Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Mon, 1 Mar 2021, 9:05 AM

 

Wall Street Breakfast: March Madness

Author: bmotrader   |  Publish date: Mon, 1 Mar 2021, 9:05 AM


Which sectors will make it to the Final Four? That's a question investors are asking as the new month kicks off after things turned south for stocks at the end of February. The biggest monthly rise in bond yields since 2016 injected fresh uncertainty into the market, bruising technology stocks and triggering volatility streaks that saw the DJIA swing more than 1,000 points over three days. Things appear to be turning around this morning as the 10-year Treasury yield fell 4 bps to 1.4%. Futures: Dow +1%; S&P 500 +1.1%; Nasdaq +1.5%.

Quote: "This week is key. I'm expecting turbulence or volatility to remain with us until we have a better understanding of where central banks stand," said Andrea Carzana, a fund manager at Columbia Threadneedle Investments. "Further consolidation is likely in March, but we expect the market to find support shortly and subsequently challenge the recent highs again," added Jeff Hirsch, editor of the Stock Trader's Almanac, noting that April is statistically the best month of the year.

Another area that is taking bets is a potential increase in inflation due to recent stimulus efforts. The House passed President Biden's $1.9T coronavirus relief bill on Saturday, while the Senate is expected to follow suit shortly. The package includes funding for vaccines and medical supplies, an extension of unemployment benefits, a round of $1,400 stimulus checks to individuals, and financial aid to small businesses and state and local governments. As a result, the U.S. Treasury is expected to sell a huge amount of debt in coming months to pay for the measure aimed at supporting the recovery.

Go deeper: Fed Chair Jay Powell has aligned with the administration in waving off concerns about an over-heated economy, saying the job market has ways to go before inflation fears are justified. The support could trigger a strong period of growth, low unemployment and rising wages, though critics argue that it may lead to a cycle of rising prices, higher interest rates and a ballooning national debt. The views don't only have investors sizing up March, but also who will be in the championship at the end 2021.

Covid - Third coronavirus vaccine

Traders today are also applauding the FDA approval of Johnson & Johnson's (JNJ) COVID-19 shot, which was the third jab to be approved in the U.S. It's the first to have a single-dose regimen, a key tool in accelerating the vaccination drive. The decision clears the way for immediate distribution and vaccination of the Janssen vaccine to Americans 18 and older, building on a broader rolloiut that's currently utilizing jabs from Pfizer/BioNTech (PFE, BNTX) and Moderna (MRNA).

Bigger picture: Shipments from J&J will be limited at first, with just a few million vaccines going out immediately, but the company has a deal to supply 100M doses by the end of June. The single-shot product had an overall efficacy rate of about 66% in the Phase 3 clinical trial, and the U.S. arm of the trial showed an efficacy rate of about 72% and of 85% when protecting against severe or critical disease. The lower efficacy rate compared than rivals is raising concerns that some people may opt to wait for other vaccines, but shares of JNJ are still up 3.5% premarket to $164.

"Be careful when you try to parse this percent versus that," Dr. Anthony Fauci told NBC's Meet The Press. "They were not compared head-to-head. They were compared under different circumstances. All three of them are really quite good and people should take the one that's most available to them."

Outlook: As of Sunday night, 49.8M people across the U.S. (15% of the population) had received their first coronavirus vaccine, while 24.8M people (7.5% of the population) had received two doses, according to the CDC. J&J has said it plans to ship the vaccine, which contains five doses per vial, at 36 to 46 degrees Fahrenheit. That compares to the ultra-cold freezers that are needed for Pfizer's vaccine - between minus 112 and minus 76 degrees Fahrenheit - as well as Moderna's vaccine, which needs to be shipped at 13 below to 5 degrees above zero Fahrenheit.

Outlook - Buffett's annual letter

First things first: Berkshire Hathaway's (BRK.A, BRK.B) Q4 operating earnings totaled $5.02B, up from $4.42B in the year-ago quarter, bolstered by its railroad, utilities and energy unit and "other businesses." The conglomerate also bought back $9B of its stock during the quarter (the same amount as Q3), bringing total buybacks for the year to $24.7B. That boosts shareholders' ownership "in all of Berkshire's businesses by 5.2% without requiring you to so much as touch your wallet," Warren Buffett said in his annual letter to shareholders.

The Oracle of Omaha also didn't reference any elephant-sized acquisitions, but rather stressed the importance of operating earnings. Berkshire's focus is to "increase this segment of our income and to acquire large and favorably-situated businesses." "Last year, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%," he declared, adding that the company's intrinsic per-share value increased by retaining earnings and repurchasing about 5% of its shares.

Meanwhile, Buffett seemed to indicate that he's more content with acquiring stakes in well-run companies than buying them outright. "What’s out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually building value - lots of value - for Berkshire," he wrote. Those companies that Berkshire invests in "use the withheld funds to expand their business, make acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future earnings)."

Bottom line: Buffett pointed to Berkshire's investment in Apple (AAPL) as an example of the power of buying back stock. The company paid about $36B for a 5.2% stake in Apple as of mid-2018. Since then, Berkshire has received regular dividends of ~$775M a year and received an additional $11B by selling a small portion of its position. Even with that sale, Berkshire now owns 5.4% of Apple - an "increase that was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding."

