FT : Putin Says Russia Open to More Talks With Ukraine

Putin Says Russia Open to More Talks With Ukraine
Ukraine’s troops might have to abandon key eastern stronghold to avoid encirclement, regional governor says

KYIV, Ukraine—Russian President Vladimir Putin told his German and French counterparts that Moscow was open to resuming negotiations with Ukraine, but that the West’s supply of weapons to the Kyiv government could exacerbate the crisis, the Kremlin said Saturday.

The comments came a day after U.S. officials signaled that the Biden administration is likely to approve the transfer of advanced, long-range rocket systems to Ukraine that the Kyiv government says are necessary to stop Russian advances in the Donbas region in the country’s east, where fighting has been intense.

Mr. Putin, in a phone call with French President Emmanuel Macron and German Chancellor Olaf Scholz, “confirmed the openness of the Russian side to the resumption of dialogue,” the Kremlin said.

But it said Mr. Putin cited the “dangerous nature of the ongoing pumping of Western weapons to Ukraine” and warned of “the risks of further destabilization of the situation and aggravation of the humanitarian crisis.”

Mr. Scholz and Mr. Macron initiated the conference call, which took place on Saturday and lasted around 80 minutes, the German chancellery said. The two European Union leaders asked Mr. Putin to start direct talks with Ukrainian President Volodymyr Zelensky and urged him to immediately end hostilities and withdraw Russian troops from Ukraine, the chancellery said.

The U.S. and allies have already supplied Ukraine with artillery, but it is insufficient on its own to counter Russian firepower, Ukrainian commanders say. The U.S. is now expected to provide multiple-launch rocket systems, or MLRS batteries, and a second type of mobile artillery launcher that can fire miles farther than any system now in Ukraine’s control.

News of the potential weapons transfer, and of Mr. Putin’s warning, came as Russia made fresh advances in the Donbas region.

Russian gains in the strategically important city of Severodonetsk might force Ukrainian troops to withdraw, a Ukrainian official said. The city is among the last major Ukrainian strongholds in Luhansk, which together with Donetsk makes up Ukraine’s eastern Donbas region. Moscow has focused its military campaign on the region after pulling its forces out of central Ukraine earlier in the war.

Ukrainian officials denied that Russians had encircled the Severodonetsk but said the Ukrainian forces might soon be forced to retreat while there was still a path out.

“The Russian army is destroying the city by shelling it with tanks, artillery, mortars,” Serhiy Haidai, the governor of Luhansk, said on Ukrainian television Saturday morning.

The previous night, he said Russian forces had taken the Myr resort complex on the northern edge of Severodonetsk, but he expected Ukrainians could defend the city for at least a few more days. “In order not to be surrounded, our troops may be ordered to retreat,” he said.

Also on Saturday, Russia shelled the southern port city of Mykolayiv, according to posts from Mayor Oleksandr Senkevych on social media. He said an unknown number of civilians had been killed in the attack.

Mr. Haidai described a dire situation for civilians in Severodonetsk. The road out of the city toward Ukrainian-held territory was no longer passable for trucks, he said, and cars were being shot at as they drove. Almost all residents were in basements or bomb shelters, he said, with no electricity, gas or running water. Most of the city’s 100,000 prewar residents have already fled.

Oleksandr Stryuk, the mayor of Severodonetsk, told Radio Liberty on Friday night that 90% of the residential buildings in the city had been damaged or destroyed, but many residents were afraid to leave because the only path out was so dangerous. Two-thirds of the city’s perimeter was controlled by Russian forces, he said.

“There is continuous shelling of residential neighborhoods,” he said. “There are casualties among the civilian population.”

Russia is taking steps to bolster troop levels for its military campaign, which Western military officials say has left its armed forces with heavy casualties.

Mr. Putin on Saturday signed a law annulling the upper age limit for military enlistment. Only Russians ages 18 to 40 and foreigners ages 18 to 30 previously were allowed to enlist. The new law would make it easier to recruit specialists, including those with medical and engineering expertise, Russian legislators have said.

The Kremlin said that Mr. Putin, in his call with the French and German leaders, also addressed the food shortages and price increases resulting from Russia’s blockade of Black Sea ports. Mr. Putin said that Russia was ready to find options to ensure the unimpeded export of Ukrainian grain from the ports, the Kremlin said.

The Russian leader faulted the “erroneous economic and financial policies of Western countries, as well as the anti-Russian sanctions they imposed” as the main reason for disruptions to food supplies, the Kremlin readout said.

An increase in the supply of Russian fertilizers and agricultural products would also help reduce strains on the global food market, but this would require “the lifting of the relevant sanctions restrictions,” the Kremlin said.

The Biden administration is expected to announce as early as next week that it will supply Ukraine with MLRS batteries, U.S. officials said Friday. Ukrainian officials say they urgently need the longer-range multiple-launch rocket systems to hold the ground in Donbas.

The administration approved $6 billion in direct military assistance to Ukraine as part of a $40 billion package earlier this month, but it has been reluctant to include the rocket systems in the next tranche of weapons supplies over concerns of provoking Russia.

It couldn’t be determined how many of the new systems the U.S. would provide, but one U.S. official said they could arrive in Ukraine within weeks. The U.S. also has said Ukrainian forces would need at least a week of training to use them.

Speaking to Naval Academy graduates on Friday in Annapolis, Md., President Biden said Mr. Putin wasn’t only trying to take over Ukraine, “he’s literally trying to wipe out the culture and identity of the Ukrainian people, attacking schools, nurseries, hospitals, museums with no other purpose than to eliminate a culture.’’

FT : Utility shut-offs loom after pandemic freezes expire for US households

Utility shut-offs loom after pandemic freezes expire for US households
Electric and gas accounts in arrears build up as higher energy prices strain budgets

The coronavirus pandemic and rising energy prices have left millions of US households in arrears on their electric and gas bills, and some are now about to lose service as moratoria on utility shut-offs expire.

More than 20mn households were behind on utility payments worth $23bn at the end of February, nearly double the number behind in 2019, according to the National Energy Assistance Directors Association, a group representing state agencies that disburse government payments to low-income energy consumers.

The number of accounts in arrears built up during the pandemic when some state regulators and utilities froze disconnections for non-payment. Customers received additional protection in the winter, when states regularly ban shut-offs.

The moratoria largely expired by May 1, however. NEADA predicts more than 2mn households will be disconnected over the next few months.

