Barron’s Weekend Summary: Led by a 60% rally in Bitcoin this year, the token market is back to where it was before FTX collapsed in November
Barron’s Weekend Summary
Cover Story:
Crypto is proving resilient. Led by a 60% rally in Bitcoin this year, the token market is back to where it was before FTX collapsed in November, worth an estimated $1.1T. Shares of Coinbase are ahead 70% this year, while Bitcoin “miners” like Marathon Digital Holdings have surged more than 150%. The Global X Blockchain exchange-traded fund, a basket of crypto-related stocks, is up 90%.
Venture-capital funding has tightened, but some large investors are staying the course, helping to keep software developers in business.
Interview:
Barron’s spoke with Apollo Global Management Chief Economist Torsten Sløk on May 10 about the stock market impact of a weakening economy, why a housing recovery might be premature, and the potential risks to the global economy of looming changes in Japan. As for the US economy’s outlook in the wake of regional bank failures, Sløk says that: The consensus estimates a soft landing, expecting we will have a recession in the third and fourth quarters, with a 0.5% decline in gross domestic product in the third quarter and a 0.5% decline in the fourth. That translates into negative 200,000 in nonfarm payrolls for every month from July to December. The banking crisis has created a higher risk of a deeper or longer recession. We are leaning toward a hard landing because of much tighter credit conditions and the fear that rates will stay more elevated because the Fed will be worried about inflation being stickier.
Tech Trader:
This week, Netflix announced that it is installing what it calls “paid sharing” for US subscribers. The new rules say that a Netflix password is intended for use by all of the people living in one household. Anyone not in the household isn’t supposed to use that password and—while Netflix doesn’t say it specifically—the company will soon take steps to block the use of those passwords from other locations. (There are exceptions for devices used while traveling, such as your laptop, tablet, and smartphone.) The company is allowing subscribers to add out-of-the-home family members, but it’s going to cost you
The Trader:
-Artificial intelligence is that unstoppable object, as Nvidia’s first-quarter results and blowout guidance demonstrated this past week. The results sent the stock up 24% Thursday, adding nearly $200B to its market capitalization and extending its year-to-date gain to around 160%.
Nvidia’s very bullish forecast for demand for chips used in AI applications also sent shares of AI-related companies like Adobe and Advanced Micro Devices soaring. The Nasdaq Composite, home to many of these highfliers, finished the week up 2.5%.
-Hedge funds are bullish on their individual stocks, but bearish on the overall market. In the first quarter, they sold banks and technology stocks, while adding to defensive sectors like health care. Those are the highlights from a Goldman Sachs analysis of holdings of 740 hedge funds worth a combined $2.2T at the end of March. Within 45 days of the end of each quarter, hedge funds must report their portfolio holdings to the Securities and Exchange Commission on a regulatory form known as a 13-F. Collectively, hedge fund managers appear to be betting on 2023 being a so-called “stockpickers’ market,” per data from Goldman Sachs.
Features:
For the first decade-plus of Bitcoin’s existence, crypto managed to avoid becoming a political issue, with figures in both parties warming up to what they believed could be a new American industry as important as the internet. This presidential election cycle might kill the heart of that idea, and the implications for token prices will be negative. Before the token crash last year, crypto garnered growing support with both Democrats and Republicans. Bipartisan draft bills sought to clarify how federal agencies should treat tokens–a long sought goal of firms like Coinbase Global that say cryptocurrencies don’t have a clear set of rules to follow. While no major bill made it to President Joe Biden’s desk, it at least looked as if a coalition was building that could provide industry relief on tokens such as “stablecoins.”
-Nearly all states have passed laws designed to limit property-tax increases. But some legislation works better than others. A few states limit property-tax rates, but that can still result in steep tax increases when assessments shoot up. California, meanwhile, constrains increases in property-tax assessments for existing residents, but not for new home buyers. The result is that two families on the same block with identical houses can pay vastly different tax bills. Meanwhile, states like Massachusetts and New York have dramatically slowed property-tax increases for homeowners by limiting how fast the levy for an entire community can rise. But local factors can still affect you.
European Trader:
-Prices of extra virgin olive oil are at a record high, according to statistics tracked by the International Monetary Fund going back to 1990. In April, olive oil was trading for $6,269.63 per metric ton, up 46% from last year’s level. For those who buy their cooking and dipping oils in quantities of less than a ton, that comes out to about $6 a liter (33.8 fluid ounces) at wholesale, or roughly twice that or more, depending on brand and quality, at retail. Filippo Berio, a top U.S. olive oil brand based in New Jersey, calls the latest olive season “the most challenging on record, with the lowest crop yields in 30 years.”
Emerging Markets:
China’s record-breaking youth unemployment rate is grabbing significant attention, and understandably so. The jobless rate for Chinese aged 16 to 24 rose to 20.4% in April, officials announced last week.
That means that 1 in 5 of these 170 million young Chinese attempting to kick-start their careers simply can’t find work. For perspective, the ratio in Europe was 14.3% in March, while the U.S. was at 6.5% in April. Worries abound in China, from the government to universities to families, most of which have only one offspring. That concern may not be translating into helpful solutions, experts said. Government policies are too small or mis-targeted. Universities are adapting too slowly. Even China’s longstanding emphasis on high education may actually be backfiring: a glut of advanced degrees in China has eroded their value.
Commodities:
-Memorial Day weekend kicks off the prime season for backyard barbecues, and Americans are forking over quite a bit less for a few key cookout supplies.
Propane, the gas used to heat many grills and camping stoves, is down 46% from last year, to 64 cents a gallon from $1.19, according to S&P Global Commodity Insights. This month, it hit its lowest level since December 2020.
The biggest reason for the decline: supply and demand. Propane has been building up in storage after a very mild winter because homes just didn’t need to be heated as much. In general this year, prices of fossil fuels from crude oil to natural gas have dropped because of slow economic growth worldwide.
Streetwise:
Wall Street expects Apple’s new device category to be at least a moderate commercial success. Goldman Sachs says that it will goose earnings by a low single-digit percentage starting in 2025. BofA Securities predicts an earnings contribution of 36 cents per share by 2026, or about 5% of the consensus estimate—and much more with “meaningful adoption.”
Perhaps I’ve been too dismissive of virtual reality—for example, by comparing the Oculus Quest 2 from Meta Platforms to a toddler’s toilet seat mounted to the forehead. I bought the hulking Sony PlayStation VR several years ago to see what the fuss was about. It has provided me with nearly an hour of entertainment, mostly on the first day.