Thursday Morning Reads
- Borrowing Costs Soar
- AI-Powered Stock Fund Bails Out of Mega-Cap FANG+ Stocks
- Gold Oscillates
- This Altcoin Smoked Bitcoin and Ether
- Samsung, Micron Warn Xian Lockdown
- U.S. Stocks End a Wild Year With Big Gains
- What Social Trends Told Us
- Strong Labor Market in 2021
- Selling Cars, Plus Coffee, Tea or a Fancy Dinner
- The Metaverse’s Dark Side
- Walmart Drew One In Four Dollars Spent on Click and Collect
- Travel Startups Say Omicron Disruptions Create Opportunities
- Facebook’s Pushback
- Huge Number of CEOs Fear Losing Their Gigs in 2022
Starting with... January
2021 has been another wild year, but hopefully one that was good for your portfolio. Today's Wall Street Breakfast covers the hottest headlines and top stories from the newsletter in 2021. Enjoy the edition and don't forget to add your own memories in the comments section!
Chaos in Washington: Trading was largely unaffected by the mob attack in Washington on Jan. 6. Terrifying day or historic day for American democracy? Maybe a bit of both. While a mob that stormed the Capitol Building delayed presidential certification and led to horrible violence, it didn't stop the process or institutions, and lawmakers were able to reconvene later that night.
Social media censorship: The disarray seen in Washington shifted online as both Twitter (TWTR) and Facebook (FB) suspended President Trump from posting on their sites. It marked the social media industry's strongest actions to date on reining in controversial content, citing "risks of violence" and "repeated and severe violations" of their policies. The platforms had been labeling election-related tweets by Trump since November, but he eventually was kicked off the platforms.
Crypto milestone: The total value of the entire cryptocurrency market surpassed $1T for the first time as Bitcoin (BTC-USD) rocketed through $37,700. Many large institutional investors piled into the market, looking to diversify even more of their assets to hedge against inflation and geopolitical risks. A large number of retail investors and trend-following quant funds also joined the race due to FOMO on a quick and easy buck.
Meme-stock craze: WallStreetBets and their army of day traders took the market by storm, triggering squeezes on heavily shorted stocks like GameStop (GME), AMC (AMC) and Bed Bath & Beyond (BBBY). The group would have even put Melvin Capital out of business (were it not for a $2.75B cash infusion from Citadel and Point72). The r/wallstreetbets subreddit ended up creating a "swarm trading" strategy onto itself and many are still grumbling about Robinhood (HOOD) restricting trading as the fun was getting started.
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Bowing out: Jeff Bezos said he would step aside, but would remain engaged at Amazon (AMZN) as executive chairman. Andy Jassy, the head of the company's cloud division, later took up the helm of the e-commerce giant, with Bezos focusing on space company Blue Origin (BORGN) and philanthropic ventures. Jassy is an Amazon veteran (he's been with Bezos since 1997) and was the architect of Amazon Web Services, which is how Amazon makes most of its money.
Cold snap: A deep freeze enveloping large swathes of the U.S. tested Texas's highly decentralized electricity model. With power plants lacking an incentive to build reserve capacity (they are rather paid for the energy that they sell), wholesale prices for electricity on the state grid reached the price cap of $9,000 per megawatt hour (the average price is $25). More than a million barrels a day of oil and 10B cubic feet of gas production also went offline, while the National Guard mobilized to get the elderly into warming shelters.
Tesla buys Bitcoin: The crypto surged past $42K after Tesla (TSLA) disclosed a $1.5B investment and said it would begin accepting Bitcoin (BTC-USD) for payment "in the near future." The outlay would give Tesla liquidity in the cryptocurrency once it started accepting payments and followed many positive comments by Elon Musk on the cryptocurrency. Less than two months later, the automaker discontinued the program, with Musk pointing to Bitcoin's energy usage and raising quite a few eyebrows in the industry.
