Trade Coffee | August 20th, 2024

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GOOD MORNING

Here's everything you need to know today: If you think Donald Trump is having a rough week, just check out his stock. Shares of Trump Media & Technology Group, trading under the ticker DJT, hit their lowest point since going public via SPAC five months ago, slipping to $22.24 on Monday—a 3.5% drop.

Considering DJT trades on Trump’s political fortunes, it’s no surprise the stock took a hit as the Democratic National Convention kicks off in Chicago with a revamped 2024 ticket. The Donald’s had a whirlwind month. After a close call at a Pennsylvania rally, DJT got a boost when he secured the Republican nomination. But then Biden pulled a fast one by backing Kamala Harris, flipping the odds in her favor and sending DJT into a nosedive.

And that’s not all. Trump Media reported a $16 million loss for Q2, with a mere $837,000 in revenue. Half of that loss? Legal fees from their endlessly delayed merger with Digital World Acquisition Corp., now tangled with the SEC. Trump’s response? An exclusive interview with Elon Musk on X—direct competition for TRUTH Social, TMTG’s lone product.

Still, with a market cap of nearly $4.5 billion, Trump’s 59% stake is worth over $2.5 billion. But here’s the kicker: he’s locked out from selling any of it until September 25, well before the election. Fun times ahead if you’re holding DJT.

Let’s Dive Into More Details Below…

BREAKING NEWS
Last week, Chairman Gary Gensler and the SEC fined 26 broker-dealers, investment advisers, and dually registered firms nearly $400 million. Gary and his team aren't finished yet.

On Monday, reports surfaced that Carl Icahn and his publicly traded company, Icahn Enterprises, settled with the SEC for allegedly failing to disclose billions in stock-backed borrowing.

Let's emphasize that again: BILLIONS in stock-backed borrowing.

Now, for the shocking reveal: Icahn and his company settled these charges without admitting or denying wrongdoing, agreeing to pay a mere $500,000 and $1.5 million in fines. Yes, you read that correctly—$500,000 and $1.5 million, totalling $2 million overall.

We can almost picture Mr. Icahn and his board receiving the notice and erupting in laughter, reaching for their wallets and phones to chip in for the fine as if splitting a lunch bill.

WHAT HAPPENED
Carl Icahn is a well-known and renowned American financier and activist investor, best known for his role as the chairman of Icahn Enterprises (IEP). Growing up in Queens, New York, he graduated from Princeton University with a degree in philosophy, so one can imagine how disappointed Marcus Aurelius is right now to hear the news regarding Icahn's fines.

"Greed is the opposite of virtuousness," Aurelius famously said, "which is the cornerstone of Stoic philosophy. Money isn't bad, having lots of money isn't bad. Nor is it good. It is just money. The Stoic would encourage you to chase virtue and flee from vice. Anything else is irrational."

Indeed, but maybe Mr. Icahn missed that class because he indeed ignored the Disclosure Fraud seminar, failing to disclose billions of dollars in personal margin loans backed by his stock in Icahn Enterprises, his own company. These kinds of margin loans are a type of borrowing where an investor uses their securities (in this case, stocks) as collateral. These loans can be risky, as a drop in the stock's value could trigger a margin call, forcing the borrower to deposit more funds or sell their securities. For a public company executive like Icahn, failing to disclose such significant loans is risky, possibly influencing the executive's decision-making or eventually leading to forced selling to cover the loans, thus impacting the stock price.

The SEC investigation followed a 2023 report by short-seller Hindenburg Research that caused Icahn Enterprises' stock to plummet. Hindenburg alleged that Icahn's firm was operating a "Ponzi-like" structure, using capital from new investors to fund dividends for existing shareholders. The report rocked IEP shares, wiping $2.9 billion off Icahn's net worth.

And it wasn't just a tiny percentage of the company Ichan was playing with; it was more than half. The SEC reported that Icahn pledged between 51% and 82% of IEP shares outstanding to secure billions in margin loans without disclosing this to shareholders or federal regulators. According to an SEC consent order, Icahn's cumulative personal borrowing reached $5 billion.

Has Mr. Icahn ever heard of going to Vegas and putting it all on black?

