FT : Is Fomo the new greed when it comes to investing?

Is Fomo the new greed when it comes to investing?
Fear of missing out on the rewards of tech and crypto led to irrational exuberance

If investors insist on trying to time their moves in stock markets, said Warren Buffett almost 20 years ago, they should be fearful when others are greedy, and greedy only when others are fearful.

It is good contrarian stuff. And the time-honoured depiction of markets in the permanent push-pull grip of these two animal spirits has an enduring appeal because (nuance and caveats aside) it does actually explain a lot of market psychology quite neatly. The difficulty arises, as now, when greed and fear start defining themselves as the same thing.

In the parsing of the FTX collapse — and of a string of other recent debacles that seem ominously comparable as phenomena of the loose money era — fear of missing out (Fomo) has repeatedly emerged as the critical ingredient in the investment build-up before the fall. Fear, in this usage of the word and in the context of the FTX and wider crypto run-up, was creating something that looked an awful lot like irrational exuberance. This exuberance, in turn, was fuelling something that behaved from a market standpoint an awful lot like greed does during its periodic stints at the wheel.

As the Fomo narrative has it, investment money (much of it under the auspices of large, seemingly respectable funds) thunders collectively into particular assets (in many cases, with minimal due diligence) not because it necessarily believes in the underlying opportunity but because the rewards are presented as unmissable and the consequences of delay or scepticism are somehow scary.

The idea is not novel, even if the acronym is. Similar thought processes have featured before in earlier crises. In 2007, Citi’s Chuck Prince famously stressed the need to keep dancing as long as the music was playing: a freely chosen indulgence presented as an unquestionable obligation.

So is the current version of Fomo just greed in disguise? It is tempting to think so or, at the very least, conclude that the word “fear” here describes a more discretionary and easily surmountable dread than, say, the fear of loss, value destruction or worse. The casting of Fomo as a genuine fear demands evidence that there is some price to be paid for missing out (of the sort shops experience, for example, during panic-buying prompted by public alarm). Self-recrimination for a bonanza skipped, or the wrath of a dissatisfied investor, do not quite count.

During the past half decade of tech-centric investment, however, Masayoshi Son’s SoftBank has led the way in instilling a more legitimate set of Fomo concerns for certain investors. When the first of his Vision Funds launched in 2017, the $100bn vehicle was explicitly designed to create a new genre of tech investment.

It did this (or planned to) by using its scale not just to identify potential winners but to shower them with enough funding to ensure that, on metrics such as market share, they probably would be. This implied guarantee of dominance, however flawed, set a tone that would resonate: if investment is not about prospects but sure things, then Fomo is not greedy but wise.

With tech and crypto Fomo now in some limbo, a much larger and more complex version now sits on the horizon in China, and could dominate corporate and financial investment next year. A good number of fund managers say they are already positioning themselves for a short-term “Fomo event”. A relatively quick reopening of China or a sharp relaxation of zero-Covid rules is a change that no global or Asia-focused investor can afford to miss. The feeding frenzy could ramp up very swiftly.

But the longer-term Fomo trade relates to geopolitics, and to the way in which US and Chinese industrial policies have set themselves sufficiently at odds with one another to make some form of decoupling look more inevitable. Behind the rhetoric of the US Chips Act and the Made in China ambitions are geopolitical shifts that could eventually oblige more and more companies — in the US, Europe, Japan, South Korea and elsewhere — to make some kind of choice between the two blocs. In some cases, this might take the form of redesigned supply chains and other “friendshoring” investments to allow dual-track manufacturing and sales.

For others, though, there may be serious pressure to rethink being in China at all. And business leaders and their investors should perhaps consider that there may be valid reasons to miss out on the world’s greatest gross domestic product growth engine. This, truly, will put the “f” in Fomo: the question is whether the fear is strong enough for companies to push back before it happens.

FT : Investors bet on interest rate cuts in 2023 despite Fed signals

Investors bet on interest rate cuts in 2023 despite Fed signals
Bond traders expect US central bank will reverse course in fourth quarter as economy slows

Investors predict the Federal Reserve will cut rates when faced with a slowing economy next year, betting the US central bank is far closer to ending its historic monetary tightening campaign than it has signalled.

Traders in the US government bond market are wagering that the Fed will be forced to cut interest rates twice in the fourth quarter of 2023. This is despite protestations from chair Jay Powell and other top officials this week that the central bank will not reverse course on its plans to keep borrowing costs elevated even as it slows the pace of its interest rate increases.

Treasuries futures markets point to the Fed’s benchmark policy rate peaking in May at 4.9 per cent before falling back to 4.4 per cent by the end of 2023. That implies roughly 0.5 percentage points of cuts.

Bets on interest rate cuts next year accelerated after Powell on Wednesday laid the groundwork for the Fed to end its string of 0.75 percentage point interest rate increases and downshift to a half-point rate rise at its meeting in December. Investors also looked past a stronger-than-expected November jobs report, released on Friday, which suggested little reprieve in inflation.

“I think it’s safe to say the committee is not expecting to cut rates next year. So how do we explain the difference between that outlook and what we’re expecting?” said Matt Raskin, head of US rates research at Deutsche Bank, which has forecast that the Fed will be forced to cut interest rates by 0.5 percentage points in December 2023.

“I think it boils down to market participants expecting a recession next year while the committee still has a softish landing in their forecasts.”

Raskin cited the inversion of the yield curve — a widely used predictor of recession — among other signals.

That view is in line with the traditional pattern of rate-rising cycles: in every cycle since 1980 with the exception of 2004-2006, the Fed has made cuts within six months of hitting the peak in interest rates.


“Typically they overtighten until something breaks. That’s likely to be the case in this cycle as well, so we wouldn’t dismiss a tweak at some point later on next year,” said Margaret Kerins, global head of fixed income strategy at BMO Capital Markets.