Global semiconductor shortage: General Motors (GM) became the largest automaker to warn about a chip shortage, saying the semiconductor crunch could cut its earnings by $1.5B-$2B in 2021. It was not alone. Many companies across multiple industries flagged the problem, such as AMD (AMD) and Qualcomm (QCOM), which sell chips to most of the top electronics firms, or Sony (SONY), which blamed the shortage for why it's so hard to get a PS5. The COVID-19 pandemic triggered a surge in demand for PCs and other electronics as remote work and online learning became the new normal, and demand still remains at record highs.
Crypto art: Auction house Christie's sold Everydays - The First 5000 Days for $69.3M, far eclipsing anything that has been bought in the non-fungible token (NFT) industry. The JPEG was a mosaic of every image that artist Mike Winkelmann, who goes by the name Beeple, has made since 2013. Earlier in the month, Jack Dorsey jumped on the NFT bandwagon, selling his first ever tweet from March 2006.
The American Rescue Plan: Congress gave the final green light to President Biden's $1.9T economic stimulus plan, clearing the way for one of the largest relief packages in U.S. history. It was hailed as a centerpiece of Biden's first 100 days, and included $1,400 payments for most Americans, expanded unemployment insurance, funding for schools and public health, and state and local government aid. The legislation also featured a per-child cash payment of at least $3,000 for one year, an expansion of "Obamacare" subsidies for two years, as well as aid for restaurants, agriculture and small businesses.
Stuck in Suez: After six long days, tugs and diggers were finally able to dislodge the Ever Given, a massive container ship that got stuck in the Suez Canal after losing the ability to steer amid high winds and a dust storm. About 12% of global trade and roughly 30% of the world’s shipping container volume transit through the Suez Canal, making it one of the world's most important waterways. A rough estimate showed the blockage cost about $400M an hour, and further weighed on supply chains that were strained during the pandemic.
Archegos implosion: The high-profile hedge fund defaulted on margin calls from several global investment banks, including Credit Suisse, Nomura, Morgan Stanley and Goldman Sachs. How did it happen? The fund had large, concentrated positions in ViacomCBS (VIAC), Baidu (BIDU) and other companies, but its use of total return swaps helped hide its high exposure from the banks. The derivative contracts exposed the firm to severe losses when the trades went sour, with fund manager Bill Hwang reportedly losing $8B in just ten days.
J&J scare: The CDC recommended that the use of the Johnson & Johnson's (JNJ) COVID-19 inoculation be paused "out of an abundance of caution" following reports of six cases of rare brain blood clots in women aged between 18 to 48 (one even died and another is in critical condition). At the time, that was out of some 7.8M people who have received the jab across U.S. However, the pause only lasted for 10 days, with an investigation finding that the syndrome involving severe blood clots and low platelets was extremely rare.
Timberrr! Commodity prices caused some panic, with one in particular going on a major rip: Wood. Lumber futures (LB1:COM), which are used by a variety of traders to lock into prices and hedge against future risks, saw contracts soar nearly 100% YTD, trading as high as $1,686 per thousand board feet. That had knock-on effects across the economy, like the housing market, with prices surging for real estate nationwide.
Worker shortage: Job openings soared to a record 9.3M in April as the economy reopened, but 3.5M Americans were still on weekly jobless benefits and more than 9M remained unemployed. While the numbers sounded somewhat contradictory due to the ways they are collected and measured, they mean the U.S. experienced high unemployment at the same time as a labor shortage. The hiring scarcity also took a partisan tilt, with Republicans mainly pointing to programs such as enhanced unemployment benefits, while Democrats flagged items like childcare responsibilities, lingering COVID-19 worries and the need to raise wages.
Major privacy change: Fresh updates came to iPhones worldwide as Apple (NASDAQ:AAPL) began rolling out iOS 14.5, its new operating software that includes loads of new features. The one that grabbed headlines was Apple's new privacy change, called App Tracking Transparency, which centers around access to unique iPhone IDs. Users were asked by each app if they are okay with being tracked across other apps and websites, bringing seismic changes to the nearly $100B mobile advertising market.