2021 Golden Globes

Shares of Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) are ahead by 2% and 1.2% premarket, respectively, after the two emerged as top winners at the 2021 Golden Globes. The studios won 15 of the prizes handed by the Hollywood Foreign Press Association in a broadcast hosted by Tina Fey and Amy Poehler. Things were also a little different this year as presenters and winners appeared remotely due to the COVID-19 pandemic.

Awards? Disney scored the top accolade of Best Motion Picture (Drama) for Nomadland, while Netflix dominated television with hits like The Crown and The Queen's Gambit. Other streaming services also picked up key honors. Borat Subsequent Moviefilm from Amazon Studios (NASDAQ:AMZN) was named Best Picture, Musical or Comedy, and star Sacha Baron Cohen won Best Actor. Daniel Kaluuya meanwhile notched Best Supporting Actor for his work in Warner Bros.' (NYSE:T) Judas and the Black Messiah (also streaming on HBO Max), while Schitt's Creek captured the award for Best TV Series, Comedy or Musical.

The supremacy of streaming services vs. traditional studios doesn't come as a surprise. Over the last year, many theater chains have been shuttered, while the biggest new films have been delayed or put online. Disney+ has gained an explosive 86M subscribers within a year and now expects 230M-260M on its flagship streaming service by 2024. It also temporarily halted its dividend last year following calls from activist Dan Loeb to plunge that cash into original content as it centers its operations around streaming.

Outlook: In its most recent earnings call, rival Netflix revealed that it had surpassed 200M global subscribers for the first time after topping 100M subs in 2017. The streamer additionally detailed plans to be cash flow positive after 2021 and said would no longer need to tap debt markets to fund its programming (it has borrowed $15B to produce original content over the past decade). Netflix is also considering share buybacks, a practice it hasn't done since 2011, which was the last time the company was cash flow positive.

Trending - #PotStocks

With 1 in 3 Americans now living in a state where adult marijuana use is legal, Virginia is no longer sitting on the sidelines. Over the weekend, local lawmakers narrowly approved compromise legislation that would make it the first state in the south to allow recreational weed. The bill now goes to Virginia Gov. Ralph Northam (D), who supports legalization, for his signature.

Fine print: The law would legalize the use of cannabis by people over the age of 21. It would also allow possession of up to an ounce by anyone over 21 and establish an agency to oversee regulation of the cannabis market. The state is hoping that its commercial recreational marijuana program could generate nearly $1.5B in annual sales within five years of the scheduled start on Jan. 1, 2024.

Specifics of the regulations were punted until next year, when they'll be decided by the legislature. Under discussion are the framework and criminal penalties for several offenses, including underage use and public consumption of marijuana. Currently, people under the age of 21 would face a $25 civil penalty and have to undergo treatment.

More details: Part of the bill is aimed at ending disparate treatment faced by people of color in the criminal justice system. The legislation calls for 30% of marijuana tax revenue to go to a fund aimed at communities historically over-policed for marijuana-related crimes. Some lawmakers and advocacy groups also complained the years-long waiting period needlessly extends unjust treatment, though others argued that going ahead without regulations could boost illegal pot sales.

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Wall Street Breakfast: Stock Markets Obeying The Yield Sign

Author: bmotrader   |  Publish date: Fri, 26 Feb 2021, 9:29 AM


Wall Street looks to get its sea legs back at the open today after being whipsawed by interest rates. U.S. stock index futures are mixed, while Treasury yields are easing early following a spike yesterday that unnerved equity investors. S&P futures +0.2% are slightly higher and Nasdaq 100 futures +0.1% are slightly higher. The Nasdaq Composite had its worst performance in nearly four months yesterday. Asian markets followed the U.S. selling, with Tokyo's Nikkei tumbling nearly 4%. European markets are down, but the drop is tamer as yields have dipped. The 10-year Treasury yield is down 4 basis points to 1.47%. Yields on the 10-year raced higher in the previous session, topping 1.6% following a disappointing auction of 7-year Treasuries that prompted traders to push longer-term yields higher as the curve flattened. As much as $50B was unwound after the auction, according to Bloomberg. Overall, the bond market has been pricing in a hotter economy as vaccine programs progress and more stimulus is set to hit the U.S. economy. But Fed officials stressed yesterday they didn't see inflation as a problem and that a hotter economy might not even bring about corresponding inflationary pressures for a while.

Trending - Australia first in Asia-Pacific to lift Boeing 737 MAX ban; 777 makes emergency landing

Australia is lifting its ban on flights to and from the country using Boeing's (NYSE:BA) 737 MAX aircraft after nearly two years. It's the first country in the Asia-Pacific region to do so. And while Australia's airlines don't fly the plane, Fiji Airways and Singapore Airlines (OTCPK:SINGF, OTCPK:SINGY) do fly it into Australia and are looking to other regulators in order to resume using the craft. Also, a Boeing 777 on cargo service has made an emergency landing in Moscow due to engine issues - not quite a week after a similar Boeing craft shed engine debris over Colorado neighborhoods.

Minimum wage can't be part of $1.9T stimulus bill in Senate

The proposed hike in the minimum wage to $15 an hour will have to be dropped from the Democrats' $1.9T COVID relief bill, a Senate parliamentarian rules. The White House now looks like it will pursue other avenues for the boost in wages. President Joe Biden is “disappointed in this outcome” but “urges Congress to move quickly to pass the American Rescue Plan,” a White House statement said.

