Wednesday Morning Reads
- Economists Weighing Bang for the Buck
- Inflation Is Here. What Now?
- Musk Sends Bitcoin Tumbling
- Elon Musk Just Helped Ease the Semiconductor Shortage
- The SPAC King Is Doing Just Fine
- How ‘Put That on Top Shot!’
- New Generation of Digital Banks
- Samsung Boosts Non-Memory Chip Investments
- More Massive Returns
- America’s Gas Panic Has a Long History
- Let’s Talk About Inflation
- When To Lock In A Mortgage?
The crypto world erupted overnight after Tesla (TSLA) CEO Elon Musk said he would suspend vehicle purchases using Bitcoin (BTC-USD). "We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel," he wrote in a tweet. "Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment."
Trading at about $58K earlier on Wednesday, Bitcoin slumped to as low as $47K, or roughly 30% below its all-time high just shy of $65K. It's now changing hands at $51K, while the decline has weighed on the broader crypto world by wiping away $365B in market value. Musk still clarified that Tesla will not be selling any Bitcoin and "we intend to use it for transactions as soon as mining transitions to more sustainable energy." Tesla is also looking at other cryptocurrencies that "use <1% of Bitcoin's energy/transaction," a move that could be bullish for something like Ethereum (ETH-USD), which uses less energy-intensive proof-of-stake.
Twitter blows up: "Unlike @elonmusk I am not flip flopping every other second about #bitcoin. You will have to rip my bitcoin from my cold dead hands," writes Dave Portnoy. "When Elon realizes that bitcoin mining is actually pushing the renewable energy industry forward, he will refresh position and #bitcoin will moon," added Cameron Winklevoss, while his brother Tyler declared: "Bitcoin mining is a massive subsidy for renewable energy." Another bite from Bitcoin Magazine: "[We've] suspended purchasing any Teslas. We are concerned about the rapid increase in bad arguments, especially energy FUD, from the company's CEO."
Recap: During the first quarter of 2021, Tesla bought $1.5B worth of Bitcoin, then sold $272M worth. According to the company's most recent earnings, profits from Bitcoin sales specifically allowed the company to notch a $101M "positive impact" toward profitability. Interestingly enough, Musk just three weeks ago was in agreement with Square's (SQ) Jack Dorsey who said Bitcoin would be a "key driver of renewable energy's future." It also begs the question of what kind of durability Bitcoin has as a future currency, when prices can plunge nearly 20% at the turn of a tweet. (458 comments)
A long-delayed digital payments project from Facebook (NASDAQ:FB), called Diem (formerly known as Libra), is pursuing yet another avenue to get its model off the ground. The company is relocating its main operations from Switzerland to the U.S. as it scales back its global ambitions. It even withdrew its application for a payment system license from the Swiss Financial Market Authority, noting that the certification wasn't necessary as it pursues a different direction.
"It's a realization that the effort will require a presence that is acceptable to U.S. regulators," said Richard Levin, chairman of financial technology and regulation practice at law firm Nelson Mullins.
Flashback: Facebook first unveiled Libra in June 2019 as part of an effort to expand beyond social networking and "empower the billions of people" that don't have bank accounts. The project, which was backed by a basket of major currencies, immediately ran into fierce opposition from policymakers around the world. There were already existing privacy concerns about how Facebook handled user information, and they saw the potential for the new scheme to enable crime, money laundering and erode their control over the monetary system. A quarter of the project's founding members also dropped out before the inaugural meeting in Geneva, including PayPal (PYPL), eBay (EBAY), Stripe (STRIP), Visa (V) and Mastercard (MA).
Current efforts: Diem Networks U.S., a unit of the Diem Association, will run a blockchain-based payment system that allows real-time transfer of Diem stablecoins and will be registered with the U.S. Department of the Treasury's Financial Crimes Enforcement Network. Diem's scope will be scaled back to a single dollar-backed digital coin, which will be issued and managed by California-based Silvergate Bank. While the company has played an outsized role in the initial phases of the project, Facebook says that after the network has launched, its responsibilities will be the same as any of the other founding members.
While traders have been quick to dump growth stocks as inflation fears spring up in the economy, the concerns are now spreading to the broader market. Should the price pressures run too hot for a sustained period of time, the Fed may be forced to taper or even bring some rate hikes forward. The sentiment saw U.S. stock index futures flash red again overnight, with the DJIA down 0.7%, and contracts linked to the S&P 500 and Nasdaq off 0.5% and 0.4%, respectively.
