This Week’s Topics
Trump IPOs a New Stock (NYSE: DJT) to Raise Capital for his Bail Bond
Frosty Start to 2024: Venture Funding Landscape Chilled by Economic Uncertainty
Intel's Foundry Disclosure Unveils Challenges and Opportunities in Semiconductor Manufacturing
Microsoft Separates Teams Globally, Addressing Antitrust Concerns
Grocery Store Prices After Years of Inflation
Grocery store prices in February are 1% higher than they were a year prior, in February 2023 they were up 10.2% from the year before, and they were also higher in February of 2019. Prices have been stair stepping higher each and every year for the last five years (2019-2024). Over these years inflation has risen at astronomical levels, this has seriously increased the costs of labor, transportation, and raw materials for food manufacturers. Hence, they have had to raise prices rather significantly. Since 2019, prices have risen more than 50% for some products. Many companies have also started reducing the size of their products in a process colloquially known as “shrinkflation”, this too is a result of increasing costs from inflation. The following graphs are found in Stephanie Stamm’s Wall Street Journal article, “How Far $100 Goes at the Grocery Store After Five Years of Food Inflation”:
Stephanie Stamm of the Wall Street Journal wrote, “The price of food and household staples continues to weigh heavier on consumers’ minds than other economic concerns, although survey data indicate that those fears are ebbing. Some food-company executives have said that shoppers will adjust over time to higher prices, as they have in the past.”
Source: Stephanie Stamm, WSJ
March Jobs Data Blows Analyst Expectations Out of the Water
“Eye-popping” and “leaves us borderline speechless” is how some Wall Street economists described the March Jobs report data. The report showed a 303,000 increase in new jobs, the largest single month gain in about a year. Wall Street economists had predicted a 200,000 increase. The majority of the new jobs were in government, construction, and healthcare. The unemployment percentage fell to 3.8% from February’s 3.9%, it has now stayed before 4% for over two years, the longest stretch since the 1960s. In addition to this, wages grew in March, moving up to 0.3% from February’s 0.2%.
The numbers completely took analysts by surprise and has caused them to reevaluate where their current predictions regarding the economy are at. According to Jeffry Bartash of MarketWatch, “It’s been an article of faith among most economists that hiring would slow and the unemployment rate would rise in response to higher interest rates.” This isn’t what happened however, and here is how many on Wall Street responded. “It is fair to say that pretty much everywhere you look in this report, the numbers point to a labor market that is robust and not showing signs of cracking any time soon,” said chief economist Stephen Stanley at Santander Capital Markets. “At a minimum, the data is completely inconsistent with a slowdown in the middle of this year, so any kind of recession call needs to be pushed out further into the future,” Joe Brusuelas, chief economist at RSM said, “The March jobs report showed just how healthy the American labor market is, despite isolated criticisms, It is dynamic, resilient and growing.”
Even with the strong data, some economists still have a bearish outlook on the economy, Jeffry Bartash wrote, “Other economists stuck to their guns, however, and predicted the labor market and broader economy would slow later in the year. Why? The strong employment data could force the Fed to keep interest rates higher for longer, eventually depressing economic growth — and hiring. For now, it’s a hard case to make.” As he said, “it’s a hard case to make.”
Source: Jeffry Bartash, MarketWatch
Apple Shifts Gear: From Electric Cars to Home Robots
Apple, renowned for its groundbreaking initiatives, has shifted its focus from electric vehicles to personal home robots, as reported by Bloomberg. This transition follows the closure of its electric car project, signaling Apple's persistent exploration of fresh product markets. Engineers are now immersed in developing a home robot capable of accompanying users throughout their residences, alongside a tabletop device employing robotics to adjust a display screen. This move underscores Apple's dedication to integrating state-of-the-art technology into consumers' daily lives, mirroring its past triumphs with products like the Apple Watch and Vision Pro virtual reality headset.
The pivot to personal robotics represents a strategic maneuver by Apple, in line with its ongoing endeavors to broaden its hardware offerings and delve deeper into artificial intelligence and machine learning. While specifics remain elusive, Bloomberg indicates that Apple's hardware engineering division and AI teams are driving the research and development of these home robots. Despite being in growing stages, this initiative underscores Apple's ambition to innovate beyond its conventional product lines and craft seamless, intuitive experiences for users within their households.
