Weekly TLDR - A Rock and a Hard Place
In this week’s TLDR, we talk about unions vs stock buybacks, Berkshire’s cash hoard, CashApp > Venmo, and Coinbase’s NFT film featuring Bored Apes.
The TLDR
In this week’s TLDR, we talk about unions vs stock buybacks, Berkshire’s cash hoard, CashApp > Venmo, and Coinbase’s NFT film featuring Bored Apes.
Chart of the Week
Take this graph and start reversing it. The Fed is looking to reduce its balance sheet roughly twice as fast as the last time it did “quantitative tightening”. This will mean roughly $1.14T in balance sheet reductions per year on top of roughly 3 years of planned interest rate increases.At $1.14T per year, it will take a long 4 years of tightening to get back to pre-pandemic levels. Buckle up folks.
Stock Market TLDR
Our Take on March Inflation
This morning March’s inflation number was released. March’s inflation rate topped February’s 7.9% at 8.5%. This is the largest print since 1981. However, the good news is that most of the increase came from energy and food prices, a direct byproduct of the ongoing war. Oil prices have recently started trending down as the Biden administration ramps up efforts to reduce energy prices. In addition, the rest of the CPI seems to be trending down. This makes sense, since aggregate goods demand has clearly receded with the economy reopening, high gas prices, and a very red stock market. However, we’re not out of the woods yet, as even though the Biden administration’s efforts are working for energy prices, the recent COVID lockdowns in China will certainly put strong upward pressures on the rest of the CPI. In addition, the Federal Reserve is in a tough spot. They either keep things as is and risk continued high inflation, or pull back and risk a recession. Unfortunately, these problems seem to only be solvable in the short term with the end of the war and the end of COVID lockdowns in China.
Unions vs Buybacks
Starbucks CEO Howard Schultz has suspended stock buybacks and commented on a growing “assault” of unionization “threats” that he is aiming to curb. While unrelated, it's hard to not link up buybacks and unionization efforts when the CEO puts them right next to each other. The theoretical link here is that Starbucks needs more cash to invest in higher wages and better working conditions and to do so, they need to suspend returning cash to investors. However, it's hard not to read into the move as some sort of class warfare trigger where the rich investors are pitted against the poor union workers. It's also hard not to read into the potential for other labor heavy companies with a history of returning cash to shareholders to turn off the spigot.
Berkshire Spends $4.2B on HP
Berkshire’s cash hoard must be burning a hole in Buffett’s pocket. Berkshire’s $4.2 billion investment in HP follows a $11.6B acquisition of Alleghany and $6B investment in Occidental Petroleum. Buffett must see the current market turbulence as an opportunity to consolidate and find deals. With over $120 billion in cash reserves, the spending spree may not stop here. Maybe inflation fears are driving corporate spending as well?
Cathy Wood Chooses Block Over PayPal
Cathy Wood’s ARK Invest fund has divested its entire position in PayPal and doubled down on Block (Square). Cathay sees Block’s commitment into blockchain technology as a difference maker. I see CashApp consistently outperforming Venmo on app store downloads (8th rank vs 34th rank) as a window into the future performance of both stocks. CashApp’s free tax filing feature is a real threat to Intuit’s TurboTax and any tax refunds gets deposited directly into the users CashApp balance. I expect a healthy bump up in CashApp funds and activity post tax season and good GMV growth for Block. Furthermore, Block is more of a pandemic reopening play with its physical PoS merchant solution while PayPal has more of an online ecommerce footprint that will not benefit from pandemic reopening.
GM and Honda Tie-Up
GM and Honda announced a partnership around developing a series of affordable EVs. These EVs will be based off of GM’s battery technology and Honda’s design. The collaboration is expected to produce affordable EVs priced under $30,000 starting in 2027. Even more interestingly, Honda already has its own EV technology as well as an investment in Cruise, which is majority GM owned. It seems like Honda is improving its chances by having multiple shots on the EV and autonomous goldmine. Investing in 2 or more distinct EV technologies could help GM sign other auto manufacturers
Crypto TLDR
Ethereum Passes First Major Proof of Stake Test
Some readers already know that I’m quite optimistic about the upcoming Proof of Stake upgrade for Ethereum. In one major upgrade, Ethereum sheds its environmental and scaling concerns. It appears like things are progressing as planned for the upgrade to occur this summer. Yesterday, Ethereum developers carried out the first major test of the upgrade. Up till now, Ethereum developers have been testing the upgrade on Ethereum test nets; yesterday they performed an upgrade test on the main net. The test, called a “shadow fork” was largely successful. The forked network was able to produce blocks and finalize transactions entirely using the proof-of-stake algorithm.
Crypto Private Equity Is Still Going Strong
Despite the overall market and economy being in a very precarious state as of late, the crypto private equity markets are still going strong, at least at the top end. This past week, two major successful fundraising rounds were announced. For one, DeFi infrastructure startup bloXRoute successfully raised $70 million in a Series B funding round led by Softbank with participation from Jane Street and Lightspeed Venture Partners. Another crypto startup, Genies, which is building NFT avatars, also announced the closing of a $150 million funding round led by Silvergate Bank (which also recently gave MicroStrategy a $205 million loan backed by Bitcoin). This round valued the startup at $1 billion, thus minting a new crypto unicorn. Genies has partnerships with record labels such as Warner Music Group and Universal to create avatars and NFT-gated digital goods for artists such as Justin Bieber, Migos and Cardi B.
More NFT Shenanigans
This week, more NFT shenanigans are afoot. Coinbase is working on a Bored Apes-themed trilogy film and launched an open call for Bored Apes NFT holders to nominate their Bored Ape to be cast in the film. Coinbase is offering a $10k licensing fee for each casted ape, paid in Bitcoin or ApeCoin. The Bored Ape Yacht Club is one of the most popular NFT collections out there, with each ape selling for hundreds of thousands of dollars. Two years ago, no one would’ve expected films featuring NFT characters would be made. The crypto space certainly moves with its own accelerated timeline.
Lessons Learned From a $600 Million Hack
Last month, Sky Mavis, the developer of major NFT game Axie Infinity, had their Ronin Network blockchain hacked for $600 million. This was a devastating hack and the company is left to lick its almost fatal wound. As part of the plan to recover from the hack, the company is raising $150 million as part of the restitution for users affected by the incident and has also launched a bug bounty with rewards ranging from $1,000 to $1,000,000 paid in the Axie Infinity AXS token. Needless to say, the team should’ve launched a bug bounty program much earlier given the scale at which they were operating at. Security might seem expensive and pointless to invest in, up until the point you get hacked for hundreds of millions of dollars.
Robinhood Lists Shiba Inu
Robinhood has finally listed the Shiba Inu token, Dogecoin’s little brother (or maybe coattail rider?). Shiba Inu was a much requested crypto to list last year but the company hesitated given the elevated level of regulatory scrutiny they were experiencing at the time. Along with the listing of Shiba Inu, the broker has also listed three other cryptocurrencies: Solana, Polygon, and Compound. The listing of more cryptocurrencies should help with increasing Robinhood’s crypto trading revenue, which the company seriously needs as retail trading participation recedes from a very rough overall market and economy. Since the release of the listing news this morning, Shiba Inu’s price jumped by up to 30% before falling back down to a more modest 11% gain on the day.
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