Morning Reads
- Policy Tightrope
- OPEC Plus Nears a Milestone
- Four Charts
- Gas Prices Test American Appetite
- Powell Says Fed Must Accept Higher Recession Risk
- Grocery, Restaurant Executives See Inflation
- America’s MBAs Are the Latest Skeptics of Capitalism
- Home Listings Surge
- Highest Mortgage Rates Since 2008
- Urges Apple, Google to Boot TikTok from App Stores
- Crypto Crash Widens a Divide
- Crypto’s Deleveraging Cycle Won’t Last Much Longer
- How to Botch the World’s Biggest Bitcoin Hack
- Inside Didi’s $60 Billion Crash
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Things are looking pretty shaky in the cryptoverse as a continuous flow of damaging headlines continues to rock the sector. The staunch believers are calling it a "crypto winter" before things heat up again, while the naysayers are pointing to the final demise of "tulip mania" they have been warning about for years. Those in between are acknowledging that a shakeout is underway, but feel that only the strongest players will survive in a similar fashion to the aftermath of the dot-com crash. Bitcoin (BTC-USD) is trading under $20,000 again on the developments, and only time will tell which camp prevails.
The latest: The failure of the TerraUSD "stablecoin" project in May sent shockwaves through the crypto market, while the Celsius Network froze accounts and now is preparing for a possible bankruptcy. Popular crypto-focused hedge fund Three Arrows Capital was also ordered to liquidate on Wednesday and crypto exchange CoinFLEX issued new "Recovery Value USD" tokens in an attempt to resume withdrawals. Meanwhile, Coinbase (NASDAQ:COIN) and BlockFi have said they would slash their workforces by a fifth, though others remain undeterred, like MicroStrategy's (NASDAQ:MSTR) Michael Saylor, who scooped up another 480 Bitcoins for $10M despite undergoing massive unrealized losses.
Growing concerns over the industry even prompted the SEC to deny an application to convert the Grayscale Bitcoin Trust (OTC:GBTC) - which has $13B of assets under management - into the first spot ETF. The move would have potentially led to more institutional investment, but instead turned into another negative headline surrounding the sector. Grayscale is suing the SEC in response, after the agency felt that its product failed to meet requirements "designed to prevent fraudulent and manipulative acts... and protect investors and the public interest."
DeFi outlook: Sam Bankman Fried, the 30-year-old billionaire founder of FTX, believes that more failures among crypto exchanges are coming amid the ongoing slump that has wiped off $2T in market value since November. "Some third-tier exchanges are already secretly insolvent," he told Forbes in an interview. Increasing worries are also enveloping the broader DeFi industry, such as crypto lenders whose loans are backed by little collateral and lack access to liquidity in the event of a downturn. "It's just a risky structure," said Eric Budish, an economist at the University of Chicago Booth School of Business. "It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing - here it's all crypto." (28 comments)
How is the economy going to deal with a possible onslaught of interest rate hikes? That's a question Jay Powell was asked at the ECB Forum on Wednesday as inflation risks continue to mount across the globe. Other central bankers also attended the annual forum in Sintra, Portugal, but most appeared to indicate that a new regime of monetary policy could make a "soft landing" quite challenging. Let's hear what they had to say:
Fed Reserve Chair Jerome Powell: "We are raising interest rates, and the aim of that is to slow growth down so that supply will have a chance to catch up. We hope that growth could still remain positive. But if you look at the strength of the economy, households are in very strong financial shape, they've still got a lot of excess savings - from forced saving of not being able to travel and things like that - and fiscal transfers. The same thing is true with business, with very low rates of default and lots of cash on the balance sheet. The labor market is also tremendously strong, still averaging very high job growth per month. Overall, the U.S. economy is in the position to withstand tighter monetary policy, we think."
ECB President Christine Lagarde: "I don't think we are going to go back to that environment of low inflation. There are forces that have been unleashed... that we're facing now that are going to change the picture and the landscape within which we operate. Certainly in this part of the world, the energy shock that we have suffered, are suffering, and will continue to suffer has had a major impact. I think this is not specific to Europe, but there is certainly a dependency of European countries and the euro area to external supply from foes. That is certainly a strong driving force of inflation on the price of energy and food... as well as supply shocks."
Bank of England Governor Andrew Bailey: "I think the U.K. economy is probably weakening rather earlier and somewhat more than others. Unfortunately, there is going to be a further step-up in U.K. inflation later this year because that's a product of the way the energy price cap interacts with the energy prices we have observed over the last few months. I would imagine that will put a bit more persistence [on the U.K. inflation rate] and we will have to explain that." (4 comments)
Disappointing earnings and a major leadership shakeup sparked selling in Bed Bath & Beyond (BBBY) on Wednesday as the home products retailer saw its stock slide almost 24% to under $5. The retreat is part of a longer-term downtrend for the shares, which made a recovery attempt during late February and most of March, but have since plunged by over 80%. It is also a notable shift for the once high-flying meme stock, which saw spurts of inflated trading activity over the past 18 months, along with GameStop (GME), AMC (AMC) and others.
