Morning Reads
- China Producer Prices Turn Negative
- China’s Great ‘Zero-Covid’ Guessing Game
- Entrepreneur Caught in the Middle of U.S.-China Chip War
- Europe Doubles Down on Big Government
- Euro Area’s Inflation Shock Weighs Most on Poorest Households
- Iran Calls for Deeper Energy, Trade Ties with Russia
- Kerry’s Climate Credit Plan Risks Payouts for Carbon-Cutting Mirage
- Some Investors Bet Fed Could Lift Rates to Two-Decade High
- US Mortgage Rates Rise to 7.14%, Near Highest Level Since 2001
- Crypto World Is Rocked as World’s Largest Exchange Rescues Rival
- Sam Bankman-Fried’s ‘Emperor’
- Wells Fargo Embroiled in Yet Another Scandal
- Meta to Cut Over 11,000 Jobs; Zuckerberg Says ‘I Got This Wrong’
- The Advertising Industry Is Bringing Elon Musk to His Knees
- Elon Musk Sells Almost $4 Billion of Tesla Stock After Twitter Takeover
- Adidas’ Break-Up with Kanye West
- Disney+ Adds 12 Million Subscribers, but Cites ‘Peak Losses’
- AMC Stock Falls
Options
Futures
PREMIUM
PREPPER
The crypto world was rocked yesterday as one of the biggest names in the biz agreed to buy its rival. While Binance is still doing its due diligence for FTX.com, the deal would be more of a bailout even if it goes through. There are still a load of questions swirling around, but the shockwaves from the event sent Bitcoin (BTC-USD) down by more than 10% to the $17,000 level and will likely have more consequences in the weeks and months to come.
What happened? Valued at $32B back in January, Sam Bankman-Fried's FTX received funding from the likes of BlackRock, SoftBank, Temasek, Tiger Global and the Ontario Teachers' Pension Plan. However, under the surface, recent questions swirled about the balance sheet of sister trading house Alameda Research, resulting in an FTX liquidity crunch as customers pulled $6B worth of withdrawals over the past 72 hours. It's a stunning reversal of fortunes for one of the most popular exchanges in the industry, given the fact that FTX and Alameda bailed out several crypto players themselves this past summer, including BlockFi, Voyager Digital and Celsius.
Flagging the apparent issues was Binance CEO Changpeng "CZ" Zhao, who said on Sunday that the rival exchange would liquidate its holdings of FTX's token called FTT (FTT-USD) due to unspecified "recent revelations." On Monday, Sam Bankman-Fried "SBF" dubbed the tweets "false rumors" and said that FTX was "fine," but apparently the exchange had too many of its assets wrapped up in FTT token. "Unfortunately, I don't have a perfect answer for you, because the details are still being hashed out," SBF wrote in a reported email to investors. "I'm sorry I didn't do better, and am going to do what I can to protect customer assets, and your investment."
Outlook: Is CZ's move aimed at propping up the crypto industry? Countering broader concerns about the asset class? Just a jab at SBF? Binance's agreement to buy FTX is non-binding, but in traditional crypto thought, it may want to consolidate during the crypto winter before things warm up again. In any event, there is a lot of explaining that'll be done in the coming days, which is likely to trigger another call from regulators who have been disturbed about the lack of guardrails in the freewheeling cryptoverse. (9 comments)
In a U.S. midterm election where very few seats were changing hands, the first key narrative shift came well after midnight, with Democrat John Fetterman projected by numerous decision desks to win a Pennsylvania Senate seat - the first seat in that chamber forecast to change party hands. With the Senate coming into election day deadlocked at 50 seats for each party, the flip made it increasingly likely that not only would Republicans take control of the Senate as they hoped, but that the Democrats might end up increasing their majority.
No red wave: That may depend on final results in Georgia, Arizona, Nevada and Wisconsin. Fetterman's win leaves 48 Senate seats in Democratic hands compared to 47 for the GOP. Over in the House, early projections saw Republicans picking up a few dozen seats, and while they're still likely to take control of the chamber, it appears they might do so with a slim majority similar to that of the Democrats coming into the day - perhaps 225 vs. a needed 218 seats. NBC's decision desk sees it much closer: 220 GOP seats to the Democrat's 215, or when all is said and done, a five-vote margin.
"Obviously we don't have 100% reporting in on anything yet, but it doesn't look like anything we have seen so far has spooked markets at all," said Randy Frederick, Managing Director of Trading and Derivatives at Charles Schwab.