Pipeline disruption: The U.S. government declared a state of emergency to keep fuel supply lines open following the shutdown of Colonial Pipeline. The 5,500-mile conduit, whose owners include Shell Midstream Partners (SHLX) and others, carries 2.5M barrels a day to the East Coast, or 45% of its supply of diesel, gasoline and jet fuel. Colonial ended up paying $4.4M in Bitcoin to hackers (before recovering $2.3M), but the hacks didn't stop there. Brazilian meatpacker JBS (OTCQX:JBSAY) was hit with a major breach, as well as U.S. IT firm Kaseya.
Masks off: Hopes were high that we'd move on from the pandemic, before learning that COVID is sticking around for the foreseeable future. "Anyone who is fully vaccinated can participate in indoor or outdoor activities, large or small, without wearing a mask or physical distancing," CDC Director Rochelle Walensky declared. "If you are fully vaccinated, you can start doing the things that you had stopped doing because of the pandemic. We have all longed for this moment when we can get back to some sense of normalcy." The guidance was reversed two months later as Delta was surging across the country.
Who let the Doge out? Another crypto craze took the market by the storm as a parabolic rally for altcoins (cryptos other than Bitcoin) led the value of all digital tokens past $2.3T. Dogecoin (DOGE-USD), a crypto that started as a joke, changed hands at as high as 74 cents, or up 12,000% since the beginning of 2021. Things didn't last long as Elon Musk, who had been pumping Doge, went on SNL as "The Dogefather" and called the crypto a "hustle."
Travel comeback: More than 37M Americans hit the road or the air over Memorial Day weekend, up 60% from the previous year. Security lines were stretched at the busiest U.S. airports, and people packed into cars despite skyrocketing gas prices across the country. "It is night and day, compared to 2020," noted Henry Harteveldt, an airline industry analyst at Atmosphere Research Group. "Hotels are booked full, companies like Airbnb (ABNB) and Vrbo (EXPE) say they are sold out in many communities, and rental cars are all but impossible to find."
Global tax deal: G7 nations reached an agreement on a global minimum tax after years of discussions at the OECD. The deal would require that companies pay at least a 15% tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates. The rules would apply to multinationals that have a profit margin of at least 10%, while governments would share the right to tax 20% of profits above that threshold.
Mandatory vaccination: "Vaccine mandates" entered everyday vocabulary following updated guidance from the U.S. Equal Employment Opportunity Commission. It said employers can impose mandatory vaccination requirements to "all employees physically entering the workplace," with only a few exceptions permitted under law, such as medical reasons, the workforce is unionized, or if taking it is against a "sincerely held" religious belief. Businesses must also comply with the reasonable accommodation provisions of the ADA and Title VII of the Civil Rights Act of 1964 and other EEO considerations.
Amazon rolls a fatty: Cannabis legalization efforts continued to expand across the U.S. and the movement won another big backer: Amazon (AMZN). The nation's second-largest employer said it would no longer screen its workers for the drug (except for positions subject to regulation by the U.S. Department of Transportation) and will drop weed-testing requirements for recruitment. Senate Majority Leader Chuck Schumer (D-N.Y.) later introduced a draft of legislation that would legalize marijuana on the federal level, which was meant to spur discussion for a formal introduction of a bill and comprehensive reform.
Sticker shock: A higher-than-expected inflation print in the U.S. showed prices soaring by 5% compared with a year ago, marking the biggest increase since the Great Recession. Fed Chair Jerome Powell still stood by his "transitory inflation" thesis, pointing to supply chain disruptions amid "extremely strong demand for labor, goods and service." However, the central bank brought forward the time frame on when it would next raise rates, with the so-called dot plot pointing to two hikes in 2023 (that came after Powell said in March that he saw no increases until at least 2024).
