Friday Reads

Friday Reads

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Many of the recent sanctions leveled on Russia have power because they're based on the U.S. dollar, which is the most widely used currency in global financial markets, trade and central bank reserves. However, some are cautioning that weaponizing the greenback in this fashion could erode its dominance, stoking fears that smaller currencies like the renminbi could gain a bigger role on the international stage. China is already buying Russian energy with the yuan, while India is looking into a rupee-ruble trade arrangement. "Wars upend the dominance of currencies and serve as a doula to the birth of new monetary systems," cautioned Zoltan Pozsar, analyst at Credit Suisse.

Snapshot: This time around, the U.S. went ahead with unprecedented sanctions on Russia's central bank, which has roughly a fifth of its $630B of foreign reserves in dollar-denominated assets. Many central banks across the globe have dollars in their "rainy day funds" given their longtime markings of continuous stability, but data from the IMF shows that reserves have been coming out of the dollar and trickling into other currencies. There was $12T worth of foreign reserves held by central banks around the world at the end of 2021, with the dollar accounting for about 59% of the total, down from 71% in 1999 (the year the euro was launched).

"This is the beginning of the end of the dollar's monopoly in the world," declared Vyacheslav Volodin, speaker of the Russian Duma lower house of parliament. "Anyone who keeps money in dollars today can no longer be sure that the U.S. will not steal their money." While the ruble this week recovered all of the losses seen since the invasion of Ukraine in February, many caution that the rebound was due to severe capital controls imposed by the Kremlin, a doubling of interest rates and foreign traders being barred from exiting their investments. "Sanctions cause the U.S. to lose its credibility and undermine the dollar's hegemony in the long run," added Zhang Yanling, former executive vice president of Bank of China.

Outlook: While the decline of the dollar has been predicted many times before, the U.S. has been through many turbulent periods with its currency still reigning supreme in global markets. America is also coordinating its sanctions with major allies, meaning other key currencies that can be used as an alternative (like the pound, euro, yen) are also off the table. Moreover, countries may be hesitant to diversify their reserves to currencies like China's yuan, which is still not fully convertible and mixed into added geopolitical risks associated with the country. On the other hand, the U.S. market offers a level of liquidity that is not seen anywhere else in the world, backed by free markets and strong financial institutions. (14 comments)

Crypto craze

Down at the Bitcoin 2022 conference in Miami Beach, billionaire venture capitalist Peter Thiel is causing a stir, listing an enemies list for Bitcoin (BTC-USD), or individuals he believes are holding the cryptocurrency from reaching its highest levels. Speaking in front of the attendees, Thiel named fellow billionaire Warren Buffett of Berkshire Hathaway (BRK.ABRK.B) enemy No. 1, describing him as a "sociopathic grandpa from Omaha." JPMorgan's (JPM) Jamie Dimon was also part of the "finance gerontocracy," as well as BlackRock (BLK) CEO Larry Fink.

Quote: "If you have some of these large institutional investors, they need to be allocating some of their money to Bitcoin," Thiel said at the conference. "When they manage state pension funds in the U.S. or they get trillions of dollars in assets... When they chose not to allocate to bitcoin that is a deeply political choice and we need to be pushing back on them. We need to say, you have to get onboard on this. It's a movement, and it’s a political question whether this movement is going to succeed, or whether the enemies of the movement are going to succeed in stopping us."

Recall that investor Charlie Munger, best-known as the No. 2 man at Buffett's Berkshire Hathaway, called Bitcoin "rat poison" back in February. Buffett has also touched on cryptocurrency, saying, "I don't own any and I never will."

More from the conference: Thiel decried ESG, or environmental, social and governance investing, as another enemy of Bitcoin. "I think ESG is just a hate factory," said the co-founder of PayPal (PYPL) and Palantir (PLTR), comparing it to the operations of the Chinese Communist Party. "They are into social and governance. Environmental is sort of fake, it's probably also fake in a lot of these cases... ESG has been surprisingly inclusive. As far as I can tell, the only things that are sort of not liked are some of the carbon industries and Bitcoin, because most of the other companies are subject to political control." (196 comments).

MLB debut

Apple (NASDAQ:AAPL) will be shooting for a home run tonight as it steps up to the plate with its first live sports broadcast. Friday Night Baseball will debut on Apple TV+ with a streaming doubleheader as the New York Mets meet the Washington Nationals at 7 p.m. and the Los Angeles Angels host the Houston Astros at 9:30 p.m. ET. Apple reportedly paid $85M for the two games each week, which will be available for free for a limited time without having a $4.99/monthly subscription to the streaming service.

