Internal | September 6th, 2024

GOOD MORNING

Here's everything you need to know today: Former President Donald Trump hit the stage at the Economic Club of New York on Thursday, pitching a few economic policy proposals that definitely had the room full of business execs alternately clapping their hands and raising their eyebrows. Among the highlights was Trump’s official adoption of Elon Musk’s government efficiency commission idea to slash wasteful federal spending. Naturally, Trump suggested Musk himself could lead the commission. “If he has the time,” of course.

During Thursday’s speech, Trump also doubled down on some potentially wallet-busting proposals, like slashing the corporate tax rate to 15% (down from its current 21%) which, if you remember, already took a dive from 35% during his first term. Oh, and let’s not forget his pledge to nix taxes on tips and Social Security benefits, too.

But things took a decidedly Trumpian turn when The Donald, as only he can, veered into a little light chat about the importance of his mastery of nuclear diplomacy and seemed to threaten JPMorgan Chase with atomic annihilation. 

“We have to get along with the world,” Trump warned before turning his verbal attention to Jamie Dimon. “You can be the head of the biggest bank, wherever the hell Jamie is sitting… a couple of nukes and your bank doesn’t mean a thing if you can’t get along.”

We weren’t in the room, but we can safely assume that Dimon’s face was clearly communicating back “Don’t talk to me like I’m some beta… like Brian Moynihan.”

Let’s Dive Into More Details Below…

BREAKING NEWS
Elon Musk, ever the maestro of stirring headlines on X, made a curious statement in September 2023 that feels oddly in sync with Verizon’s latest power move acquisition of Frontier Communications for a cool $20 billion—cash only, no biggie.

Musk’s words? "In the long term, Neuralink hopes to play a role in AI civilizational risk reduction by improving human-to-AI (and human-to-human) bandwidth by several orders of magnitude." Now, stick with me here—the connection between Musk’s vision of turning us into tech-enhanced beings and Verizon’s need to beef up its fiber network is surprisingly clear. Frontier's expertise could help Verizon climb back up from the bottom of the 5G coverage leaderboard (where it currently trails T-Mobile and AT&T). This isn’t just a pricey distraction—it’s a lifeline.

WHAT HAPPENED
As of January 2024, T-Mobile reigns supreme in the U.S. 5G landscape, covering nearly 54% of the country. AT&T trails at 30%, while Verizon struggles with under 13%. This disparity highlights Verizon’s urgent need to up its game, especially as smartphone adoption skyrockets, even among the 65+ demographic, which saw a leap from 30% to 76%. The youngest adults (18-29) are nearly all in, with 97% owning smartphones. For Verizon, these figures scream opportunity—or risk—depending on how they respond.

Everyone leans on their smartphones, whether it’s for work, social media, gaming, mobile shopping, or binge-watching shows on the go. As the demand for faster, more reliable connections grows, 5G becomes the battleground. Any carrier lagging behind risks losing subscribers to those with superior speed and coverage. Verizon’s $20 billion all-cash deal to acquire Frontier Communications isn’t just a bold move; it’s existential.

Hans Vestberg, Verizon's CEO, framed the acquisition as a "strategic fit" to bolster its fiber leadership, though the numbers show there’s work to do. Frontier, however, is a prize worth the price tag. In July 2024, Frontier became the first in North America to trial jaw-dropping broadband speeds (100G, 50G, 25G, and 10G Passive Optical Networks) simultaneously. Frontier’s 2.2 million fiber subscribers across 25 states will integrate with Verizon's 7.4 million Fios connections, giving both brands a boost.

In the AI-driven future, this acquisition strengthens Verizon's intelligent edge network, a critical move to keep pace with the AI and IoT revolution. Verizon expects at least $500 million in annual cost synergies by year three, pushing operational efficiency and profitability skyward.

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BREAKING NEWS
Wanna know an open secret? While hedge funds and private equity (let’s pretend there’s still a differentiator) get the flashy headlines, family offices are quietly running the world. You won’t hear about them as much, because they don’t want you to, but simply by virtue of how much capital they run through the global economy, their moves can be silently massive. And while many of these offices are managing generational wealth that makes hedge funds look like small change, some of them are hedge funds that shut the door to outside money and now enjoy the same privileges.

With trillions under management, family offices move markets without the scrutiny or spotlight. No earnings calls, no fees, no performance anxiety. They have one client and that means they can invest, and divest nearly at will, shaking up global economies on their own terms, and reshaping markets without the fanfare or accountability hedge funds get stuck with. So, who are these guys?

WHAT HAPPENED
So, why does the September Effect hit us like a bad hangover every year? Well, it’s either a self-fulfilling prophecy (but that would be boring and make for a short article) or a toxic cocktail of post-vacation panic, desperate rebalancing, and now, some spicy rate-cut drama (see? Isn’t that more fun?).

Traders return from their beach houses and summer bliss, see the state of their portfolios, and suddenly everyone’s selling like their uncomfortable long pants are on fire. This year, we can throw in the fact that Wednesday’s job numbers just tanked, with U.S. job openings hitting their lowest since early 2021. For more fun context, Tuesday’s bond market action saw the yield curve twist like a pretzel, with the 2-year briefly dipping below the 10-year as traders doubled down on Fed rate cuts after weak labor data. Treasury yields jumped across the board, making it clear Wall Street’s bracing for some serious interest rate gymnastics. And, voilà, we’ve perfected this storm of ennui-charged market chaos.

