Monday Morning Reads
- Trade Resumption
- Oil Giants Prepare
- Rush to Bitcoin?
- ‘They’re Laying A Trap’
- The Art Of Complicating What Is Incredibly Simple
- U.S. Jobs Boom as Virus Curbs Ease
- Lessons From a Year of Pandemic Spending
- ‘Hey, Hey, Money Maker
Over the weekend, the Senate passed a $1.9T coronavirus relief bill that contains $1,400 stimulus checks for many Americans, $300/week more in jobless benefits, as well as aid for state and local governments. The measure is expected to pass in the Democratic-held House on Tuesday. It would then be sent to President Biden's desk before a March 14 deadline to renew unemployment aid programs.
"With the Senate's passage, we expect growth momentum to accelerate and forecast global GDP growth will surge to a 7.5% annualized rate in the middle quarters of the year," JPMorgan wrote in a research note. "Every $1T of fiscal stimulus adds around $4-$5 to EPS, implying 6-7% upside for the remainder of the year."
Outlook: This time around, investors are getting worried about a sharp acceleration in inflation, with the 10-year Treasury yield rising another 5 bps overnight to 1.6%. Contrast that with a stock market where bulls were rooting for another big stimulus package during the push-and-pull negotiations at the end of the Trump administration. In fact, stock futures are pointing to another fall to start the week, particularly in the tech space, where high-growth valuations have been underpinned by low rates: Dow -0.3%; S&P 500 -0.8%; Nasdaq -1.9%
Thought bubble: While many are concerned about inflationary effects, the Fed has been vocal that it has no immediate plans to tighten monetary policy. In fact, its main worry doesn't appear to be inflation, but rather the damage done to the labor market by the pandemic. The last time the U.S. had a bad bout of sustained price increases was in the 1970s, when its economy was more insulated from the world, it depended on foreign oil and ended the Bretton Woods system that rendered the dollar a fiat currency. That picture looks much different today, and since the 2008 financial crisis, the U.S. economy has even struggled to achieve its inflation goals. (32 comments)
Brent crude oil futures (CO1:COM) popped above $70 a barrel overnight, while U.S. WTI crude (CL1:COM) hit its highest level in more than two years, after a key Saudi oil site came under attack by missiles and bomb-laden drones. Iranian-backed Houthi rebels in Yemen claimed responsibility for the assault on the Ras Tanura export terminal, which is capable of exporting about 6.5M barrels a day (nearly 7% of global demand). While such attacks rarely result in big damages, their frequency has created unease in the Gulf and in oil markets.
Quote: Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy," said a spokesman for the Saudi Ministry of Energy. "They affect the security of petroleum exports, freedom of world trade, and maritime traffic."
Last month, the Biden administration said it would remove the Iran-backed Houthi rebels in Yemen from the Foreign Terrorist Organization and Specially Designated Global Terrorist lists. It also announced the end of U.S. support for offensive operations by its allies in Yemen, which has been devastated by a six-year civil war in which more than 110,000 people are believed to have died.
Outlook: Crude prices have been rising sharply since OPEC and allied producers decided to keep output cuts largely unchanged in April, accelerating a rally this year that has seen prices surge more than 35%. The OPEC move sparked several analysts to raise their price forecasts, with Goldman Sachs estimating Brent crude will hit $75/bbl by Q2 and top $80/bbl during Q3. (129 comments)
Besides a broader correction that has weighed on tech stocks in recent weeks, the halo of the electric vehicle sector has been fading. That can be clearly seen with poster EV maker Tesla (NASDAQ:TSLA), whose shares are down nearly another 6% in premarket trade to $560. The company led by Elon Musk has seen its shares fall from an intraday high of $900.40 at the end of January to a low of $539.49 on Friday, marking a 40% plunge over the course of six weeks.
What happened? Frothy valuations are having a reckoning, while semiconductor shortages have caused many automakers to temporarily close some lines at their factories. There has also been an onslaught of EV competition from Ford (F), Volkswagen (OTCPK:VWAGY) and Lucid Air (CCIV), while others, like former Tesla board member Steve Westly, have suggested the automaker is "not going to be king of the hill in electric forever." There have been additional concerns like Musk's Bitcoin (BTC-USD) purchases, and some big Tesla backers have even cashed out a chunk of their stakes, like famed investor Ron Baron (he still hopes to hold the stock for years, but has also invested in two rivals, GM-owned Cruise and Amazon (AMZN)-backed Rivian).
The moves have meanwhile triggered a diversification reassessment of how much exposure investors should have to high-flying shares that offer "big potential" but not necessarily big profits (at least in the near term). Take, for example, Cathie Wood's ARK Innovation ETF (NYSEARCA:ARKK), in which Tesla shares account for about 10% of the fund. The ETF is off another 4.8% premarket to $111.50 and is down 30% since the end of January.
