Internal | Aug 5th, 2024

Here's everything you need to know this week: How was your Friday? Sorry, it’s hard to hear you with your face ripped up like that. Last week’s market action was a horror show that ended with carnage as all three major indexes near two-month lows after sluggish jobs data reignited slowdown fears. The Nasdaq nosedived 3.35%, officially entering correction territory, now down 10% from its July peak. The Dow and S&P 500 weren't far behind, dropping 2.1% and 2.06%. Friday, the worst trading day since the pandemic seems to have cranked up pressure on the Fed to cut rates faster… again.

1. Berkshire Hathaway: Everything Must Go

Warren Buffett’s on a selling spree. The Oracle of Omaha dumped nearly half of Berkshire Hathaway’s share in Apple during Q2 after already trimming its stake earlier this year. This boosted Berkshire’s cash pile to a whopping $276.94 billion. Oh, Buffett also offloaded $3.8 billion in Bank of America shares? Why? Well, the only nonagenarian that everyone actually listens to is struggling to find good deals in an overpriced market. Meanwhile, someone now owns more T-bills than the Federal Reserve. Hint: It’s Warren Buffett.

2. Goldman’s Getting Nervier

Goldman Sachs just upped the odds of a recession to 25% from 15%, but they’re not sweating it (hey, they Goldman, baby). Chief Economist Jan Hatzius and his cool crew are confident the economy’s still in decent shape, with no major disasters in sight and the Fed poised to chop rates if things go south. While JPMorgan and Citigroup are crying for hefty half-point cuts, Goldman’s betting on gentle 25 bps nips this fall, as long as job growth doesn’t flop again in August. If it does, even those adorable optimists over at Goldman might have to start sweating it out.

3. Bonds-age

Long-term interest rates tanked last week after crummy ISM manufacturing and jobs data, pushing the 10-year Treasury yield to its lowest mark since December at 3.79%. The Fed kept short-term rates steady, but chances of a 50 bps cut in September are now soaring on a shaky Wall Street. Investors fled stocks for bonds, leaving corporate and municipal bond markets gasping for air. High-yield bond issuers were practically hiding from the wild volatility. Since mortgage rates loosely tail the 10-year Treasury yield, You can thank those dismal job numbers for making your potential mortgage slightly less excruciating as the average rate on the 30-year fixed mortgage just took a 22-basis-point nosedive to 6.4% on Friday.

4. Israel and Iran Remain On The Brink

Israel kicks off the new workweek drowning in terrified uncertainty, with potential attacks from Iran and its closest proxies already causing chaos. International airlines like Delta, United, and Lufthansa have suspended flights to and from Israel, leaving tens of thousands of Israelis stranded abroad. The travel nightmares follow the assassinations of senior Hezbollah commander Fuad Shukr in Beirut and Hamas political leader Ismail Haniyeh in Tehran. Everyone's bracing for Iran and Hezbollah to retaliate in full force, drawing back the curtain on the opening act of a broader regional war.

Political and Market Sentiment

Kamala Harris’ campaign has launched "Republicans for Harris," boasting over two dozen GOP endorsements from even ex-Trump officials like Stephanie Grisham and Olivia Troye. Obama-era Republicans Chuck Hagel and Ray LaHood have joined in as well, prompting the inevitable Trump tantrum on Truth Social, targeting what he sees as more "traitors." The bipartisan support marks two weeks of the switch to Harris from President Biden, and the sitting VP is now neck and neck with Trump, making undecided Republicans a key voting bloc. Harris is clearly now hoping that fed-up Republicans, and Wall Street donors, will ditch Trump’s MAGA circus and tip the scales in her favor come November.

Global Markets Overview

Europe: The STOXX 600 took a 2.92% nosedive this week, thanks to some dismal U.S. economic data that freaked everyone out. Germany’s DAX tanked 4.11%, France’s CAC 40 slid 3.54%, and Italy’s FTSE MIB went into freefall, losing 5.30%. Even the UK's FTSE 100 couldn’t escape the carnage, dropping 1.34%. UK gilt yields fell as the Bank of England finally cut borrowing costs after four years, and German bund yields dropped too, with everyone betting the ECB will follow suit. It’s a global growth panic party, and everyone’s invited.

Asia: Japan's stock markets also took a beating this week after the BoJ turned hawkish. The Nikkei 225 plunged 4.7%, and the TOPIX fell 6.0%. Friday's drop was one for the history books, rivaling March 2020’s COVID crash and 1987’s Black Monday. Over in China, markets were a mixed bag—Shanghai Composite up 0.5%, CSI 300 down 0.73%, and Hong Kong’s Hang Seng slipping 0.45%—all thanks to weak manufacturing data. The PMI slid to 49.4 in July, marking the third month of contraction. Looks like economic gloom is the new black.

