent 7 represent two-thirds of the gains this year for the S&P 500, but others point to the successful reasons behind that trade (i.e. AI) and to be greedy when others are fearful. Even if those stocks are stretched, there may be a lot of room to run for many of the other companies in the S&P 500 (SP500), which haven’t seen significant appreciation this year and could also sustain the rally.
How to invest: While most S&P 500 ETFs have similar holdings, they do differ slightly on expense ratios, trading spreads, dividend yields and assets under management. Two of the most popular offerings include the low-cost Vanguard S&P 500 ETF (VOO), as well as the SPDR S&P 500 ETF Trust (SPY), which is known for its liquidity and could be easier for intraday trading and options. The iShares Core S&P 500 ETF (IVV) also comes with lower fee costs, but its volumes are significantly lower. All of these ETFs are priced in the $500s per share, based on total assets and units outstanding, but if looking for a lower-priced product, the SPDR Portfolio S&P 500 ETF (SPLG) is a practical option, especially for those who don’t want to dabble with fractional shares or have a smaller portfolio.
Out of charge
After months of struggling to keep its business running, Fisker (OTC:FSRN) has filed for Chapter 11 bankruptcy. The EV maker is in advanced talks for debtor-in-possession financing and the sale of assets due to “market and macroeconomic headwinds that impacted our ability to operate efficiently.” A production pause will also remain in place. Cash-strapped Fisker flagged going concern doubts in February, after which its attempt to secure an investment from a major automaker failed, while its Ocean SUV is being investigated and some models have been recalled. (7 comments)
Surgeon General’s warning
Blaming social media for a youth mental health crisis, U.S. Surgeon General Vivek Murthy is pushing for a warning label on social media platforms, similar to the disclaimers placed on cigarettes 60 years ago. “Adolescents who spend more than three hours a day on social media face double the risk of anxiety and depression symptoms, and the average daily use in this age group, as of the summer of 2023, was 4.8 hours,” he wrote in a New York Times op-ed piece. Popular social apps among teens include TikTok (BDNCE), YouTube (GOOG), Snapchat (SNAP) and Instagram (META). (48 comments)
Buy now, end later
Apple (AAPL) is discontinuing its BNPL offering that launched in the U.S. last year, which made financial services a deeper part of its ecosystem. Apple Pay Later had allowed customers to buy products online for up to $1,000 and pay in four installments with no interest. Now, Apple (AAPL) will focus on new payment options that were unveiled last week at its annual developers conference. They will be available when checking out with Apple Pay in the U.S. directly through Affirm (AFRM), and via cards issued by Citi (C), Synchrony (SYF) and Fiserv (FI). (4 comments)
Today’s Economic Calendar
8:30 Retail Sales
9:15 Industrial Production
10:00 Business Inventories
10:00 Fed’s Barkin Speech
11:40 Fed’s Collins Speech
1:00 PM Fed’s Logan Speech
1:00 PM Results of $13B, 20-Year Bond Auction
1:00 PM Fed’s Musalem Speech
2:00 PM Fed’s Goolsbee Speech
4:00 PM Treasury International Capital
What else is happening…
WSB survey results: There should be limits on executive pay.
GE boss Larry Culp declined Boeing’s (BA) offer for top job.
Biden set to reopen oil reserves if gasoline prices surge again.
Elon Musk says Tesla (TSLA) Master Plan 4 will be epic.
Does PepsiCo have a strategy for Celsius (CELH) stake?
FTC sues Adobe (ADBE) over subscription plan practices.
Besides Nvidia: This AI stock keeps notching new highs.
GameStop’s (GME) annual meeting ends without fireworks.
Exxon (XOM) lawsuit against activist investor is dismissed.
Merck (MRK) gets FDA approval for pneumonia vaccine.
—————
Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned to the downside. Japan, South Korea, New Zealand and Thailand posted losses. Several markets were closed. Europe, Africa and the Middle East are currently mixed. Poland, Turkey, Hungary, Israel and Austria are up; Denmark, Finland, Switzerland, Spain and Portugal are down. Futures in the States point towards a down open for the cash market.
