MORNING READS
- TX’s Sam Bankman-Fried Is Arrested in the Bahamas
- SEC Says Bankman-Fried Defrauded Investors of $1.8 Billion
- The Parents in the Middle of FTX’s Collapse
- Binance Sees a Chance to Become the New Face of Crypto
- U.S. Consults with Japan, Netherlands on Chip Restrictions as China Pushes Back
- Supply-Chain Shortfalls Targeted by New Bill
- Slowing Growth Edges Out Inflation as Top Concern
- How Long Should Powell Keep Raising Interest Rates?
- Shorts Eye More Gains
- BlackRock’s Top Bet Is Shunning Sovereign Bonds in All Scenarios
- Goldman Sachs to Chop at Least 400 Jobs
- SpaceX Tender Offer Is Said to Value Company at $140 Billion
- Tesla Stock Has Never Been This Cheap
- AmEx Hooked Big Spenders and Regained the Thron
- United Airlines Orders 100 Wide-Body Boeing 787 Jets
- Keystone Has Leaked More Oil Than Any Other Pipeline in US Since 2010
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Sam Bankman-Fried's fall from grace could end with some jail time. The founder and former CEO of FTX has been arrested in the Bahamas after the U.S. filed criminal charges against the once-superstar of the crypto world (and will likely request his extradition). While the charges will be unsealed later this morning, they reportedly include wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering.
Interesting timing: SBF was scheduled to testify before the House Financial Services Committee today about the downfall of FTX, which was once worth some $32B before its implosion. More information is still needed, but all the clues point to sour bets made by SBF's hedge fund, Alameda Research, which used FTX customer deposits for high-risk trades. Massive withdrawals from FTX ensued as reports surfaced about its financial health, though to date, SBF has denied any prior knowledge of the situation or lending out FTX customer deposits to fund Alameda's activities.
Additional details may still be spilled today as John J. Ray III, the new CEO of FTX, heads before the House Financial Services Committee. "We are continuing our painstaking forensic efforts to account for all of the assets," said Ray, who has more than 40 years of legal and restructuring experience, including overseeing Enron's high-profile bankruptcy in 2001. "The FTX Group's collapse appears to stem from the absolute concentration of control in the hands of a very small group of grossly inexperienced and unsophisticated individuals who failed to implement virtually any of the systems or controls that are necessary for a company that is entrusted with other people's money or assets."
Civil action: Besides criminal allegations, SBF is facing separate charges from the Securities and Exchange Commission for violations of securities laws. Other civil action may also be brought by the Commodity Futures Trading Commission or state banking regulators. "I had thought of myself as a model CEO, who wouldn't become lazy or disconnected. Which made it that much more destructive when I did," SBF wrote in his last tweet before his arrest. "I'm sorry. Hopefully people can learn from the difference between who I was and who I could have been." (166 comments)
Traders don't seem to think that the latest inflation report will come in hot this morning, and neither do economists. The Consumer Price Index is expected to cool off again in November, falling for a fifth straight month to a pace of 7.3% Y/Y, and down from a record 9.1% notched back in June. Equities climbed Monday on expectations that a softer CPI will permit the Fed to slow down the pace of its aggressive rate hikes (see the results of yesterday's WSB survey below).
If history is any guide: Out of the ten monthly CPI readings published for 2022, only one of them hit expectations (February's 7.9%). Eight of the other headline figures came in hotter than anticipated, while two of them were lower than consensus estimates. There were no major surprises, however, with the spread between actual prints and their forecasts reaching a maximum of 0.3%.
Keep another eye on core CPI data, which strips out volatile food and energy prices. That figure has been bouncing around more this year - with another high of 6.6% recorded just two months ago - and could be key to gauge if pressures are seeping into more parts of the economy. Notable categories to watch include rent and shelter costs, public transportation, medical services and college tuition.
Commentary: "The CPI report will likely confirm the slowdown in core inflation that was observed last month," noted UBS economist Jonathan Pingle. "Contrary to what happened earlier this year when we got a few low inflation prints, we are not seeing high-frequency and front-month leading indicator data suggesting an inflation rebound. The move lower in inflation seems to be more persistent this time around."
Wall Street Breakfast's 'Survey Monday' garnered over 2,000 responses this week. 2/3 of participants expect the Fed to tap the brakes tomorrow with a 50 basis point rate hike, compared to 1/3 who see the central bank going through with its fifth 75 bps increase. Check back in after the latest CPI print is published this morning to see if anything changes. Take the survey and see the results here.
