Friday Morning Reads
- Bitcoin ‘Flash Crash’ Knocks Ethereum And Wider Market
- Some Strategists See Bitcoin at $100,000 by Year’s End
- ‘Emerging Threat’ to Financial System
- Spoil Global Climate Negotiations
- What the Economics of Sawdust Can Tell Us
- Think Everything’s Expensive Now?
- No Quick Fix
- Fed Unveils Stricter Trading Rules
- Turn Over Information About Payment Products
- Takes Aim at Executive Pay
- Russia Installs a Digital Iron Curtain
- Snap Warning
- A Watch Brand’s Best Friend
- Wealthy Chinese Shift
- UK health expert says case surge is due to reliance on AstraZeneca (AZN) vaccine, which is less effective than Pfizer (PFE) and waning immunity. Politico
- USTR Katherine Tai is hopeful US and EU could resolve dispute over steel and aluminum tariffs with EU (AA, KALC, STLD, NUE, X). Reuters
- Lyft (LYFT) had 4000 claims of sexual assault from 2017-2019. Bloomberg
- President Biden suggests expansion of Medicare to include dental, vision, and hearing likely will not be included in reconciliation bill due to opposition from moderate Democrats (SDC, HSIC, NVST, PDCO, XRAY, ALGN). The Hill
- President Biden says US would defend Taiwan from an attack from China (TSM). Bloomberg
- Apple (AAPL) talks with Chinese battery makers for electric car have hit a roadblock. Reuters
- SoftBank (SFTBY) in discussions to sell robotics unit in France to United Robotics Group. Reuters
- Trade groups for UPS (UPS) and FedEx (FDX) are warning that vaccine mandates could cause problems for holiday air cargo. Politico
- Booster shots for eligible Americans will be available today following CDC approval (PFE, MRNA, JNJ, BNTX). WSJ
Shares of Snap (SNAP) tumbled around 20% AH on Thursday following results that some are referring to as "ad-mageddon." The long-feared internet advertising meltdown was responsible for a revenue miss in Q3, with sales coming in at $1.07B vs. expectations for $1.1B. The company also detailed a worse forecast for the coming holiday quarter, which is typically one of the busiest, saying it anticipated a revenue growth rate of 19%-20%, down from third quarter growth of 57%.
What happened? "Our advertising business was disrupted by changes to iOS ad tracking that were broadly rolled out by Apple (AAPL) in June and July," CEO Evan Spiegel said on a conference call. "While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS."
Over the past few quarters, direct-response advertising has grown to more than 50% of Snap's business, but given the recent changes, "coupled with Snapchat's existence as a mobile-only platform, our strength in DR has become a more significant headwind in the current environment." Ad-dependent peers were also hit by the headlines, trading lower in premarket trade: Twitter (TWTR) -4.5%; Facebook (FB) -4.1%; Pinterest (PINS) -2.4%; Google (GOOGL) -1.9%.
Go deeper: Apple's privacy change is not the only contributor of the advertising slowdown. Ad partners facing supply chain issues and labor shortages "reduced short-term appetite" to generate demand for their products, according to Spiegel, and the trends could get worse if the bottlenecks don't clear up. It's also an interesting instance of tech stocks getting hammered due to sale struggles in the physical world, where companies do not spend on online marketing for goods they cannot get to users (not to mention another setback to the economic recovery). (34 comments)
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At a CNN town hall in Baltimore last night, President Biden provided some insights into recent negotiations with Democrats over his economic agenda. The measure has stalled in the Senate due to objections from West Virginia's Joe Manchin and Arizona's Kyrsten Sinema, who have cited heavy spending concerns over expanding the social safety net and combating climate change. Biden is specifically looking to get a framework agreement in place, so the House could vote on a bipartisan infrastructure bill before he arrives at the UN Climate Conference in Glasgow in less than two weeks.
Highlights: Biden won't support a work requirement for the child tax credit, the paid parental leave provision has been narrowed down from 12 weeks to 4 weeks, a proposal to make community college free would be eliminated, and money scrapped clean energy programs would likely be reallocated to other climate efforts.