“We see a wave of shut-offs coming because we weren’t prepared for this much debt,” said NEADA executive director Mark Wolfe.

Utility gas prices are up 23 per cent from last year, according to April’s consumer price index. Electricity prices, driven in part by the cost of wholesale gas fuel purchased by power plants, are up 11 per cent. Higher energy costs are helping to drive inflation that has been straining household budgets.

One in five US households could not pay their energy bill at least once in the past year, according to last month’s Household Pulse Survey from the US Census Bureau. Nearly a third of households reported forgoing expenses such as food and medicine to pay their utility bills.

Korie Bosley, a single mother in Michigan, received a shut-off notice last month from DTE Energy when her bill doubled and she was unable to pay. Ineligible for state assistance, Bosley reached out to a private organisation, the Here to Help Foundation, to avoid a shut-off. According to the Michigan Public Service Commission, 1mn accounts worth $346mn were in arrears as of April 2022.

“I’m just doing what I can to make ends meet on a day-to-day basis,” Bosley said. DTE did not respond.

In financial filings, utility companies acknowledged financial impacts from customers who are behind on their bills.

The New Jersey utility owned by Public Service Enterprise Group reported it will take “several years” for its cash flow and levels of unpaid accounts to return to normal after shut-off moratoria in the state, according to a securities filing.

Duke Energy, a North Carolina-based utility operator, observed a “significant increase” in arrears and expected an increase in charge-offs.

“From the beginning of the pandemic, we took swift and unprecedented action to assist customers by voluntarily suspending disconnections for non-payment,” the company said. Disconnections were down 41 per cent in 2021 compared to 2019.

Utilities say that disconnections are a last resort and many efforts are made to assist families before a shut-off.

“Today, customers have more flexible payment options and programs than ever, and these programs are helping customers to manage the cost increases that are resulting from rising natural gas prices,” said the Edison Electric Institute, a trade group for US investor-owned utilities.

Last month, President Joe Biden announced an additional $385mn in Low Income Home Energy Assistance Program funding. Over $8.3bn was provided in LIHEAP assistance this year, the largest yearly investment in the program to date. Advocates say it’s not sufficient to cover demand, and some households face bureaucratic barriers when trying to use the program.

FT : China fails to work out a plan to ease its economic malaise

China fails to work out a plan to ease its economic malaise
Covid lockdowns strangle growth but there seems little officials can do to surmount the challenges

Premier Li Keqiang issued a bleak warning on Wednesday about the perilous state of China’s economy, telling more than 100,000 officials in a nationwide video conference that they urgently needed to boost growth, reduce unemployment and secure the summer grain harvest.

But the lack of any concrete new initiatives from the central government and muted state media coverage of the event suggest that there is still no easy way out of the economic crisis triggered by president Xi Jinping’s controversial zero-Covid policy. The strategy has brought commercial activity to a complete or near halt in dozens of cities over the past three months.

Just a few hours after Li spoke, Chinese state television’s main evening news broadcast buried a brief and much softened version of his remarks in the middle of its bulletin. It led instead with a long item about Chinese police officers — who pride themselves on being “the handle on the Chinese Communist party’s knife” — heaping praise on Xi.

The footage showed more than 1,400 uniformed officers applauding Xi and carried a clear message for cadres across the country that mounting concerns about the world’s second-largest economy would not supplant pandemic control as the party’s priority.

“After watching the news, it feels pretty hopeless,” said one government official in eastern Jiangsu province, who is trying to help revive the local economy. “There was much more coverage of everyone applauding [Xi].”

Li and Yi Gang, the central bank governor, deepened local officials’ malaise when they implied that there was relatively little that the government was willing or able to do to help them, even though the economic challenges, according to the premier, were “to a certain extent greater than those experienced in 2020”, when the Covid pandemic erupted out of central Hubei province.

In the first quarter of 2020, China’s economy contracted 6.9 per cent year-on-year, the first officially recognised annual decline in more than 40 years.

Li even raised the spectre of potential food shortages. While most international attention has focused on Shanghai’s strict measures, which began in late March and have only begun to ease gradually over the past week, lockdowns and regional transport restrictions have also affected large agricultural regions, such as Jilin province.

“Harvesting absolutely cannot stop,” he told the officials, according to an off-record transcript of Wednesday’s emergency meeting that was confirmed by three people briefed on the premier’s comments. “[Food security] is a fundamental responsibility of local party [cadres] and governments. If you cannot stabilise [agricultural] production, you will be held accountable.”

Li and Yi, however, offered only a modest expansion of a corporate tax relief initiative and new policy loans of Rmb800bn ($118.7bn), an amount equivalent to just 0.7 per cent of gross domestic product.

During the depths of the global financial crisis in 2008 and 2009, Beijing unleashed a stimulus effort equivalent to 13 per cent of annual economic output.

“Recently, a few provinces submitted reports to the State Council [China’s cabinet] asking to borrow money,” Li said. “[But current] transfer payments to local governments are the largest in history . . . So let me give you the bottom line, the rest depends on you local governments.”

Analysts argue that in areas where strict lockdowns have sapped demand from companies and consumers, more bank credit is about as effective as — according to the analogy attributed to John Maynard Keynes — “pushing on a piece of string”.

“Without the central government stepping up, the upside for fiscal support is capped,” said Trey McArver at Trivium, a Beijing-based consultancy. “A V-shaped recovery is extremely unlikely.”

David Zhang, who owns a small market research firm in Beijing, said that “cheap loans for SMEs won’t help — my problem is a lack of business and rising operating costs”.

Zhang, whose revenues have fallen by more than 50 per cent over recent months, added that “the situation is worse than in 2020”.

Many small business owners also complain that Li’s tax rebates often come with conditions that make them impossible for struggling small and medium-sized enterprises to claim.

In some regions, cash-strapped local tax bureaus will only give one party in any given transaction tax relief, which is usually grabbed by larger state-owned enterprises and foreign investors at the expense of their smaller, and predominantly private sector, SME suppliers.

“Most of our clients are bigger than us and there is no way they will give up tax benefits to help us,” said Li Bin, who runs a small advertising company in Nanjing, near Shanghai. “We are too small to make our clients sacrifice for us.

“Business is very bad.”