Investors will be watching an announcement from the U.S. Department of Energy at 10 a.m. ET that could shake up how we power our world. Stay tuned, but reports indicate that a major milestone has been achieved at the Lawrence Livermore Laboratory in California. It's all based on fusion technology, which is the same process that powers the sun and stars, and could eventually lead to an unlimited source of cheap clean energy.
Snapshot: The breakthrough, known as a net energy gain (or target gain), means that more energy was produced from a fusion reaction than it consumed. Scientists produced the effect with the world's largest laser under an approach known as magnetic confinement fusion. A tiny amount of hydrogen plasma, held in place by powerful magnets, was heated to extreme temperatures - resulting in the fusing of atomic nuclei and 20% more energy than was used in the lasers.
"If this is confirmed, we are witnessing a moment of history," said plasma physicist Dr. Arthur Turrell. "Scientists have struggled to show that fusion can release more energy than is put in since the 1950s, and the researchers at Lawrence Livermore seem to have finally and absolutely smashed this decades-old goal."
Outlook: While things are still in the early stages, the trick will be to make the process self-sustaining, harness enough energy to power infrastructure, and to do so continuously. Fusion also doesn't have all the radioactive waste associated with current reactors that utilize fission, and has the potential to easily outpace other clean energy sources like solar and wind in terms of output. Fusion backers say the technology could be commercialized in a decade or more, but many are more skeptical about such a timeline, saying there's too much hype from companies looking for government subsidies and private investment. (105 comments)
China is doubling down on its complaints at the World Trade Organization as a trade war with the U.S. seems to be morphing into a broader tech war. It was only a week ago that WTO panels backed Beijing by ruling against American tariffs on imported steel and aluminum, which were first implemented by the Trump administration in 2018 to protect national security. China is now pushing back against the Biden administration's sweeping ban on chip exports, which was also flagged as a national security priority.
Backdrop: Semiconductor stocks were roiled in mid-October after new rules prohibited U.S. companies from working with Chinese chipmakers in an effort to keep some technologies from getting into the hands of the Chinese military. American semiconductor players were also banned from selling chips designed for use in artificial intelligence, high-performance computing, data centers and supercomputers unless they secured an export license. While the U.S. has said the new export restrictions were not as an effort to sideline the Chinese economy, Beijing doesn't appear to be convinced, calling the recent actions trade protectionism.
"China's filing of a lawsuit at the WTO is to resolve China’s concerns through legal means and is a necessary way to defend its legitimate rights and interests," the Commerce Ministry wrote in a statement. Goldman Sachs even forecasts that the ban will shave a quarter of a percentage point off China's economic growth in 2023, at a time when it's already dealing with the fallout (and easing) of its zero-COVID policy.
Go deeper: Reuters reports that China is preparing a more than 1T yuan ($143B) support package for its semiconductor industry, which would include subsidies and tax credits to boost domestic chip production and research activities. The move would be a big step towards self-sufficiency that could be implemented as soon as the first quarter of 2023. It follows the CHIPS and Science Act approved by the U.S. in early August, which consists of $52B in loans, grants and other incentives, as well as billions in tax credits to support local chip manufacturing. (9 comments)
Today's Markets
In Asia, Japan +0.4%. Hong Kong +0.7%. China -0.1%. India +0.7%.
In Europe, at midday, London +0.4%. Paris +0.7%. Frankfurt +0.8%.
Futures at 6:30, Dow +0.6%. S&P +0.5%. Nasdaq +0.5%. Crude +0.3% to $73.36. Gold +0.3% to $1799.30. Bitcoin +3.1% to $17,483.
Ten-year Treasury Yield -3 bps to 3.58%
Today's Economic Calendar
FOMC meeting begins
6:00 NFIB Small Business Optimism Index
8:30 Consumer Price Index
Companies reporting earnings today »
What else is happening...
Oracle (ORCL) Q2 results top expectations, led by cloud strength.
CoD: Microsoft (MSFT) offers Sony (SONY) rights on PlayStation Plus.
U.S. federal budget shortfall widens to $249B in November.
Weber (WEBR) soars on $3.7B buyout offer from BDT Capital.
Berkshire (BRK.B) further trims stake in EV maker BYD (OTCPK:BYDDF).
Binance halts USDC stablecoin withdrawals until it can token swap.
Thoma Bravo buys Coupa Software (COUP) for $6B despite tech slump.
Clovis (CLVS) files for bankruptcy, announces deal with Novartis (NVS).
Pfizer (PFE) projects $15B sales potential from mRNA vaccines by 2030.