Billionaire space race! Richard Branson, the 70-year-old founder of Virgin Galactic (SPCE), rode the VSS Unity into the lower reaches of space following a 17-year quest towards suborbital space tourism. The developments sent shares of Virgin Galactic to the ionosphere, with the stock soaring 10% to $54. Jeff Bezos' turn came a week later aboard Blue Origin's (BORGN) New Shepard rocket. The two billionaires also sparred over definitions, with Blue Origin emphasizing that it flew above the Karman Line, a boundary 62 miles above sea level that's commonly referred to as the beginning of space.
Got my stimmy: The latest round of stimulus checks arrived, but you had to be a parent to get one. Your kids also had to be under 18, with $300 per month for a child below age 6 and $250 for those aged between 6 and 17. The expanded child tax credit was aimed at cutting the child poverty rate, with Uncle Sam shelling out $105B for the program. However, as it stands right now, the child tax credit payments won't continue into next year.
OPEC+ ends standoff: OPEC and its allies reached a deal to raise crude production in response to "oil demand showing clear signs of improvement and OECD stocks falling." The agreement would take effect from August, with the group pumping out an extra 400K barrels a day through the end of 2022 and restoring all the cuts they made at the start of the COVID-19 pandemic. The pact also resolved an internal dispute that had tested the unity of the alliance (the UAE rejected proposed production plans, saying its current baseline was too low).
Democratizing finance for all: In one of the year's most highly anticipated listings, Robinhood (HOOD) priced its IPO at $38 per share, on the low end of a marketed range. It also reserved up to 35% of shares for users of its app - which could purchase the stock at the IPO price via a new product called IPO Access - though things ended up souring, and it now trades near $17. In other IPO news, don't forget about DiDi's (DIDI) big flop and China's sprawling crackdown.
No more lockdowns: Dr. Anthony Fauci said the U.S. will not lock down again to curb COVID-19, but "things are going to get worse" as Delta fueled a surge in cases. "I think we have enough of the percentage of [vaccinated] people in the country - not enough to crush the outbreak - but I believe enough to not allow us to get into the situation we were in last winter." As 2021 winds to a close, deaths from COVID-19 resulted in 435K over the course of the year, compared to 385K in 2020.
Plan for Afghanistan: Taliban fighters took over the presidential palace in Kabul after a stunning blitz across Afghanistan that saw them seize most of the country in just over a week. The lightning sweep comes after the U.S. spent nearly 2,500 American lives (and some 150K Afghan lives) trying to ensure the territory would not become a terrorist haven, while attempting to refashion the nation into a pro-Western democracy. Fearing sanctions, Western Union (WU) and MoneyGram International (MGI) halted payments into Afghanistan, while some looked at the economic impacts of the long-running conflict, which cost the U.S. taxpayer an estimated $2.26T.
Eviction friction: Ending protections for millions of Americans who have fallen behind on their rent, the U.S. Supreme Court dissolved the pandemic-related federal moratorium on residential evictions in a 6-3 vote. A coalition of landlords and real estate associations brought the case against the Biden administration, which had acknowledged that the legal odds of the ban were on shaky ground, but said it was worth pursuing as it would allow more time to distribute more than $45B in rental assistance. Disappointed by the latest Supreme Court decision, the White House urged states, local governments, landlords and cabinet agencies to "urgently act" to help stop evictions.
Storm warning: Hurricane Ida slammed into Louisiana as a Category 4 storm, lashing the coast with 150 mile-per-hour winds, torrential downpours and life-threatening storm surges. By nightfall, power was knocked out to the entire New Orleans metropolitan area, according to Entergy (ETR), with the failure of all eight transmission lines that deliver electricity to Louisiana's largest city. The cost of the storm exceeded $65B and came ashore on the 16th anniversary of Katrina's landfall, which left the region in shambles and killed more than 1,800 people.