On The Move - GameStop rises premarket, but squeeze trade eases off

GameStop (NYSE:GME) went through a wild day of trading yesterday, as much as 100% higher before seeing sharp selling in the last hour of trading to end up 18.5%. GME is up 10% premarket, but trading is naturally volatile. AMC (NYSE:AMC) is down 4% before the bell. Koss (NASDAQ:KOSS) is down 9% premarket. The second squeeze looks to be spurred by another round of huge buying in out-of-the-money, near-term call options. But it hasn't had the legs of the first round, with short positions greatly reduced.

AT&T spinning off DirecTV in multibillion-dollar deal with TPG

AT&T (NYSE:T) is spinning off DirecTV as part of a deal with private equity firm TPG Capital. The deal implies an enterprise value for the new DirecTV of $16.25B, and after the transaction, AT&T will own 70% of common equity and TPG will own 30%. AT&T expects to apply $8B from cash proceeds to reduce debt. Not moving over in the deal: any of HBO Max or AT&T's regional sports networks.

Salesforce full-year profit forecast disappoints

Salesforce.com (NYSE:CRM) reported a record fourth quarter but guided a downside profit forecast for the fiscal year. Revenue was up 20% on the year to $5.82B. Subscription and support revenue gained 20% to $5.48B. For the full year, it guided revenue of $25.65-25.75B, above the $25.45B estimate. But EPS guidance of $3.39-3.41 was below consensus of $3.61.

Consumer - Beyond Meat goes mainstream with huge McDonald's and Yum Brands deals

Beyond Meat (NASDAQ:BYND) announced a three-year global strategic agreement with McDonald's (NYSE:MCD). It will be McDonald’s preferred supplier for the patty in the McPlant burger. Beyond Meat also announced a global strategic partnership with Yum Brands (NYSE:YUM) to co-create items that can only be found at KFC, Pizza Hut and Taco Bell.

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GameStop Comeback

Author: bmotrader   |  Publish date: Thu, 25 Feb 2021, 9:31 AM


It was the catalyst the WSB/Reddit crowd had been waiting for... GameStop (NYSE:GME) announced Wednesday that its chief financial officer Jim Bell would resign on March 26. Several sources indicating that the board pushed him out to execute its turnaround more quickly, but an outsized reaction ensued amid a sudden burst of activity. Shares surged more than 104% following two afternoon halts, and even rose another 83% in AH trading to $168.13, before paring some gains to $130.58 in today's premarket session.

When all was said and done, more than 82M GameStop shares traded hands on Wednesday, the highest level since January 27. Derivatives trading also seemed to exacerbate the move in GameStop, according to Susquehanna's Christopher Jacobson, with some 262,000 call options contracts trading hands. Looking back, another management change prompted all the activity back in January. The appointment of Ryan Cohen (co-founder of Chewy) to the GameStop board helped drive shares heavily upward and eventually resulted in the epic short squeeze that saw retail traders inflict severe losses on hedge funds. The stock still has significant short interest at nearly 42%.

Note: The new advance came after Barstool Sports founder Dave Portnoy faced off with Robinhood's (RBNHD) Vlad Tenev over the GameStop saga. Reddit also went down after GameStop shot up, sparking a range of theories. While subreddit r/WallStreetBets, which has championed the stock, seemed to be getting a lot of heavy traffic right before the crash, it's unclear if the two were related. Last week, GameStop bull Keith Gill, also known as Roaring Kitty, shared a screenshot showing he had doubled his long position to 100K shares.

On the move: Other meme stocks also took off on the developments, with AMC Entertainment (NYSE:AMC) soaring 18% (it's up another 15% premarket) and Koss (NASDAQ:KOSS) skyrocketing 55% (ahead by an additional 50% in premarket trade). Some of the usual suspects also got a lift yesterday, including American Airlines (NASDAQ:AAL) +5.6%, BlackBerry (NYSE:BB) +5%, Bed Bath & Beyond (NASDAQ:BBBY) +9%, Express (NYSE:EXPR) +41%, Naked Brand (NASDAQ:NAKD) +31%, Nokia (NYSE:NOK) +4.7%, Sundial Growers (NASDAQ:SNDL) +15%, Tootsie Roll (NYSE:TR) +2%, Trivago (NASDAQ:TRVG) +15%.

Stocks - Yields, reflation, stimulus, earnings

Another market record for 2021 was seen Wednesday as the Dow Jones Industrial Average surged 424 points to a new record close. Rotation players were also happy to see the index as the only major average in the green this morning, with contracts linked to the benchmark up 0.2%. While the S&P 500 and the Nasdaq also climbed 1% yesterday, futures trading shows them down 0.2% and 0.6%, respectively. Treasury yields climbed another 6 bps to 1.45%, while oil prices extended gains for a fourth session to reach the highest levels in more than 13 months.

Doubling down: As he did before the Senate Banking Committee, Jay Powell further told the House Financial Services Committee that the Fed is in no rush to raise interest rates or begin trimming its $120B in monthly bond purchases (about 7% of GDP on an annualized basis). He also doesn't see any indication inflation could race out of control. While prices might pick up in the coming months, Powell said those increases are expected to be temporary given supply chain constraints.

Meanwhile, President Biden's $1.9T coronavirus relief plan is gaining traction. CEOs from more than 160 companies have voiced support for the aid package, including Goldman Sachs's (GS) David Solomon, Google's (GOOG, GOOGL) Sundar Pichai and Intel's (INTC) Pat Gelsinger. "Congress should act swiftly and on a bipartisan basis to authorize a stimulus and relief package along the lines of the Biden-Harris administration’s proposed American Rescue Plan," they said in a letter to Congressional leaders.