That goes against what officials have said. Powell on Wednesday was explicit that the central bank does not expect a policy about-face soon.

“My colleagues and I do not want to overtighten. Cutting rates is not something we want to do soon, so that’s why we are slowing down,” the chair told an audience at the Brookings Institution, while reaffirming the central bank’s commitment to get inflation back down to its longstanding 2 per cent target.

“The markets are trying to have their cake and eat it too, hearing Powell say he doesn’t want to overtighten, while ignoring the second half of the sentence where he says they will hold rates in restrictive territory,” said Calvin Tse, head of macro policy for the Americas at BNP Paribas. “The market has taken this too far.” 

Investors also cautioned that the shift in markets happened quickly and may easily be undone.

“The market is trading on what it last heard from the Fed and what it’s expecting from the next CPI print,” said Matthew Scott, head of global rates trading at AllianceBernstein. “I don’t think anyone in the market actually has a high degree of conviction about where the Fed will be at the end of next year.”

Economists polled by Bloomberg forecast that consumer prices in November will have risen just 0.3 per cent, translating to a 7.3 per cent annual pace, the slowest rate since December 2021.

Earlier this week, John Williams, president of the New York Fed and one of Powell’s closest colleagues, also said he expects the central bank to keep rates at a level that restrains the economy at least until the end of next year as inflation moderates to between 3 per cent and 3.5 per cent.

“I do see a point, probably in 2024, that we’ll start bringing down nominal interest rates because inflation is coming down,” he said on Monday.

For Steven Abrahams, head of strategy at Amherst Pierpont, the recent swings in market pricing amount to “déjà vu”.

“The market has bet all year long against the Fed holding rates high through 2023. And the market consistently has been wrong,” he said.

Reuters - Former FTX exec in talks with investors for new crypto startup - The I

Former FTX exec in talks with investors for new crypto startup - The Information

Dec 2 (Reuters) - Brett Harrison, the former president of collapsed crypto exchange FTX's U.S. arm, is trying to raise money for a new crypto startup, the Information reported on Friday, citing two people with knowledge of the matter.

Harrison has told at least one venture capital firm he is aiming to raise $6 million at a valuation of $60 million for a firm focused on crypto trading software for big investors, the report added.

This comes weeks after FTX filed for U.S. bankruptcy protection and its founder Sam Bankman-Fried resigned as chief executive, after rival exchange Binance walked away from a proposed acquisition.

The collapse has rippled across the industry hobbling liquidity at other major players including crypto lenders BlockFi and Genesis.

NY Post : Hollywood insider and Clinton ally could lose $300 million in FTX deba

Hollywood insider and Clinton ally could lose $300 million in FTX debacle: insiders

As creditors in the FTX bankruptcy case look to claw back cash from the fallen crypto giant, an uncomfortable spotlight is focusing on a well-connected Hollywood insider with ties to the Clintons, the Kardashians and Elon Musk.

Michael Kives — a former Tinseltown agent who has served as an aide to Bill and Hillary Clinton, advised Warren Buffett and helped with Kendall Jenner’s 818 Spirits — runs a venture firm called K5 Global that got $300 million earlier this year from FTX’s now-defunct investment arm, Alameda Research, according to reports.

FTX’s disgraced founder Sam Bankman-Fried and his ex-girlfriend Caroline Ellison, also Alameda’s ex-CEO, plowed billions of dollars not only into other crypto platforms but also media and entertainment outfits. Recipients included Vox — which got a grant for a reporting project — and the online news site Semafor, which has faced demands that it return cash it admitted it got from the 30-year-old Bankman-Fried in a $25 million funding round.

But it’s FTX’s massive investment in Kives’ firm that makes K5 Global a juicier target for creditors, insiders say. Chatter has likewise circulated that Kives had been promoting FTX to his high-profile circle of friends including talent agents Scooter Braun — who has managed Ariana Grande, Justin Bieber and Demi Lovato — and Guy Oseary, who has managed Madonna, U2 and the Red Hot Chili Peppers. Neither Oseary nor Braun responded to request for comment. Kives did not respond to request for comment.

“Everywhere I go I hear his name,” one well-connected tech insider said of Kives (pronounced “key-vess”).

As FTX’s new CEO John Ray III — a restructuring guru who helped sort through the Enron mess — sifts through the bankrupt company’s balance sheet, insiders say he could determine that FTX’s recent investments amount to fraudulent conveyance — the illegal transferring of assets to put them beyond the reach of creditors — and are thus subject to clawbacks.

“The new management is 100% going to go after anybody who got paid by FTX,” another insider close to the situation said. “It’s well within the statute of limitations to claw the K5 assets back.”

“They will 100% go after Kives to get the money back,” the source added.

Adding to the intrigue: Kives is a close personal friend of Musk. When the Tesla billionaire stays in Los Angeles, he often crashes at Kives’ Beverly Hills mansion, according to the New York Times.

K5 Global has been a major backer of companies founded by Musk. According to the Financial Times, at least $225 million of K5 Global’s assets are sitting in SpaceX, the Boring Co. and other Musk-led ventures.

It’s unclear whether Musk’s companies could be subject to the clawbacks, or whether any of the cash given to his companies originally came from FTX, sources said. However, when Musk was securing Twitter financing in April, Kives texted Musk, “It could be cool to do this with Sam Bankman-Fried,” according to a trove of text messages that were released during the Delaware Court of Chancery case between Musk and Twitter.

Musk has denied a Semafor report claiming that the Bankman-Fried owned $100 million in Twitter, and called out co-founder Ben Smith for failing to disclose how much Bankman-Fried, known as SBF, invested in his own company.

