Morning Reads






The Senate has finally confirmed Fed Chair Jerome Powell for a second four-year term following delays surrounding other nominees the Biden administration had pitched for the central bank. In his first term, Powell has had to battle two major crises, including the COVID pandemic and 40-year high in inflation, recently turning to tighter monetary policy to combat the price pressures. "Chairman Powell presided as Fed chair during some of the most challenging moments in modern American history," Senate Majority Leader Chuck Schumer said after the bipartisan 80-19 vote, which also saw the confirmations of Fed Vice Chair Lael Brainard and governors Lisa Cook and Philip Jefferson.

Snapshot: A tricky economic environment has been in place since the onset of the coronavirus pandemic. When consumer price inflation started to climb shortly after the deflationary shock in March 2020, the Fed had assured America that inflation was "transitory" as extraordinary accommodative monetary policy took hold. Since then, "transitory" quickly became unpopular as inflation surged to levels not seen since the 1980s, causing the central bank to swiftly shift gear to more hawkish actions. At the previous FOMC meeting in the beginning of May, the Fed's policymaking arm even increased the benchmark target range by the most in 22 years.

"Inflation is just way too high here in the United States," Powell later said in an interview on American Public Radio's Marketplace program. The central bank's tools for taming that inflation are only focused on demand, and "supply is a big part of the story here." There are additional factors such as the war in Ukraine and new lockdowns in China to limit the spread of COVID-19, so there is no guarantee "whether we can execute a soft landing or not... it may actually depend on factors that we don't control."

Outlook: If the economy performs as the Fed expects, the central bank will raise the interest rate an additional 50 basis points at each of the next two meetings. "If things come in better than we expect, then we're prepared to do less. If they come in worse than we expect, then we're prepared to do more," Powell continued. "I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that's like." (15 comments)

Twitter deal on hold

"Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users," Elon Musk wrote in a tweet early this morning. The headline sent shares of Twitter (TWTR) into a tailspin, collapsing 25% to around $34, with the stock still trading violently at the time of writing. In somewhat of an inverse relationship, Tesla (TSLA) is trading higher this morning, up 6% to $770, with the EV maker likely to get more of Musk's attention if the Twitter deal would fall apart.

What happened? Musk referenced Twitter's 10-Q filing from May 2 - which noted that spam and fake accounts account for fewer than 5% of monetizable daily active users - though it's unclear why this would have such an impact as to halt his takeover bid of $54.20 per share. Even if 5% of DAUs were bots, Twitter would still have 217M users in the first quarter who were served up advertising. Before the latest announcement, Twitter shares were trading near the $45 level - well below the $54.20 premium - on concerns that the deal could fall apart.

Fresh reports further suggest that Twitter is freezing hiring amid uncertainty about the company's takeover. CEO Parag Agrawal announced the decision this week and will rescind some employment offers that were already made, according to an internal memo disclosed by Bloomberg. The measures will add to other cost-cutting in travel, consulting and marketing, while uncertainty reigns high as employees wonder whether their teams or projects will survive a change of leadership.

Two senior leaders are exiting: Head of Consumer Product Kayvon Beykpour is leaving after seven years with the company and revenue chief Bruce Falck is departing as well. Jay Sullivan will take over as head of product and interim head of revenue. "The truth is that this isn’t how and when I imagined leaving Twitter, and this wasn't my decision," Beykpour declared. "Parag asked me to leave after letting me know that he wants to take the team in a different direction." (125 comments)

Formula shortage

The White House has announced a raft of measures to alleviate the ongoing baby formula shortage, which has worsened in recent weeks because of a major product recall and supply chain problems. In fact, during the first week of May, 43% of baby formula supplies were out of stock across the country, compared to 31% two weeks prior, according to retail pricing data website Datasembly. Many stores have also implemented quotas on how much formula one person can buy at a time, while pediatricians are recommending not to dilute formula (which could be harmful to the kidneys) or switching to other brands.