Go deeper: It's also busy day on the economic front. Initial jobless claims numbers will be released at 8:30 a.m. ET, along with the second estimate for fourth-quarter GDP. Traders will additionally be watching earnings from companies like Best Buy (BBY), Papa John's (PZZA), Salesforce (CRM), Etsy (ETSY) and Beyond Meat (BYND). Newly public companies Airbnb (ABNB) and DoorDash (DASH) are also set to report results after the closing bell.

Manufacturing - Critical supply chain review

President Biden has signed a fresh executive order mandating a 100-day review of critical product supply chains in the U.S., focused on semiconductors, key minerals and materials, active pharmaceutical ingredients and advanced batteries like the ones used in electric vehicles. "There is strong bipartisan support for fast reviews of these four areas because they're essential for protecting and strengthening American competitiveness," he told a press conference. The order will also initiate a long-term review, to be completed within one year, that takes a look into fortifying six industry-specific sectors including defense, public health and biological preparedness, communications technology, transportation, energy and food production.

Backdrop: The order is part of the administration's effort to secure domestic supply chains in the wake of the COVID-19 pandemic that highlighted several vulnerabilities. The U.S. struggled to get the personal protective equipment needed for health care workers early on in the pandemic, relying on China and other nations for the critical supplies. There has also been an ongoing shortage of semiconductor chips (especially for automobiles), while reports suggest China is exploring whether it can hurt U.S. defense contractors by limiting the export of rare earths.

Response from Beijing: Chinese Foreign Ministry spokesman Zhao Lijian said the measures would "not help solve domestic problems" and only harm global trade. "China believes that artificial efforts to shift these chains and to decouple is not realistic. We hope the U.S. will earnestly respect market laws and free trade rules and uphold the safety and reliability and stability of global supply chains."

While the order doesn't directly call out China or any specific country, White House officials have said an overreliance on Beijing for critical goods was a key risk. The Biden administration may also work with a "carrot and stick" approach, meaning financial incentives for companies that manufacture items domestically or limiting some imports for those who don't. In a letter to Biden, Sens. Marco Rubio (R., Fla.) and Chris Coons (D., Del.) recommended he invoke the Defense Production Act to "incentivize or, if necessary, require American companies to retain their domestic capacities during this time."

Events - 5G spectrum auction

The FCC has announced the winners of a wireless airwave auction it conducted over the past few months which racked up a record $81B in bids. The mid-band spectrum, sometimes called the "Goldilocks band," is well-suited for 5G networks because it is able to transmit large amounts of data on a wavelength that can travel long distances. The 280-megahertz spectrum is also especially important to wireless giants who have been trying to fill out their spectrum portfolios.

The big winners? Verizon (NYSE:VZ) - via its Cellco Partnership subsidiary - bid nearly $45.5B on the airwaves. AT&T (NYSE:T) - through AT&T Spectrum Frontiers - bid $23.4B, while T-Mobile (NASDAQ:TMUS) bid $9.3B (it already acquired some mid-band through its merger with Sprint). The results were in line with industry expectations and reflect how important securing licenses for the airwaves is for the carriers.

"These record-breaking results highlight the demand and critical need for more licensed mid-band spectrum and demonstrate the importance of developing a robust spectrum auction pipeline," said Meredith Baker, CEO of CTIA (a trade group that represents the wireless industry). The bidders are still under a quiet period, so they are not permitted to comment publicly.

Outlook: The COVID-19 pandemic has shown just how critical our connectivity is given remote work and remote learning trends that have led to a boom in broadband-powered services. 5G will not only lead to eye-popping speeds, but more people can be on a network simultaneously with less drop-offs. However, performance of 5G remains dependent on the type of spectrum a carrier has available, with mid-band providing a strong combination of fast speeds and broad coverage.

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Powell On The Hill

Author: bmotrader   |  Publish date: Tue, 23 Feb 2021, 8:55 AM


Get ready for Fed Chair Jerome Powell's semiannual monetary policy testimony before Congress, which will take on additional importance this time around as investors size up the recent run-up in bond yields. Powell will answer questions from the Senate Banking Committee today and appear before the House Financial Services Committee tomorrow. He's expected to reaffirm his commitment to an ultra-easy monetary policy, as well as the need for more fiscal stimulus, to support the economy as it emerges from the COVID-19 pandemic.

Backdrop: The Fed has run historically loose policy over the past year, lowering its benchmark borrowing rate to near zero and buying at least $120B of bonds each month (about 7% of GDP on an annualized basis). That's on top of a series of lending and liquidity programs implemented to battle the coronavirus crisis, while Congress has approved trillions of dollars in fiscal stimulus and could pass another $1.9T bill by the end of week. All the stimulus measures have helped boost expectations of faster U.S. growth and inflation, recently driving up government bond yields, particularly further out on the curve.

While the 2-year is unchanged for 2021, the 5-year has risen a quarter percentage point to 0.61%. The benchmark 10-year note has seen its yield jump 44 basis points to 1.37%, an area where it hasn't been since before the pandemic, while the 30-year rate has climbed 54 bps to 2.19%. ECB President Christine Lagarde even flagged the movement on Monday, saying she is "closely monitoring the evolution of longer-term nominal bond yields."

