by tyler | Sep 8, 2023 | CNN, investing
Shares of Apple fell by 2.9% on Thursday following reports that China plans to expand a ban on the use of iPhones to government-backed agencies and companies.
Investors are fretting over the ability of the world’s most valuable public company to do business in the world’s second-largest economy.
Apple (AAPL) notched its largest daily fall in over a month on Wednesday. The company lost about $200 billion in two days, and its stock is currently the worst performer in the Dow Jones Industrial Average.
The bans could be an ominous sign for Apple.
China is the largest foreign market for the company’s products, and Chinese sales represented about a fifth of the company’s total revenue last year. Apple doesn’t disclose iPhone sales by country, but analysts at research firm TechInsights estimate that there were more iPhone sales in China than in the United States last quarter. Apple also produces the majority of its iPhones in Chinese factories.
Cupertino, California-based Apple also plays an important role in Beijing’s economy, wrote Brandon Nispel, an analyst at KeyBanc Capital, on Wednesday. Because of that, the company “has historically been viewed as relatively safe in China from government restrictions.” These reported bans present an important question, he wrote: “Is the government changing its stance?”
On Wednesday, the Wall Street Journal reported that China had banned the use of iPhones for central government officials and that managers had been notifying staff of the ban via chat groups or meetings.
On Thursday, Bloomberg reported that those bans had been extended to state-backed firms, including energy giant PetroChina, which employ millions of workers and control vast swaths of the Chinese economy.
Analysts at Bank of America wrote in a note Thursday that the potential iPhone ban comes on the heels of a new high-end flagship smartphone released by Chinese manufacturer Huawei. The timing, said analysts, is “interesting.”
The US government said Tuesday it was investigating the new smartphone. National Security Adviser Jake Sullivan said during a White House press briefing that the United States needs “more information about precisely its character and composition” to determine if parties bypassed American restrictions on semiconductor exports to create the new chip.
Tech companies fell on the news, the Nasdaq Composite dropped by about 0.9% on Thursday and the semiconductor sector fell by more than 2%.
CNN has reached out to Apple and to China’s Ministry of Foreign Affairs but has not received a response.
by tyler | Sep 5, 2023 | CNN, investing
A who’s who of Big Tech companies is set to invest in one of the most highly anticipated initial public offerings in recent memory, a blockbuster event that could value a British chip designer at as much as $52.3 billion.
Arm, which designs chips for 99% of the world’s smartphones, is aiming to price its shares between $47 and $51 each when they hit the US stock market later this month.
The firm’s Japanese owner SoftBank is hoping to raise as much as $4.9 billion when Arm starts trading on the Nasdaq, according to a Tuesday filing with the Securities and Exchange Commission. That could rise to $5.2 billion if the banks underwriting the IPO exercise an option to buy additional shares from SoftBank.
Many of the biggest names in global tech, including Apple (AAPL), Google (GOOGL), Nvidia (NVDA), AMD (AMD), TSMC (TSM), Samsung and Intel (INTC) have all indicated an interest in acting as cornerstone investors, and could buy shares worth up to $735 million collectively in the IPO.
The Cambridge-based firm develops microchips for phones and tablets and licenses them to CPU makers, including Apple and Samsung. The company was public until 2016, when Japan’s SoftBank bought it for $32 billion.
In 2020, SoftBank tried to offload Arm to Nvidia for $40 billion, in what would have been the biggest chip deal of all time. But it didn’t pass muster with global antitrust regulators, and was called off in February 2022.
Still, if the IPO values Arm at $52 billion, that would represent a retreat from the valuation of about $64 billion implied by SoftBank’s purchase of the remaining 25% stake in the company from its Vision Fund unit for approximately $16.1 billion just last month. Smartphone sales have been on the decline as hardware innovation slows down and customers hold onto their devices for longer stretches of time.
The company’s return to the public market is being closely watched as it promises to be the biggest US IPO since 2021.