Cue the CPI: Data from the U.S. Bureau of Labor Statistics yesterday showed that inflation in the year to April climbed at its fastest pace since 2008. The Consumer Price Index came in at 4.2% vs. expectations of 3.6%, which is already ahead of the Fed's 2% target. While much of the rising costs reflect growing industrial and consumer activity after last year's COVID-related shutdowns, panic still spread amid concerns over how long it will take for prices to settle down. Markets sold off, with the Dow recording its worst day since January, while the S&P 500 and Nasdaq fell over 2%.
Investors today will be looking for further comments on the inflation situation as the Fed's Thomas Barkin, Christopher Waller and James Bullard speak at several events. More data is also ahead, with producer prices for April and weekly jobless claims. Meanwhile, the 10-year Treasury yield is back up at 1.70%, a level not seen since the beginning of April.
Analyst commentary: The Fed says this surge should be temporary, but "if inflation does not calm," the challenge to the central bank's credibility "could be disruptive," cautioned Tai Hui of JP Morgan Asset Management. "You may get dull periods but this year is going to be a big battle between the bullishness of mass reopening/stimulus on one hand and the inflationary consequences on the other," added Deutsche Bank strategists led by Jim Reid. "Expect regular pockets of volatility."
The Colonial Pipeline, the largest gasoline pipeline in the U.S., reopened late on Wednesday after a ransomware attack caused it to close five days ago. The cyber breach has sent prices at the pump above $3 per gallon, the highest since October 2014, amid shortages and panic buying across the southeastern United States. Gasoline stations have already run dry from Florida to Virginia and it will still take "several days for the product delivery supply chain to return to normal."
Not paying ransom: Colonial doesn't plan to make a payment to the hackers, according to the Washington Post. It's also working with the cybersecurity firm Mandiant to restore data from backup systems where possible and rebuild systems where necessary. The hackers, a shadowy criminal gang called DarkSide, meanwhile appeared to be readying to extort Colonial by stealing data that it could later threaten to release without a payment. However, Mandiant traced the stolen data to a server owned by a New York hosting firm, which shut down the server to prevent further data from flowing to the group.
DarkSide is believed to be operating out of Russia, but the White House has said it has no evidence so far that the attack was state-sponsored or directed by the Kremlin. On Wednesday, the criminal gang posted the names of another three new targets on the dark web that have been cyberattacked. While the companies have not publicly confirmed the breaches, one is said to be based in Illinois, one in the U.K. and the other in Brazil.
Go deeper: Following a series of sweeping cyberattacks on private companies and federal government networks over the past year, President Biden signed an executive order on Wednesday aimed at strengthening U.S. cybersecurity defenses. It will see create a standardized playbook for federal responses to cyber incidents and push the federal government toward upgrading to secure cloud services and other cyber infrastructure. It will also establish a "Cybersecurity Safety Review Board" and require IT service providers to tell the government about cyber breaches that could impact U.S. networks. (117 comments)
What else is happening...
Cramer is calling them 'WoodStocks'; latest changes to ARK ETFs.
Cathie Wood views crypto as a future multi-trillion-dollar space.
Mexico invalidates union vote and reviews labor dispute at GM plant.
Global chip shortage will last until Q2 of 2022 - Gartner.
Wednesday's Key Earnings
Bumble (NASDAQ:BMBL) -0.1% AH despite user boost, swinging a profit.
Lemonade (NYSE:LMND) -18.5% after Q1 loss per share missed consensus.
Wix.com (NASDAQ:WIX) -17.3% as raised annual sales view lacked upside.
In Asia, Japan -1%. Hong Kong -1.7%. China -1%. India closed.
In Europe, at midday, London -2%. Paris -1.1%. Frankfurt -1.5%.
Futures at 6:20, Dow -0.7%. S&P -0.5%. Nasdaq -0.4%. Crude -2.9% to $64.14. Gold -0.5% at $1813.10. Bitcoin -12.2% to $49547.
Ten-year Treasury Yield flat at 1.70%
Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 Producer Price Index
10:00 Fed's Barkin Speech
10:30 EIA Natural Gas Inventory
1:00 PM Fed's Waller Speech
1:00 PM Results of $27B, 30-Year Note Auction
4:00 PM Fed's Bullard: U.S. Economy and Monetary Policy
4:30 PM Fed Balance Sheet