Balancing act: A series of disappointing weekly jobless claims and recent monthly jobs reports have pointed to a U.S. labor market that's still under considerable strain due to the pandemic. That may lead Powell to emphasize robust stimulus measures, which would be typically embraced by investors, but some are now painting the Fed's situation as caught between a rock and a hard place. If bond yields continue to rise in response, the Fed might be forced to tighten policy too quickly, while a complacent Fed could pose overheating risks that may destabilize the economy over the longer term.

Stocks - Nasdaq set to continue losing streak

The tech sector looks poised for another down day, fueled by fears about inflation and rising long-term interest rates. That could lower the present value of future earnings and undercut arguments for elevated valuations of high-growth tech stocks. The Nasdaq slumped 2.5% on Monday, while future contracts linked to the index fell another 1.5% overnight. In fact, the Nasdaq 100 has dropped 4.2% over the last five days, the longest consecutive streak of losses since Oct. 19.

Bigger picture: The rout weighed on some of best plays of 2020 as Peloton (PTON) plunged 10% on Monday, while DocuSign (DOCU) and Tesla (TSLA) tumbled 8.2% and 8.6%, respectively. The stay-at-home trade that boosted much of the tech sector may also be on the back foot given hopes of a return-to-normal due to a broader vaccine rollout. That's seeing more money flow into cyclicals, reflecting pent-up expectations for a reopening of the economy.

"Just because long-term rates are ultra-low on an historical basis, we do not believe that they will have to rise as far as most pundits think they do before they impact the stock market," Matt Maley, chief market strategist at Miller Tabak, wrote in a note. Others think the retreat is a bit overblown. "Definitely, yields are the big thing," said Randy Frederick, vice president of trading and derivatives at Schwab Center for financial research, but "when you are a tad off record highs, inflation scares or a storm could cause a pullback."

Other movement: Elsewhere, Bitcoin (BTC-USD) retreated below $50,000 after Treasury Secretary Janet Yellen called the crypto an "extremely inefficient way of conducting transactions." She also warned about its use in illicit activity and sounded the alarm about its impact on the environment (given the levels of electricity needed to produce new coins). That would be in contrast to a sovereign digital currency, for which Yellen signaled the Biden administration's support, as well as research into the viability of a digital dollar.

Media - News Down Under

Facebook (FB) has reached an agreement with the Australian government that will restore news pages in the country after the latter proposed amendments to a controversial media bill. The original law, if passed, would leave digital platforms on the hook for news content displayed in search results or feeds, meaning they would have to shell out cash to local media outlets and publishers for linking to their content. Google (GOOG, GOOGL) already agreed to pay for news, but Facebook appears to have held out for a better arrangement.

Under the amendments to the proposed bill, the Australian government will take into account commercial agreements that digital platforms have already made with local news media businesses before deciding if the code applies to the tech giants. The government will also give digital platforms one month's notice before reaching the final decision and would also include a two-month mediation period that grants the two sides more time to negotiate commercial deals before forcing them into final-offer arbitration.

Quote: "As a result of these changes, we can now work to further our investment in public interest journalism and restore news on Facebook for Australians in the coming days," Facebook regional managing director William Easton declared.

Go deeper: Microsoft (MSFT), which has previously pitched Bing after Google threatened its search engine Down Under, is joining EU publishers pushing for paid content laws. It's proposing regulations that "mandate payment" for news content by "gatekeepers that have dominant market power," which is a shot at Google and Facebook. The coalition would also support a form of arbitration and is looking at Australia's pending news payment legislation for guidance.

Mega SPAC deal could create Tesla rival

In the latest SPAC deal on the Street, electric vehicle maker Lucid Motors plans to go public at an $11.75B combined equity valuation and $24B pro-forma equity value through a reverse merger with Churchill Capital Corp IV (NYSE:CCIV). The latter is a blank-check company started by veteran investment banker Michael Klein.

Investors had eagerly awaited a possible Lucid/CCIV deal given that Lucid competes with Wall Street darling Tesla (NASDAQ:TSLA), whose stock has risen some 600% over the past 11 months. Former Tesla executive Bernard Tse co-founded Lucid in 2007. CCIV shares are off 35% premarket to $37 following news of the deal, after climbing as much as 279% intraday in recent weeks to $64.86 (from a $17.11 low on Jan. 21). Tesla is down another 6% to $670/share after touching $900 back in January.

What they're saying: Seeking Alpha contributors are giving Lucid mixed reviews. Columnist Long Term Tips recently called it "the best available investment in an EV manufacturer," while contributor Jaberwock Research described the automaker as "an interesting company, but not at the price that investors are paying right now."

Outlook: Lucid is set to deliver its first vehicle, a luxury sedan called the Air, this spring. The company sees the Air as a catalyst for a lineup of future all-electric vehicles, including an SUV starting production in early 2023 and more affordable vehicles down the line. The deal with Churchill Capital will also generate about $4.4B in cash for expansion plans for Lucid, including its current factory in Arizona.

Cherokee name change?

The principal chief of the Cherokee Nation wants Jeep to stop using the tribe’s name on its SUVs, and even held a video call with representatives from Stellantis (NYSE:STLA), the parent company of the Jeep brand since a merger of Fiat Chrysler and Peugeot. He was left with the impression that the representatives were of good faith and wanted to understand the concerns, but no commitments were made regarding the Jeep Cherokee name.

"Financial incentives, things of that nature, to me, don't remedy the underlying problem," Chuck Hoskin Jr. declared. "I think we're in a day and age in this country where it's time for both corporations and team sports to retire the use of Native American names, images and mascots from their products, team jerseys and sports in general. "I'm sure this comes from a place that is well-intended, but it does not honor us by having our name plastered on the side of a car."