Outlook: Stocks have generally performed well in the one-year period after a midterm election dating back to 1950, according to LPL strategists Barry Gilbert and Jeffrey Buchbinder, with nearly identical figures under Democratic and Republican presidents. However, this time around the government is contending with soaring inflation, an energy crisis and a worsening backdrop for the economy. The Federal Reserve is also showing no sign of taking its foot off the rate hike accelerator, and its aggressive monetary policy will likely be more important to markets than who ends up in control of Congress. (64 comments)
Thought it was over? Guess again. Elon Musk is continuing his Tesla (TSLA) stock selling spree, cashing out another 19.5M shares worth $4B between Friday and Tuesday. Shares of the EV maker have fallen by more than 11% over those three sessions, leading Musk's net worth to drop below $200B. Musk's latest sales also mean he now owns just around 14% of Tesla, which has been supplanted by Berkshire Hathaway (BRK.B) as the fifth-largest company in the S&P 500 Index.
The last time, I promise: "No further TSLA sales planned after today," Elon Musk tweeted on April 28, implying that was the last financing needed to take over Twitter. The billionaire made a similar pledge in August, as he offloaded another 7.9M shares worth around $6.9B, saying it was "important to avoid an emergency sale of Tesla stock in the (hopefully unlikely) event that Twitter forces this deal to close and some equity partners don't come through." The deal did close, but Musk continues to sell... by the billions.
Don't forget that at the end of 2021, Musk also sold about 15.8M of Tesla shares, worth about $16B, to help pay a reported $11B tax bill after polling his followers.
Go deeper: Musk wrote on Friday that Twitter had suffered "a massive drop in revenue due to activist groups pressuring advertisers" and was "losing over $4M/day." Some of the cash he's getting his hands on could be used to shore up the company amid reports that the debt Twitter took on could mean it's paying more than $1B in additional annual interest payments. Musk arranged to finance the $44B Twitter purchase with around $13B of bank debt, as well as $7B of equity commitments from other investors and partners, meaning he is on the hook for more than $22B of the purchase price (he already owns a 9.6% Twitter stake worth $4B, and needs an additional $2.5B for closing costs). (72 comments)
Shares of Disney (DIS) slipped 6.8% AH to $93.10 on Tuesday following a fiscal fourth quarter where it missed revenue and profit expectations. Stellar revenue results from its "Parks, Experiences and Products" division (+36% Y/Y to $7.4B) were weighed down by sales on its "Media and Entertainment" side (-3% Y/Y to $12.7B). CFO Christine McCarthy also dented expectations for the new fiscal year, predicting revenue growth of less than 10% (compared to 22% in fiscal 2022).
Bigger concerns: Looking to counter investor worries over direct-to-consumer sales, the House of Mouse highlighted revenue and earnings forecasts for Disney+. It said that the streaming service would achieve profitability in fiscal 2024, while a series of price hikes in December and an ad-supported tier would likely boost its financial metrics. Operating losses will improve by about $200M next quarter and will be even lower in the fiscal second quarter of 2023.
"We are actively evaluating our cost base currently, and we are looking for meaningful efficiencies," McCarthy announced on the earnings call. "Some of those are going to provide some near-term savings and others are going to drive longer term structural benefits."
By the numbers: Investors put a big focus on streaming subscriber figures following a 10% drop in domestic average revenue per user (ARPU) to $6.10. While the company talked about "peak losses" and tacked on another 12M Disney+ users - topping Netflix (NFLX) with a total count of 235M subscribers (including Hulu, ESPN+ and Disney+) - it didn't appear to be enough to turn around the stock. Net operating losses in the "Direct-to-Consumer" segment more than doubled Y/Y to $1.5B, up from $630M a year earlier, while many of the forecasts Disney made were under the assumption that "we do not see a meaningful shift in the economic climate." (40 comments)
Today's Markets
In Asia, Japan -0.6%. Hong Kong -1.2%. China -0.5%. India -0.3%.
In Europe, at midday, London -0.1%. Paris -0.2%. Frankfurt -0.5%.
Futures at 6:30, Dow -0.2%. S&P flat. Nasdaq +0.1%. Crude -0.6% to $88.41. Gold -0.2% to $1712.60. Bitcoin -10.1% to $17,679.
Ten-year Treasury Yield unchanged at 4.13%
Today's Economic Calendar
3:00 Fed's Williams Speech
7:00 MBA Mortgage Applications
10:00 Wholesale Inventories (Preliminary)
10:30 EIA Petroleum Inventories
11:00 Fed's Barkin Speech
1:00 PM Results of $35B, 10-Year Bond Auction
Companies reporting earnings today »
What else is happening...
Zuckerberg says he's 'accountable' for Meta's (META) 11,000 layoffs.
Salesforce (CRM) reportedly cuts hundreds of jobs, more may be coming.
Lucid (LCID) slumps on weak Q3 results and capital raise.
AMC (AMC) beat estimates, adjusted EBITDA loss widens.
DuPont (DD) rallies as Q3 beat shows toughness in difficult markets.
Levi's (LEVI) ropes in Kohl's (KSS) top boss to be eventual CEO.