The Week Ahead

Monday is going to feel like coming out of a smoky haze both hungover and bleeding for some reason, but there is come economic data to look out for with Consumer Credit coming in on Thursday, but that’s probably not going to look great. In terms of earnings, we’ve got Caterpillar on Tuesday, and that stock has always been something of an economic bellwether on its own. So… good luck?

Let’s dive into more detail below.

MARKETS

Stock Market Loses $3 Trillion in One Day as Payrolls and Unemployment Targets Miss

The unemployment rate’s unexpected increase to 4.3% and significantly lower payroll additions signal a potential sustained economic downturn

BREAKING NEWS
Well, FED Chair Jerome Powell wanted clear and objective data, and he definitely got it today. The U.S. economy only added 114,000 jobs in July (well below forecasts), and the unemployment rate hit 4.3%. This is the highest since October 2021, and this triggers the Sahm Rule recession indicator.

Only a few days ago, Powell likened today’s labor market to the situation in 2019, immediately before the COVID-19 pandemic, and boy, was he on the money.

The stock market, already seeing significant pressure from the Big 7 selling off throughout the week, imploded, seeing $2.9 trillion cleaned out from stocks at the time of writing, the worst day since the 2020 Covid crash.

Was Powell hinting at something last Wednesday that we didn’t want to hear, or was it just a lucky guess?

WHAT HAPPENED
This moment is a perfect storm of many factors, but let’s keep it to four or five. To start with the obvious, the massive miss of payrolls and unemployment was nothing short of bearish. The unemployment rate unexpectedly rose to 4.3%, surpassing the previous rate of 4.1%. And with only 97,000 new jobs added compared to last month's 136,000 and falling well short of the 140,000 forecast signals, this could bet he beginning of a trend rather than an isolated incident, i.e., an economic downturn or a recession.

Seeing that we here at Moby like to look back in history from time to time, we saw similar prints from 2007 to 2008. In the months leading up to the official start of the recession in December, the unemployment rate began to tick up from its low of 4.4% in March 2007. By Christmas time, it had risen to 5.0%. Then, the dot-com bubble burst of 2001 showed clear warning signs in late 2000 as the unemployment rate began to climb. From September 2000 to March 2001, unemployment rose from 3.9% to 4.3%, marking the recession's official start. This increase was accompanied by a significant slowdown in job growth during the months preceding the economic downturn.

If you are panicking right now, don’t. As you are probably aware, these moments of chaos and uncertainty are historically the best time to find companies and their stocks at a discount. What’s that old Rothschild quote … "Buy when there's blood in the streets, even if the blood is your own.”

For instance, Intel stock right now has nothing to do with the macro picture or even the tech sector. Intel is teetering on the edge of an existential crisis and facing its worst stock plunge in 50 years because it messed up. Ignoring AI and betting it was a fad was definitely an opinion about the future of computing, but it turned out to be not a great one, and now it’s left to grapple with fierce competition and supply chain nightmares.

Analysts have also noted that the Sahm rule, a recession indicator developed by economist Claudia Sahm and designed to identify the start of a recession by focusing on changes in the unemployment rate, has turned red.

With a 100% accuracy rate over the past 55 years, the Sahm rule is a reliable indicator closely watched by economists and policymakers.

Then, of course, we have the political side of things, from the obvious instability and uncertainty about the U.S. presidency with President Biden around (?) with VP Harris now campaigning. At the same time, Trump does, well, whatever Trump is doing to keep from getting called “weird.” On the fronts of global conflict, there is Israel and Iran, with President Biden now weighing more US defenses in the Middle East as the US prepares for an Iranian retaliation against Israel. And, of course, the Russia/Ukraine conflict, which continues to rage on.

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CRYPTO

Morgan Stanley Introduces Bitcoin ETFs for Wealthy Clients as Saylor Doubles Down

Despite current market turbulence, Morgan Stanley announced that their advisors can offer Bitcoin ETFs to wealthy clients, indicating ongoing strong institutional support

BREAKING NEWS
Either the team at Morgan Stanley didn’t check the charts today or they are simply that bullish on Bitcoin, because on Friday, amidst the chaos, they announced advisers will be able to offer Bitcoin exchange-traded funds or ETFs to wealthy clients starting Wednesday.