Apple's entry into personal robotics follows a trend among tech giants, with Amazon debuting its home robot, the Astro, in 2021. Nonetheless, Apple's approach appears distinctive, prioritizing mobility and interactive functionalities to augment users' daily routines. As the tech landscape continues to evolve, Apple's venture into personal home robots underscores its enduring commitment to pushing the boundaries of innovation and delivering compelling products that resonate with consumers.
Trump IPOs a New Stock (NYSE: DJT) to Raise Capital for his Bail Bond
Donald Trump has been making headlines recently with needing to post a bail bond. More recently he just created a new stock listing under his initials as ticker DJT. Trump was accused of fraudulent real estate dealings, by not providing correct statements to the banks and borrowers. In the process, the banks and lenders said they were not hurt financially and the loans were paid off. Nonetheless, Trump found himself in the crosshairs of legal scrutiny with New York Attorney General Letitia James seeking a staggering bail amount of $454 million for the fraud. This move was aimed at crippling Trump financially before his presidential campaign and has set the stage for a high-stakes drama within politics, finance, and media. Trump’s lawyers went through the bond finding several double and triple accounts of the same offense. After going through the offenses and negotiations they got the bond lowered to a more reasonable $175 Million. However, this still led Trump to need cash to cover bail in cash, not wanting to sell his hard assets in real estate; he created an IPO (DJT) on March 26th for his social media platform Truth Social.
To secure funds for his bail and potentially his presidential campaign in November Trump created DJT through a Special Purpose Acquisition Company (SPAC). Truth Social is the heart of DJT or what the name it is listed as “Trump Media and Technology Group Corp.” Truth Social is a social media platform created by Trump after his ban from Twitter. Trump wanted to have his views heard by Americans but with mainstream media like Twitter banning Trump he could not speak freely, so he created his own social media platform where he and his colleagues are the board members and the moderators. The platform promotes free speech, particularly for right-wing ideologies and Trump loyalists.
Truth Social raised significant attention as a haven for MAGA enthusiasts after its creation in 2022. If you aren't a Make America Great Again, die-hard Republican, or right-wing influencer you may have not heard of Truth Social. With a reported user base of 5 million and 1 million monthly users, they are predominantly Trump supporters and serve as a megaphone for Trump's unfiltered narratives and rants. He is totally unmoderated as he is the owner of the social media platform and the board is full of his supporters.
When The IPO of DJT occurred in March it rose 16% the day after the IPO reaching levels of $74.66 which catapulted its valuation to astronomical heights, with a market capitalization of $12.4 billion. Since then it has plummeted to a $6.67 billion market cap after its stock price dropped nearly 50% from its post-IPO peak. On Friday, April 5th DJT closed at $40.59 per share. The steep rise initially was likely to be led by a large support from meme investors and MAGA supporters off of Truth Social, and Reddit but has slowly lost support due to its incredibly unreasonable stock valuation.
● DJT Stock Price and Chart — NASDAQ:DJT — TradingView
Trump claims that Truth Social has $200 million in cash and zero debt, however, SEC filings before the IPO reveal a less sanguine picture: the company only made $4.61 million in revenue last year in 2023 off the 5 million users and has large amount of debt equalling $44.51
million bringing it to have a net loss of $40 million as of September 2023. Now with a $6.67 Billion dollar market cap DJT has a price-to-book ratio of -109.6X and a price-to-sales ratio of 1,368X, DJT defies conventional valuation metrics, and is the most overvalued stock on the market right now, raising red flags for prudent investors. The executives of Truth Social believed that the stock would be valued at $1.6 billion in 2026 and reach $400 Million in revenue. At this time even those numbers seem to be a long shot with only $4.61 Million in revenue last year and with the growth rate this stock shouldn't be worth even $1.6 Billion and would need a miracle to get there.
The exorbitant valuation of DJT gives it a status as a meme stock, with fervent support from right-wing influencers and MAGA supporters. However, beneath the enthusiasm lies a company struggling to translate its user base into sustainable revenue streams. Trump owns 40% of DJT's shares which adds another layer of complexity, as he seeks to leverage his stake to fund his bail obligations. Remember the reason this IPO was created was to raise money for his bail. He is looking to squeeze what he can out of this stock, however, every IPO has a six-month lock-up period to prevent insiders from immediately selling their shares. In the meantime, Trump has been trying to reduce this time and find other ways of leveraging his shares. If he can't get any capital out before the 6 month lock-up period expires we can expect he will sell out of his shares when the time comes.