Opioid settlement: U.S. Bankruptcy Judge Robert Drain approved a sweeping settlement for Purdue Pharma, the maker of OxyContin, hoping to resolve thousands of lawsuits from state and local governments, Native American tribes, unions and others alleging the company fueled the opioid epidemic. The plan reorganized the drugmaker into a new charity-oriented company with a board appointed by public officials that will funnel profits into government-led efforts to prevent and treat addiction. It would also set up a compensation fund that will pay some victims of drugs an expected $3,500 to $48,000 each.
Trillion-dollar coin: Ideas got creative as a U.S. debt ceiling deadline loomed in Washington. Tensions among party members over the amount of spending, as well as whether to tie the procedure to infrastructure or social programs and climate policy also created some theatrics. One of those ideas was a $1T platinum coin, which would be minted under commemorative clauses and deposited at the Federal Reserve. The asset swap would result in an extra $1T to cover a big portion of Washington's bills, but Treasury Secretary Janet Yellen ruled it out.
China property crisis: Contagion fears surfaced as China property company Evergrande (OTCPK:EGRNF) risked a collapse. The company is not only one of China's biggest property developers, but its most indebted, with the equivalent of more than $300B in total liabilities. A month later, Fitch became the first to label Evergrande's overseas bonds as "in default" and China said it would take the loss in a market-orientated way, cueing up a massive restructuring and deep haircuts for investors.
Fed evolution: Jay Powell telegraphed a tapering announcement at the central bank's next meeting, though the stock market finished the day in the black and the yield curve flattened. At the following meeting, the central bank said it would cut its monthly Treasury purchases by $10B and mortgage-backed securities by $5B (bringing an end to the program in mid-2022), but that wasn't enough. Powell eventually unveiled a faster tapering to the Fed's asset purchase program, shifting gears to tighter monetary policy, and retired the word "transitory" (he was also nominated for another four-year term at the Federal Reserve).
Global energy crisis: Energy prices continued to surge to fresh records as renewed fears stoked panic about the worst shortage in decades. India warned that it only had four days of coal reserves left, German power plants ran out of fuel and China unloaded an Australian coal shipment despite an import ban and icy relations. Supply was just not there as economies rebounded from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks added to the pressure (OPEC+ didn't come to the rescue, but Vladimir Putin tried to, and the U.S. tapped the Strategic Petroleum Reserve).
Squid millions: Netflix (NFLX) said its megahit Squid Game could be worth nearly $900M, according to an internal document that measures "impact value," which combines data like how often a show is watched by new customers, existing customers, its cost efficiency and impact on long-term viewership. The nine-episode horror-thriller rose sharply in the headlines since its debut on September 17, and ranked No. 1 in several countries, including the U.S. The South Korean show involves heavily indebted people who compete in children's games for a chance to win big cash prizes, though the challenges come with fatal consequences.
TRUTH Social: Some predicted the move since he left office, but former President Donald Trump launched his own media network. The new business, called Trump Media & Technology Group (TMTG), will include a social media platform called "TRUTH Social," as well as a subscription video-on-demand service (TMTG+) that features "non-woke" entertainment programming, news and podcasts. The company is going public via a SPAC merger with Miami-based Digital World Acquisition (DWAC), which surged from $10 all the way up to $175, before falling back to Earth.
Meet Meta: Facebook (FB) CEO Mark Zuckerberg used his keynote address at the Connect conference to unveil the social media giant's new corporate identity: Meta. "Our mission remains the same," he declared. "We're still a company that designs technology around people, but now we have a new North Star. From now on, it's going to be Metaverse first." According to Zuckerberg, the Metaverse is an "embodied internet," or the "next chapter of the internet," where people can "interact in immersive, 3D and shared digital worlds."