It’s also expected to be the world’s largest IPO in about a year, since Porsche raised about $8.7 billion in a Frankfurt offering last September, according to data from Dealogic.
Arm made nearly $2.7 billion in revenue in the fiscal year ended March, according to its prospectus.
SoftBank will continue to own approximately 90% of Arm’s shares following the listing, according to the filing.
by tyler | Aug 26, 2023 | CNN, investing
Central bank officials from across the world have descended upon Jackson Hole, Wyoming, this week to discuss policy decisions that will shape the economy for years to come.
But as they talk about inflation and the economy in the abstract, residents of the popular vacation destination are very much feeling the realities of their policies. That’s because Jackson Hole is the most economically unequal place in the United States, according to the Economic Policy Institute.
What’s happening: The snow kissed peaks and verdant valleys of Jackson Hole, Wyoming — where Federal Reserve Chair Jerome Powell is due to give a highly anticipated speech on Friday — aren’t just awe-inspiring. They’re also symbolic.
Among the top 1% in Teton County (where Jackson Hole is located), the average annual income is a jaw-dropping $22.5 million. The median household income in Teton County in 2021, meanwhile, was about $94,000, according to the US Census Bureau.
The annual August symposium of global financial leaders and economic elites wouldn’t happen without the servers, cooks, drivers and hotel and event staff who make it function — the same people feeling the hard impact of elevated inflation, high interest rates and a softening economy the most.
“If you look at income, Jackson Hole is really a microcosm of the nation’s wealth inequalities laid out across these dramatic landscapes of the Mountain West,” said Kenan Fikri, director of research at The Economic Innovation Group, a bipartisan policy organization. “It’s a ground zero for understanding how inflation affects the budgets of lower-earning households when they’re already financially stressed.”
For the first time in Jackson Hole real estate history, the average price for a single-family home topped $5 million at the end of 2022, doubling from 2019, when the average price was $2.6 million, according to the Viehman Group’s semi-annual report. In the last quarter of 2022, the average rental rate for a home in Teton County was 13.3% higher than it was the year before, and the cost of living was 67% higher than the statewide average, according to an analysis by the Wyoming governor’s office.
When housing costs are that high, said Fikri, any percentage increase on essentials like gas and food badly hurt the local workforce and make it harder for them to stay in the area. But if they can’t stay, the local economy, based largely on tourism and service work, would cease to function.
“The workers and the consumers both need to hum along and be healthy,” said Fikri, “and inflation and higher interest rates complicate that.”
Two audiences: Over the past year, the Fed has been stuck between a rock and a hard place — main street is feeling the impact of inflation as consumers struggle to purchase increasingly pricey essential items like food, clothing and gas.
But Wall Street doesn’t take kindly to interest rate hikes, which can negatively impact earnings and stock prices. In 2022, when the Fed hiked rates by 4.25 percentage points, the S&P 500 fell by nearly 20%.
The extreme wealth disparity in Jackson Hole is a perfect example of that dichotomy.
“Teton County has more income derived from wealth than anywhere else in the United States,” said Fikri. In other words, Wall Street is well represented there.
So what does that mean for Powell as he shares his outlook for monetary policy on Friday? “It’s important for the chairman to recognize the destination behind him,” said Fikri. “It’s a county in which many of the inequalities that define the US economy are exaggerated and an extra dose of awareness and humility will be perceived well by Americans.”
Jackson Hole is a unique perch from which to regard the US economy, but you can’t just look at it from the view of the people with vacation homes, said Fikri. You have to look at it from the view of the people in the kitchens of the restaurants too.
August has been a bust, but overall the stock market has soared higher this year. That’s largely because of one stock without much name recognition beyond the gaming community. Chipmaker Nvidia (NVDA) is up more than 222% year-to-date, report my colleagues Allison Morrow and Krystal Hur.
On Thursday, shares briefly hit an all-time high following super impressive second quarter earnings.