Kives worked as an agent at Creative Artists Agency where he represented clients including Kate Hudson, Warren Buffett, Bruce Willis and Jessica Alba. From there, he struck out on his own as an investor and launched K5 Global, backing Silicon Valley giants including Uber, Airbnb and Bumble, according to the company’s website.

But Kives’ ties extend beyond Hollywood. A longtime Clinton ally, Kives has helped raise tens of millions for Hilary Clinton. Kives was an interim spokesperson for President Bill Clinton after he left office in 2003; he then served alongside Huma Abedin in Senator Hillary Clinton’s DC office, according to a bio Kives posted online.

Now, Kives may soon be getting calls from another kind of fundraiser — a new FTX CEO who specializes in collections.

Business Of Fashion : Balenciaga’s Breakdown: What Went Wrong and What Comes Nex

Balenciaga’s Breakdown: What Went Wrong and What Comes Next
Late Friday, the brand issued further apologies and abandoned its plan to sue a production company amid continued outrage in response to its recent holiday campaign.

Spray paint on stores. Slashed and burned products on social media. Accusations of promoting pedophilia on cable news.

This week, the risks of Balenciaga’s edgy approach to marketing became painfully clear — as did the errors of the company’s initial response to the crisis — as public outrage and confusion in response to the brand’s ads featuring children posing with BDSM-inspired teddy bears reached a scale not seen in the fashion industry since Dolce & Gabbana’s 2018 meltdown in China.

Late Friday, Balenciaga’s leadership issued personal apologies and said the company would drop a planned lawsuit against two external partners who had worked on its campaigns.

“I want to personally apologise for the wrong artistic choice of concept for the gifting campaign with the kids,” the brand’s creative director Demna said on Instagram. “I want to personally reiterate my sincere apologies for the offence caused and take my responsibility,” chief executive Cédric Charbit added.

The moves came after previous statements apologising for the campaigns had failed to quell the outcry. Though no major retailers have pulled Balenciaga products, by the end of the week, at least two Balenciaga stores — in key locations including LA’s Rodeo Drive and London’s Bond Street — had been vandalised and videos featuring people destroying the brand’s products circulated on TikTok.

What went wrong, and can Balenciaga get back on track?

What happened?
On Nov. 16, Balenciaga posted a holiday gifting campaign shot by Gabriele Galimberti, a photographer known for having subjects pose alongside collections of personal objects such as toys, guns and medicines. Balenciaga’s campaign featured children posing in bedrooms alongside spreads of the brand’s products spread out like toys. After a short period of positive buzz, the ads began to draw angry criticism for accessorising the children with the brand’s S&M inspired teddy bears in the intimate set-up, sparking accusations that Balenciaga was sexualising children.

The backlash grew as some social media users claimed to have found pedophilic messages embedded in another, separate campaign for Spring/Summer 2023 published weeks before, which featured Isabelle Huppert in an office scene. A legal brief spilling out of the actress’s bag turned out to be a Supreme Court decision regarding child pornography. A name on a fake diploma appeared to match that of a convicted abuser, and a book on the desk was about Michael Borremans, an artist whose works have depicted mutilated children’s bodies.

A Tweet slamming the campaign went viral, particularly in right-wing social media circles where QAnon conspiracy theories are popular. On Nov. 22, the story was picked up by Fox News commentator Tucker Carlson, who accused the brand of openly promoting child pornography and sex with children. (Balenciaga says it condemns all abuse of children). Meanwhile, on the other side of the political spectrum, fashion news Instagrammers Diet Prada, known for its left-leaning callouts, condemned the holiday gifting shoot.

On Nov. 23, engulfed by a backlash on both sides of America’s political divide, Balenciaga apologised and pulled the campaigns, acknowledging in a brief statement that the teddy bears should not have been featured with children, and saying the company would “take legal action against the parties responsible for creating the set and including unapproved items.”

On Nov. 26 the brand offered a more detailed apology, after key brand ambassador Kim Kardashian addressed the scandal, saying she would “review” her relationship with the house. The brand cited “grievous errors for which Balenciaga takes responsibility” and took “accountability for our lack of oversight and control.” The brand condemned child abuse, promised to review its approval processes and said it was exploring plans to support children’s rights organisations.

Still, regarding the campaign featuring Huppert, Balenciaga said it would continue with its legal action alleging “reckless negligence” by third-parties involved with creating the images, which a complaint seeking $25 million in damages later revealed to be production company North Six and set designer Nicholas Des Jardins.

The apologies failed to calm the fury. Instead, online outrage boiled over into real world acts as stores were vandalised, though no retailers have said they would drop the brand.

Could things have gone differently?
Balenciaga’s response to the crisis was less than ideal in terms of speed and messaging, communications experts said. First Balenciaga was slow to provide a substantial response: a more complete apology, explanation and action plan than the brand’s initial statement would have been more effective on the first day of the crisis. By waiting days to more fully address the issue, the brand risked appearing like it wasn’t taking the campaign backlash seriously.

To be fair, the backlash was complex and unfolded in stages, making it harder to craft a stronger response. But Balenciaga’s multi-part apology only gave the crisis more oxygen, extending its newsworthiness. So did the brand’s legal action, which many in the industry saw as deflection.

Indeed, the legal complaint became a key blunder in the brand’s response: Balenciaga appeared to try and avoid taking full accountability for its central mistake — posing children with sexual objects — by defending itself from what it saw as unjustified attacks inspired by its more easily forgivable slip-up with the Huppert campaign: its failure to do exhaustive sensitivity checks on every object in a complex set design. In short, portraying itself as a victim of its contractors’ negligence detracted from the brand’s credibility when saying it was taking responsibility for the incident. “The brand appeared to be saying “not our fault,” crisis communications expert Mory Fontanez said.

