Morning Reads
- Ferraris and a Bustling Casino
- Biden Invokes Emergency Power
- Persistent Inflation Puts Yellen in the Spotlight
- Inflation, Political Division
- Dimon’s ‘Hurricane’ Warning
- Top Economist Urges China
- Robinhood, Rivian Lead Slide in Pandemic-Era IPOs
- The Potential Dark Side
- Can a Start-Up Make Sustainable Construction
- Common Phone Charger in Blow to Apple
- Apple Unveils Installment Pay Plan
- Texas Attorney General Opens Investigation
- Wells Fargo Announces ‘Pause’
- SEC Weighs Sending Retail Stock Orders
- Target Shares Fall 9%
- Kohl’s Enters Exclusive Talks
- JetBlue Increases Offer
Futures
Options
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SeekingAlpha
Things are getting chaotic in the Elon Musk-Twitter (NYSE:TWTR) saga after the billionaire warned that he could walk away from the $44B acquisition if the platform does not provide detailed information on spam and fake accounts. "This is a clear material breach of Twitter's obligations," Musk's lawyers wrote in a letter, adding that the company was "actively resisting and thwarting his information rights." In the past, Twitter CEO Parag Agrawal has said he "doesn't believe that this specific [bot] estimation can be performed externally, given the critical need to use both public and private information (which we can't share)."
Snapshot: It's even more interesting as Elon Musk didn't want to do any extensive due diligence when abruptly announcing the deal back in April. At the time, he wanted to complete the acquisition as soon as possible, but then slammed the brakes over the bots issue, which is not the first time the topic has surfaced. While Musk has agreed to pay $54.20 per share for Twitter, the company's stock price is now trading at $39.56, which is significantly lower than where things stood even several weeks ago. "It's fairly obvious that Musk has buyer's remorse and he is trying whatever to get a reduction in price, and I think he may succeed," said Dennis Dick, a prop trader at Bright Trading.
From a legal perspective, the only way Musk could abandon the deal is a refusal from the banks to provide financing or regulators block the transaction. Lawyers for the Tesla (TSLA) CEO may be trying to link the bots issue to his ability to secure financing, allowing him to walk away by paying a $1B breakup fee (Texas on Monday opened a separate investigation into Twitter's alleged fake accounts based on the state's Deceptive Trade Practices Act). However, Twitter's disclaimers used in its projections on spam accounts and a "specific performance" clause could give it protection against potential lawsuits, and Musk would have to prove that he was willfully misled (which is a high legal threshold).
Outlook: Twitter intends to enforce the merger pact on the agreed-upon terms, but could renegotiate if it sees a protracted legal battle or maneuvering for Musk to wiggle out of a deal. If that were to happen, Twitter shares could sink even further, making it a bigger acquisition target for other buyers at a cheaper price. Twitter shareholders are not the only ones watching the show as Tesla investors also have an indirect financial interest in the outcome of the corporate drama. (38 comments)
Shares of Amazon (AMZN) jumped as much as 6% in early trading on Monday, and ended the session up 2% at $125, following a rare 20-for-1 stock split that went into effect. The last time the company split its shares was before the dot-com bubble in 1999, and since then, the stock has returned over 3,000%. Alphabet (GOOGL), Apple (AAPL) and Tesla (TSLA) have also turned to splits recently, with the trend making somewhat of a comeback during the COVID-19 pandemic.
What it means: While Amazon's decision doesn't affect any fundamentals, it does make the stock (or options contracts) more affordable for retail investors or those that don't want such a holding to be a large portion of their portfolios. A lower price can also mean the stock will be eligible for inclusion in the price-weighted Dow Jones Industrial Average. Amazon previously alluded to the benefits of the move on its worker purchase program, saying "this split would give our employees more flexibility in how they manage their equity in Amazon."
"Evidence suggests that stock-split events drive additional participation from retail investors, especially in securities with larger market capitalization," according to a recent analysis by the Chicago Board Options Exchange. "Volume in mega-cap equities initially spiked 342% the week immediately after the split," but demand could moderate over the next six months, suggesting the pop in retail popularity may be short-lived.
Go deeper: Alongside the split, Amazon will pursue a $10B share buyback program, which is the largest repurchase authorization in the company's history. It replaces the $5B approval that was established in 2016, though only $2.12B was spent on that effort thus far. Amazon didn't buy back any stock in 2019, 2020 or 2021, but has repurchased 500K shares for $1.3B in 2022. (60 comments)
Fresh reports suggest that President Biden is likely to announce his plans on student loan forgiveness in July or August, which is closer to the expiration of the latest pause on federal student debt payments. At issue appears to be whether the motion could provide a boost or detriment ahead of November’s midterm elections. Some economists warn that student debt cancellation could exacerbate price pressures at a time of record inflation, and it could be flagged as a contributor to higher prices. A backlash could also be seen from voters who chose not to go to college because of the cost, don't have loans or already paid them off.