Although it’s been known for graphics processors, Nvidia has now become almost synonymous with AI, after successfully diving headfirst into the production of the type of microchip that powers the promising technology. Demand has outpaced supply, making Nvidia the hottest of hot stocks: It’s leading the S&P 500 this year by a mile, and is now one of only a handful of companies with a market capitalization of more than $1 trillion.
Investor enthusiasm for AI has also helped boost other tech stocks, but Nvidia is by far the most sought-after AI stock. The American chipmaker produces the building blocks of generative artificial intelligence (think ChatGPT and the like).
The Santa Clara, California-based company posted year-over-year sales growth of 101% in the second quarter. Revenue went from $6.7 billion in the second quarter last year to $13.5 billion this year. The results were even stronger than the $11.2 billion in revenue that Wall Street analysts expected.
Buying a house is going to cost you: This is now the most unaffordable US housing market since 1984, reports my colleague Anna Bahney.
At today’s rates, buying a median-priced home would require a monthly principal and interest payment of $2,440 for those making a 20% down payment, according to Black Knight, a mortgage technology and data provider.
That’s $1,172 a month more in mortgage payments from just two years ago, before the Federal Reserve raised its benchmark lending rate 11 times in 18 months, Black Knight found. It’s a 92% increase — and is taking a growing chunk out of household budgets already facing inflation on many fronts.
Currently, 38.6% of the median household income is required to make the monthly payment on the average home purchase, making housing the least affordable it’s been since 1984, according to Black Knight.
“To put today’s affordability levels in perspective, it would take some combination of up to a 28% decline in home prices, a more than 4% reduction in 30-year mortgage rates, or up to a 60% growth in median household incomes to bring home affordability back to its 25-year average,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.
by tyler | Jun 30, 2023 | CNN, investing
Millions of Americans are about to get a rude awakening in their monthly budget: Federal student loan payments are back.
While the Supreme Court on Friday blocked Biden’s student loan forgiveness program, the pause on payments is separate and coming to an end as part of the debt ceiling deal.
Borrowers have had a break from their obligations for three years due to the pandemic. That has allowed them to use the money for rent, car payments, paying down other debt, building up savings or spending it.
But starting in September, interest begins accruing again on outstanding balances. And on October 1, minimum payments resume.
That means 44 million Americans will have to fork out a monthly payment averaging from $210 to $314, according to Wells Fargo.
The payment pause began in March 2020, a response to the Covid pandemic from then-President Donald Trump, and was extended under President Joe Biden.
“Loan payments covering 44 million students will have to resume — obviously a headwind, taking approximately $70 billion annually out of the economy,” said Greg Valliere, chief US policy strategist at AGF Investments.
The return of monthly loan payments is “potentially a negative for discretionary spending,” he wrote in a note to clients, adding that it’s a potential storm cloud on the horizon in an economy that has been rolling along nicely, buoyed by solid post-pandemic consumer spending. In a surprise to many economy watchers, first-quarter US gross domestic product was a solid 2%, stronger than initial readings — with much of that fueled by consumer spending.
“The struggle will be real and unfamiliar after more than three years of not having to make payments,” wrote the economists at Wells Fargo. “We will likely see some slowing in spending growth toward the end of this year as a result of the resumed payments denting certain households’ ability to consume, but we do not think the end to the payment pause will be widespread enough to have a significant effect on overall US household spending.”
They argue most student loan balances are manageable, and say only people with very large balances will have to pull back on their spending.
“We view student loan debt as an increasing burden for US households, but the data demonstrate that large balances (and thus payments) are concentrated among a relatively small number of households.”
They note that in the first quarter, more than half of all borrowers had loans of $20,000 or less. About 7% of borrowers — about three million people — have balances of $100,000 or more. Those households will likely have to pull back on their spending.
by tyler | Jun 29, 2023 | CNN, investing
Federal prosecutors arrested three investors on Thursday on insider trading charges related to a deal to take former President Donald Trump’s media business public.