Balenciaga also failed to sufficiently explain the intention behind its gifting campaign — and what, specifically, went wrong. “There’s a lot of fear around admitting with vulnerability the truth about the process,” Fontanez said. But being seen as incompetent may have been preferable to being seen as a proponent of child pornography. By explaining more fully its creative brief and process, Balenciaga might have reassured more consumers who were willing to see the issue as a misstep rather than something more malicious.

Where does Balenciaga go from here?
Apart from the apologies issued by Demna and Charbit, Balenciaga appears to be keeping a low-profile while it waits for the news to die down. The brand has abandoned plans to appear at several events, including BoF VOICES 2022 gathering and the upcoming Fashion Awards, while it says it is “closely revising its organisation.”

In Charbit’s statement Friday, the CEO said it had nominated an “Image Board” responsible for evaluating content including “legal, sustainability and diversity expertise” as well as hiring an external agency. No personnel exits were announced, but the company said it had “reorganised [its] image department to ensure full alignment with our corporate guidelines.”

But putting in place a culture that better takes public sensitivities into account, all while keeping up the volume and velocity of marketing that social media demands, could be challenging for Balenciaga, which has staked its success under creative director Demna on sparking controversy with designs and marketing that willfully push the limits of acceptability. The brand has sold destroyed sneakers and bedazzled platform Crocs, fuelling the kind of debate that drives social media algorithms. The brand has waded into riskier waters, too, marketing leather trash bags on models that appeared to reference refugees and casting rapper Ye to open its spring-summer 2023 runway show even as the entertainer was facing criticism for incendiary statements.

It’s still unclear how much of a hit Balenciaga’s sales will take from the crisis, or how long it will take for the uproar to subside. Backlashes previously faced by brands like Gucci and H&M over insensitive products and campaigns were relatively short-lived, although Dolce & Gabbana faced a longer road to recovery after issuing advertisements that appeared to mock Chinese people, spending millions on marketing before sales recovered. (As of 2021, revenues in China were still below 2018-2019 levels, despite growing 20 percent year-on-year, the privately-held company said).

Shares in Balenciaga-owner Kering closed the week up 4 percent compared to a 1 percent increase in the Stoxx 600 index. Investors don’t appear to be pricing in any severe or lengthy damage to fast-growing Balenciaga’s desirability following the incident (Analysts said shares were also supported this week by increased optimism about China loosening Covid-19 restrictions, which could lift sales for all Kering’s brands, including the larger and more profitable Gucci.)

At stores in London and New York on Thursday, Balenciaga stores indeed appeared to be operating normally, with similarly-sized queues as seen at neighbouring boutiques. Multi-brand retail sources, however, said demand for the brand has declined sharply, with some sellers receiving angry messages from customers and requests for reimbursement. That the scandal has coincided with the key holiday shopping season only makes matters worse. Even consumers who choose to forgive the brand may see its products as awkward Christmas presents.

“This is the nth example of how potentially dangerous this new era of frequent and two-way communication has become for fashion and luxury goods brands…[which] need to introduce safeguards and controls to make sure their messages are well received,” luxury analyst Luca Solca said. However, Balenciaga’s apologies “should produce good damage limitation,” Solca added.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-A key panel backed President Biden’s plan to overhaul the Democratic primary, removing Iowa as the first presidential nominating state in favor of South Carolina.
-The fight over Senator Raphael Warnock’s record comes down to a new electric car plant in Georgia.
-With major Republicans largely steering clear of Georgia’s runoff, Herschel Walker is stressing his roots there.
-the US sees little prospect for Ukraine talks with President Putin after President Biden’s offer to talk. US officials said that Vladimir Putin was not prepared to negotiate in good faith, and Russia’s demands remain unacceptable to Kiev and President Biden.
-Ukraine’s President Zelensky proposes barring Orthodox Church that answers to Moscow. Volodymyr Zelensky pushed to ban an ancient branch of the Orthodox Church, led by an ally of Vladimir Putin, from operating in Ukraine.
-Ukraine’s allies have agreed to impose a price cap of $60 a barrel for Russian oil.
-Twitter keeps missing its advertising targets as woes mount. Under Elon Musk, the company has cut its financial expectations as some advertisers request discounts and are offered incentives.
-Advertising accounted for more than 90 percent of Twitter’s $5.1B in revenue last year.
-Prosecutors presented a document at the Trump Organization trial that they said showed former President Trump had sanctioned tax fraud.
-New York’s State’s Attorney General’s Top Aide has resigned after sexual harassment claims. Ibrahim Khan had worked as a chief of staff for Letitia James for close to a decade.
-At President Biden’s state dinner, held to celebrate the relationship between the U.S. and France, guests mingled over drinks (until the glassware ran out) and stayed until past 1:00 AM.
-As President Emmanuel Macron loses his sheen at home, a harmonious U.S. visit has been “regenerative.”
-Alex Jones has filed for bankruptcy.
The Infowars broadcaster has been ordered by courts to pay about $1.5B in damages to Sandy Hook families hurt by his promotion of conspiracy theories.
-President Biden is happy the jobs engine is running hot, but Fed officials want to see more signs of slowing growth amid a campaign to tame inflation.