>>> Weekend Papers Summary

Weekend Papers Summary


NEW YORK TIMES
-Officials described a harrowing series of 911 calls, including some from children inside Robb Elementary in Uvalde. The National Rifle Association’s annual convention opened in Houston and former President Donald J. Trump defended gun owners.
-Above all else, activists and politicians at the NRA convention gathering sought to divert pressure to support popular overhauls like expanded background checks by seizing on the issue of school safety.
-A report by legal and rights experts cited a ‘genocidal pattern’ by Russia. The U.S. plans to send long-range mobile rocket launchers to Ukraine as Russian troops seize Lyman, the second small city to fall this week, and moved closer to encircling Sievierodonetsk.
-A report warned that Ukrainians were at “imminent” risk of genocide as Russian forces captured the Ukrainian city of Lyman. Follow updates on the war.
-He Left Russia to Fight Putin. Now He Leads Ukrainian Soldiers.
The commander, an opponent of Vladimir Putin who identified himself only by his codename Kandalaksha, left his homeland in 2014 when Moscow annexed Crimea.
-Despite a resurgent virus, millions of Americans are expected to be traveling over the holiday weekend.
This is likely to be one of the busiest travel periods since the start of the pandemic.
-Former President Trump had argued that an inquiry by the attorney general violated his constitutional rights. It was his second legal loss in two days.
-Up to 50 Subpoenas Are Expected as Grand Jury Begins Trump Inquiry
The district attorney in Fulton County, Ga., is weighing racketeering charges connected to Donald Trump and his allies’ attempts to overturn the 2020 election.
-The root of Haiti’s Misery: reparations to enslavers. For generations, Haitians were forced to pay France for their freedom. How much was a mystery — until now. The Times scoured centuries-old documents to find out.
-Dan O’Dowd, a software entrepreneur in California, is running for Senate on a single-issue platform: Tesla’s self-driving software.
-A verdict is expected as early as Tuesday in the case brought by a Trump-era special counsel against a lawyer with ties to Hillary Clinton’s 2016 presidential campaign.

THE FINANCIAL TIMES
-In his provocative speech, “Why investors need not worry about climate risk”, HSBC’s Stuart Kirk joked that he was not a typical head of responsible investing as he had “never used the word ‘journey’”. He was suspended from the bank and received this BS-filled rebuke from his boss: “The transition to net zero is of upmost [sic] importance to us and we will strive for ways to help our clients on this journey.” Worryingly for the ESG complex, many people found HSBC’s response more objectionable than Kirk’s words. The controversy has exposed a real divide between those who embrace BS and those who do not.
-Police in Texas have admitted it was the “wrong decision” for officers not to enter a classroom at Robb Elementary School in the city of Uvalde sooner during a shooting on Tuesday that killed 19 children and two teachers.
-Michelle Bachelet, the UN human rights chief, has staked her reputation and that of the 193-member organization on an investigation into China’s crimes against Uyghur Muslims in Xinjiang. The former Chilean president, long considered a contender to be the first woman head of the UN, traveled to the north-western Chinese region where 1M Uyghurs and other Muslim minorities have been subjected to mass internments, forced labor, re-education camps, tech-based surveillance and police persecution.
However, despite her personal experiences of repression and a sterling reputation among UN peers, hopes are dim that Bachelet will learn anything of value about China’s security apparatus and the plight of the Uyghurs. Nor is she expected to persuade Beijing to change course.
-Elon Musk must raise significantly more cash to finance his $44B takeover of Twitter after allowing a $6.25B margin loan commitment backed by his shares of electric carmaker Tesla to lapse.
-Twitter has refused to remove Silver Lake co-chief executive Egon Durban from its board, even after the social media company’s investors voted against his re-election at this week’s shareholder meeting.
-Elon Musk, arguably this era’s most prominent capitalist, last week labelled ESG a “scam” after Tesla, his pioneering electric carmaker, was removed from S&P’s ESG index. Such indices’ scores depended on how compliant a business was with “the leftist agenda”, he claimed in a meme shared on Twitter.
-The gloomy global elite strolling the Promenade in Davos this week could cheer themselves up by stopping off for free ice cream courtesy of Saudi Arabia’s Crown Prince Mohammed bin Salman. Or they could drop into the Saudi café for coffee, pumpkin jereesh and a rose mamoul crumble. Then visit Prince Mohammed’s Misk Foundation “Youth majlis” pavilion. With Russian oligarchs banned, the Saudis stepped into the limelight.
-It would be easy to assume that Klarna chief executive Sebastian Siemiatkowski is feeling downbeat after the company’s first large-scale job cuts, reports of a big fall in its valuation and general questioning of its buy now, pay later business model.
Although he admitted to being “quite exhausted” by recent events, the 40-year-old chief executive and co-founder of Europe’s most valuable private tech business also insisted: “I’m very, very optimistic.
-China will open up the final corner of its onshore bond market to foreign financial institutions as Beijing attempts to reignite global interest in renminbi debt in the face of a severe economic slowdown.
-The shenanigans in Downing Street are symptomatic of a deep malaise at the center, a casual carelessness which pervades Whitehall. Jacob Rees-Mogg can wander around leaving snippy notes on empty desks, but there is an emptiness at the top. The British system is heavily dependent on the centre for direction: yes, officials can run rings around Number 10, but without it, everything defaults to drift.

THE NEW YORK POST
-Texas Gov. Greg Abbot will skip Friday’s National Rifle Association convention in Houston and return to Uvalde amid pressure to pull out of his scheduled appearance in the wake of Tuesday’s elementary school shooting that claimed 21 lives.
-According to North Korea, its fight against COVID-19 has been impressive: About 3.3M people have been reported sick with fevers, but only 69 have died. If all are coronavirus cases, that’s a fatality rate of 0.002%, something no other country, including the world’s richest, has achieved against a disease that has killed more than 6 million people.
-An inflation gauge closely tracked by the Federal Reserve rose 6.klar3% in April from a year earlier, the first slowdown since November 2020 and a sign that high prices may finally be moderating, at least for now.

>>> Barrons Weekend Summary

Barron’s Weekend Summary: Bitcoin and other cryptocurrencies have lost $1.6T of value since the market peaked last November.

Cover Story:
Bitcoin and other cryptocurrencies have lost $1.6T of value since the market peaked last November. Tighter monetary policy and fears of a recession are weighing not only on stocks but also, in the case of crypto, on an asset whose hype has long exceeded its real-world uses. The recent collapse of a major “stablecoin,” which wiped out $40B in a few weeks, isn’t instilling confidence in the crypto ecosystem, either. Still, Bitcoin is up fivefold from its pre-pandemic days, and the industry has expanded to legions of other blockchains, tokens, and apps.

