Thursday Morning Reads
- Luring Investors at Home and Abroad
- Crypto Is Forbidden for Muslim
- A Chastened Alibaba
- Global Luxury Sales Set to Outpace Pre-COVID
- Fed’s ‘Transitory’ Inflation Plot Thickens
- Fastest Inflation in 31 Years
- Inflation Shock Tears Up Trader Playbooks
- U.S. Oil Refiners Bet the Farm
- Found a Way Out
- Tencent Says Beijing
- Elon Musk Sells $5 Billion of Tesla Stock
- Rivian I.P.O. Is Embraced by Investors
- Hershey to Buy Two Pretzel Makers
- The Core Legal Strategy
- China Weighs Moderating Property Curbs
- Tesla Had 5 Founders. Why Did Only 2 Get Really Rich?
Inflation is looking a lot less "transitory" after CPI figures released yesterday, which showed consumer prices jumping 6.2% from a year ago and the fifth straight month higher than 5%. It's also the fastest rate since 1990, and while that might cause some worry in the general population, Wall Street appears to be discounting the effects. Many continue to argue that the Fed won't get too aggressive, inflation could moderate next year, while some think stocks could even benefit along with a rise in asset prices.
Snapshot: Businesses are passing on higher costs to consumers, with 60% of small business owners raising prices in the previous 90 days, according to a November survey of 560 firms by Vistage Worldwide. Companies are struggling to get materials and are delaying orders, adding to demand pressures, while a labor shortage is putting upward pressure on wages. Some feel that will need to prompt a shift in U.S. economic strategy, which sought to jolt pandemic demand through unprecedented fiscal stimulus, though others say supply logjams are at the heart of the issue and targeted spending could help ease those problems more broadly.
"Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me. With the [infrastructure] bill we passed last week, and the steps we're taking to reduce bottlenecks at home and abroad, we're set to make significant progress," President Biden said in a statement. "Very soon we're gonna see the supply chain start catching up with demand, so not only will we see more record-breaking job growth, we'll see lower prices, faster deliveries as well. This work is going to be critical as we implement the infrastructure bill and as we continue to build the economy from the bottom up and the middle out by passing the Build Back Better plan."
Outlook: The hot inflation figures continue to worry West Virginia Sen. Joe Manchin, who has been warning of fiscal spending and serious price pressures since the summer. That could further endanger the economic agenda of the White House, which has not yet given into business demands to ease tariffs on Chinese imports and failed to persuade OPEC+ to increase oil production. "From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day," tweeted Manchin, who must vote for the coming $1.75T social spending package if it has any chance of passing the Senate. (18 comments)
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In his first sales in more than five years, Elon Musk this week let go of $5B of stock in Tesla (NASDAQ:TSLA). It comes just days after he promised Twitter he'd sell a 10% stake in the electric carmaker, with 58% of respondents voted "Yes" in a highly-publicized poll. While the new SEC filings reveal that Musk knew in mid-September that some of his shares were slated for sale this week (as part of a pre-arranged trading plan), it's unclear if those sales would be included as the first installment in making good on his Twitter promise. Here's a breakdown of the transactions:
Monday: Exercised 2.1M stock options to "satisfy tax withholding obligations" and sold more than 934K of them to raise $1.1B.
Tuesday and Wednesday: Sold more than 3.5M shares worth $3.9B in a series of trades that were not part of a pre-planned stock sale, known as a 10b5-1.
Shares of Tesla plunged 16% in the two days following the Twitter poll as investors worried about the effects of shedding such a big block of stock. The 4.5M share sale from Musk equates to about 3% of his total holdings in Tesla, which makes up the majority of his estimated $281.6B fortune.
Thought bubble: Musk is the PR Technoking, often taking to Twitter to troll his critics or expand his sphere of influence. The way he framed the recent poll, and related tweets, is that he's willingly paying taxes at a time when there's a debate whether billionaires should pay taxes on unrealized gains. By agreeing to pay his "fair share," he received the approval of the Twitter mob who says he's avoiding taxes, while at the same time giving him the ability to sell his stock.