THE FINANCIAL TIMES
-Shipping broker Braemar estimates Moscow, which relies heavily on foreign tankers to transport its crude, has added more than 100 ships this year, through direct or indirect purchases. Energy consultancy Rystad says Russia has added 103 tankers in 2022 through purchases and the reallocation of ships servicing Iran and Venezuela, two countries under western oil embargoes.
-UniCredit is seeking to boost the pay of chief executive Andrea Orcel after he told colleagues he wants a bigger reward for turning round the Italian bank. Milan-based UniCredit is trying to reconcile the expectations of shareholders and Orcel, a star investment banker whose pay demands have previously caused controversy.
-Wall Street is bracing for huge bonus cuts after a dismal year in which dealmaking has dried up and investment banking revenues dropped by half. Final decisions have not been made at most banks, but it is clear that last year’s bumper payouts will not be repeated. At that time, the big banks were flush with profits from record dealmaking and struggling to retain staff.
-At a revamped rail yard warehouse on the east side of Atlanta, former president Barack Obama delivered a jolt of his campaign flair in a bid to help Democrats win the final contest of the US midterm elections. Democrats performed far better than expected in congressional races across America last month, but one pivotal contest in Georgia remains in limbo, pitting incumbent Democratic senator Raphael Warnock against Republican former American football star Herschel Walker, with a run-off election to be held on Tuesday after neither candidate topped 50% on November 8.
-Coinbase’s stock and bonds have been knocked by the collapse of FTX, which has sparked renewed concerns about the outlook for the US-listed cryptocurrency trading venue.
Over the past month, Coinbase’s bonds maturing in 2028 have tumbled by about a tenth in price, with investors demanding an elevated 14% yield to purchase the debt. The bonds are now priced at 59 cents on the dollar, a big discount compared with 93 cents at the start of 2022.
-US president Joe Biden’s offer to fix provisions in his flagship climate package to help US allies is a “breakthrough” that will help mollify European anger over potential damage to its own green technology companies, said French finance minister Bruno Le Maire.
-This week Hakeem Jeffries made history of his own when he was unanimously elected as House Democratic leader. He becomes the first black person to lead a political party in Congress and the successor to Nancy Pelosi. Speaking on Capitol Hill, Jeffries invoked the memory of his predecessor. “I stand on the shoulders of people like Shirley Chisholm and so many others as we work to advance the ball for everyday Americans,” he said. “Because that is what Democrats do.”
-Alex Jones, founder of the far-right US website InfoWars, has filed for bankruptcy after being ordered to pay almost $1.5B in damages to the families of victims of the Sandy Hook school shooting. The families sued the media host for his repeated false claims that the 2012 Connecticut massacre, in which 20 children and six teachers were killed, was a hoax.
In his personal Chapter 11 filing in Houston, Jones estimated his assets to be worth between $1M and $10M and liabilities ranging from $1B to $10B, with 50 to 99 creditors to be paid.

NY POST
-Twitter “just freelanced” its baseless decision to censor The Post’s bombshell Hunter Biden laptop scoop in the run up to the 2020 election — with top-level workers at the social media giant agreeing that controversial decision was “f–ked,” damning insider communications released by CEO Elon Musk Friday reveal. The chaos at Twitter in the immediate aftermath of the October 2020 Hunter Biden story show that a small group of top-level execs decided to label the Post’s story as “hacked material” without any evidence — behind the back of then-CEO and founder Jack Dorsey. Musk tweeted a link to the account of independent journalist Matt Taibbi shortly after 6PM, who shed light on Twitter’s shady censorship decision by posting what appeared to be redacted emails between Twitter employees. The decision to censor The Post’s story was made “at the highest levels of the company,” according to Taibbi, but without Dorsey’s involvement.
-One of the high-level Twitter executives who reportedly played “a key role” in the company’s decision to censor The Post’s bombshell story on Hunter Biden’s laptop has a long history of being accused of suppressing conservative voices.
Twitter’s former top lawyer Vijaya Gadde was singled out in an explosive Twitter thread on Friday by independent journalist Matt Taibbi, who purportedly obtained communications between top officials at the social media company in the wake of The Post’s October 2020 story on Hunter Biden’s abandoned laptop.
-Republicans ripped into Twitter on Friday night for what they called the company’s “collusion” with members of the Biden administration over the social media giant’s shady decision to censor The Post’s Hunter Biden scoop.
House GOP leader Kevin McCarthy, Sens. Rand Paul and Josh Hawley, and the House Republicans’ official Twitter account all called out the company after Elon Musk shared the so-called “Twitter Files” — detailing the platform’s faulty rationale to block the Post’s Oct. 14, 2020 expose.
“We’re learning in real-time how Twitter colluded to silence the truth about Hunter Biden’s laptop just days before the 2020 presidential election,” tweeted McCarthy.
- FTX founder Sam Bankman-Fried — an alum of the vaunted university — gave a bizarre explanation for an $8B budget shortfall that helped force the doomed cryptocurrency platform into bankruptcy last month — claiming he had simply “misaccounted” the cash.
Bankman-Fried scrambled to explain what happened at FTX during an interview with Bloomberg from his luxury penthouse in the Bahamas. During the interview, the broke crypto bro pulled out a spreadsheet detailing the bad math he used while approaching investors for a potential last-second bailout of FTX and its sister trading firm Alameda Research.
-The launch of New York’s legal cannabis industry is turning into a bad trip — even before the first official marijuana stores have opened for business, social justice critics claim.
A group advocating for the first licensed marijuana storefront sellers with prior weed convictions said Friday they’re being set up for failure. The Cannabis Social Equity Coalition said the first sellers will be required to buy cannabis products from NY hemp farmers of “questionable quality and safety,” are not being adequately trained for the market and will face a mountain of debt.
-More than 1,000 union employees at the New York Times have pledged to walk out if the news publisher does not agree to a complete and fair contract by Thursday, according to a tweet by the union on Friday. The NYT NewsGuild has sought wages that “keep up with inflation” as well as to preserve and enhance health insurance and retirement benefits that were promised during hiring, according to a letter signed by 1,036 members.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Affordability is still an issue, mortgage rates will remain high, and homes are sitting on the market longer

Cover Story:
-Affordability is still an issue, mortgage rates will remain high, and homes are sitting on the market longer. It all adds up to a stalled 2023 for real estate. The US housing market has left its pandemic frenzy in the rearview mirror. This year through mid-November, the 30-year mortgage has seen its largest percentage-point gain since 1972, the first full year that Freddie Mac FMCC 1.16% started collecting the data, according to Dow Jones Market Data. The Federal Reserve’s fight against inflation means the days of sky-high bidding wars, low mortgage rates, and rapid home-price appreciation are gone. Home sales in the US are projected to end the year at 5.8M—16% fewer than from 2021’s multiyear high

Interview:
-Along with partner Dan Matviyenko, Debra Netschert manages the $1.6B PGIM Jennison Health Sciences fund. The fund is down 14.53% this year, but has delivered solid returns over three years, besting 77% of its peers, according to Morningstar. Over 15 years, the fund has outperformed 87% of its peers. Barron’s interviewed Netschert recently in New York to talk about the outlook for biotech, the stocks she is most excited about, and what the recent Inflation Reduction Act means for pharmaceutical companies.