————— VIDEO: The Market is Higher but Breadth Still Sucks —————
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Pay day
The recently approved compensation package for Tesla (TSLA) CEO Elon Musk has brought the discussion of executive pay back to the table, with its eye-popping figures making headlines. Legal hurdles still remain, but shareholders reaffirmed support for a 10-year pay plan valued at $47B (at current share prices) after a judge in Delaware challenged the stock awards. It’ll make one of the world’s richest people even richer, but investors seem to think that it is all worth it, with 77% of shareholders re-ratifying the pay package.
Key person risk: Supporters of the proposal argued that Tesla had fallen as a priority for Elon Musk, who has been spending more time on outside ventures like X, SpaceX and Starlink, Neuralink, The Boring Company and xAI. The thinking here is that the stock awards would keep him highly motivated despite the growing challenges of developing an affordable mass-market vehicle or diversifying into other verticals. Earlier this year, Musk threatened to develop products outside of Tesla and would be “uncomfortable growing Tesla into a leader in AI & robotics without having ~25% voting control.”
Meanwhile, median CEO pay at S&P 500 companies has risen by about 12% in 2024, according to ISS Corporate, which is far less than the 4% Y/Y increase of U.S. wage growth. Annual median CEO pay also runs around $16.3M, or hundreds of times larger than the pay of their median workers. This is largely due to executive pay that has become connected to stock options and asset-based incentives, which are approved by company boards to please their investors. In fact, Tesla has not paid Elon Musk a base salary since 2019, instead opting for performance rewards like the ones featured in his controversial pay package.
Governance dilemma: Much of the criticism surrounding excessive executive compensation has centered around income inequality, but that has failed to make a dent in the real world. Bigger problems could surface if rank-and-file employees perceive that pay ratios are unfair, which can weigh on quality, reliability and loyalty, or lead to other problems for failing to emphasize important considerations or risks outside a company’s stock price. The courts are also now getting involved, as seen in the case of Tesla (TSLA), with claims of unreasonableness, insider ties and breaches of fiduciary duties. Take the WSB survey.
The First State
Part of the drama surrounding Elon Musk’s pay package was a separate shareholder vote to reincorporate Tesla (TSLA) in Texas. The move is being seen as an effort to challenge Delaware’s dominance in the industry and may bolster the opinion that the state’s shareholder protections are excessive. About two-thirds of companies in the S&P 500 are incorporated in Delaware, partly because of its chancery court that has an extensive record of legal precedents. However, Texas has worked to win over firms with assurances of lower taxes and the recent establishment of its own specialized court system for businesses. (144 comments)
Wait until December
The Federal Reserve is well poised to keep an eye on economic data and to be patient, according to Minneapolis Fed President Neel Kashkari, who feels the first rate cut will likely happen at the end of the year. “We need to see more evidence to convince us that inflation is well on our way back down to 2%,” he declared. “We’re in a very good position right now to take our time… before we make any decisions.” The Fed’s monetary policymakers last week cut their estimates for rate cuts in 2024 to one, down from three previously forecast in March. (18 comments)
Grab the popcorn
Inside Out 2 notched an estimated $155M in ticket sales this weekend across the U.S. and Canada, helping ease some of Hollywood’s worries about a lackluster summer box office. The animated sequel by Disney (DIS) and Pixar also generated $62M in domestic ticket sales on Friday, marking the largest box office opening day in 2024. Before the big release, box office sales had been down 26% from last year, when megahits such as Barbie and Oppenheimer made headlines. Global sales for Inside Out 2 were also estimated at $140M, bringing its total haul to a record $295M and becoming the best-selling feature this year. (11 comments)
Today’s Economic Calendar
8:30 Empire State Mfg Survey
1:00 PM Fed’s Harker: Economic Outlook
What else is happening…
What is the No. 1 cybersecurity threat facing companies today?
JPMorgan upgrades Adobe (ADBE) on ‘smoother sailing ahead.’
Decade high? The severity of drug shortages is worsening.
Apple Pay & Wallet: Some fintechs will suffer, some will gain.
Ozempic (NVO) said to drive more demand for smaller clothes.
Activist Starboard Value takes $500M stake in Autodesk (ADSK).
Toyota (TM) scandal: Proxy advisers demand vote against chairman.
Boeing (BA) whistleblower reports have jumped since 737 incident.
U.S. intelligence details impact of Red Sea attacks on global shipping.
Meta (META) may be next to face charges for violating EU rules.
—————