Go deeper: Current and former board members including chairwoman Robyn Denholm, Elon Musk's brother Kimbal Musk, Ira Ehrenpreis and Antonio Gracias also sold hundreds of millions of dollars worth of TSLA shares after the EV maker's market cap topped $1T on Oct. 28. Among the insider sales, Kimbal's was the only transaction that was not listed as a 10b5, or planned sale. He even sold around $109M worth of shares a day ahead of his brother's poll on Twitter. (39 comments)
The magic faded at Disney (DIS) on Wednesday as shares of the company fell nearly 5% in AH trading. Subscription growth for Disney+, its flagship streaming service, slowed in the latest quarter, fueling fears that the days of big subscriber counts have plateaued. Only 2.1M subscribers were added during the fiscal fourth quarter (for a total of 118.1M), down from the 12.6M new subs notched in FQ3.
What it means: Slowing growth among rival streaming services like HBO Max, Paramount+ and Peacock suggests strong pandemic gains are disappearing as more people seek entertainment outside the house (only Netflix (NFLX) bounced back last quarter).
"I believe that there will be a couple players at the end of the day that will both be able to do well and be very robust direct-to-consumer services," noted CEO Bob Chapek. "I certainly think that Disney is going to be one of them. When you have the combination of our brands, our franchises, great storytellers, plus our commitment to this marketplace, I think we'll be there in the end."
Disney talks Metaverse: Chapek also outlined a vision to use the Disney+ platform for an immersive experience that several big companies have been investing in and touting. While the platform wouldn't be limited to virtual reality headset and goggles, it would "blend our digital beings with our physical beings." Pressed for a better definition, Chapek said it "would create a 3D canvas for creative storytellers to paint, to create experiences that have otherwise been defined [exclusively] as a 'park experience,' 'movie experience' or a 'book experience.'" (64 comments)
China's Sixth Plenum is wrapping up in Beijing, where President Xi Jinping summoned hundreds of top Chinese Communist Party leaders this week for an annual meeting. The party's central committee is expected to approve a resolution that would pave the way for a historic third term for Xi and potentially position him as ruler for life. That would also have ramifications for the Chinese economy, which is expected to become the world's largest within a decade.
Commentary: "The great irony is that in the 2020s and beyond when China needs to embrace a new development model, there would normally be a strong case for more decentralization and experimentation," said George Magnus, research associate at Oxford University's China Center. "But Xi's model calls for precisely an inflexible and flawed opposite structure. He may rue this governance model sooner or later."
Over the last few months, sweeping crackdowns have been seen across many of China's economic sectors. Those include technology, e-commerce, social media, fintech, gaming, ride-hailing and crypto miners. The decisions have wiped a trillion dollars off both stock markets and commodity futures, showing investors that Xi is willing to force through painful reforms at all costs and making his hold on the Communist Party look even stronger.
View on America: "Right now, China-U.S. relations are at a critical historical juncture," Xi declared, according to a recent letter addressed to the National Committee on U.S.-China Relations. "Following the principles of mutual respect, peaceful coexistence and win-win cooperation, China stands ready to work with the United States to enhance exchanges and cooperation across the board." The letter comes ahead of a first (virtual) meeting with President Biden, which could take place as soon as next week. (3 comments)
In Asia, Japan +0.6%. Hong Kong +1%. China +1.2%. India -0.7%.
In Europe, at midday, London +0.3%. Paris +0.1%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.1%. S&P +0.3%. Nasdaq +0.6%. Crude -0.6% at $80.82. Gold +0.9% at $1864.70. Bitcoin -2.2% at $65258.
Ten-year Treasury Yield +12 bps to 1.57%
Today's Economic Calendar
What else is happening...
U.S. officials raise question of security risks in EU tech regulations.