💸 Jerome’s 2nd act

Tuesday, November 23, 2021 by Robinhood Snacks | Disclosures
Sticking to the chair [Westend61 via Getty Images]

Sticking to the chair [Westend61 via Getty Images]

Yesterday’s Market Moves
Dow Jones
35,619 (+0.05%)
S&P 500
4,683 (-0.32%)
Nasdaq
15,855 (-1.26%)
Bitcoin
$56,438 (-4.29%)

Hey Snackers,

Shaking your phone now has a purpose: Instagram’s new “rage shake” feature lets you shake to report a problem with the app. Arms will be toned.

Tech stocks continued to drop today, while “cyclical stocks” like Exxon and Chase gained. Cyclicals = shares of companies that are closely tied to the health of the economy.

Erupt

1. El Salvador is planning a volcano-powered “Bitcoin City,” but its moves could be economically implosive

Not an Onion headline... El Salvador said it plans to build a volcano-powered Bitcoin City featuring a central plaza that looks like a massive Bitcoin symbol. Construction is scheduled to start next year. This past September, the Central American nation became the first country to adopt Bitcoin as legal tender, alongside the US dollar. Last week, 40-year-old Salvadoran President Bukele said Bitcoin City would be built next to a volcano, which would power BTC mining, and wouldn’t have any taxes, except a sales tax. Bukele is known for his crypto bullishness and authoritarian tactics (and his backward baseball cap).

  • Bit bonds: El Salvador plans to create the world’s first government-issued “Bitcoin bonds.” Half the funds from the $1B issues would be converted to BTC, and the other half would be used for city infrastructure and mining.

Bit volatile... El Salvador is one of Latin America's poorest countries, with 23% of its population below the poverty line. Its existing gov’t bonds (aka: debt) are already categorized as junk grade, and the Bitcoin-bonds plan is getting side-eye from financial experts. Meanwhile, El Salvador is spending hundreds of millions on its Bitcoin rollout, which Bukele believes will improve financial inclusion and attract spending from foreign crypto investors.

  • Salvadorans can pay for anything in Bitcoin through gov’t-run BTC wallet “Chivo” — from McMuffins to taxes, rent, and even salaries. Bukele says Chivo now has millions of users, but USD is still the most used currency by far.
THE TAKEAWAY

Larger scale = greater risk… By adopting BTC as legal tender, El Salvador is taking a wide-scale risk for 6.5M citizens. The IMF is worried that BTC's volatility — and history of rapid plunges — poses major threats to El Salvador's economy. In a September poll, 80% of Salvadorans said they lacked confidence in BTC, and protests have erupted over fears it could destabilize the economy further. Still, it could be a valuable experiment for other countries considering Bitcoin as a national currency. So far: only Panama.

Sequel

Powell reloaded… Fed Chair Jerome Powell has been running America’s central bank since 2018. He helped the economy rebound from a pandemic plunge with heavy stimulus medicine. Think: pumping trillions into the money supply through $120B monthly bond purchases. Now stocks are near record highs, but inflation is soaring — and Powell may have to clean up the aftermath.

  • After months of deliberation, Biden said he’d appoint Powell to another four-year term. The Senate is expected to confirm Biden’s choice soon.
  • Power to the Powell: For months, investors had wondered whether Biden would nominate pro-business Powell or Fed governor Lael Brainard, who’s known to be tougher on banks (Biden said he’d appoint her to the No. 2 spot).

If it ain’t broke… don’t nix it. For Biden, the stakes of this nomination are high. US inflation hit a 31-year high last month. Half of voters blame Biden for surging prices of staples, from gas to bacon. Biden will rely on Powell for help keeping prices down: The Fed can raise interest rates to cool spending and keep prices in check. About that…

  • This month the Fed approved plans to start scaling back its economy-boosting bond-buying program.
  • It announced it was planning to buy $15B less in bonds — and end all bond purchases by June.
THE TAKEAWAY

There’s a trade-off… between inflation and growth. Keeping inflation in check could mean limiting the cash that flows out of banks. It could mean higher interest rates on loans, from mortgages to credit cards — which could depress spending. The sweet spot: keeping inflation under control while maintaining economic growth. Fed officials don’t want to raise interest rates until at least July, after they’ve ended their bond-buying spree. But if prices keep soaring, they may have to move more quickly.

What else we’re Snackin’

  • Filter: Zoom shares tumbled 7% after it reported slowing sales growth, despite beating expectations. Investors are questioning its potential for long-term growth.
  • Action: Several large unions asked the FTC to block Amazon’s planned $8.5B acquisition of film studio MGM, saying it would hurt streaming competition.
  • Crank: Samsung reportedly plans to build a $17B chip-making factory in Texas, as the Biden admin pushed for more US-made chips to ease shortages.
  • Float: GM bought a 25% stake in electric-boat company Pure Watercraft as part of its effort to expand its EV business beyond cars.
  • Rebrand: Authentic Brands, the company behind Forever21, Brooks Brothers, and Sports Illustrated put its IPO plans on hold and raised $3.5B.
  • Fine: Chinese regulators fined Alibaba, Tencent, and Baidu over 43 antitrust violations dating back to 2012, signaling the country’s tech crackdown isn’t over.

Snacks Daily Podcast

“Red Notice” was watched for nearly 150 million hours this week.

Netflix launched a site that reveals weekly stats on its top hits. Tune in to hear why other streamers aren’t doing the same.

Apple podcast button
Google podcast button
Spotify podcast button

Snack Fact of the Day

Netflix subscribers have watched 2.1B hours of “Squid Game,” the equivalent of about 240K years

Tuesday

  • Earnings expected from Autodesk, Dell, HP, Best Buy, Dollar Tree, Dick's Sporting Goods, Gap, Nordstrom, American Eagle, and Abercrombie & Fitch

Authors of this Snacks own: Bitcoin, and shares of GM, Netflix, and Amazon

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