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Your Quiver | Wednesday, May 10, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Better Than Feared

The CPI figure was just shy of expectations (4.9% versus 5.0%). Next month, the print will be released roughly a day ahead of the Fed’s meeting/decision and updated dot plot. So, US markets are up. Treasury yields and the USD dropped (so Treasuries are up). Oil is firm. Gold gained. As we pointed out in the past week, companies outside of Tesla and a few others are keeping prices high, even if volume gets hit. So, we caution against the pause-then-pivot 50bps view, as until we see inflation come down more. There could be a pause, but a pivot to reducing rates takes a lot more.

Exactly As Expected

Biden and McCarthy met yesterday, and nothing happened to move forward debt ceiling talks constructively. The cost of insuring US debt against default is now more expensive than that of some emerging markets and junk-rated nations, per NOSO. To point, it’s more expensive to insure Treasuries than the bonds of Greece, Mexico, and Brazil—all of which have defaulted more than once and have ratings below ours.

Short Seller Review

The FDIC and the Treasury are looking into the impact of short sales on the banking industry, after the KBW Regional Banking Index fell by -30% and made some firms profits.

International Markets

Asian equities are down overnight. China fell. The reopening momentum has stalled, and domestic demand needs a shot in the arm. Plus, Beijing warns against new EU sanctions on the country for helping Russia. Japan was down too after reaching a 16-month high. Europe is down. Central bank execs are giving hawkish talks about raising rates to fight inflation.

A Big Deal

Xi is cracking down on perceived threats to national security and did a live broadcast of a takedown of a an expert network company called Capvision Pro. He’s going after research firms and consultants, which are often used by Hedge Funds. Similar companies are thinking about shutting down so that they and their employees are not detained. If you’re looking to increase foreign investments, this is a head-scratcher. Remember, Beijing just ordered a Canadian diplomat to leave the country.

Call An Uber

Has a different meaning in the UK, as the company launched the option to book flights. It’s a trial as the company looks to become a travel super app. They’ve already launched train tickets, so their new partnership with Hopper to sell flights is the next step. You know someone’s kid is going to book a flight. Just waiting for that story to hit the news.

TikTok Expansion Delayed

They were going to launch a shopping platform in the US but halted that initiative given geopolitical backlash that could lead to a ban and/or slow adoption from merchants worried about joining.

The Board Can Waste Money

That’s the ruling in the shareholder lawsuit against Block and Jack Dorsey regarding the $306mm acquisition of Tidal. The judge basically said they were authorized to make bad decisions and warned shareholders that Jack still runs the company. The skinny that came out from the lawsuit was a sad but realistic look at how some acquisitions are done. Little due diligence. Summering in the Hamptons for deal inspiration. Company with terrible financials, losing major contracts and facing a criminal investigation. A personal loan of $50mm. Only 1 Board Member (Dorsey) in support of the acquisition. But the committee approved the transaction.

4-Day School Week

To save money and keep teachers, the trend in rural areas is moving to larger areas like Houston, Kansas City, Phoenix. It could be $5-9k more per family to pay for childcare, and it lowers test scores and academic achievement (unless they expend the school day on the open days, which is not the norm). Sounds like we have to pay teachers more.