As investors wonder whether to invest in DJT, caution should prevail. The fundamental analysis of the valuation is too overvalued to make sense. The price still holds due to the support of his supporters, with this and the high valuation and uncertainty this stock shows considerably
high volatility. It should be noted that Trump has taken a company under this ticker before and it went bankrupt, and the the main reason this IPO happened was to raise more for a needed bail bond so another bankruptcy could occur in attempts to scrap for cash. Once Trump can withdraw his shares he will likely sell and cover his bail, which will tank the stock if he sells the 40% of the total shares he owns. This stock should not be bought if you are looking for a gain, I would say short it however there is a lot of shorting pressure with a marginal interest rate above 600% for shorting which is extremely expensive. In the end, it is always best to do your own research but, it is best to stay away from this stock.
Revolutionizing Retirement for the Betterment of the Economy: Insights from Larry Fink’s Letter to Investors
Every year Larry Fink, the CEO of BlackRock, has delivered a letter to the millions of investors with BlackRock. BlackRock houses more than 10 trillion assets under management mostly retirement funds and is the largest asset manager in the world. The main topic of this year was the intricacies of retirement planning and its profound impact on global economies. Fink's letter not only highlighted the evolving nature of finance but also the imperative need for redefining retirement strategies to ensure economic sustainability and individual financial security. Here's our summary of his key insights and how they propose a roadmap for a better retirement system:
Fink emphasized the perpetual evolution of financial instruments, citing past failures and adaptations like B&Ls to S&Ls which morphed into mortgage securitization, which led to the 2008 housing crisis. Despite such setbacks, the U.S. capital markets were always what brought the U.S. economy out of the rut, allowing the economy to rebound swiftly. Countries outside of the U.S. have fantasized and have looked to imitate the way we structure our economy. It comes down to structure, but arguably more important, the emotions investing comes with.
Capital markets have brought the U.S. out of these financial ruts and have stimulated the economy. Investors tend to look for investments rather than buying gold like India or putting money under a mattress, they see the potential in the downturns. India tends to rather invest in gold while their stock exchange has outperformed the price of gold. As Americans, we finance a house, along with buying furniture, heating, insurance, and landscaping. All of these activities flow money into the economy rather than having the money sit in a safe. Capitalism lifts poverty. Americans historically have been hopeful of the economy and that is what drives the success of the capital markets more than the structure.
Time and time again, we are innovating and finding ways to solve problems and eventually, those solutions later become problems. Every once in a while board members, the government, and CEOs will get together and discuss these problems and find the best way to solve them. They did it in 2008 after the housing crisis and again recently talked about the semiconductor supply chain. Larry Fink believes they need to meet to discuss the lagging problem of retirement, especially with the younger generation, to create a better structure and put hope back into the economy.
With people living longer lives, retirement planning becomes increasingly complex. Fink highlighted that while efforts focus on extending lifespans, insufficient attention is paid to ensuring financial preparedness for those extra years in retirement. Aging populations pose economic challenges globally, demanding innovative solutions to sustain retirement systems. We all want to retire someday working as little as possible and stay retired until we pass but that is a very hard math problem to solve with too many variables and unforeseeable events.
Bernie Sanders spoke recently about implementing a 32-hour work week instead of the normal 40-hour work week. This would be great to have but the data is not there to support this. Larry Fink put out the data that not even half of Americans aged 55 to 65 have a “single dollar saved in personal retirement accounts. Nothing in a pension. Zero in an IRA or 401(k).” This should be alarming and the younger generation is not doing this as well in an act of fear and uncertainty of where the money will be in 40 years. Lary calls that we should extend the retirement age past 65. We can give incentives to those working past 65. The Netherlands created a system 10 years ago to combat this problem by increasing the retirement age when life expectancy increases. This may offer a solution giving more time for working individuals to invest and save for retirement and have enough last in retirement.
In Fink’s words, “Retirement is a much harder proposition than it was 30 years ago. And it’ll be a much harder proposition 30 years from now.'' Right now there are three common ways of receiving retirement: personal investment, employer savings plans, and social security. Social security is a mixed bag. It worked well before the 2000s but with modern medicine allowing Americans to live longer, it has not been substantial to live on and lost its purpose. Today if you and your spouse are in retirement there is a 50/50 chance that one of you will receive the benefits which are not livable alone for today's cost of living. This form should be dead by now but the other two have potential and emotions of hope for a better future retirement system.