Flashback: Abbott Nutrition (ABT), the nation's largest baby formula manufacturer, shuttered its production facility in Sturgis, Michigan, in February following reports of contaminated formula that was linked to the deaths of at least two infants. A voluntary recall was issued for Similac, Alimentum, EleCare and other products as the company implements "corrective actions and enhancements" to resume operations. Following FDA approval, Abbott can resume production at the facility within two weeks and make the product available in about six to eight weeks.

In response to public outcry, President Biden spoke yesterday with the CEOs of Walmart (WMT), Target (TGT), Reckitt (OTCPK:RBGLY) and Gerber (OTCPK:NSRGY) to explore ways to tackle the worsening crisis. Among the solutions discussed were cutting red tape to get more formula to store shelves faster and urging states to provide consumers flexibility on the types of formula they can buy with WIC dollars. Biden also called on the FTC and state attorneys general to crack down on price gouging, as well as upping supply via increased exports (about 98% of U.S. supply is produced domestically).

Defense Production Act? "There are a range of - there are a range of options, including that, under consideration, but I would note the issue here is that a manufacturer was taken offline because they did not produce a safe baby formula," Press Secretary Jen Psaki said at a White House briefing. "So what we're doing here at this point in time is working with other manufacturers who can produce safe baby formula. We've had success in increasing our productivity - their productivity over the last four weeks, and we're going to continue to work on that." (72 comments)

What's next?

It's been quite an interesting week in cryptoland, with stablecoin TerraUSD (UST-USDlosing its dollar peg (it's now worth 10 cents) and sister token Luna (LUNA-USDcrashing to $0. Bitcoin (BTC-USD) also plunged to as low as $26,292, losing 32% of its value since the beginning of the month, before rebounding as much as 12% overnight to $30,947. The crypto sector has been swept up in broad selling of risk assets like tech stocks, as well as worries over the industry as a whole and fears of more liquidations.

Commentary: "Over half of all Bitcoin and Ether traded on exchanges are versus a stablecoin, with USDT or Tether taking the largest share," analysts at Morgan Stanley wrote in a research note. "For these types of stablecoins, the market needs to trust that the issuer holds sufficient liquid assets they would be able to sell in times of market stress."

As mentioned earlier this week, another long-term incentive was that crypto could provide a store of value via anonymous transactions and wallets, but not only have governments gotten better at tracking the assets, they are on the verge of regulating them big time. While early investors are still likely to be in comfortable positions, traders who bought crypto as prices surged last year are finding themselves in a difficult situation. For example, someone that bought Bitcoin after Matt Damon's viral Fortune Favors the Brave commercial - which first aired on October 28, 2021 (and was replayed during the Super Bowl) would be sitting on losses north of 50%.

Stronger together: All of the industry worries are prompting some big players to look at combining their resources. Sam Bankman-Fried, the billionaire founder of crypto exchange FTX, just disclosed a 7.6% stake in Robinhood (HOOD), sending the beaten-down shares of the popular retail brokerage up 20% in AH trading on Thursday. While Bankman-Fried has no "intention of taking any action toward changing or influencing the control of [Robinhood]," he might call for the company to consider "strategic alternatives or operational or management initiatives." Robinhood recently jumped heavily into crypto space with many currencies, wallets and an international presence, while FTX opened a wait list for a new stock trading platform in February. (3 comments)

Today's Markets

In Asia, Japan +2.6%. Hong Kong +2.7%. China +1%. India -0.3%.
In Europe, at midday, London +1.6%. Paris +1.6%. Frankfurt +1.4%.
Futures at 6:20, Dow +0.8%. S&P +1.1%. Nasdaq +1.7%. Crude +2% to $108.24. Gold -0.4% to $1818.30. Bitcoin +7.8% to $30,454.
Ten-year Treasury Yield +8 bps to 2.90%

Today's Economic Calendar

8:30 Import/Export Prices
10:00 Consumer Sentiment
11:00 Fed’s Kashkari: “Energy and Inflation: Drivers and Solutions”
12:00 PM Fed's Mester Speech
1:00 PM Baker-Hughes Rig Count

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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