Interview:
No interview feature this week

Tech Trader:
-Many tech stocks have tumbled, but a small cloud stock has become more attractive. Snowflake is a cloud-based data warehousing company. It provides software on top of the giant data piles stored in public clouds—Amazon Web Services, Microsoft Azure, and Google Cloud—to help customers manage, analyze, and act on information about customers and their own businesses. Snowflake serves companies in many markets, including financial services, healthcare, retailing, media, and technology, helping to generate insights about their businesses and to provide customers with content and experiences.

The Trader:
-The stock market ended it’s a weeks-long losing streak. But it does not mean this stock market is any good.
Still, it was quite the relief when the market finally managed to string together a few good days, enough for the DJIA to gain 6.2% for the week, ending an eight-week losing streak. After seven long weeks of declines, the S&P 500 rose 6.6%, and the NASDAQ gained 6.9%. And that was reason enough for optimism.
-Pet food retailer Chewy is set to report earnings this coming Wednesday. It’s expected to report a loss of $0.10/share on sales of $2.41B, and a profit on adjusted earnings before interest, taxes, amortization, and depreciation—or EBITDA—of $6M. That could be optimistic. Raymond James analyst Aaron Kessler estimates that total revenue could come in at $2.42B, while adjusted Ebitda could come in at a loss of $22.7M.
-Bank stocks had a great week, and they can thank JPMorgan Chase. Not every bank is JPMorgan, however, and investors should be selective in choosing which ones to buy. JPMorgan held its investor day on Monday, and it was well celebrated by investors. Perhaps it was the fact that the company maintained its target for a 17% return on tangible equity, or maybe it was because CEO Jamie Dimon talked up the strength of the US economy and the US consumer.

Features:
-Like many well-intentioned movements, the environmental, social and governance movement—ESG—has spawned unintended consequences. ESG has become a dominant force in recent years, attracting more than $40T in assets, driving profound impact on capital markets and through them the entire US economy. Emerging critiques of ESG are strongly grounded in the economic consequences of investors’ narrow focus on ESG priorities. For example, the cost of capital for activities frowned upon by ESG—like fossil fuel production—has significantly increased, contributing to inflation and undermining US energy security. Yet the concept of stakeholder capitalism is proving more durable. Sometimes conflated with ESG, stakeholder capitalism is the idea that businesses have responsibilities to more than just their shareholders. Despite the valid economic critiques of the consequences of ESG investing, no serious intellectual challenge to stakeholder capitalism has emerged.
-Some of the big tech stocks such as Alphabet, Meta (Facebook), and four more others might be bargains and investors might want to consider buying now. When the stock market gets pounded, bargains abound—or so it seems. But in a bear market, the key to investing success is separating the thoughtlessly discarded from the overpriced junk. With about 2/3 of the stocks in the S&P 500SPX +2.47% down more than 20% from their all-time highs and the index itself down 15%, many stocks are on sale. Investors have their pick of nearly every sector, from tech and communication services to consumer staples and discretionary.

European Trader:
European supermajors BP and Shell attract headlineses of three smaller companies— TotalEnergies, Repsol, and Equinor—are up sharply against a backdrop of falling stock markets. Whether they are worth holding now depends on whether investors prize them at current prices because of the solid outlook for dividends. On top of that, oil companies are under pressure as investors prioritize environmental, social, and governance-friendly firms. ESG investors are now realizing that oil companies have money to invest in, and much to gain from, the transition to a low-carbon future.

Emerging Markets:
Tether is making a push into emerging markets as competition grows with rival stablecoin issuer Circle.
The largest cryptocurrency after Bitcoin and Ether, Tether’s USDT has long been the leading stablecoin—a type of digital token pegged to a real asset, such as the dollar. But USDT’s dominance has recently come under pressure. Rival USD Coin (USDC), issued by BlackRock and Fidelity-backed Circle, is increasingly taking market share amid unanswered questions about Tether’s collateralization.

Commodities:
Relief is at hand for coffee lovers who have been blighted by soaring prices for the past year or so. For that, they can thank favorable weather in South America and lower-than-expected demand growth. “In the absence of a weather event, prices are likely to trend down,” says Carlos Mera, the head of agricultural commodities market research at Rabobank in London.
-Tariffs he imposed on some 8,000 Chinese imports cost US customers $8B last year, according to the Peterson Institute for International Economics. They show scant evidence of either spurring domestic substitution or wringing concessions out of Beijing. Yet President Joe Biden has only tightened them, cutting off ad hoc exclusions that importers could petition for under Trump.

Streetwise:
-Jack Hough examines the small-cap rebound and says that “Stocks have never divided perfectly into growth and value buckets, because most companies are meant to grow, and value is subjective. Rule of thumb: If you’re embarrassed to name the company but are proud of the price you paid, it might be a value stock. The opposite goes for growth.”

Wired : A Bored Ape Lawsuit Won’t Set the NFT Precedent Seth Green Wants

A Bored Ape Lawsuit Won’t Set the NFT Precedent Seth Green Wants
After the actor’s NFT and licensing agreement were stolen, he suggested going to court to win back intellectual property rights. Not so fast.

THE FIRST THING you should probably do if you find yourself in Seth Green’s position is not tweet about how much you’re “looking forward to precedent setting debates on IP ownership & exploitation.”

Green, an actor best known for his pouty portrayal of archvillain Dr. Evil’s disappointing son in the Austin Powers franchise, has become the butt of crypto’s latest bad joke. Earlier this month, Green lost his prized Bored Ape when he fell for a scam and made himself vulnerable to thieves by interacting with a clone of another NFT project’s website. Clone sites can be virtually indistinguishable from the originals, often with only a letter or two missing from their domain names. Green is not the first to lose an NFT this way, and he won’t be the last. Hacking and old-fashioned con artistry are endemic in the magical world of Gutter Cats and Happy Hippos.

What makes Green unique is that he had a lot more riding on his Ape than most members of the Yacht Club. Unlike many NFTs, Bored Apes come with a license to make personal or commercial use of your new primate pal. When you purchase an Ape, you are granted the right to reproduce its image and create derivative works. Green had planned to do just that. For months, he has been developing a series called White Horse Tavern, which combines live action and animation and stars an Ape with a halo and endearing intimacy issues as the titular watering hole’s bartender.

But with the star missing, the show likely can’t go on. According to the Bored Ape Yacht Club (BAYC) terms and conditions, the right to exploit an Ape’s image follows the NFT. After a BuzzFeed article got the internet talking about how White Horse Tavern is now doomed, Green tweeted in response, “Not true since the art was stolen. A buyer who purchased stolen art with real money and refuses to return it is not legally entitled to exploitation usage of the underlying IP.”