Tech Trader:
-On November 30, Salesforce - the market leader in sales and marketing cloud software—disappointed investors by forecasting less revenue than expected for the current quarter. Fiscal third-quarter billings, a metric viewed as a leading indicator for future revenue, also fell short of Wall Street consensus by nearly 10%, coming in at $6.21b, representing year-over-year growth of just 5%.
Beyond the softening financial numbers, Salesforce’s commentary about current business trends and the economy were worrisome. On the earnings call with analysts and investors, Salesforce executives said that as the third quarter progressed they began to see a “more challenging buying environment,” with customers increasingly scrutinizing every dollar spent for its return on investment.

The Trader:
The market has been strong enough that some have wondered if the bear market is over, but caution is warranted. The S&P 500’s rally this past week was enough to push the index above its 200-day moving average for the first time since April. Back then, the milestone was hit after an 11% surge, and marked the rally’s end. The index slumped once more before soaring 17% through mid-August to around 4300, before resuming declines. The rally since mid-October has taken the S&P 500 from around 3600 to more than 4000 today. But even that contains a warning. “Zooming in, the market continues to trade in a downward sloping range,” writes Warren Pies, strategist at 3Fourteen Research. “Each new high, and low, is lower than the previous.”
-Traditional defensive companies in the market are those whose day-to-day businesses aren’t affected by changes in gross domestic product, interest rates, or market fluctuations. People always need to buy toothpaste, visit the doctor, and light their homes, so earnings and sales from companies in sectors like consumer staples, healthcare, and utilities tend to hold up best even when the economy tanks. Defensive stocks have held their ground even as the S&P 500 is up 13% over the past six weeks, fueled by hopes that the Fed will pause its rate-hiking campaign as inflation peaks. But inflation remains far above the Fed’s 2% target, and Friday’s jobs report shows that getting it back there won’t be easy. Unfortunately, many defensive stocks already reflect those concerns by trading at hefty premiums to the market. Consumer-staples stocks in the S&P 500 trade at an average 22X the 2023 EPS, versus 17X times for the overall index. Utilities stocks go for 19X, and healthcare stocks for 18X. Still, it’s still possible to find some that are still attractively valued. Credit Suisse’s chief US equity strategist, Jonathan Golub, screened for S&P 500 companies that have exhibited below-average exposure to broader economic conditions, looking at how businesses have reacted to changes in various proxies for the strength of the economy. Pharmaceutical companies Pfizer, Merck, and Amgen all made the cut, and all trade well below the market multiple. The same goes for consumer-staples stocks Kroger, J.M. Smucker, Kraft Heinz, and Altria Group. Utility stocks passing Golub’s screen include Dominion Energy, FirstEnergy, Entergy, and Verizon Communications, Comcast, and Charter Communications. All look cheap. Remember, sometimes a good defense is the best offense.

Features:
-Small-caps outperformed during recessions in the 1970s and early 1980s, when the Federal Reserve was fighting high inflation, as it is now. The group has higher proportional exposure than large-caps to inflation beneficiaries, like energy. It’s also more domestic and more tied to capital spending, which is a plus if US-based manufacturers continue moving factories home. But small companies generally have less financial flexibility than large ones, which is a negative if borrowing rates stay elevated. One way for investors to add small- cap exposure is with a low-fee index fund like the iShares Russell 2000 exchange-traded fund. Then again, switching indexes might be an upgrade. The S&P SmallCap 600 index has outperformed the Russell 2000 index by more than a percentage point a year over the past five, 10, and 20 years, and has generally been less volatile. The biggest reason: S&P uses a profitability screen to admit index members.
-The holiday season is usually a reason for stores to staff up to handle the surge of shoppers. But Friday’s jobs report showed a concerning trend: Retailers are shedding workers. According to the Bureau of Labor Statistics, the retail sector lost 30,000 jobs in November. That figure is even worse if you don’t count the 10,000 jobs added in November by car and auto parts dealerships, which are included in the sector’s count. General merchandise stores logged 32,000 job losses, electronics and appliance stores saw 4,000 job losses, and home furnishings stores had 3,000 job losses.
The contrast is striking given that Friday’s employment report as a whole showed better-than-expected job growth. The U.S. economy added 263,000 jobs in November, with the unemployment rate holding steady at 3.7%.

European Trader:
British sports betting and gaming group Entain is one of those companies set to benefit from the FIFA World Cup of Football, the most-watched global sporting event. But the FTSE 100 company has a lot more going for it than a short-term soccer boost, and it may be time to consider betting on the stock. Entain employs more than 25,000 people and operates in 31 territories in 20 offices across five continents. It owns a number of brands, including Ladbrokes, Coral and PartyCasino, and has a joint venture—BetMGM—with MGM Resorts International. Its extensive portfolio across Europe, in particular, means Entain sees net gaming revenue growing by a high single-digit percentage in the final three months of the year, due to the World Cup. It expects to return to mid single-digit growth the following quarter.