More details: "Throughout the Friday Night Baseball broadcasts, fans can enjoy on-screen callouts about batters’ walk-up songs from Apple Music, test their knowledge of baseball trivia with help from Siri, and more," Apple wrote in a blog post. "Friday Night Baseball will also incorporate new on-screen graphics that include innovative new probabilities-based forecasts of different situational outcomes, plus highlights and live look-ins from around the league integrated right into the broadcast."

The deal with Apple TV+, which had about 20M paid subscribers in 2021, comes after ESPN (DIS) slashed its broadcast rights to MLB games this season. It's also part of Apple's push to generate more cash flow from an expansion into online services. Streaming rival Amazon (AMZN) aired several Yankees games back in 2019 and just inked an 11-year agreement (valued at $1B per year) to exclusively stream Thursday Night Football games on the Prime Video app.

Go deeper: Niche sports leagues may be the next frontier in acquisitions for the ravenous streaming industry, according to CNBC's Alex Sherman, who observes that rising sports rights fees mean content giants will be paying up one way or another. The trend points towards a potential buyout for groups like Formula One (FWONA), NASCAR, World Wrestling Entertainment (WWE) or Ultimate Fighting Championship (EDR). Interestingly, ESPN shelled out $1.5B for five-year UFC TV rights through 2025, and a renewal could set back the company even more after passing on a $4.3B deal to buy the sports company outright in 2016. (2 comments)

'Almost every trade'

What was supposed to be a staggered nine-day lockdown in Shanghai is morphing into something bigger, with a record of 20K daily new coronavirus cases reported in China's largest city on Thursday. The restrictions have since grown in severity and have been extended to the entire city. There are even reports of food and healthcare shortages, price gouging and parents being forced to separate from their children.

Quote: "Basically everything else is not moving but is being diverted away from Shanghai to other parts of China," said Mads Ravn, global head of air freight procurement at transport and logistics giant DSV. "It's affecting every commodity you can think of and will have a global effect on almost every trade."

Mainland bottlenecks can result in ocean shipping delays due to the buildup in orders and goods. As the virus spreads to more cities and provinces, alternate shipping channels may also be disrupted by lockdown measures, further weighing on the global supply chain. While China has conducted zero-COVID lockdowns before, they have never been on this scale, hitting important manufacturing, financial and logistical regions all at once. Note that 88% of the country's 1.4B population have been fully vaccinated with jabs from providers like Sinovac (NASDAQ:SVA) and Sinopharm (OTCPK:SHTDY), according to the National Health Commission of the PRC.

Analyst commentary: "The COVID situation in China has deteriorated at an alarming pace, but abandoning zero-COVID now could be perceived as conceding that the strategy did not work in the first place," Nomura economist Ting Lu said before the Shanghai lockdown began last month. "With the much worsening pandemic and Beijing's resolution in maintaining its [zero-COVID strategy], we believe China's 'around 5.5%' GDP growth target this year is becoming increasingly unrealistic." Nomura now estimates that 23 cities and nearly 200M people are under full or partial lockdown across China. (9 comments)

Today's Markets

In Asia, Japan +0.4%. Hong Kong +0.3%. China +0.5%. India +0.7%.
In Europe, at midday, London +0.8%. Paris +1.1%. Frankfurt +1.1%.
Futures at 6:20, Dow +0.3%. S&P +0.2%. Nasdaq +0.3%. Crude +1.2% to $97.20. Gold -0.1% to $1935.50. Bitcoin +0.3% to $43,539.
Ten-year Treasury Yield +2 bps to 2.67%

Today's Economic Calendar

10:00 Wholesale Inventories (Preliminary)
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

What else is happening...

EU bans coal imports from Russia, Japan may follow suit.

Natural gas rips to 13-year high on storage report, LNG hopes.

Costco (COST) stuns with comp beat. Is a special dividend next?

Backing away from Twitter (TWTR), NYT (NYTresets newsroom.

Robinhood (HOOD) says Lightning Network is coming to the app.

Tesla (TSLA), GM (GM) take part in White House EV battery meeting.

Walmart (WMT) gets aggressive about finding new truck drivers.

Cheers! Constellation Brands (STZ) hikes dividend after earnings beat.

Pfizer (PFE) higher after FDA booster meeting and ReViral purchase.

NLRB may look to disrupt mandatory union-focused gatherings.

Auto software maker CDK Global (CDK) bought out for $8.3B

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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