Response from Jeep: "Our vehicle names have been carefully chosen and nurtured over the years to honor and celebrate Native American people for their nobility, prowess, and pride. We are, more than ever, committed to a respectful and open dialogue with Cherokee Nation Principal Chief Chuck Hoskin, Jr."

Some history: Jeep first used the Cherokee name in a 1974 two-door wagon, with one trim called Cherokee Chief. It has since built vehicles called Cherokee continuously, although from 2002 through 2013 the cars were known as the Liberty in North America. The Grand Cherokee is Jeep's best-selling vehicle, and the Cherokee is its third-biggest selling model (the two made up more than 40% of Jeep's total annual sales in 2020).

The criticism isn't limited to the auto industry. In fact, several companies and sports teams have stopped using brand names and logos that used ethnic stereotypes and caricatures over the past year. Those include Aunt Jemima, Uncle Ben's, Land O'Lakes and Eskimo Pie, as well as reviews of Mrs. Butterworth's and Cream of Wheat. Sports teams like the MLB's Cleveland Indians and the NFL's Washington Redskins also dropped Native American imagery and names from their franchises.

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Wall Street Breakfast: Rising Yields

Author: bmotrader   |  Publish date: Mon, 22 Feb 2021, 8:54 AM


While the S&P 500 is coming off its first losing week in three, the market is going into the final week of February with solid gains. The Dow and S&P 500 have already climbed more than 5% this month, the Nasdaq advanced 6.2% and the small-cap Russell 2000 outperformed with a gain of 9.3%. Some fears of rapidly rising bond yields are still settling in as U.S. stock index futures point to another weak open for today's session: Dow -0.7%; S&P 500 -1.1%; Nasdaq -1.5%.

Bigger picture: The 10-year Treasury yield jumped 14 basis points last week to 1.34%, close to its highest level since February 2020. It even touched 1.37% overnight, meaning the benchmark rate has moved up 28 basis points so far this month. That could hurt high-growth companies dependent on easy borrowing, while lessening the relative appeal of stocks. However, many on Wall Street still believe the jump in bond yields reflects a sign of growing confidence in the economic recovery and equities should be able to absorb higher rates due to strong earnings.

Quote: "We do not see the recent increase in yields as a threat to the bull market," said Keith Lerner, chief market strategist at Truist. "Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities."

Investors this week will also monitor the latest developments out of Washington, with House Democrats hoping to finalize a $1.9T stimulus package. A pickup in inflation could eventually prompt the Fed to raise short-term interest rates, though most traders don't see that happening in the near term. Also keep an eye on Jerome Powell, who is expected to reiterate a commitment to super-easy monetary policy in his semi-annual testimony before Congress this week.

Cryptocurrency - The Tesla-Bitcoin connection

Tesla (TSLA) is "on a trajectory to make more from its Bitcoin (BTC-USD) investments than profits from selling its EVs cars in all of 2020." That's according to Wedbush's Dan Ives, which gave the estimate in a research note on Saturday. While he didn't lay out the numbers, Bitcoin has climbed about 65% since Jan. 31, which would put the profit on Tesla's $1.5B bitcoin investment at around $975M.

Quote: "We still expect less than 5% of public companies will head down this route until more regulatory goal posts are put in place around the crypto market," continued Ives. "While the Bitcoin investment is a side show for Tesla, it's clearly been a good initial investment and a trend we expect could have a ripple impact for other public companies over the next 12 to 18 months."

Response: Bitcoin's market cap even hit $1T on Friday as it continued to rally into record territory. The blastoff caught the attention of Tesla's Elon Musk once again, who said "BTC & ETH do seem high lol," though it came with a tweet that said "money is just data that allows us to avoid the inconvenience of barter." In the past, Musk has suggested that "Bitcoin is almost as bs as fiat money." The key word is "almost," he added, saying, "when fiat currency has negative real interest, only a fool wouldn't look elsewhere."

After surging to a record $58,354 on Sunday, Bitcoin fell as much as 6% to below $55,000 overnight following the comments from Musk. Rival cryptocurrency Ether (ETH-USD) is meanwhile off 7% to $1,798. Disclaimer: Musk's remarks in the past that Tesla's share price was "too high" were followed by similar pullbacks, before the stock skyrocketed to new records. Will it happen again?

Aviation - Engine failure over Denver

A United Airlines (NASDAQ:UAL) Boeing (NYSE:BA) 777-200 bound for Honolulu suffered an engine failure shortly after takeoff from Denver on Saturday, scattering debris across several neighborhoods. Images shared on social media showed the extent of the failure, including an engine cover (called a cowling) in front of a residential house, though the plane was able to safely return and land in Denver. There were reports of property damage, but no one was injured, including the 241 passengers and crew members onboard the flight.

What happened? A preliminary examination by the National Transportation Safety Board showed that two fan blades in one of the United aircraft's engines were fractured - one nearly entirely and the other about half-broken - while the remaining fan blades displayed signs of damage. Such engine failures, in which internal parts shatter the engine’s protective casing, can badly damage planes because debris can hit wings, fuel tanks and the fuselage.

Following the incident, Boeing told airlines to stop flying its 777 aircraft equipped with Pratt & Whitney's (NYSE:RTX) PW4000 engine, while the FAA ordered immediate inspections of those jets. Regulators in Japan have also told local carriers to stop flying aircraft with the same engine type until further notice. United is the only U.S. operator of the planes, and the only other airlines using them are in Japan and South Korea.

