Morning Reads







Big Tech appears to be in for a rude awakening as the Federal Trade Commission flexes its muscles under the leadership of Lina Khan. The antitrust enforcer has voted 3-1 to block Microsoft's (MSFT) $69B deal for game developer Activision Blizzard (ATVI), making waves across the industry. The decision is a clear sign that Khan and her team at the FTC will be more aggressive in cracking down on the biggest U.S. tech giants, who frequently grow their influence or fight off upcoming challengers via acquisition.

What are the concerns? Simply put, the FTC feels that the tie-up between Microsoft - the company behind Xbox - and one of the best known game developers could harm competition. Activision's Call of Duty and World of Warcraft are some of the most popular gaming franchises, and turning Microsoft into the No. 3 gaming company in the world could limit rivals' access to titles or raise prices for other gaming platforms. The FTC also said it would give the Xbox maker an unfair advantage in the new market for game subscriptions, as well as the emerging market for cloud gaming.

Microsoft has gone to great lengths in recent days and weeks to assuage the fears, like inking a deal to bring Call of Duty to Nintendo (OTCPK:NTDOY) for the next decade. A similar offer to Sony (SONY) on same-day access to the game on its PlayStation platform has so far been rebuffed, but the Xbox maker remains "committed to helping bring more games to more people - however they choose to play." Microsoft President Brad Smith has also been spotted in Washington, meeting with lawmakers to argue that the deal would "create more opportunities for gamers and game developers."

Go deeper: The U.S. is not the only jurisdiction where Microsoft might have to fight, as the transaction is also seeing in-depth reviews in Europe and the U.K. While the company initially took the concessions route, it now looks like it will be presenting its case in court. Prepare for a drawn-out battle that might include precedent of so-called vertical deals, whether withholding games from platforms would be profitable and whether Microsoft has made good on its past promises. The tech giant has also been in the antitrust spotlight before in a landmark DOJ suit from 1998, which saw Microsoft agree to modify some of its business practices. (89 comments)

New disclosures

The U.S. Securities and Exchange Commission has revealed new guidance that could require publicly-traded companies to disclose to investors any potential impacts from the troubled cryptocurrency market. Moreover, firms may need to share information with their investors regarding their crypto holdings, as well as their risk exposure to bankruptcies in the emerging space. Lastly, they should consider risks pertaining to a company's liquidity position, according to the guidance.

Backdrop: The latest development comes after the once-mighty crypto exchange FTX filed for bankruptcy protection in November. Traders rushed for the exit en masse upon discovery of its multi-billion dollar balance sheet shortfall, marking its demise as the industry's most high-profile downfall. FTX is facing a number of federal investigations, including by the SEC, while the mess sent shockwaves through the crypto ecosystem and caused high-profile crypto lender BlockFi to file for Chapter 11.

"Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets," the SEC's Division of Corporation Finance wrote in a sample letter. "Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business."

Go deeper: The crypto market downturn has been highlighted by huge drawdowns in some of the largest digital tokens by market cap, including Bitcoin (BTC-USD) dropping some 70% from its November 2021 all-time high. A handful of U.S.-listed firms have already announced their exposures to Sam Bankman-Fried's short-lived crypto empire, namely Coinbase (COIN) and Silvergate Capital (SI). In November, SEC Chairman Gary Gensler also confirmed that crypto investors "need better protection in this space." (2 comments)

Meet C919

After 14 years of development, the Commercial Aircraft Corporation of China, better known as COMAC, delivered its first domestically-developed passenger jet to launch customer China Eastern Airlines (NYSE:CEA). The C919, similar to the Airbus (OTCPK:EADSY) A320 and Boeing (NYSE:BA) 737 narrow-body jet families, brings China a step closer toward its ambitious goal of becoming a global civil aerospace player. The plane is expected to make its maiden commercial flight in the spring, with a trip between Shanghai and the capital Beijing, as well as hopes to quickly expand routes to other cities.

Industry response: "Congratulations to COMAC for delivering the first C919, bringing a new model to the global civil aviation market," Boeing China wrote on its WeChat account. "We look forward to working with COMAC and other industry peers to continue working on the long-term sustainable development of the aviation industry," Airbus added in a statement.

China's first national passenger jet contains 164 seats, with a maximum range of 3,450 miles. The C919's price tag also comes in at $99M, compared with costs of around $111M and $122M for similar-sized Airbus A320neos and the Boeing 737 Max family. In terms of backlog, COMAC has already booked 1,115 orders (mostly from Chinese lessors) versus the 6,200 and 3,590 order backlog for the A320neo and 737.

Outlook: Despite the emerging C919, it will take many years before COMAC becomes a serious threat to the Western aerospace duopoly. Besides finding new customers outside of China, the program is expected to produce only 25 C919s per year by 2030, which is way lower than the monthly narrow-body production rates at its rivals. The C919 also relies heavily on Western components, including engines, flight systems and other critical parts that are manufactured by companies like GE (NYSE:GE), Honeywell (NASDAQ:HON) and Safran (OTCPK:SAFRY). (15 comments)

Rare miss

Costco (COST) uncharacteristically missed earnings estimates after the bell on Thursday. Investors were eager to hear the results given the headwinds facing the economy, as well as whether spending is being diverted from discretionary items to the necessities.

Snapshot: The retailer reported $3.07 in earnings per share on $53.44B in revenue, compared to analyst expectations of $3.12 and $54.68B, respectively. The miss wasn't seen as major, with the stock hardly moving in response, but it did suggest that many shoppers are paring back on bigger ticket items. Comparable sales from stores open at least a year also rose 7.1% during the period, marking the first time the figure has fallen below 9% over the past two years.

Other retailers have flagged weaker sales trends this past quarter, including Target (TGT) and Walmart (WMT). Costco may look to make up some of the lost profits with a membership fee hike, and CFO Richard Galanti said it wasn't a question of if, but when. "We feel that we're in a very strong competitive position right now and if we have to wait a few months or several months, that's fine."

From the SA comments section: "I see it as more about the overall change in the economy than Costco, but it's been richly valued and vulnerable to a downturn," wrote user zingerizer. "I am a big believer in COST despite the miss," countered DividendLand. "On the surface one might think missing estimates is a serious problem. I think one has to dig deeper. Lack of inventory is a problem, and might be an explanation." (28 comments)

Today's Markets

In Asia, Japan +1.2%. Hong Kong +2.3%. China +0.3%. India -0.6%.
In Europe, at midday, London -0.1%. Paris +0.1%. Frankfurt +0.4%.
Futures at 6:30, Dow +0.2%. S&P +0.3%. Nasdaq +0.4%. Crude +0.7% to $71.98. Gold +0.6% to $1812.40. Bitcoin +2.3% to $17,242.
Ten-year Treasury Yield unchanged at 3.49%

Today's Economic Calendar

8:30 Producer Price Index
10:00 Consumer Sentiment
10:00 Wholesale Inventories (Preliminary)
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

What else is happening...

Lululemon (LULU) holiday quarter guidance misses high expectations.

Broadcom (AVGO) to face European probe into VMware (VMWdeal.

Updated COVID boosters cleared for children as young as six months.

Lithium execs say mega-rally in prices could have more room to run.

Keystone pipeline (TRP) shut after 14,000-barrel oil spill in Kansas.

United Airlines (UAL) poised for major order of Boeing (BADreamliners.

Meta Platforms (META) set to face antitrust trial on virtual reality tie-up.

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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