Thursday Reads

Thursday Reads

Morning Reads





The first commercial drone deliveries in the U.S. will take off today as Alphabet's (NASDAQ:GOOG, NASDAQ:GOOGL) Wing unleashes its aircraft over the suburban towns of Frisco and Little Elm, which are located just north of Dallas, Texas. If successful, the service could revolutionize how goods are currently transported around cities. Wing has partnered with Walgreens (NASDAQ:WBA), Blue Bell Creameries, Easyvet, and Texas Health for the initial rollout, meaning consumers will be able to order prescription pet meds and ice cream, among other items.

How it works? Retail workers will load up the drones outside participating stores - rather than a Wing facility - carrying small packages that weigh 2.6 lbs or less. They will then climb to a cruise height of around 150 feet above the ground and travel their routes autonomously (remote pilots will be on standby to take control if something goes wrong). Once a delivery drone reaches its destination, it will stay at roughly 23 feet while lowering the package on board into a customer's yard via a cable.

"I do want to set clear expectations: Not everyone who lives within range of our drones will be able to order on Day 1," Wing CEO Adam Woodworth declared. "We're going to invite customers in groups to make sure everyone has a good first experience with drone delivery." Eventually, Wing hopes to expand the service to all the tens of thousands of homes in Frisco and Little Elm, and then to other regions in the Dallas-Fort Worth metro area.

Go deeper: Wing has been testing its service in the Dallas suburbs since last year following experiments in Christiansburg, Virginia; Helsinki, Finland; and Canberra and Logan, Australia (the division just made its 200,000th delivery). Similar to sister company Waymo, Wing is focused on achieving testing milestones before pressing the button on wide-scale deployment. Amazon Prime Air (AMZN) and Uber Eats (UBER) have also promised to ratchet up drone delivery operations in the near future, but until now, the technology has been mainly focused on small-scale trials. (6 comments)

FOMC minutes

All FOMC members are in agreement that the Federal Reserve will have to adopt a faster pace in shrinking its balance sheet than it conducted during the 2017-'19 period. "Participants generally agreed that monthly caps of about $60B for Treasury securities and about $35B for agency MBS would likely be appropriate," per the minutes from March 15-16 gathering. That means the Fed could trim its roughly $9T balance sheet by more than $1T per year, while hiking rates "expeditiously" to fight the hottest inflation since the early 1980s.

Bigger picture: The process for reducing the balance sheet could start as early as next month. "Participants also generally agreed that the caps could be phased in over a period of three months or modestly longer if market conditions warrant," the minutes revealed, though some FOMC officials said they'd be comfortable with "relatively high monthly caps or no caps." They also reaffirmed that the balance sheet reduction should be done "over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities."

Meanwhile, many participants preferred a 50-basis-point interest rate increase at the meeting in March, but a number of them judged that a 25-bp hike "would be more appropriate" due to the greater near-term uncertainty resulting from Russia's invasion of Ukraine. "Many" of the FOMC members also said one 50 bps rate hike or more could be warranted if inflationary pressures stay high or intensify. U.S. equities slid for the second straight session on Wednesday amid fears that aggressive tightening could hurt economic growth or lead to a recession.

Price pressures: A few of the officials even saw a "significant risk" that elevated inflation and inflation expectations could become entrenched if the public isn't convinced of the committee's determination to adjust policy to control inflation. They argued that "expediting the removal of policy accommodation" would reduce the risk and that would leave the committee "well positioned to adjust the stance of policy if geopolitical and other developments led to a more rapid dissipation of demand pressures than expected." To give an indication of how prominent inflation was in their discussion, the word appeared 83 times in the minutes, up from 73 mentions in the January meeting and 75 references flagged during the get-together in December 2021. (181 comments)

Off the sidelines

Warren Buffett is definitely making a return to dealmaking after bemoaning the lack of good investment opportunities. Fresh off an $11.6B deal to buy insurance firm Alleghany Corporation (Y), the Oracle of Omaha is sinking $4.2B into HP (HPQ), taking an 11.4% stake in the computer and printer maker. Back in March, Buffett also disclosed a 15% stake in Occidental Petroleum (OXY) worth $7.6B amid rising oil prices and Russia's invasion of Ukraine.

Commentary: "We view Berkshire buying HPQ shares as a positive that validates HPQ's strategy/deep value," wrote Evercore ISI tech analyst Amit Daryanani. HPQ shares are up 15% to $40 in premarket trading, giving a much-needed boost to a company that has lagged behind tech rivals for much of the past decade.

Before the recent spate of acquisitions, Buffett had gone six years without making a major deal, leaving Berkshire Hathaway (BRK.ABRK.B) with a nearly $150B cash hoard. While he was likely involved in the latest HP purchase, the stake could have also been amassed by his two investment lieutenants. Todd Combs and Ted Weschler together run around 10% of Berkshire's $350B equity portfolio.

Response from HP: "Berkshire Hathaway is one of the world's most respected investors and we welcome them as an investor." (41 comments)

Sanctions list

It has now been six weeks since Russia's invasion of Ukraine, which has resulted in 1,563 confirmed civilian deaths, but likely thousands more. Western governments have promised to unleash the "mother of all sanctions" from the onset of the war, though it can be hard to keep track of all the penalties dealt to Moscow and its related entities. Here is a full list of U.S. sanctions since the start of the crisis:

February 24: Restricting exports of chips, computers and other high-end technologies to Russia.

February 27: Key Russian banks are blocked from SWIFT and sanctions are placed on the central bank's international reserves.

February 28: Oligarchs are targeted with travel bans and asset freezes.

March 2: U.S. considers barring Russian ships from American ports.

March 8: Ban announced on Russian oil, gas and energy imports.

March 11: Move to strip Russia of its preferential trade status.

March 24: U.S imposes sanctions on dozens of Russian defense companies and the Duma legislative body.

April 5: Treasury stops the Russian government from paying holders of its sovereign via the dollar reserves it holds in American bank accounts. IRS suspends information exchanges with Russia's tax authorities to hinder Moscow's ability to collect taxes.

April 6: Sanctions unveiled against Putin's adult children. All new investments are banned in Russia, while full blocking sanctions were imposed on Russia's largest banks.

Outlook: Many of the penalties that have been implemented were made in coordination with allies, though other Western governments have imposed additional sanctions of their own. "Sanctions against Russia must be ruinous enough for us to end this terrible war," declared Andriy Yermak, head of Ukraine's presidential office. Western corporations have also been quick to suspend or exit their business in Russia, while some have even pledged to stop importing raw materials from - or exporting goods to - the economic and financial pariah. (2 comments)

Today's Markets

In Asia, Japan -1.7%. Hong Kong -1.2%. China -1.4%. India -1%.
In Europe, at midday, London flat. Paris +0.7%. Frankfurt +0.6%.
Futures at 6:20, Dow +0.1%. S&P +0.3%. Nasdaq +0.5%. Crude +1.1% to $97.31. Gold +0.4% to $1931. Bitcoin -4.4% to $43,408.
Ten-year Treasury Yield -3 bps to 2.58%

Today's Economic Calendar

8:30 Initial Jobless Claims
9:00 Fed's Bullard: U.S. Economy and Monetary Policy
10:30 EIA Natural Gas Inventory
2:00 PM Fed's Evans Speech
3:00 PM Consumer Credit
4:05 PM Fed's Williams Speec

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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