Incorrect. This latest Ape affair illustrates the limits of the free, frictionless world promised by crypto—and its many misunderstandings around ownership.

Green’s claim about stolen art would be true if the stolen work of art in question was, say, Jeff Koons’ Rabbit. Whether a buyer purchased the stolen sculpture with “real” or unreal money, Koons would still have the exclusive right to, God forbid, make a life-affirming romantic dramedy starring the quicksilver critter. The default—which applies to both traditional art objects and crypto art—is that the author holds the copyright regardless of what happens to the artwork. But by tying the rights to the NFT, the Apes’ licensing scheme makes them different animals.

It’s not that anyone who goes around stealing simians has carte blanche to launch their own BAYC restaurant. If Green’s Ape were still in the thief’s wallet, Green would still be legally regarded as the “true owner,” with his right to exploit the underlying intellectual property left undisturbed. Unfortunately for Green, the Ape was quickly flipped to a user known as DarkWing84 for $200,000 and the law protects buyers who inadvertently shell out for fraudulently procured property. Assuming DarkWing84 wasn’t in on the scheme, they now own the Ape and the right to make him the star of a TV show about life and love in the big city. While Apes have gone for six figures, $200,000 was probably not a low enough price to put someone on notice that this particular Ape had a sordid past.

Because there is so little law on the books about NFTs and the transfer of intellectual property rights via smart contract, it’s true that a lawsuit over Green’s Ape could set a meaningful precedent. But it wouldn’t be the kind Green seems to expect. If DarkWing84 took Green to court to prevent him from moving forward with White Horse Tavern, they would likely prevail. Green’s only real hope is to steer clear of litigation all together and settle this quietly. Announcing to the world that he has been robbed and crowing about going down in legal history is making such a possibility increasingly remote. Next time you think you’ve got the trial of the century on your hands, please talk to your attorney before you talk to Twitter.

Green’s outspokenness also makes him a highly visible target for future scams. Last week at the NFT conference VeeCon, Green said he had found it “encouraging” to see “how many people approached me and said, ‘We’ve got to do something about this,’” when he went public about the theft. There’s a good chance that many of those concerned souls were fraudsters themselves. Once the cryptoverse knows you’ve been fooled once, you’re likely to be besieged by bad actors hoping they can fool you twice, offering to help you recover your NFT for a fee.

While the possibilities of crypto art continue to inspire artists working in a range of media, tethering rights with off-chain value to on-chain assets continues to be a risky proposition.

Barrons : Crypto’s Future Is Even More Exciting, and Maybe More Volatile, Than I

Crypto’s Future Is Even More Exciting, and Maybe More Volatile, Than Its Present

Few areas in the tech world are quaking like crypto. BitcoinBTCUSD +0.31% and other cryptocurrencies have lost $1.6 trillion of value since the market peaked last November. Tighter monetary policy and fears of a recession are weighing not only on stocks but also, in the case of crypto, on an asset whose hype has long exceeded its real-world uses. The recent collapse of a major “stablecoin,” which wiped out $40 billion in a few weeks, isn’t instilling confidence in the crypto ecosystem, either.

Still, Bitcoin, the most recognizable cryptocurrency, is up fivefold from its prepandemic days, and the industry has expanded to legions of other blockchains, tokens, and apps. The crypto market, worth $1.2 trillion, now encompasses decentralized finance, or DeFi, platforms for trading and lending; nonfungible tokens, or NFTs, that grant owners some property rights for things like art or video; and stablecoins, which are supposed to act like crypto dollars, holding a peg to a U.S. dollar with the backing of reserve assets.

Yet despite its vast technological and financial potential, the crypto industry is finding it tough to break into the mainstream, as investors retrench into safer assets while regulators bear down with more rules.

Is crypto facing an existential crisis? Or, as the bulls argue, is this a cyclical blip for a technology that will revolutionize markets, transform global commerce, and even form the basis for a new version of the internet called Web3? We asked a panel of industry experts to weigh in at our first-ever crypto roundtable.

Our panelists included Dan Morehead, founder and CEO of Pantera Capital, a crypto hedge fund firm; Eswar Prasad, an economist at Cornell University and author of the book The Future of Money; Alkesh Shah, head of digital asset strategy at Bank of America; and Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. The roundtable took place in mid-May. An edited version of the discussion follows.

Barron’s: Bitcoin is down 60% from peak prices, and it’s looking like another “crypto winter.” In the prior one, Bitcoin lost 82% of its value and took three years to return to its previous high. Is this cold stretch comparable?

Alkesh Shah: This asset class is correlated with risk assets like technology, and that sector has corrected due to factors like rising interest rates and inflation. For us to see a crypto winter, we would need to see people leaving the ecosystem—less institutional and corporate engagement, less developer activity. Instead, we’re seeing the opposite, with more institutional, corporate, and developer activity. Our view is, it’s not a crypto winter. It’s a consolidation period for a risk asset.

Eswar Prasad: It’s not acting like a unique asset class. The factors that seem to be driving other risky assets, including the path of inflation, interest rates, and liquidity conditions, all seem to be driving crypto. And there aren’t any fundamental valuation models to underpin crypto, especially currencies like Bitcoin with no intrinsic value. The Nasdaq CompositeCOMP +3.33% is down about 30% from its high, and crypto is off 60%. That indicates crypto is going to be much more volatile, with a lot more upside and downside risk.

Lisa Shalett: I wouldn’t say that the asset class is in a “winter.” But it’s in a severe bear market, and questions will have to be answered for it to revisit previous highs. The vulnerability around use cases is increasingly fraught. We’ve seen huge problems with stablecoins—one of the fundamental use cases for crypto. The lack of regulation and true collateralization has been unveiled, and it has exposed risks, not only to regulators but also to participants.

Dan Morehead: We’ve been doing this for 10 years and have seen six big cycles. The weighted average bear-market loss has been 61%, and we hit 62%. It has been going on for 110 days, which is about average for a bear market. This is the first bear market in Bitcoin history in which it has given back more than 100% of the previous bull market, and the first time we’ve had a new low after a bear market. All of those things make me think we’re closer to the end than the beginning.