Snapshot: Bed Bath CEO Mark Tritton is stepping down from his position, with independent board member Sue Gove taking over on an interim basis. Tritton tried to engineer a quick turnaround after taking the helm in 2019, by cleaning up crowded aisles, scaling back coupons and making big bets on private-label brands that didn't pay off. Private-labels generally require longer lead times than products from national brands, since the retailers need to develop designs and contract with the factories themselves.
In fact, Bed Bath's net loss widened to $358M (from $51M) in Q1, with sales tumbling 25% Y/Y and gross margins contracting significantly amid broader supply chain problems. The recent troubles even prompted activist investor Ryan Cohen, founder of Chewy (CHWY), to get involved after a similar campaign at GameStop landed him a chairman role. Bed Bath added three directors to the board in March, with two overseeing a committee to explore strategic alternatives for its "buybuy Baby" chain.
Next steps: Interim CEO Sue Gove gave some hints about what's next for the company on a conference call following the dismal Q1 results. "The customer wants to see more of an optimal balance of national brands, direct-to-consumer brands and company-owned brands, so we're focused on improving the category mix. The [buybuy Baby] business is [also] a very attractive business, and we're not alone in appreciating its value. We know there is interest." (8 comments)
Flagging "patterns of surreptitious data practices" and "serious" threats to national security, FCC Commissioner Brendan Carr has sent letters to Apple (AAPL) and Google (GOOGL) to remove TikTok from their respective app stores. The allegations are similar to those made by former President Donald Trump, who issued an executive order against Chinese-owned TikTok, before President Biden revoked the ban last year and opted for an investigation (which is still ongoing). Carr's claims follow a recent BuzzFeed report that stated U.S. TikTok user data had been "repeatedly" accessed in China, citing leaked audio from 80 internal meetings at the company.
Tweetstorm: "TikTok is not just another video app. That’s the sheep's clothing," Carr wrote on Twitter. "TikTok doesn’t just see its users' dance videos. It collects search and browsing histories, keystroke patterns, biometric identifiers, draft messages and metadata, plus it has collected the text, images, and videos that are stored on a device's clipboard."
"TikTok’s pattern of misrepresentations coupled with its ownership by an entity beholden to the CCP has resulted in U.S. military branches and national security agencies banning it from government devices. Bipartisan leaders in both the Senate and House have flagged concerns. Numerous provisions of Apple’s & Google’s policies are relevant to TikTok's pattern of surreptitious data harvesting - a pattern that runs contrary to its public representations. And there’s plenty of precedent for holding TikTok accountable by booting it from these app stores."
Response: Following the BuzzFeed report, TikTok sought to dispel fears that American user data could be passed on to the Chinese communist government by saying it had completed the process of routing all of its U.S. traffic through Oracle's (ORCL) cloud infrastructure. "We employ access controls like encryption and security monitoring to secure user data, and the access approval process is overseen by our U.S.-based security team," the company added in a statement. "TikTok has consistently maintained that our engineers in locations outside of the US, including China, can be granted access to U.S. user data on an as-needed basis under those strict controls." (109 comments)
Today's Markets
In Asia, Japan -1.5%. Hong Kong -0.6%. China +1.1%. India flat.
In Europe, at midday, London -1.7%. Paris -2.3%. Frankfurt -2.4%.
Futures at 6:20, Dow -1%. S&P -1.3%. Nasdaq -1.6%. Crude -0.1% to $109.63. Gold -0.3% to $1812.80. Bitcoin -5.8% to $18,974.
Ten-year Treasury Yield -3 bps to 3.06%
Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 Personal Income and Outlays
9:45 Chicago PMI
10:30 EIA Natural Gas Inventory
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
Q1 GDP declined by more than initially thought as inflation soared.
Snap (SNAP) to start rollout of Snapchat Plus subscription this week.
Winter is coming, and Europe may be out of gas when it arrives.
General Mills (GIS) beats on higher pricing, boosts dividend.
LVMH (OTCPK:LVMHF) buys iconic Napa Valley winery Joseph Phelps.
Spirit Airlines (SAVE) pushes off shareholder meeting to discuss bids.
Shopify (SHOP) slides despite completion of 10-for-1 stock split.
BioNTech (BNTX) to begin testing a pan-coronavirus vaccine in H2.
Bill Ackman to Fed: Killing inflation will boost consumer confidence.