Before there were pension plans, they were easy to understand to the employee who would get a set paycheck in retirement. Slowly we have transitioned into contribution plans and the responsibility falls more on the employee and less of a liability on the employer's balance sheet. The contribution plans have not worked out as they should have. Americans don't know how to navigate the math equation of how much they should spend each year without spending all they have before death. This has led to an emotion of fear leading us to see that on average 75 to 95-year-olds have only used 20% of their retirement on average. This led them to hold their investments rather than fund the economy and enjoy their retirement.
Something has to change and Fink addresses that the blame is on his generation (the older generation). “Young people have lost trust in older generations. The burden is on us to get it back. And maybe investing for their long-term goals, including retirement, isn’t such a bad place to begin.'' The baby boomers have put a financial burden on the younger generation like Gen Z and they are slowly starting to realize it. In the 1990s 60% of high schoolers believed that they could earn a college degree, work, and retire with more while earning more than their parents. Now especially after the pandemic, younger generations are less optimistic. 40% now say it is “hard to have hope for the world,” and 50% question if life has a purpose. This has led to a generation that is less enthusiastic to invest and doesn't believe or is optimistic about the future of America. “I’ve been working in finance for almost 50 years. I’ve seen a lot of numbers. But no single data point has ever concerned me more than this one" (Larry Fink).
Towards the end of the letter, Fink again demonstrates that he doesn't have all the answers but the data and the future of America hangs in the balance. There needs to be a serious discussion about this topic like the 2008 crisis and the semiconductor supply chain. He has proposed a new retirement system called “LifePath Paycheck.” Not much was talked about but it is set to release 500,000 employees this April and is said to be like a pension with a steady stream of income while combining the contribution aspect of a retirement plan. Fink has high hopes for this plan as he says that it will be a “revolution in retirement” to tackle the problem of not only saving for retirement but also spending.
Source: Larry Fink’s 2024 Annual Chairman’s Letter to Investors | BlackRock
Frosty Start to 2024: Venture Funding Landscape Chilled by Economic Uncertainty
In the ever-changing world of startup funding, the beginning of 2024 felt notably cooler compared to the intense excitement of previous years. Even with some AI startups achieving remarkable success, the overall venture funding scene appeared stagnant. PitchBook data showed a significant drop in the number of deals, both locally and globally, reminiscent of levels seen years ago. This decline in investment activity reflects the cautious approach of venture capitalists. Despite the revival of tech stocks and the appeal of generative AI, they seem reluctant to dive into the funding frenzy fully.
The story of why there's less funding lately is tied to economic uncertainty. People are worried about prices going up (inflation), so they're being careful with their money. This means investors are putting their money in safer places instead of risky tech companies. Even though some people think the government might lower interest rates to help the economy, nobody's sure what's going to happen with inflation. This uncertainty is making it hard for startups to get the money they need. Recent numbers show that there are fewer deals happening, and investors are being cautious. But there's a bit of good news, too: some companies are still going public, which gives hope that things might get better eventually.
Source: CNBC
Financial Sector Poised for Upswing
During Bloomberg Markets: The Close, Jay Woods, Chief Global Strategist at Freedom Capital Markets, expressed his bullish outlook on the financial sector, citing it as his “favorite sector going forward.” He emphasized the sector's potential for a turnaround, particularly in regional banks, which have faced challenges such as the Silicon Valley Bank Collapse last March and more recent concerns like the New York Community Bank scare. These difficulties have resulted in selloffs and depressed stock prices, but Woods sees them as opportunities for reversal and growth.
Additionally, Woods delved into a more technical analysis of the financial sector, highlighting its recent pattern of consistently forming higher lows. He noted the Keefe Bruyette & Woods Bank Index's breakout and its movement above the 200-day moving average. Woods characterized these trends as "great setups" as the market enters earnings season. He foresees a potential “12 to 15 percent upside in regionals”, making this sector an attractive option for investors seeking to capitalize on the remaining value in the market.
Source: CNBC
Key Inflation Data Aligns with Expectations
On Monday, the Dow Jones Industrial Average fell as investors responded to inflation data and comments made by Fed Chair Jerome Powell on Friday when markets were closed for Good Friday. Ed Carson, Investor’s Business Daily author, wrote, “The February PCE price index rose 0.3% vs. January… just below views for 0.4%. PCE inflation came in at 2.5% vs. a year earlier, in line and just above January's 2.4%. The core PCE price index, the Fed's top inflation gauge, advanced 0.3% vs. January as expected. Core PCE inflation came in at 2.8% vs. a year earlier, meeting estimates and down from January's upwardly revised 2.9%.”