One of the largest stablecoins, an “algorithmic” coin called TerraUSDUSTUSD –5.95% , recently collapsed, wiping out an estimated $40 billion in the token and a related crypto called LUNALUNAUSD –6.85% . The largest stablecoin, TetherUSDTUSD –0.01% , has been trading slightly under $1. Does this call into question the use for stablecoins as assets that can be relied on to hold their full value?

Shah: There are strong use cases for stablecoins. The economies of a “metaverse” will probably be powered by stablecoins. A retailer might have a digital catalog on a platform powered by a Meta or Microsoft , and could be paid in a stablecoin, with the transaction settled across borders in real time. If you use fiat currency today, it may settle in two to five days. If you have a view that the metaverse is in the first innings, you have to believe in stablecoins.

Prasad: There is a rich irony embedded in fiat-currency-backed stablecoins. The whole point of Bitcoin was to get away from trusting intermediaries such as central banks, commercial banks, or credit-card providers. But to work as reliable mediums of exchange, stablecoins need a centralized validation mechanism. They need to be backed by exactly what Bitcoin was trying to get away from—fiat currencies.

Ultimately, stablecoins meet some important demands of payment systems, domestically and across borders, and when we think about a metaverse. But I worry about whether stablecoins can be trusted to hold their value. Yes, they are collateralized, but who knows what the quality of that collateral is. We had problems with money-market funds, which were supposed to be safe, during the global financial crisis. It’s worrying if an entire financial ecosystem gets built on stablecoins.

Shah: The Terra failure will probably accelerate regulation. Eswar is right: It’s not what Bitcoin’s developers envisioned, but it is programmable money, and you could do all sorts of things with it. PayPal Holdings [ticker: PYPL] and Silvergate Capital [SI] are considering the launch of their own stablecoins, but we need a regulatory framework.

Morehead: The stablecoins that we work with are backed and audited, like USD Coin, or USDC. It would be better if stablecoins were regulated, and I think that will be the model in the future. But the demise of Terra doesn’t say anything about the broader promise of stablecoins or blockchains. Pets.com’s failure didn’t mean that the internet was stupid. It meant that one business model didn’t work.

A migrant who wants to send money across the border doesn’t want to speculate on the price of Bitcoin. They just want to send a payment instantaneously to someone with a smartphone. Banks and money-transfer businesses charge high fees and profit from exchange rates for a cross-border transfer. Stablecoins are incredibly advantaged over money-movement systems like Swift, which are antiquated, slow, and expensive. So, there is a use case for nonvolatile money, like a USDC stablecoin.

But stablecoins are backed by fiat money that is being debased. Inflation is around 8%. That is going to prompt a lot of people to want to save in things other than a fiat currency. Bitcoin and volatile currencies will have different uses than stablecoins.

Processing Bitcoin transactions, or mining, consumes a huge amount of electricity—equal to the amount consumed by countries like Norway in a year—because of the laborious “proof of work” system. More mining is now done with renewable fuels, but a large chunk still relies on fossil fuels, making Bitcoin environmentally controversial. What’s the outlook?

Prasad: My Cornell colleague Ari Juels, who devised proof of work in a 1999 paper, rues its use with Bitcoin. It’s incredibly clever, but it is inefficient and environmentally destructive.

This notion that proof-of-work mining creates jobs, especially with renewable energy, is a mirage if you think about the opportunity cost of energy, which can be put to better use. Blockchain protocols like ‘”proof of stake” are much more energy-efficient for processing transactions and securing a network. But with Bitcoin, I don’t see any incentives for the network to shift.

Shah: Outside of Bitcoin, most other blockchains are acting as operating systems with applications on top, and they are moving away from proof of work. Mining can help spur renewable-energy investment. With renewables, there are periods of time when you have significant excess energy. If you can monetize that excess energy and use that to fund further investment, you will actually do more renewable projects.

Since mining can be turned on and off in under 60 seconds, and the profit margin for mining is around 70%, even at today’s prices, it is a hugely profitable business for a utility. There is a scenario in which every utility that wants to do renewables has a mining arm, because it is something that will help balance the grid and not waste as much energy.

Prasad: The evidence doesn’t support the idea that Bitcoin mining will lead to more renewable-energy production. Yes, mining operations can be switched off in under 60 seconds, but given the huge investments that miners undertake in their equipment, they are on full-blast, 24/7, to be economically viable and maximize profits. Even miners who are ostensibly relying largely on renewables are using renewable resources for much less than half of their energy needs because the mining devices are run nonstop and need a steady supply of electricity.

Morehead: Bitcoin mining consumes an estimated 0.5% of the world’s energy. You can argue about whether that’s too much. But everything has a cost. ESG [environmental, social, and governance] has three letters in it. Definitely, the environment is one of the letters. But then there’s an S and a G. Bitcoin and other blockchains are delivering value in social and governance to literally billions of people. You have to weigh that against the environmental costs.

It’s way too easy to say, oh, Bitcoin’s an ESG killer, when people have all kinds of other things in their portfolios. Aluminum production takes 3% of all the world’s electricity. And old-school gold is the ultimate trifecta in ESG horribleness. It’s strip-mined in the world’s worst kleptocracies, using cyanide leaching production techniques. Unless a company has divested itself from gold, it’s super hard to say that Bitcoin is in the negative.

Are all the resources devoted to Bitcoin supporting something without intrinsic value?

Morehead: Gold doesn’t have much intrinsic value, either. It is used for dental fillings and some welding in satellites, or whatever. But the main use of gold is just to own it. It has been working for 5,000 years. People trust it, and it’s not that volatile. I think digital gold, Bitcoin, will be similar to that. It’s going to take decades to get it there. But the fact that gold doesn’t have any kind of physical property that makes it do anything doesn’t make it bad, either.

Prasad: Dan makes a good point that blockchain technology can have tremendous benefits in terms of improving the S and G in the ESG model. But there is no reason why you need to have proof-of-work mining for blockchain technology. It is not the most efficient way to do it. Just because gold has terrible environmental consequences, that doesn’t translate into a case for digital gold.

Shalett: I want to come back to this idea that Bitcoin, as a pure financial commodity, is going to face growing demand. I want to push back on that. This idea that Fidelity has advanced—that Bitcoin is a viable asset class for 401(k) participants—is going to face extraordinary regulatory pushback. There is no way that the [Department of Labor] is going to permit Fidelity to push this agenda. There are going to be a lot of people on the other side of that discussion. [The DOL has cautioned companies, including Fidelity, against including Bitcoin in 401(k) plans.] Erisa, the law overseeing 401(k)s, restricts clients’ access to wealth-creating asset classes that have very high levels of stability in the alternatives world. So, why accept this kind of asset class that has no intrinsic value, no real use case, and a volatility that is four to five times that of equities?