That weaker-than-expected labor data has everyone betting the Fed is about to go wild with rate cuts (maybe even two full percentage points over the next year if Jay Powell is feeling frisky). Normally, rate cuts are a reason to party, but when the Fed’s slashing to stave off a recession, the vibe is more “ruh roh” than “the Fed is W.” With traders scrambling for safety and institutional rebalancing in full swing, it’s a sell-off frenzy. And hey, don’t forget that tax-loss harvesting season is just around the corner, so everyone’s looking to offload their losers. It’s like Wall Street’s version of a garage sale, but instead of acquiring cheap broken stuff, you get existential dread.

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BREAKING NEWS
If you needed more reasons to scratch your head over Gary Gensler’s SEC, Wednesday delivered. The agency announced it’s throwing in the towel on reviving hedge fund fee disclosure rules after the Supreme Court declined to get involved. For those keeping score, these were the rules that would’ve forced hedge funds to show a little leg on the fees they charge investors.

It’s a confusing move, especially after the SEC went after the NFT ghost ship that is OpenSea. Now, instead of focusing on transparency in hedge funds and private equity, it seems like we’re back to letting the big players keep their books closed.

But don’t hang this one entirely on the SEC. Back in June 2024, the 5th US Circuit Court of Appeals sided with hedge funds, ruling that Gensler & Co. had overstepped by trying to enforce quarterly fee disclosures. So, while the SEC is waving the white flag, it’s the court that clipped its wings on this one.

WHAT HAPPENED
A notable detail about the 5th Circuit Court of Appeals is that a majority of its judges were appointed by Republican presidents, many by Donald Trump. It’s widely regarded as one of the most conservative federal appeals courts in the country. The court has a history of its rulings being appealed and occasionally overturned by the Supreme Court. Whether seen as a “testing ground” for conservative legal theories or not, the court’s relationship with private equity and hedge funds, especially around claims of regulatory overreach, is worth watching closely.

The root of this most recent clash with the SEC goes back to May 2023, when the agency updated Form PF, a reporting tool for private fund advisers. As Gensler put it, private funds have “evolved significantly” in the last decade, nearly tripling in size and becoming deeply integrated with broader capital markets. The SEC’s amendments aimed to increase transparency and protect investors by requiring large hedge funds to report stress-indicating events, like investment losses or margin calls, within 72 hours.

The rules also called for quarterly reporting on fees, expenses, and fund performance—designed to shed light on the notoriously opaque fee structures of hedge funds. Preferential treatment of certain investors would have been exposed, requiring funds to disclose special arrangements, and specific high-risk activities would have required investor consent. Naturally, these demands didn’t sit well with hedge fund advisers, who argued that their sophisticated investors didn’t need SEC babysitting.

This brings us back to the heart of the issue: transparency. Time and again, from 2008 to today, it’s been proven that when left unchecked, greed in the financial system can lead to catastrophic collapses.

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1. Nvidia's Stock Plunge Raises Concerns About Monopoly Probe

Nvidia shares have fallen more than 10% this week, raising concerns about a potential monopoly probe. ED Yardeni of Yardeni Research attributes the stock's decline to fears of regulatory action, rather than an economic slowdown. Despite the sell-off, Nvidia remains a key player in the AI and semiconductor space, with its stock still up over 100% year-to-date.

2. Verizon to Acquire Frontier Communications in $20 Billion Deal

Verizon announced it will acquire Frontier Communications for $20 billion. This strategic move will expand Verizon’s fiber network, adding millions of new households and businesses to its infrastructure. The deal comes amid increased competition in broadband services and aims to enhance Verizon's position in the fiber market.

3. Volvo Scraps EV-Only Sales Target Amid Slowing Demand

Volvo Cars has decided to abandon its goal of selling only electric vehicles by 2030 due to a slowdown in demand and trade complexities. The Swedish automaker has revised its revenue and margin targets, citing global economic challenges and tariff pressures, particularly from China.

4. Nippon Steel’s $14.1 Billion US Steel Deal Faces US Opposition

Nippon Steel’s bid to acquire United States Steel for $14.1 billion faces potential roadblocks from the Biden administration. Concerns over national security and economic policy have raised questions about whether the acquisition will proceed, leaving Nippon Steel searching for alternative strategies.

5. Broadcom Posts Strong Q3 Results, But Non-AI Revenue Disappoints

Broadcom reported better-than-expected Q3 revenue of $13.07 billion, but its outlook for non-AI products remains sluggish. The chipmaker expects to generate $12 billion in sales from AI components this year, as the broader tech sector grapples with uneven demand across different segments.

6. Disney Data Leak Reveals Key Revenue Insights

A recent data leak at Disney has exposed previously undisclosed financial details about its streaming and theme park operations. The leak revealed granular revenue data that is more detailed than typically shared in earnings reports, highlighting key insights into Disney's business performance.

7. Trump Media’s Stock Falls 74% Amid Market Concerns

Shares of Trump Media & Technology Group have plummeted 74% since their peak earlier this year. The decline comes as the company faces increasing market uncertainty, and the end of a lockup period threatens to flood the market with additional shares.

8. Private Sector Adds Just 99,000 Jobs in August, Slowest Growth Since 2021

The ADP National Employment Report revealed that the private sector added only 99,000 jobs in August, the lowest monthly gain since 2021. This slow growth adds to concerns that the U.S. labor market is cooling off, potentially influencing future Federal Reserve rate decisions.

9. US Treasury Yields Steady as Markets Brace for Jobs Data

U.S. Treasury yields remained relatively stable ahead of the release of key jobs data. Investors are closely watching for signs of labor market weakness, which could prompt a more aggressive interest rate cut from the Federal Reserve.

10. Bank of America Probed Over Alleged Sharing of Nonpublic Information

Bank of America is under investigation following allegations that its employees shared nonpublic information with investors in India. The bank has launched an internal probe into the matter, which could lead to regulatory scrutiny and legal challenges.

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