Go deeper: It's the third failure involving the model in recent years. A Japan Airlines (OTCPK:JAPSY) flight on a 777-200 had an engine failure on a flight to Tokyo in December, while a different Boeing 777 operated by United had an engine failure on its way to Hawaii in February 2018. Following the events, authorities in Japan and the FAA issued directives requiring more regular inspections of planes and fan blades involving the PW4000 engine type. The affected 777-200s and 777-300s are also older and less fuel-efficient than newer models, and most operators are phasing them out of their fleets.

Economy - Revising PPP rules

The Treasury Department under the Biden administration is making targeted changes to the Paycheck Protection Program. For two weeks starting on Wednesday, the Small Business Administration will only accept applications for forgivable PPP loans from firms with fewer than 20 employees in an attempt to direct more funding toward smaller, minority-owned firms. The program will also set aside $1B for businesses without employees in low- and moderate-income areas, but that are 70% owned by women and people of color.

Other terms: The SBA will provide new guidance making it clear that U.S. residents who are not citizens, such as green card holders, cannot be excluded from the program. It will also eliminate exclusions that prohibit a business owner who is delinquent on student loans from participating. Other planned changes include allowing broader access to the program for applicants with non-fraud felony convictions.

While the PPP resulted in a drop in the unemployment rate last summer, its limitations became clear when many recipients conducted mass layoffs as soon as their loans expired. Some controversy also ensued surrounding the program's broad eligibility criteria, which allowed publicly traded companies, fast-food chains and some small wealthy businesses to benefit from funding. The Biden administration has not said whether it will seek to extend the program after the current tranche of funding expires on March 31.

Statistics: The loan program approved a total of 5.3M loans worth about $521B over the course of 2020, of which 1.7M (or $151B) were forgiven. An additional 1.8M in PPP loans totaling $133.5B have been approved so far in 2021, according to data from the Small Business Administration. Most of them were "second-draw" loans granted to businesses that already received loans last year.

Covid - More real-world vaccine data

The latest figures from Israel's Ministry of Health shows that the coronavirus vaccine from Pfizer (PFE) and BioNTech (BNTX) is 98.9% effective at preventing death caused by COVID-19. It is also 99.2% protective against serious illness, reduces morbidity by 95.8% and decreases the chance of hospitalization by 98.9%. "The vaccine dramatically reduces serious illness and death and you can see this influence in our morbidity statistics," said Health Ministry Director-General Chezy Levy.

Backdrop: In early January, Israel struck a vaccines-for-data deal with Pfizer that promised to share vast troves of information with the drug giant in exchange for the continued flow of COVID-19 shots. "Israel will be a global model state," Prime Minister Benjamin Netanyahu said at the time. "Israel will share with Pfizer and with the entire world the statistical data that will help develop strategies for defeating the coronavirus." No funding was allotted for the agreement, while the country even paid a sizable premium for vaccine doses. Helping to demonstrate the impact of the vaccine on an entire population is Israel's highly digitized universal healthcare system, which requires everyone over the age of 18 to register with one of four HMOs.

So far, 4,250,643 Israelis (47%) have received at least one dose of Pfizer's vaccine, while 2,881,825 (32%) have received both shots out of a population of about 9M. The latest data from Israel's Ministry of Health represents citizens who have received both doses of the vaccine, 14 days after their second dose, versus people who have not received any inoculation. Around 3M Israelis (33%) are not currently eligible to be vaccinated, including those younger than 16 and people who have recovered from COVID-19.

Outlook: On Thursday, Israel also launched a COVID passport program that will enable those vaccinated or recovered from the coronavirus to take part in various cultural and public activities. The "green pass" will grant access to gyms, hotels, swimming pools and concerts, while restaurants and bars will be included from early March. Could a COVID vaccine passport be issued in the U.S.? "Anything is on the table," Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told Newsweek in January. Over the weekend, he also cautioned against complacency as coronavirus infections come down across the U.S., which just recorded a grim milestone of 500K COVID-related deaths.

 

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Wall Street Breakfast: Yellen Doubles Down

Author: bmotrader   |  Publish date: Fri, 19 Feb 2021, 9:56 AM


The stock market record highs seem to have fizzled in recent days, with the S&P 500 falling for a third straight day on Thursday. Fears of inflation may be at work amid concerns that if all the stimulus being pumped into the financial system works (i.e., people start spending, shopping etc.), that could begin pushing up prices. That may be risky for stock investors as money flows back into the rising yield bond market. In fact, a sizable selloff has been seen in the U.S. government bond market over the past six weeks, with yields on the 10-year Treasury note climbing from 1% in early January to 1.3% this week (yields move inversely to price).

Quote: "We think it's very important to have a big stimulus package [that] addresses the pain this has caused - 15M Americans behind on their rent, 24M adults and 12M children who don't have enough to eat, small businesses failing," Treasury Secretary Janet Yellen told CNBC. "I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run."

Asked whether the surge of federal spending could prompt a sustained rise in inflation, Yellen responded that it was a risk, but added that inflation has been very low for many years and the Fed could always mitigate that risk by raising rates. According to Speaker Nancy Pelosi, the House aims to pass its $1.9T coronavirus relief plan before the end of February to beat a deadline on extending key unemployment programs. U.S. stock index futures: Dow +0.2%; S&P 500 +0.3%; Nasdaq +0.4%.