According to the indictment, the three individuals together made more than $22 million in October 2021 by illegally trading on nonpublic knowledge of Digital World Acquisition Corporation’s secret plan to buy Truth Social owner Trump Media & Technology Group.
The defendants allegedly tipped off friends and colleagues, who also purchased securities in Digital World before the blank-check firm’s Trump Media deal became public.
Once the deal was announced, the value of those securities spiked. The defendants and individuals they tipped off then sold their securities for a significant profit, according to prosecutors.
The three men charged in the indictment are Michael Shvartsman, Gerald Shvartsman and Bruce Garelick, who served as a director on Digital World’s board of directors. All three have surrendered to authorities and are expected to appear in federal court in Miami later Thursday, a law enforcement official said.
The Securities and Exchange Commission also filed civil insider trading charges against the three investors.
There is no allegation that Donald Trump had any involvement at all in the alleged insider trading. Trump Media did not respond to a request for comment.
However, the new charges add to the controversy surrounding the Trump deal, which has raised eyebrows from legal experts and drawn scrutiny from regulators and prosecutors.
Nearly two years after being announced, the merger has yet to be completed and last month the Nasdaq stock exchange threatened to delist Digital World because it hadn’t filed its quarterly report.
The indictment says that the defendants passed on Digital World’s confidential information to friends on a trip to Las Vegas, to Michael Shvartsman’s neighbors and to Gerald Shvartsman’s employees at a furniture supply store. Altogether, those contacts purchased tens of thousands of securities ahead of the merger announcement.
According to the indictment, the three defendants were invited to invest in Digital World as well as another special purpose acquisition company, or SPAC.
After signing non-disclosure agreements, prosecutors say they were provided confidential information that Trump Media was a potential target of the SPACs.
Garelick was given a seat on Digital World’s board of directors, giving him further insight into the SPAC’s confidential merger plans with Trump Media.
Prosecutors say Garelick provided to his co-conspirators what he described as “intelligence” about the Trump merger negotiations and the timing of a public merger announcement.
In violation of the non-disclosure agreements they signed, the defendants bought millions of dollars of Digital World securities on the open market and shared the inside information with other associates who also purchased securities before the merger was made public before the Trump Media merger news was made public, according to the indictment.
Digital World shares skyrocketed following the Trump Media merger news as investors saw it as a way to bet on the fortunes of the former president.
“Rather than adhere to his duty as an insider, we allege that Garelick, together with the Shvartsmans, monetized that information to generate over $20 million in illicit profits,” Gurbir Grewal, director of the SEC’s division of enforcement, said in a statement. “This case demonstrates the [SEC’s] ongoing commitment to exposing insider trading wherever it occurs, including in SPAC mergers.”
by tyler | Jun 27, 2023 | CNN, investing
We’ve all heard Wall Street bigwigs compare the looming recession to gathering storm clouds, hurricanes, and heavy fog. But what happens when those weather events are no longer just analogies?
This month, extreme heatwaves in Texas and other southern states, toxic air caused by wildfires in the north and extreme storms along the eastern seaboard have caused more strife in an economy already on the brink of dropping into reverse gear.
“It hurts the economy, and it certainly doesn’t provide that stability that would allow us to avoid something like slipping into a recession,” said Justin Mankin, a professor of geography at Dartmouth College who focuses on the risks global warming poses to ecosystems and people.
What’s happening: Over 90 million people, mostly along the east coast, were under threat on Monday as the system that produced nearly 400 storm reports on Sunday moved eastward. Another 40 million people in seven southern states fell under heat wave warnings on Monday, as the brutal ongoing heatwave in Texas fans out.
All told, at least a third of the US population is currently grappling with costly extreme weather events.
That’s on top of the nine confirmed US weather and climate disaster events so far this year each with losses exceeding $1 billion (many more will likely be confirmed in the coming weeks), according to the National Oceanic and Atmospheric Administration (NOAA).
Those nine events alone have totaled about $23.7 billion in damages to the US economy, researchers found, and some analysts say that vastly underestimates the long-term impact.