Go deeper: While it's still up for discussion how long all this will last, market cycles have been increasingly moving at a rapid pace in the current trading atmosphere. It took just 16 trading days for the S&P 500 in 2020 to fall from its record into a bear market, and its rebound was the quickest bear to bull market recovery in history. The pace of action is even more pronounced in speculative corners of the market (think GameStop), but has also manifested in Tesla itself. After a S&P 500 inclusion announcement on Nov. 16, shares rocketed 120% - from $408 to eventually $900 - in the span of ten weeks. (56 comments)
Jack Dorsey is the latest entrepreneur to jump on the non-fungible token (NFT) bandwagon, listing his first ever tweet for sale. "Just setting up my twttr," reads the post from March 2006. The highest offer is currently from Sina Estavi, CEO of Bridge Oracle, for $2.5M. While the buyer will receive a certificate - digitally signed and verified by Dorsey - the post will remain publicly available on Twitter (NYSE:TWTR) even after it has been auctioned off.
What is an NFT? It's a type of cryptocurrency - run on Ethereum blockchain - that's used to represent a unique asset and is valued as a collectors' item. They are usually art, but can also be a meme, GIFs, songs, videos or items in video games. NFTs work like other speculative assets, where buyers hope that their value goes up and they can be sold for a profit. Investors, however, caution the market could represent a price bubble.
Bigger picture: A video by a digital artist who goes by "Beeple" recently sold for $6.6M and a crypto art rendition of the Nyan Cat meme sold for $590K. Even musicians like Grimes, 3LAU and the Kings of Leon have dabbled in the sector. That's helped NFT marketplace OpenSea grow its monthly sales to $86.3M in February, while auction house Christie's just launched its first ever sale of digital art.
NFTs seem to be a natural extension of Jack Dorsey's advocacy of cryptocurrencies. He's been displaying "#bitcoin" in his Twitter bio for some time, while his digital payments company Square (NYSE:SQ) scooped up another 3,318 Bitcoins (BTC-USD) in late February (it purchased 4,709 in October 2020). Square's Cash App is also a major venue for retail investors to purchase crypto, while Dorsey has invested in Lightning Labs, a second layer on the Bitcoin network. (142 comments)
It's getting harder to find one of the six Dr. Seuss books the writer's estate has pulled from publication. Some of the titles can still be found on eBay (NASDAQ:EBAY), albeit at steep collector prices, despite the company announcing last week that it will ban their resale on its marketplace. The books can also be bought for hundreds of dollars on Amazon (NASDAQ:AMZN) via third parties, though the titles have been pulled from Barnes & Noble's (NYSE:BKS) online platform.
What happened? Last week, Dr. Seuss Enterprises decided that six of the famed author’s books - And to Think That I Saw It on Mulberry Street, If I Ran the Zoo, McElligot's Pool, On Beyond Zebra!, Scrambled Eggs Super! and The Cat's Quizzer - would no longer be published because they "portray people in ways that are hurtful and wrong." The statement added that "ceasing sales of these books is only part of our commitment and our broader plan to ensure Dr. Seuss Enterprises's catalog represents and supports all communities and families."
As the Dr. Seuss books get pulled from the market, Universal Orlando, a division of NBCUniversal (NASDAQ:CMCSA), is weighing whether to redesign or remove an area of its theme park inspired by material from If I Ran the Zoo. Certain parts of "Seuss Landing" are based on the animals and characters portrayed in the book, which has been decried for its depiction of Asian people, though none of that imagery is featured in the section. The Mulberry Street Store gift shop also gets its name from And to Think That I Saw It on Mulberry Street.
Go deeper: While some companies have been removing controversial legacy content, others have been experimenting with warning labels. Among those attaching disclaimers are streamers like Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX), which appear more hesitant to dent much of their lucrative libraries. In recent weeks, warnings have even been applied to certain episodes of The Muppet Show, on top of labels for Peter Pan, Dumbo, The Aristocats, The Jungle Book, Lady and the Tramp and Swiss Family Robinson. (17 comments)
What else is happening...
Sovereign borrowing expected to hit $12.6T in 2021 - S&P.
Ongoing M&A deals back in focus as SPAC combos lose luster.
Four tech stocks that offer solid yield and dividend growth - Barron's.
In Asia, Japan -0.4%. Hong Kong -1.9%. China -2.3%. India +0.1%.
In Europe, at midday, London +0.2%. Paris +0.9%. Frankfurt +1.3%.
Futures at 6:20, Dow +0.2%. S&P +0.3%. Nasdaq +0.4%. Crude +0.2% to $66.24. Gold -0.5% at $1690.10. Bitcoin -1.4% to $50000.
Ten-year Treasury Yield +5 bps to 1.6%
Today's Economic Calendar