Emerging Markets:
Not seven years ago, Venezuela was pumping some 2.5M barrels of oil a day, much of which made its way to US refineries. But current output is less than 700,000 barrels per day and nearly all of it passing through murky sanctions-busting channels to China.
Restoring those missing 1.8M barrels sounds alluring in today’s climate. The Biden administration has inched in that direction lately, clearing Chevron for some exports that were blocked by Donald Trump’s maximum pressure policy. Unfortunately, restoring Venezuela’s petro might quickly is also a fantasy. Chevron may eke an extra 150,000 barrels a day over the next two years out of joint ventures with state oil company Petróleos de Venezuela, says Francisco Monaldi, director of Latin American energy at the Baker Institute for Public Policy. “After that, you need investment.”

Commodities:
-Advocates of crypto argued that Bitcoin was a better version of gold because its supply is even more limited than for the yellow metal, and it’s more appealing to a new generation. The theory was that Bitcoin would hold up as well as or better than gold in times of hyperinflation. What’s more, people can carry all their Bitcoin on their smartphone. Try doing that with a brick of gold. But the crypto downturn and several major failures within the crypto industry have taken some of the shine off digital coins. Bitcoin hasn’t proved to be an inflation hedge. In fact, it has traded more like other high-risk assets, including tech stocks that thrive during eras of low interest rates but struggle when inflation causes central banks to tighten monetary policy. Meanwhile, crypto trading platforms have proven vulnerable to hacks and fraud.
Gold is trading around $1,800/oz., about where it was when the year began. The SPDR Gold Trust is down 0.3% this year, far better than the 15% decline in the S&P 500. Bitcoin is down 63%.

Streetwise:
-Wall Street does not like T. Rowe Price says Jack Hough. 15 analysts cover the stock; and none advise investors to Buy. More say to sell than hold. Hough ran a screen of US companies of all sizes that are covered by at least 15 analysts. Only Bed Bath and Beyond scores worse on average ratings. It sells housewares to people who are presumably put off by Amazon’s convenience and Target’s lack of shoebox-size coupons. Same-store sales plummeted 26% last quarter. Nevertheless, perhaps there are sufficient reasons for you to like T. Rowe Price. The company turned 50 cents of each revenue dollar into operating profit. That’s 20 cents more than Apple, which was riding high pandemic demand for its gadgets. Assets under management for T. Rowe ended the year at $1.69T, triple what they were a decade ago. Peregrine Communications, a marketing consultant, nudged the firm ahead of index giant BlackRock to the No. 3 spot on its ranking of asset manager brand awareness, behind only Fidelity and Vanguard.

FT : Sam Bankman-Fried’s trading shop was given special treatment on FTX for yea

Sam Bankman-Fried’s trading shop was given special treatment on FTX for years
Alameda Research was exempt from borrowing limits applied to exchange’s other clients, former billionaire tells FT

Alameda Research was allowed to exceed normal borrowing limits on the FTX exchange since its early days, Sam Bankman-Fried has said, in a concession that illustrates how the former billionaire’s trading shop enjoyed preferential treatment over clients years before the 2022 crypto crisis.

In an interview with the Financial Times, the 30-year-old described the outsized role Alameda played in launching the exchange in 2019 and how it had access to exceptionally high levels of borrowing from FTX from the beginning.

Bankman-Fried said that “when FTX was first started” Alameda “had fairly large limits” on its borrowing from the exchange but he “absolutely” wished he had subjected the trading firm to the same standards as other clients.

Asked if Alameda had continued to have larger limits than other clients, he said: “I think that may be true.” He did not specify how much larger Alameda’s limits were than those of other clients.

FTX and Alameda portrayed themselves publicly as distinct entities to avoid the perception of conflicts of interest between the exchange, which processed billions of dollars’ worth of client deals a month before its collapse, and Bankman-Fried’s proprietary trading firm.

Bankman-Fried’s comments shed light on longstanding special treatment for Alameda. The close links between the firms and the large amount of borrowing by Alameda from FTX played a key role in the spectacular collapse of the exchange, once one of the largest crypto venues and valued at $32bn by investors including Sequoia and BlackRock. 

Previously one of the most respected figures in the digital assets industry, Bankman-Fried has apologised for mistakes that left up 1mn creditors facing large losses on funds they entrusted to FTX, but has denied intentionally misusing clients’ assets.

Bankman-Fried said the origins of the large borrowing limits for Alameda came as a result of the trading shop’s early role as the main provider of liquidity on FTX before it attracted other financial groups.

FTX, like other big offshore trading venues, handled large volumes of derivatives that allowed traders to magnify their bets using borrowed funds — but professional firms are typically needed to make the market function smoothly.

“If you scroll back to 2019 when FTX was first started, at that point Alameda was 45 per cent of volume or something on the platform,” Bankman-Fried said. “It was basically a situation where if Alameda’s account ran out of capacity to take on new positions that would lead to risk issues for the platform because we didn’t have enough liquidity providers. I think it had fairly large limits because of that.”

By this year, he said, Alameda accounted for around 2 per cent of trading volume and was no longer the key liquidity provider on the exchange. Bankman-Fried said he regrets not revisiting the trading firm’s treatment to ensure that it was subject to the same limits on borrowing as other similar firms operating on the exchange. 

FTX lent to traders so they could make big bets on crypto with just a small initial outlay, known as trading on margin. FTX’s large exposure to Alameda was a key reason that weakness in the trading firm’s balance sheet caused a financial crisis that engulfed both companies.

Bankman-Fried has estimated Alameda’s liabilities to FTX at roughly $10bn by the time both companies filed for bankruptcy in November.

“From a volume, from a revenue, from a liquidity point of view, the exchange was effectively independent from Alameda. Obviously that did not turn out to be true in terms of positions or balances on the venue,” Bankman-Fried said.