Morgan Stanley is allowing its 15,000+ financial advisers to sell shares of BlackRock's IBIT and Fidelity's FBTC to clients with a net worth of at least $1.5 million.

Morgan Stanley, with $1.5 trillion in AUM, made the move in response to ongoing demand from clients, likely seeing the ongoing positive news coverage from BlackRocks Larry Fink and the forever-bull Michael Saylor of Microstrategy.

WHAT HAPPENED
This news shouldn’t necessarily come as a big surprise to other big banks, high net-worth individuals, or the common investor. Back in March 2024, they Morgan Stanley revealed a substantial investment of about $270 million in Grayscale's Bitcoin Trust (GBTC) when Bitcoin had recently cracked its all-time high of over $73,000.

This move, disclosed in the bank's first-quarter 13F filing, involved holding approximately 4.27 million GBTC shares, positioning Morgan Stanley as one of the largest institutional investors in the trust at the time. This investment by a traditional financial giant like Morgan Stanley demonstrated ongoing institutional interest in Bitcoin and likely what they were up to during the length bear market of 2022 - 2023.

And Morgan Stanley hasn’t been the only one “stacking SATs” as the Bitcoin maxi’s like to say. Susquehanna International Group poured over $1 billion into various Bitcoin ETFs in Q1 2024, including a massive $1.09 billion stake in GBTC. Millennium Management has gone even bigger, spreading nearly $2 billion across five spot Bitcoin ETFs. Jane Street Group and Farallon Capital Management have jumped on the GBTC bandwagon, opening new positions and increasing holdings respectively. Even the State of Wisconsin Investment Board has dipped its toes in, allocating $164 million to Grayscale and BlackRock's Bitcoin funds.

Remember Saylor? The forever-Bitcoin bull? Yesterday, he bought an additional 169 Bitcoin for $11.4 million and presently holds 226,500. No one knows his personal holdings. MicroStrategy also broke news they are doubling down with plans to raise $2 billion through a new at-the-market equity offering program. The firm as already added 12,222 Bitcoin and raised $800 million through convertible notes, appearing to really take Bitcoin’s scarcity to heart.

The firm also introduced a new "BTC Yield" metric, targeting 4-8% annually over three years, and has already achieved a 12.2% yield year-to-date.

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1. Intel Announces Massive Job Cuts

Intel has announced it will cut 15% of its workforce, amounting to over 10,000 jobs, as part of a sweeping cost-cutting effort. The company is also suspending its dividend for the fourth quarter following weak financial results.

2. Neuralink Implants Second Human Patient

Elon Musk’s Neuralink has successfully implanted its brain-computer interface device in a second human patient. Musk claims the technology could eventually give humans “superpowers” by integrating with AI.

3. Elon Musk Criticizes Fed’s Interest Rate Policy

Elon Musk has criticized the Federal Reserve for not cutting interest rates, arguing that the current rates are damaging the economy. Musk’s comments come amid growing concerns over the Fed’s monetary policy.

4. Market Turmoil and Recession Fears

Fears of a recession have intensified following weak U.S. economic data and rising unemployment. Analysts are closely watching key economic indicators to gauge the likelihood of a downturn.

5. Berkshire Hathaway Slashes Apple Stake

Warren Buffett’s Berkshire Hathaway has reduced its stake in Apple by nearly 50%, increasing its cash stockpile to a record $277 billion. The decision comes amid broader economic concerns and market volatility.

6. Chevron Moving Headquarters to Texas

Chevron announced it will relocate its headquarters from California to Texas over the next five years. The company stated that the move is aimed at being closer to the core of the energy industry.

7. AMC Entertainment Posts Q2 Loss

AMC Entertainment reported a second-quarter loss of 10 cents per share and a 24% revenue decline, attributed to a strike-hit movie pipeline. Despite the loss, the results matched Wall Street estimates, and the stock ticked up.

8. Mortgage Rates Plummet

Mortgage rates have dropped to the lowest levels in more than a year, providing relief to prospective borrowers with strong credit. Loan officers report increased activity as buyers rush to lock in the lower rates.

9. Eli Lilly’s Weight Loss Drugs No Longer in Shortage

Eli Lilly’s weight loss drugs Zepbound and Mounjaro are now fully available in the U.S. after more than a year of shortages, according to the FDA. Demand for these drugs had outstripped supply for months.

10. Stocks Tumble on Weak Economic Data

Stocks plummeted as weak economic data heightened fears of a hard landing and potential recession. The Dow closed down 600 points, the Nasdaq dropped 2.4%, and the S&P has fallen 6% from its recent all-time high.

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