Santa's early start: The Port of Los Angeles, one of the busiest ports in the country, began operating 24 hours a day and 7 days a week to ease cargo bottlenecks that led to shortages and higher consumer costs. While the neighboring Port of Long Beach, Calif., also started doing a 24/7 schedule the previous month, major ports in Europe and Asia have operated around the clock for years. The latest change was announced by the White House as it sought to alleviate supply chain issues ahead of the holidays, though the increase in capacity will require cooperation from major U.S. companies like Walmart (WMT), FedEx (FDX) and UPS (UPS).
Climate knockout or COPout? After two weeks of talks, nearly 200 countries struck an agreement to ramp up efforts to fight global warming. Supporters said the COP26 agreement in Scotland signaled new determination among the world's governments to shift away from fossil fuels, though activists cautioned that the deal fell well short of the breakthrough needed to avert eventual climate catastrophe. They specifically pointed to the lack of enforcement mechanisms, relying only on good faith to follow the rules as best they can.
Time for a breakup: Unveiling one of the biggest changes in the industrial giant's history, General Electric (GE) announced plans to split into three global public companies: Aviation, Healthcare and Renewable Energy and Power. Prompting the shakeup was a strong shift towards leaner cost structures and away from the idea that central management can never fully offset the downsides that conglomerates can bring. It's particularly strong for industrial businesses, which are no longer the talk of the town, and have market caps that come nowhere close to their technology rivals.
Over the finish line: President Biden signed the $1T bipartisan infrastructure bill, which finally passed in Congress after months of negotiations. The five-year spending package will be financed by tapping unspent COVID relief aid, Medicare rebates and unemployment insurance halted by some states, as well as petroleum reserve sales and 5G spectrum auctions. $110B would be allocated for roads and bridges, $66B for rail, $55B for water and wastewater infrastructure and $39B for public transit. There was also money for ports, high-speed broadband internet, replacing lead water pipes and building a network of electric vehicle charging stations.
Smoke-free generation: In one of the toughest crackdowns on the tobacco industry, New Zealand announced plans to prevent young people from ever being able to buy cigarettes. The initiative would create a "smoke-free generation" by 2027, ensuring that anyone born after 2008 will not be able to purchase cigarettes or tobacco products in their lifetime. The level of nicotine in cigarettes available to older people will also be reduced by 2025, while the number of retailers able to sell cigarettes will be slashed from 2024 (from 8,000 to under 500).
Organized labor: A Starbucks (SBUX) store in Buffalo became the first location in the country to unionize after employees voted by a margin of 19 to 8 to join the Workers United Union. Analysts sized up what kind of tipping point could be in store as it was the first-ever labor foothold to hit Starbucks. Three more outlets in Buffalo are also heading towards union elections, as well as another store in Mesa, Arizona and two locations in the Boston-area.
Quarantine cut: The CDC updated recommendations for COVID-19 control, shortening isolation restrictions from 10 to five days for all Americans who test positive for the virus. That's as long as they are asymptomatic, though they should still wear a mask around others for a further five days. Meanwhile, individuals who have received their booster shot "do not need to quarantine following an exposure, but should wear a mask for 10 days after the exposure." The CDC said its guidance was in line with the growing evidence suggesting that people infected with COVID-19 are most infectious 1–2 days before and 2–3 days after the onset of symptoms.
BBB: President Biden was dealt a severe blow to his economic agenda after West Virginia Senator Joe Manchin outright rejected the nearly $2T Build Back Better Plan. Negotiations had been underway for much of the past six months, but the latest disagreement means the bill is likely doomed unless his demands are met for a smaller, less sweeping package. Manchin has said "budget gimmicks hide the true cost" and it would temporarily fund programs that Democrats intend to later make permanent, but expect more to come in 2022.
In Asia, Japan -0.4%. Hong Kong +0.1%. China +0.6%. India flat.
In Europe, at midday, London +0.1%. Paris +0.3%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq +0.2%. Crude -0.8% at $75.98. Gold -0.2% at $1803. Bitcoin -0.5% at $47409.
Ten-year Treasury Yield -1 bps to 1.53%