The SEC’s attention was caught in this case when Mr. Icahn was required to file Schedule 13D disclosures detailing his obvious influence and any encumbrances on his stake, including said margin loans. The failed disclosure of over half of IEP's outstanding shares as collateral for margin loans clearly violated federal securities laws and was also late.

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BREAKING NEWS
If you think of the AI chip sector as “Game of Thrones,” it makes sense that everyone is plotting to take Nvidia down from its Iron Throne.

A flurry of deals, both consummated and otherwise, is making it clear that Nvidia’s competitors have decided that “your enemy’s enemy is your friend” and are now looking to combine their forces in an attempt to at least weaken CEO Jensen Huang’s dominance in the AI hardware space before it’s too late.

AMD just threw down $4.9 billion to snag ZT Systems and bulk up its AI hardware arsenal, while SoftBank’s Masayoshi Son is plotting to outmaneuver Nvidia by growing his own nascent chip empire. We have to wonder how many of these moves it will take before Nvidia is forced to, like, notice them.

WHAT HAPPENED
AMD is clearly tired of playing second fiddle and has announced a $4.9 billion deal to acquire server maker ZT Systems. The plan? Beef up its AI hardware game and take a swing at Nvidia. To fight, AMD is paying 75% of the deal price in cash, putting money on the table because corporate wars are not cheap, and it needs to start fast. And, like pirates agreeing to share some of the spoils after their attack on the bigger ship, the remaining 25% will be stock. As of Q2, AMD had $5.34 billion in cash and short-term investments, so while it’s not exactly betting the farm here, this is a serious play to challenge Nvidia’s dominance.

But AMD isn’t the only one with dreams of toppling the giant. Enter Masayoshi Son, SoftBank’s resident big thinker (and occasional big-money disaster artist). Son’s got this grand vision of building an AI chip empire from scratch and taking down Nvidia. His first move was trying to rope Intel into his scheme. But Intel, still licking its wounds from layoffs and cost-cutting, decided it wasn’t up for the challenge. Talks collapsed faster than the WeWork IPO as Intel realized it couldn’t match the speed and volume Son needed.

Undeterred, Son pivoted to TSMC, the world’s biggest chipmaker, to bring his AI dreams to life. But there was a small catch. See, TSMC is already swamped with orders, and guess who’s at the front of the line? Yep, Nvidia. To anyone else but Masa Son, that would be the signal to stop.

Meanwhile, Nvidia isn’t just sitting back and watching the chaos. Huang has made it clear that Nvidia isn’t just in the chip game anymore; it’s now selling entire AI data centers. Analysts expect Nvidia’s data center segment to pull in a casual $105.9 billion this year. For comparison, AMD’s expected AI chip revenue is $4.5 billion. That’s… less.

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BREAKING NEWS
Americans will probably have one of the most contentious elections of their lives coming up in 2024, and policy will likely be one of the main factors that help them cast their vote. As always, the economy is at the top of mind regarding its top priority policy in 2024, according to a January 16-21 survey of over 5,000 adults by Gallup. Nearly three-quarters of Americans (73%) rate strengthening the economy as a top priority, considerably more extensive than the shares citing any other policy goal.

Going down their list, we have healthcare costs, reduced crime, and an "improved job situation" at 49%. We were surprised by this placement, considering how closely the economy and jobs are tied.

That said, it's still a top priority, which makes Monday's July 2024 SCE Labor Market Survey that much more worrying, with the proportion of individuals who reported searching for a job in the past four weeks rose to 28.4 percent from 19.4 percent in July 2023, the highest reading since March 2014.

WHAT HAPPENED
As a refresher, the SCE Labor Market Survey is a component of the Federal Reserve Bank of New York Survey of Consumer Expectations. Its primary purpose is to collect data on individuals' experiences and expectations regarding various labor market factors, such as earnings, job transitions, and job offers. Fielded every four months, the survey is designed to provide insights into the labor market by capturing both retrospective and forward-looking data from respondents, which is on thin ice.