Trending - Grilling on the Hill

Yesterday's GameStop (GME) hearing ran for over five hours, but it's only the first of three planned by the House Financial Services Committee. Future hearings will likely feature representatives from the SEC and the Financial Industry Regulatory Authority, according to Chairwoman Maxine Waters. The gathering on Thursday was billed as a fact-finding mission and featured all the big names caught up in the retail trading frenzy that occurred back in January. Here are some of the highlights:

Robinhood's Vlad Tenev - "Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us." The decision to restrict buying, but not selling of stocks and options was "not influenced by anyone outside the company." Robinhood (RBNHD) had to work with clearinghouses on capital requirement and eventually restricted buying in 13 stocks, and without those moves, users could have lost complete access to the market.

Melvin Capital's Gabe Plotkin - "I don't you think you’ll see stocks with the kind of short interest we saw prior to this year and data scientists will be watching message boards much more closely." He'd also abide by rules that would require disclosures of short positions.

Reddit's Steve Huffman - "A board like WallStreetBets wouldn't work without anonymity. Reddit's (REDDIT) user base is especially good at sniffing out stories that are not true and reiterates that it hasn't found any nefarious behavior."

Citadel's Kenneth Griffin - "With respect of 'payment for order flow,' we simply follow the rules of the road. If they change the rules... that's fine with us." The system has been an important source of innovation and drove the industry toward zero-dollar commissions, he added. "This has been a big win for American investors."

WSB's Roaring Kitty (a.k.a. Keith Gill) - "The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous. My posts did not cause the movement of billions of dollars into GameStop shares.” He also noted that that some people lost money and "my heart goes out to them." "For me personally, yes, I do find it's [GameStop] an attractive investment at this point."

Covid - Vaccine distribution a focus at G7 summit

French President Emmanuel Macron is urging Europe and the U.S. to allocate up to 5% of their current vaccine supplies to developing countries, saying failure to share vaccines fairly would entrench global inequality. He hopes the push could turn into some kind of international public policy, but it could be hard to convince populations to send their vaccines elsewhere. Britain also announced it will donate a majority of future surplus vaccines to poorer nations ahead of today's G7 summit, which will focus on speeding up a coordinated effort on global vaccination.

Macron's proposal was quickly rejected by the Biden administration, which said vaccinating Americans was its top priority and it wouldn't donate doses until there was enough supply. President Biden is still expected to announce today the U.S. will spend $4B on international COVID vaccination efforts, which was appropriated by Congress as part of the last coronavirus relief bill approved in December. Half of that sum would be distributed "almost immediately" to COVAX, while the rest would be doled out in stages through 2022.

What is COVAX? The program is part of a global scheme co-led by an international vaccine alliance called Gavi, the Coalition for Epidemic Preparedness Innovations, as well as the WHO. It was established to ensure equitable vaccine access for every country in the world, and aims to deliver 2B doses of safe, effective vaccines by the end of 2021. Only after each nation receives vaccine doses for 20% of its population would countries' COVID risk profiles be considered in a subsequent phase of vaccine distribution.

Returns of the vaccine makers: Shares of Pfizer (NYSE:PFE) have largely held in the $30-range over the past year, despite being the first to receive FDA emergency approval for its COVID jab. Many reasons have been given for the lack of movement, such as lower profitability versus prescription drugs and downward pressure on margins due to public interest in facilitating vaccine access. However, the opposite effect has occurred with partner BioNTech (NASDAQ:BNTX), which has seen its stock rise 275% since it first began work on a COVID shot in January 2020. The only other vaccine approved in the U.S. is from Moderna (NASDAQ:MRNA), which has seen its shares soar nearly 750% since it started working around-the-clock to develop a vaccine at the same time as BioNTech.

Regulation - Uber loses case on driver rights

Uber (NYSE:UBER) shares are off 3.5% in premarket trading after losing a key legal fight in the U.K. The country's Supreme Court upheld a ruling that its drivers should be classified as workers rather than independent contractors, entitling them to minimum wage, holiday and sick pay, as well as rest breaks. Britain is the Uber's biggest European market with about 40,000 drivers.

Bigger picture: The verdict concludes an almost five-year legal battle between the ride-hailing giant and a band of former drivers led by Yaseen Aslam and James Farrar. In 2016, an employment tribunal ruled in favor of the group, and since then, two other court decisions have gone against Uber. The case will now be sent back to the employment tribunal, which could order Uber to pay compensation to about 20 original claimants. Thousands of other drivers have also taken legal action, and the decision could be rapidly applied to them.

Uber faced a similar situation in California this past year. Regulators there attempted to reclassify drivers of Uber and other ride-hailing services like Lyft (NASDAQ:LYFT) as employees to grant them more protections. Voters ended up supporting a ballot measure called Proposition 22, which continued the status quo, after the companies said they would guarantee new protections to workers. Those included giving drivers 30 cents per mile driven to account for gas and other vehicle costs, healthcare subsidies for drivers who work 15 hours or more a week and occupational accident insurance coverage while on the job.

Outlook: While the U.K. ruling will only apply to Uber, British businesses may have to review some of their terms, as it could give other contractors the drive to pursue similar claims. "It's one of the biggest employment law decisions of my career," said Joe Aiston, lawyer at Taylor Wessing. "It's going to have a massive knock-on affect both to the gig economy and any business that engages independent contractors."

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