The second-largest blockchain, Ethereum, is planning a network upgrade in August, aiming to make it much faster, less costly, and more scalable as it switches to a proof-of-stake system. Will that be a game changer for the crypto ecosystem?

Shah: What’s attractive about Ethereum is the actual cash flows. Last year, $10 billion of fees were paid to network operators for processing transactions on the Ethereum blockchain. There’s cash flow here, even if we don’t yet have a model for figuring out the intrinsic value.

Think about Ethereum like an operating system for applications, projects, stablecoins, NFTs. In the past, when you had an operating system like Windows, a company owned it and collected royalties from PC makers. With Ethereum, 70% of the transaction fees will be used to burn tokens, kind of like share buybacks, and 30% will go to stakers—people who own the tokens and use them to help secure the network.

At some point, we will be able to forecast transaction fees for applications and projects on the network. Does this upgrade change everything for Ethereum and the applications on top of it? It makes it more attractive. But there is probably room for other blockchains optimized for other things, like Avalanche or Solana. There probably isn’t room for the 35 to 40 “layer 1” networks that exist today. But there’s room for three to five.

Prasad: Proof of stake is going to be a game changer for the blockchain-based financial ecosystems. Not only will it substantially reduce the transaction fees by increasing the throughput of transactions, but it also is much more scalable. It’s much more efficient in terms of processing times, and that is going to undergird significant changes in blockchain architecture.

But the governance issues for these decentralized architectures are going to be equally important. When you think about the governance of something like Ethereum, whether we might actually have centralization rather than decentralization is an important issue.

If you think about many blockchains proliferating, ultimately some of them will end up winning the race. Regulation might be necessary to prevent these decentralized architectures from leading to more concentration, rather than more decentralization and competition.

Morehead: There’s not going to be one blockchain. There’s not going to be 50. There’s going to be half a dozen, each with different features. That’s why we think there’s a place for something as powerful as Ethereum, but also Ripple for transactions and Bitcoin as digital gold. The web is not one company. There’s a dozen important web companies. The new blockchains are much more scalable—Polkadot and Solana are two that are built to be very scalable. While it’s frustrating that it is so expensive to do a Bitcoin transaction, I don’t think that in a few years’ time there will still be a problem.

If you’re going to invest in crypto, what’s the best way to do it? And does it have a place in a portfolio as an alternative asset when it appears so highly correlated to tech?

Morehead: Using Bitcoin as a proxy for our industry, it has grown at an 11-year rate of 2.5 times a year. We are in a short-term bear market here. But anyone who has owned Bitcoin for three years has made money. The internet itself is 50 years old. We have decades more to go. And it has historically had a low correlation with the S&P 500 index.

We will come to a place where investors decide to invest in things that aren’t interest-rate sensitive—like commodities, gold, oil, agricultural commodities, and things like blockchain assets. Obviously, it hasn’t happened for digital assets in the past three or four months. But I think that’s what will happen.

Shalett: We’re huge advocates of the crypto ecosystem. We think blockchain technology will be transformative and ultimately add value to a portfolio. So, we advocate exposure. But you probably want to do it in a highly diversified way, across the asset-class spectrum, from folks who are in mining, exchanges, custodial services, and such. A way we do that is through hedge funds or private investment vehicles for accredited investors. Crypto probably has a place in portfolios to a maximum of 5% for clients who understand exactly what they own.

Prasad: It’s hard to make the case against holding, say, 2% to 3% of your portfolio in crypto, because even if the value of those assets goes to zero, you’re not out very much. But the upside could be enormous. My worry is about many investors who are latching on largely because of bandwagon effects and the fear of missing out. I worry about many people who seem to be putting their life savings or a large part of it in crypto assets without fully understanding the risks.

Shah: There are so many choices as the sector matures; you don’t have to just buy the sector. There’s a handful of public companies today, but that’s only because we’re beginning this tech cycle. Look at the amount of venture-capital money flowing in—$25 billion last year, up from $3 billion in 2020, on track for $30 to $40 billion this year. There are 278 private companies valued above $100 million, 118 above $500 million. As you think about those companies going public, you’ll probably have, within three years, a $1 trillion sector.

Morehead: The four major blockchains that we’re excited about are Ethereum, Polkadot, Solana, and NEAR. The important point is that the vast majority of interesting tokens out there aren’t cryptocurrencies—they’re like crypto companies that are replacing traditional companies. There are more than 4,000 publicly traded companies in the U.S. We could easily have more than 4,000 tokens.

The Securities and Exchange Commission has approved Bitcoin futures exchange-traded funds. What is the prospect for approval of a Bitcoin ETF that owns the coin directly rather than through futures contracts?

Prasad: It’s going to take a lot to convince the SEC to move forward on a Bitcoin ETF under Chairman Gary Gensler. One issue from the regulatory perspective is that even if the risks are made clear, the fact that products are approved by regulators gives them some legitimacy, which convinces retail investors to believe these markets are overseen in a way that the risks can be contained. There is a compendium of issues that will make regulators take a long, deep breath before they move forward on this.

Morehead: The SEC has been using an extreme standard for Bitcoin relative to other crazy ETFs that exist. SEC Commissioner Hester Peirce makes the argument that the SEC has approved commodity ETFs, like one for palladium, that are based on unregulated spot markets. Bitcoin trades $70 billion a day on hundreds of exchanges in dozens of countries. It is way too big to be manipulated.

Even if there are some issues with data feeds or market manipulation, they are orders of magnitude smaller than the wealth destruction that has been caused by the Grayscale Bitcoin Trust [GBTC]. Retail investors were buying that at an 83% premium, and now it’s at a 37% discount. I can’t see how it serves the public good to allow that and not have a Bitcoin ETF.

Shalett: Part of me worries that when an ETF vehicle is made available, it will just be one more avenue that allows investors who don’t have the knowledge and sophistication to speculate. I worry that it would make the asset class even more volatile, not more efficient.

One positive for Bitcoin is that we’re at the trough of a demandsupply phenomenon. The developers of Bitcoin agreed to a fixed rate of supply, and every four years the amount of supply that will be added to circulation is halved. In the next 18 to 24 months, there are going to be fundamentals around scarcity that are more advantageous. But investors and regulators are getting more knowledge of the risks in the ecosystem, and that is going to affect valuations.