John Ray, the veteran insolvency practitioner running FTX in bankruptcy, has criticised its former leadership for failing to keep Alameda and FTX separate. In court filings, he pointed to a “secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol”. 

Automatic liquidation, or closing, of souring positions was a key tenet of FTX’s risk management procedures and a core part of its proposals to change parts of US financial regulation. When a typical client’s trade started to go underwater, FTX’s liquidation mechanism was meant to start draining the account’s margin to protect the venue from a single trade causing a loss for the exchange.

However, Bankman-Fried said there “may have been a liquidation delay” for Alameda and possibly other large traders. He said was “not confident” as to whether Alameda was subject to the same liquidation protocol as other traders on the exchange, and that the treatment of the trading firm’s account was “in flux”.

FT : Crypto broker Genesis owes Winklevoss exchange’s customers $900mn

Crypto broker Genesis owes Winklevoss exchange’s customers $900mn
New York-based Gemini is trying to recover funds after FTX failure plunged market into turmoil

Digital asset trading group Genesis and its parent company Digital Currency Group owe customers of the Winklevoss twins’ crypto exchange $900mn as the collapse of FTX reverberates across the market.

New York crypto exchange Gemini, run by Tyler and Cameron Winklevoss, is trying to recover the funds after Genesis was wrongfooted by last month’s failure of Sam Bankman-Fried’s FTX crypto group, according to people familiar with the matter.

Gemini’s bid to recover the funds underscores how the crypto lending market, where investors lend out their coins in exchange for high rates of return, sits at the centre of the industry’s credit crunch.

Genesis is the main partner in Gemini’s “earn” programme, where retail investors lend out their coins in exchange for a fixed stream of returns. Gemini halted withdrawals from the scheme last month after Genesis said “unprecedented market turmoil” meant it did not have sufficient liquidity to make good on all of its redemption requests.

Gemini has now formed a creditors’ committee to recoup the funds from Genesis and its parent DCG, the people said. Gemini and Genesis declined to comment.

Genesis has been scrambling to raise funding and has hired investment banking boutique Moelis & Co to help it explore all possible options, according to the people familiar with the situation.

The creditor committee is in negotiations with both Genesis and DCG, the parent group of Genesis which is run by billionaire Barry Silbert, the people said. DCG was founded in 2015 and is one of the biggest investors in the crypto industry. It was valued at $10bn last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture arm CapitalG and SoftBank, and its subsidiaries include Genesis and investment manager Grayscale.

DCG itself owes money to its subsidiary Genesis; these intercompany loans have complicated the picture for creditors.

DCG has $2bn worth of outstanding debt, $1.7bn of which is owed to its own subsidiary Genesis through two loans. Over the summer, Genesis lost $1.1bn on a loan to collapsed hedge fund Three Arrows Capital. DCG took on Genesis’s liabilities in the process, subsequently owing $1.1bn to Genesis. Silbert told investors last week that DCG had separately borrowed $575mn from Genesis “on an arm’s length basis” to fund undisclosed investments and share buybacks from non-employee shareholders.

“Because of the way the liabilities are, they’re negotiating together,” said one person familiar with the matter about Genesis and DCG’s approach to creditors.

DCG declined to comment. The Financial Times revealed last week that some of DCG’s borrowing was used to fund its investments into another of its subsidiaries, Grayscale.

FT : UK crime agency arrests wealthy Russian businessman at London home

UK crime agency arrests wealthy Russian businessman at London home
58-year-old man and two others held by NCA’s anti-kleptocracy unit

A wealthy Russian businessman has been arrested at his multimillion-pound London home by officers from the National Crime Agency on suspicion of money laundering.

The 58-year-old man was arrested on Thursday by officers from the NCA’s anti-kleptocracy unit and is also suspected of conspiracy to defraud the Home Office and conspiracy to commit perjury, the NCA said in a statement.

A 35-year-old man who works at the premises was arrested nearby on suspicion of money laundering and obstruction of an NCA officer after he was seen leaving the premises with a bag containing thousands of pounds in cash, according to the agency.

A third man, aged 39, was arrested at his home in Pimlico, London, for offences including money laundering and conspiracy to defraud. The NCA said he is the former boyfriend of the businessman’s current partner.

Investigators interviewed all three and released them on bail. Some 50 officers were involved in the operation at the businessman’s London property, and searches revealed a significant sum of cash as well as a number of digital devices, the NCA said.

The operation is one of a number of probes by the agency’s new combating kleptocracy cell, set up in July to tackle corrupt elites and Kremlin-linked individuals laundering their assets in the UK.

In a statement on Saturday the NCA said it had secured nearly 100 “disruptions” — actions that remove or reduce a criminal threat — against Putin-linked elites and enablers. Those included account freezing orders on bank accounts held by individuals close to sanctioned Russians.

The NCA has also targeted high-value asset sales used to disguise the movement of wealth via auction houses, it said.

Graeme Biggar, director-general of the NCA, said: “The NCA’s combating kleptocracy cell, only established this year, is having significant success investigating potential criminal activity by oligarchs, the professional service providers that support and enable them and those linked to the Russian regime.”

He added: “We will continue to use all the powers and tactics available to us to disrupt this threat.”

The NCA said it had assisted in freezing numerous properties, eight yachts and four aircraft, and was working with the sanctions regulator, the Office of Financial Sanctions Implementation, to ensure that other assets in the UK are frozen, as well as with global partners to target illicit wealth held abroad.

The update came after government figures last month revealed that Britain had frozen more than £18bn in Russian assets in response to the war in Ukraine.

Since Russia’s full-scale invasion in February, the UK government has frozen the assets of 120 Russian entities and more than 1,200 individuals linked to the Kremlin, including Roman Abramovich, former owner of Chelsea Football Club, and Alexei Miller, chief executive of energy company Gazprom.