Most importantly, Biden said it's unlikely that corporate tax rate hikes will be included in the plan. "I don't think we're going to be able to get the vote," he declared. "Look, when you're in the United States Senate and you're president of the United States and you have 50 Democrats, everyone is the president."
Supply chain: A question was also asked if Biden would deploy the National Guard to alleviate pressure on the nation's truckers. He responded that "the answer is yes," though a White House official said shortly afterwards that the administration is not actively considering a deployment to ease the supply chain gridlock. "Requesting the use of the National Guard at the state level is under the purview of governors and we are not actively pursuing the use of the National Guard on a federal level."
While it was on the brink of default heading into the weekend, China Evergrande Group (OTCPK:EGRNF) seems to have pulled off an $83.5M bond coupon payment before Saturday. A 30-day grace period would have expired tomorrow after the original missed payment date, but the drama is still far from over. Evergrande still needs to pay $573M on another four dollar notes this year and faces $7.7B in bond maturities in 2022.
Snapshot: A default could have led to the biggest corporate default in Asia, allowing creditors to declare defaults on some of Evergrande's other debts. The company is one of China's biggest property developers, and its most indebted, with the equivalent of more than $300B in total liabilities. Evergrande's Hong Kong-listed stock has slumped more than 80% YTD, though shares rose as much as 5% today on the latest developments.
Some say it is kicking the can down the road, but others feel the interest payment is some good news, giving Evergrande time for asset sales and strengthening its case of an orderly restructuring. It's already been trying to raise funds by disposing stakes in subsidiaries and a Hong Kong office building, while last month it agreed to sell most of its ownership in a Chinese commercial bank for $1.6B. It had also planned to offload a majority holding in its property management division for $2.6B, but those talks fell through this week.
Fears of contagion: Both Chinese Vice Premier Liu He and PBOC Governor Yi Gang feel that Evergrande's risks are controllable and reasonable capital demands from property companies are being met. However, worries have roiled markets due to concerns about a potential spillover into the rest of China's economy. The situation has already led to a string of default announcements and rating downgrades, as well as a rumbling across the $5T Chinese property sector, which accounts for a quarter of GDP by some metrics. (2 comments)
Federal Reserve officials will no longer be able to buy individual securities following the recent controversy over portfolios that resulted in the departure of two regional bank presidents. That means no more stock picking and active trading of derivatives, leaving officials to only purchase diversified investment vehicles, like mutual funds. The new restrictions will apply to both Reserve Bank and Board policymakers, as well as senior staff.
Quote: "These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve," Fed Chair Jay Powell said in a statement.
Earlier this week, The American Prospect reported that Powell also sold up to $5M in a broad index fund as the economy was recovering from the pandemic last year. The $1M-$5M sale from the Vanguard Total Stock Market Index (VTI) in October 2020 would likely hold up under the new rules, as well as the between $50K-$100K sales he made on Sept. 21. In December, Powell also sold small stakes of the Causeway International Value Fund (CIVIX), the Goldman Sachs U.S. Equity Dividend and Premium Fund (GSPKX), iShares MSCI EAFE ETF (EFA) and the iShares Russell 2000 ETF (IWM).
More details: "To help guard against even the appearance of any conflict of interest in the timing of investment decisions, policymakers and senior staff generally will be required to provide 45 days advance notice for purchases and sales of securities, obtain prior approval for purchases and sales of securities, and hold investments for at least one year. Further, no purchases or sales will be allowed during periods of heightened financial market stress." (12 comments)
In Asia, Japan -0.3%. Hong Kong +0.4%. China -0.3%. India -0.2%.
In Europe, at midday, London +0.6%. Paris +1%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq -0.2%. Crude +0.7% at $83.05. Gold +0.7% at $1793.40. Bitcoin -3.8% at $63224.
Ten-year Treasury Yield unchanged at 1.68%
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