Concerning feels like the right word to use when reviewing the survey and data, but it doesn't quite capture the feeling or, dare we say, the "vibe" in the United States right now. As stated, there has been a sharp increase in the proportion of job seekers, reaching 28.4%, the highest level since March 2014. The unemployment rate of 4.3% is low by historical standards but has been on the rise, triggering fears of an erosion in the economy that is becoming harder to ignore, even as the S&P 500 and Nasdaq rise for the 8th straight session.

In 2024 alone, though less than the historical average, the nation has seen massive layoffs in tech and other sectors. From January to March 2024, there were approximately 4.9 million layoffs across all industries in the U.S., which is lower than the historical quarterly average of 5.8 million since 2001, yet still, even if you were lucky enough to stay employed, job satisfaction has declined. 

The expected likelihood of becoming unemployed has reached a series high of 4.4%, indicating growing job insecurity across the workforce. Additionally, the average expected wage offer has declined year-over-year, and fewer employees stay with their current employers long-term.

This paints a picture of a nation's workforce seemingly stuck in a precarious position - dissatisfied with their current means of supporting themselves and their families, yet too apprehensive or intimidated by the current job market to take action for change.

As the renowned economist John Maynard Keynes once said, "The difficulty lies not so much in developing new ideas as in escaping from old ones." Embracing change and being open to new perspectives is crucial for advancing and overcoming established norms' inertia. However, as the nation and its job situation stands now, with rates as high as they are and both sides of the aisle - the government and its citizens - deeply in debt with seemingly no way out, one has to consider the mechanisms of the system overall may be broken or outdated considering the overall state of things found in the SCE's Labor Market Survey.

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1. Global financial turbulence looms, warns JPMorgan

JPMorgan analysts have raised concerns about recent market sell-offs, describing them as a "dress rehearsal" for future volatility. They point to growth concerns as the main driver of these movements, suggesting that worse is yet to come.

2. GM cuts 1,000 jobs in software division

General Motors is laying off over 1,000 salaried employees in its software and services units to streamline operations and focus on higher-priority initiatives like AI and quality improvement.

3. Alimentation Couche-Tard bids for 7-Eleven’s parent company

Canadian convenience store giant Alimentation Couche-Tard has made a buyout offer for Seven & i Holdings, the Japanese operator of 7-Eleven, in what could become the largest-ever foreign takeover of a Japanese company.

4. Goldman Sachs lowers U.S. recession risk to 20%

Goldman Sachs has reduced its U.S. recession risk forecast to 20%, citing better-than-expected retail and jobs data. This adjustment signals increased confidence in the economy’s resilience against a downturn.

5. AMD to acquire ZT Systems for $4.9 billion

Advanced Micro Devices (AMD) has announced plans to acquire ZT Systems, a server maker, in a $4.9 billion cash and stock deal. This acquisition aims to strengthen AMD’s data center technology and position it as a stronger competitor to Nvidia.

6. Carl Icahn settles SEC charges over undisclosed stock pledges

Billionaire investor Carl Icahn and his firm Icahn Enterprises have agreed to pay $2 million to settle SEC charges for failing to disclose the use of company stock as collateral for personal loans, which could have impacted shareholders.

7. Regional U.S. banks ramp up M&A to strengthen balance sheets

Regional banks in the U.S. are accelerating mergers and acquisitions in a bid to improve balance sheets and compete more effectively, as the sector continues to consolidate after last year’s banking crisis.

8. Westpac posts steady Q3 profit despite economic pressures

Westpac reported a 6% increase in unaudited net profit for Q3 2024, despite facing challenges from high interest rates and rising cost-of-living pressures in Australia. The bank's capital earnings helped bolster its performance.

9. Fed’s Jackson Hole speech anticipated for interest rate guidance

All eyes are on Jerome Powell as he prepares for his speech at the Jackson Hole Economic Symposium. Investors hope for clues about the Federal Reserve's future interest rate policies amidst growing speculation of rate cuts.

10. Nvidia rival AMD rises on M&A announcement

Shares of AMD rose nearly 4% following the announcement of its acquisition of ZT Systems. Investors view the deal as a positive step in AMD’s strategy to expand its presence in the AI and data center markets.

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Today's insights are courtesy of Trade, America's #1 specialty coffee marketplace. Enjoy better coffee at home with Trade.

Find Your Coffee Match ➔