Bigger picture: Sources told the Wall Street Journal that Biden has "nonetheless warmed to the idea in recent months as advocates inside and outside the administration made impassioned pleas for him to take action." While he has gone on record saying he doesn't believe a president has the authority to cancel student debt unilaterally, Biden would support Congress passing a bill to cancel $10K in debt for each borrower that makes less than about $125,000 a year. He has already ruled out a proposal backed by Massachusetts Sen. Elizabeth Warren and other progressives that would forgive up to $50K in debt per student borrower.
Any cancellation would come at a time when the U.S. unemployment rate has fallen to 3.6%, and is even less among college graduates with a bachelor's degree, with the rate tumbling to 2.1% in February. The Education Department has also canceled around $25B in student loans since Biden took office, but that has only impacted borrowers defrauded by for-profit schools, disabled students and those enrolled in public service loan forgiveness programs. In terms of the student loan moratorium, the extensions have hit financial companies, with shares of SoFi Technologies (SOFI) plunging back in April after cutting its 2022 guidance. Other related stocks include Sallie Mae (SLM), Navient (NAVI) and Nelnet (NNI).
Some history: The student loan moratorium began in March 2020, when former President Trump signed the CARES Act into law, pausing payments through September 2020 and eliminating interest rates for about 42M borrowers. Trump later took executive action to extend the deferral period through January 2021, while Biden signed another order when he came into office, continuing it through Sept. 30 and then eventually Jan. 31, 2022. At the time, the Education Department said that it would be the "final extension," but the administration has since extended the date twice until Aug. 31, 2022, citing threats to Americans' financial stability. (100 comments)
A long-awaited bipartisan crypto bill has finally emerged as U.S. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) unveiled their Responsible Financial Innovation Act. The measure aims to create "regulatory clarity for agencies charged with supervising digital asset markets, provide a strong, tailored regulatory framework for stablecoins, and integrate digital assets into our existing tax and banking laws." Up until now, there were only narrow pieces of legislation that sought to address the crypto landscape, like the recent push for stablecoin rules by Senator Pat Toomey (R-PA).
The basics: The Commodity Futures Trading Commission would be granted oversight of spot markets for cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD), helping to address investor protection in an area that critics say is rife with manipulation. On the other side of the fence, the Securities and Exchange Commission would maintain its oversight of digital assets that give investors a right to "profits, liquidation preferences or other financial interests in a business entity." Companies that raise funds through digital asset sales would also be required to file certain disclosure with the SEC.
The new bill is likely to set off a frenzy among crypto exchanges, lobbyists and industry groups, pitting those that feel it will advance the space by establishing regulatory clarity and those that consider it is more of a centralized crackdown. Other provisions in the bill would cover reporting to the IRS, like shielding consumers from a capital gains tax on crypto transactions worth less than $200. It would also give legal clarity on how to handle customer holdings, promote an industry "sandbox" to test new products and permit miners to avoid paying income taxes until they turn new assets into cash.
Timeline: "It's important step in the process toward comprehensive cryptocurrency legislation, but there is still no expectation that the bill will be passed this year," said Owen Tedford, senior research analyst at Beacon Policy Advisors. "The bill is very likely to resurface even if control of the Senate changes. It is best to see this as one step on a winding road, but these discussions now will influence the shape of any future bill." (3 comments)
Today's Markets
In Asia, Japan +0.1%. Hong Kong -0.6%. China +0.2%. India -1%.
In Europe, at midday, London -0.1%. Paris -0.8%. Frankfurt -1%.
Futures at 6:20, Dow -0.4%. S&P -0.5%. Nasdaq -0.6%. Crude -0.3% to $118.16. Gold +0.3% to $1848.50. Bitcoin -5.7% to $29,593.
Ten-year Treasury Yield -2 bps to 3.02%
Today's Economic Calendar
8:30 Goods and Services Trade
1:00 PM Results of $44B, 3-Year Note Auction
3:00 PM Consumer Credit
Companies reporting earnings today »
What else is happening...
Apple's (AAPL) WWDC: New MacBooks already seen as becoming a hit.
JetBlue (JBLU) submits improved offer for Spirit (SAVE) before shareholder vote.
Paramount's (PARA) 'Top Gun' sequel soars again to hold box-office lead.
Risk of recession 'picking up,' but no reason to be alarmed yet - AllianceBernstein.
U.K. Prime Minister Boris Johnson survives no-confidence vote.
DiDi Global (DIDI) surges 24% as Beijing looks to end cybersecurity probe.
Kohl's (KSS) enters exclusive talks for $60/share sale to Franchise Group.
U.S. has thrown away 82M COVID-19 vaccine doses - NBC News.
Rivian (RIVN) highlights backlog, investments in shareholder letter.
Down in a hole: BuzzFeed (BZFD) slides 41% as lockup period expires.