The recently released data closely matched investors' and analysts' expectations, shedding light on the Federal Reserve's progress toward achieving its goal of two percent inflation. Keeping an eye on the core PCE price index is crucial because the Federal Reserve tends to prioritize core inflation, which excludes volatile food and energy prices, when making decisions. This data will inform the Federal Reserve's decision on whether to implement rate cuts in June. Following the release of the inflation data, the probability of a June rate cut by the Fed rose to nearly 69% early on Monday, up from around 64% on Thursday.
The rise in the likelihood of rate cuts is linked to Powell's comment regarding the PCE data being "more or less in line with what we want to see." If inflation data continues to align with the Fed's desired trajectory towards achieving two percent inflation, investors can anticipate the three rate cuts currently penciled in by the Fed. These would mark the first rate cuts since March 2020. The market has recently shown a positive response to these expectations, however, any delay in the anticipated rate cuts could serve as a catalyst for a market reversal.
Source: Investor’s Business Daily
Intel's Foundry Disclosure Unveils Challenges and Opportunities in Semiconductor Manufacturing
In recent financial disclosures, Intel disclosed insights into its semiconductor manufacturing division, sparking significant market attention. The company reported an operating loss of $7 billion for its foundry segment in 2023, up from the previous year's $5.2 billion loss, despite a decrease in sales from $27.5 billion to $18.9 billion. This marked the first time Intel provided a standalone revenue breakdown for its foundry operations, departing from its traditional reporting structure that merged chip design and manufacturing.
Under the leadership of CEO Patrick Gelsinger, Intel is pursuing a dual-strategy approach, emphasizing both in-house processor production and the expansion of an external foundry business catering to third-party chipmakers. The appeal of Intel's domestic semiconductor manufacturing capabilities was underscored by its recent securing of substantial funding under the CHIPS and Science Act, nearing the $20 billion mark. However, Intel anticipates continued losses for its foundry arm, peaking in 2024 before gradually moving towards break-even over the next decade.
A deeper examination of Intel's trajectory reveals a narrative shaped by historical decisions and a delayed embrace of critical technologies like EUV (extreme ultraviolet light), which are essential for producing advanced chips. In the CNBC article “Intel shares fall after company reveals $7 billion operating loss in foundry business,” Kif Leswing quotes Intel CEO Pat Gelsinger saying, “Intel Foundry is going to drive considerable earnings growth for Intel over time. 2024 is the trough for foundry operating losses,” As Gelsinger advocates for the potential of Intel Foundry to drive long-term earnings growth, the narrative underscores the company's concerted efforts to navigate the complexities of semiconductor manufacturing while maintaining its position as a prominent player in the dynamic tech landscape.
Source: CNBC
Microsoft Separates Teams Globally, Addressing Antitrust Concerns
Microsoft has revealed its decision to sell its chat and video application, Teams, separately from its Office suite on a global scale. This move mirrors the company's action six months ago in Europe, where it unbundled the two products, aiming to circumvent potential antitrust penalties from the European Union. The decision stems from an inquiry launched by the European Commission following a complaint lodged by Slack, a competing workspace messaging app owned by Salesforce.
Teams, which had been integrated into Office 365 since 2017, surged in popularity during the pandemic, notably for its video conferencing features, which succeeded Skype for Business. However, competitors argued that bundling provided Microsoft with an unfair advantage. In response, Microsoft commenced separate sales of Teams and Office within the European Economic Area and Switzerland last year, aligning with feedback from the European Commission and granting multinational corporations enhanced purchasing flexibility across diverse regions.
In a recent announcement, Microsoft set forth its strategy to introduce novel commercial Microsoft 365 and Office 365 packages, excluding Teams outside the European Economic Area and Switzerland. Moreover, the company will present a standalone Teams option for Enterprise clientele in these locales, effective April 1. Customers can opt to retain current licensing agreements, renew, update, or transition to the new offerings. Office sans Teams will be priced between $7.75 and $54.75 for new commercial customers, while standalone Teams will cost $5.25, with actual prices subject to country-specific variations. Nonetheless, Microsoft faces potential antitrust allegations from the European Union, with rivals questioning fees and compatibility of their messaging services with Microsoft's Office Web Applications. Microsoft could encounter fines of up to 10% of its global annual revenue if deemed guilty of antitrust violations.
Source: CNBC