In 2022, extreme weather events cost the United States about $165 billion, according to the NOAA.
Just how costly these events will end up being is still largely unknown.
“The nature of these extremes is that they propagate through our economies in ways that we don’t totally understand,” explained Mankin.
“We know enough to say that they’re very harmful but in terms of their actual costs, and for how long those costs accumulate, that’s something that we in the research community are just getting a handle on.”
Heat waves in particular, he said, typically deliver a shock to the economy.
Texas already loses about $30 billion a year in productivity due to its hot climate, according to an NOAA report. They project that number will jump to about $110 billion a year by 2050 — 2.5% of Texas’ economy.
Sector by sector: Extreme weather impacts the economy writ large, but certain sectors tend to suffer more than others.
Take airlines, for instance.
More than 5,000 flights across the United States were delayed or canceled Monday as powerful storms ripped through parts of the country. Flight delays often result in huge economic losses; the Federal Aviation Administration (FAA) estimated the cost of airline backups to be about $33 billion in 2019.
This spring, Southwest Airlines cited extreme weather as a growing concern for airlines after December storm disruptions cost the company nearly $1.2 billion.
“Whether it’s for hurricanes or winter weather or rain, thunderstorms, we now need to have a planning process that includes outcomes that are beyond what we’ve seen before. That’s a big takeaway for us,” said Southwest COO Andrew Watterson.
Agriculture, construction, tourism and renewable energy sectors also tend to feel the brunt of extreme weather events.
The consumer cost: In Texas, power costs have increased by 100% in some instances as the record heat wave drives demand higher, adding considerably to household costs.
Flood insurance and home insurance have also become necessary but often unattainable. Experts fear the cost of insurance will only get worse as climate change intensifies both hurricanes and extreme rain events.
Major insurance companies have already virtually pulled out of the Florida market, leaving homeowners paying premiums nearly four times higher than those paid elsewhere in the country. Hurricane risk is part of Florida’s problem — Hurricane Ian last year was the most expensive storm ever to hit the state.
“We’re really poorly adapted to the extreme weather and climate that we have right now,” said Mankin. “And that also goes for our economy.”
Russia’s economy is much smaller than America’s and China’s, but it plays an outsized role in shaping the world economy, according to my colleague Mark Thompson.
That’s because it’s still one of the biggest suppliers of energy to global markets — including China and India.
Analysts at Rystad Energy said bouts of geopolitical uncertainty in major oil-producing nations over the past 35 years — ranging from civil unrest to coup attempts, armed conflicts and changes of governments — had on average added 8% to the price of oil in the five days after the triggering event.
That uncertainty was there as disaffected Russian mercenaries marched toward Moscow this weekend, drawing a stark warning from President Vladimir Putin that the country was on the brink of a 1917-style “civil war.”
The armed insurrection has been defused — for now — but the most serious challenge to Putin’s authority in 23 years could still usher in a period of turmoil and change.
Any meaningful loss of Russian energy would force China and India to compete with Western nations for supplies from other producers. If political chaos restricts exports of other commodities, such as grains or fertilizer, that could also send supply and demand out of whack. And that could push up prices for everyone.
Oil and natural gas prices climbed Monday, while wheat prices briefly spiked higher, as investors reacted to the chaotic insurrection. US crude oil futures briefly climbed 1.3%, before trading up 0.6% on Monday evening. Brent crude, the international benchmark, gained 0.6%. Both contracts lost nearly 4% last week.
Stories of mass layoffs around the US may be dominating news cycles, but US workers feel good about the job market. Consumers are not worried about becoming unemployed anytime soon, according to a new Federal Reserve Bank of New York survey.
The Fed’s May survey of households, called the Survey of Consumer Expectations, found that workers in the US thought there was less than an 11% chance they’d lose their jobs in the next year. That’s down from 12.2% the month prior and the lowest rate since April of 2022.
The number of US consumers who believe unemployment will be higher a year from now also dropped this month.
