Check out original Seeking Alpha show The Weekend Bite! We are joined by Samuel Smith (High Yield Investor) and William Huston (CIO, Bay Street Capital Holdings) to discuss investing in high-yielding dividend stocks, and why William is favoring the luxury real estate market in this environment.
Investors this morning will be looking at the Labor Department’s view of how much hiring took place in June and what it says about the temperature of the overall economy. FOMC policymakers will also be watching the data, with Fed Chair Jay Powell recently calling the labor market “unsustainably high.” By tapping the economic brakes with restrictive policy, Powell hopes inflationary pressures will subside, while reducing risks of a wage-price spiral that fueled double-digit inflation in the 1970/80s. According to consensus estimates, the NFP report (released at 8:30 a.m ET) is expected to reveal 268,000 new jobs for June, down from the 390,000 jobs added in May.
Bigger picture: The CPI report has dominated non-farm payrolls over much of the past year as inflation became a much more important theme for the economy. However, with recession fears clouding the outlook and the yield curve inverting this week, the jobs report is set to regain its prominence. As markets “increasingly focus on risks of a steeper growth slowdown, employment figures will likely be the most important activity data released each month,” wrote Citi economists Veronica Clark and Andrew Hollenhorst.
Other important items in the report will include the unemployment rate, which likely remained unchanged at 3.6%, and average hourly earnings, which are expected to gain 0.3%. Many are also hoping to get greater clarity following a mixed bag of recent employment data that saw 32,500 job cuts announced in June, up from 20,700 in the previous month. At the same time, businesses are scrambling for workers, with 11.3M job openings at the end of May, translating into 1.9 available jobs for every unemployed person.
Staying hawkish: “It’s very, very difficult to get a recession with so many job openings,” noted Jonathan Golub, chief U.S. equity strategist at Credit Suisse. “In reality, a recession, more than anything else, is a collapse in the labor market, a spike in the unemployment rate, and right now, we’re not seeing anything that looks like that at all.” That means the Fed is likely to tighten policy by another 75 basis points this month – barring a really bad NFP number – which could push it to lean towards a 50 bps hike instead.
Japan’s former prime minister, 67-year-old Shinzo Abe, has died after being shot at a campaign event in the city of Nara. Abe was at the political gathering to give his support for his former party, the Liberal Democratic Party, with upper house elections in Japan due to take place on Sunday. A 41-year-old man who lives in the Nara is in police custody following the assassination, and local media reports suggested he had disagreements with Abe’s policies and decided to attack him.
Snapshot: Abe remained a powerful figure in Japan despite stepping down from the prime minister post in 2020 for health reasons. Not only was he the longest-serving prime minister, in 2006 and then again from 2012 to 2020, but he comes from a political family with his grandfather serving as prime minister and father holding office as a senior politician. World leaders issued their condolences overnight, with U.S. Secretary of State Antony Blinken saying he was “deeply saddened” on the sidelines of G20 meetings in Bali.
Prior to his death, Abe wielded a lot of influence over the current administration, with the most recent example emerging following Russia’s invasion of Ukraine. Shortly after Abe came out and announced that Japan needs to increase its military spending, current Prime Minister Fumio Kishida began to echo those calls. Kishida has also been working with the U.S. and its allies to put pressure on Russia, building on Abe’s push to scrap Japan’s pacifist constitution that has been in place since WWII.
Abenomics: On the economic front, Abe was best known for his efforts to revive Japan’s economic growth through a range of hyper-easy monetary policy, fiscal spending and structural reforms. While the strategy aimed to boost productivity and lower the nation’s debt over the long term, economists have recorded mixed results for the world’s third-largest economy. Abenomics largely stayed in place after Abe stepped down and even after other central banks started raising interest rates this year to stem soaring inflation. (9 comments)
Twitter (TWTR) shares fell as much as 7% AH on Thursday, following a Washington Post report that said Elon Musk’s $44B deal to acquire the social network is in “serious jeopardy.” The deal is on the rocks due to Musk’s skepticism over the prevalence of spam accounts on the platform and he is expected to take “potentially drastic action” at this point in the process. Twitter has repeatedly said that bots represent less than 5% of its total user base, but the Tesla (TSLA) CEO has complained that the number is much higher.
Bigger picture: Musk’s team has even stopped engaging in certain discussions around funding the deal, including with one likely backer. The moves could potentially trigger a heated legal battle as Musk committed himself to buy the company at $54.20 per share (with the stock is now trading around $37). “It’s fairly obvious that Musk has buyer’s remorse and he is trying whatever to get a reduction in price, and I think he may succeed,” noted Dennis Dick, a prop trader at Bright Trading.
From a legal perspective, the only way Musk could abandon the deal is a refusal from the banks to provide financing or regulators block the transaction. Lawyers could be trying to link the bots issue to Musk’s ability to secure financing, allowing him to walk away by paying a $1B breakup fee. However, Twitter’s disclaimers used in its projections on spam accounts and a “specific performance” clause could give it protection against potential lawsuits, and Musk would have to prove that he was willfully misled (which is a high legal threshold).
Outlook: Twitter intends to enforce the merger pact on the agreed-upon terms, but could renegotiate if it sees a protracted legal battle, or maneuvering for Musk to wiggle out of a deal. If that were to happen, Twitter shares could sink further and make it an even more interesting case as Musk didn’t want to do any extensive due diligence when abruptly announcing the deal back in April. Twitter shareholders are not the only ones watching the show as Tesla investors also have an indirect financial interest in the outcome of the corporate drama. (169 comments)
Former Theranos (THERA) president Ramesh “Sunny” Balwani has been convicted of fraud, in connection with his role at the disgraced blood testing startup founded by his former girlfriend Elizabeth Holmes. He was found guilty on all 12 criminal charges, including counts against both patients and investors, compared to four counts of wire fraud in the verdict for Holmes. The two will be sentenced in the fall, though legal experts expect them to appeal their convictions, sentences, or both.
Backdrop: The two Silicon Valley execs claimed that Theranos had developed a device that could test a single drop of human blood for multiple diseases at once, but the product didn’t actually work, and “misleading results” were eventually run on conventional equipment. At its peak, Theranos was valued at over $9B, with Holmes and Balwani’s stake worth $4.5B and $500M, respectively. The scheme also bilked nearly $1B from funders like Oracle’s Larry Ellison, media mogul Rupert Murdoch and Walmart’s Walton family, before the investments were completely wiped out.
Following the collapse, a debate ensued over the due diligence of high-profile backers, as well as Silicon Valley’s “fake-it-until-you-make-it” culture. “I don’t think a verdict is going to change the way founders and VCs work in the ecosystem,” noted Angela Lee, a professor who teaches venture capital at Columbia Business School and runs an investment network called 37 Angels. “I can’t tell you how many times I hear, ‘So-and-so is in this deal, they’re a name-brand VC, you have five days – are you in or are you out?”
Go deeper: Holmes and Balwani face a maximum sentence of 20 years in prison and a fine of $250,000 plus restitution for each count. Balwani’s conviction might also impact the sentencing of Holmes, who is 38-years-old and had a baby last year, but is being sentenced for near-identical crimes. “If [the judge] gives her a big break, he is going to think, how will it look if he sentences Balwani differently,” said Andrey Spektor, a defense attorney and former federal prosecutor in the Eastern District of New York. (2 comments)
Be the first to comment