What are your thoughts on Web3—the idea that we could have new networks and apps based on decentralized blockchains and tokens?

Shah: Web3 is a concept, just like software, that isn’t going away. Blockchains will act as operating systems for new apps and services. Stablecoins will transfer value across borders. NFTs will potentially provide ownership of real goods in the metaverse, which will be powered by Web3.

Morehead: The whole concept of Web3 is about replacing companies like Spotify Technology [SPOT] or Airbnb [ABNB] with decentralized versions. We’re excited about a range of projects that are competing with the data monopolies. An example would be Audius, which is a sharing protocol that helps recording artists get more money. The users get paid for contributions they’re bringing by uploading songs. Audius already has six million monthly active users. We invest in about 80 different protocols that are doing these different business models.

We’re used to massive data monopolies, like Facebook [ Meta Platform ; FB] and Airbnb, sucking an enormous amount of value in their verticals. Those can be decentralized. Social media, like Facebook, will probably take a decade. But ultimately, we’re going to have a cooperatively owned and cooperatively governed version of the data monopolies like Facebook.

It’s going to be a wonderful world, way better for everybody, because these current owners can be pretty toxic. With decentralized governance, better decisions will be made, democracy won’t be destabilized, and false information about vaccines won’t be sold. It’s going to take a while, but that’s where we’re heading. It is one of the most obvious trends I’ve seen in my 35-year career.

Prasad: I worry that this decentralization and extensive fragmentation is not necessarily going to lead to better economic or social cohesion. I can imagine many of these technologies being co-opted by authoritarian, ostensibly benevolent governments, or large corporations, to accrue even more economic power. While these technologies do provide a pathway to desirable objectives, such as more democratization of finance, I worry that without guardrails in place, it will not lead us to some sort of nirvana. That outcome might be subverted toward a much darker place.

Shah: There is an automatic gravitation towards centralization. And we want that. Regulators want that centralization because they want governance and want to hold somebody accountable. The next step for the web is going to be semi-decentralized. And hopefully, Web4, Web5, Web27 will move to a world where it’s more decentralized. But it’s going to take a long time. The beauty of these tools is, they help decentralize the current internet a little bit more.

What is the outlook for crypto regulation, and do you expect governments worldwide to crack down on this technology and trading?

Shah: It’s not going to be a global regulatory framework because countries can’t agree on almost anything. Hopefully, there will be certain frameworks and countries adopt them. Our long-term view is that a regulatory framework that encompasses this ecosystem, the product, software, or services, is going to be hugely beneficial.

Prasad: The moment DeFi starts touching the regulated financial institutions, the regulators will become especially concerned. Stablecoins are going to face serious regulatory oversight. And if you have a central bank digital currency, or CBDC, it’s not clear what the use is for a stablecoin. We may get to a world where highly regulated stablecoins coexist with CBDCs. But if we move to a world where CBDCs become easily accessible within countries and for cross-border transactions, the use case for many stablecoins could be significantly undercut.

Shalett: I think we’re going to hear a lot of noise around Erisa. Given the volatility of the crypto asset class, to think that an Erisa fiduciary is going to suggest that Bitcoin should be an option in a 401(k) menu is a bridge too far. Most 401(k) menu designs do not include things that you and I might think are mainstream—like gold or energy infrastructure assets or real estate investment trusts. To this day, there are 401(k) plans that are debating whether emerging markets should be a choice on their platform.

Investors don’t really know what they’re buying?

Shalett: A lot of investors don’t even comprehend the elements of a Bitcoin transaction. If you’re buying on an exchange, what type of an exchange is it? Where is it going to be custodied? Who’s going to have access to it? Who are you actually trading against?

The vast majority of people transacting on these exchanges today couldn’t answer a single one of those questions. There’s no definition of “best execution.” In many cases, people don’t know where their assets are custodied. There are still a huge amount of questions around buying and securing a cryptocurrency asset.

We’ll need another roundtable to discuss all of that. Thanks, everyone.

Write to Daren Fonda at daren.fonda@barrons.com

The Information : VMware Should Not Expect a White Knight; Wish Sidelined as Dol

VMware Should Not Expect a White Knight; Wish Sidelined as Dollar Stores Rally

Broadcom made official its plan to acquire VMware in a cash-and-stock deal worth around $61 billion. The deal underscores the degree to which CEO Hock Tan has transformed Broadcom from a maker of networking chips into a formidable player in enterprise software.

The agreement includes a “go-shop” provision allowing VMware to solicit bids from other companies until July 5. But Broadcom is paying a rich premium, which may dissuade other bidders. The deal works out to about $138 per VMware share, about 44% above where VMware was trading before word of the deal leaked last weekend. And VMware was starting from a relatively higher base: Its shares were down 18% this year through last Friday, compared with a 28% decline for the Nasdaq.

Broadcom is likely expecting to make the deal pay off in part by cutting costs at VMware, as it has done with past acquisitions. David Bicknell, principal analyst at GlobalData, said head count at CA Technologies fell 40% after Broadcom bought the software company in 2018, “and employee termination costs were also high at Symantec,” a maker of security software that Broadcom bought the following year.

But don’t cash those checks just yet. As we reported earlier this week, the deal could face an antitrust challenge from U.S. regulators. The Federal Trade Commission is already investigating Broadcom for allegedly forcing customers into exclusive agreements, making it difficult for them to shop around, less than a year after the company settled an FTC case involving similar allegations of anticompetitive conduct regarding its customers.

Wish for Something Better
Could Wish parent ContextLogic get a recessionary lift? The operator of the Wish app, which features cheaply made items displayed in an Instagram-like feed, has often been described as the dollar store of the internet. Brick-and-mortar retailers like Dollar Tree and Dollar General have thrived in past downturns, particularly 2007–08, as cost-conscious middle-income consumers have sought out deals. For that reason, their stocks have proved particular favorites for investors when the economic outlook darkens. That seems to be the case again.

Dollar Tree on Thursday reported that its net income increased 43% to $536 million for the quarter ended April 30—even after lifting prices on most items past a dollar (to $1.25!)—and it raised its sales outlook for the year. Dollar General’s performance was weaker: Profit slipped 18% to $553 million. But it also hiked its sales outlook for the year. Stocks for both rallied more than 13% Thursday.

Wish shares, however, caught only a tiny bit of that tailwind, rising 1% to $1.63. (Its market cap of $1 billion is now just a tenth of its highest private-market value.) It’s not hard to see why investors have viewed Wish with more skepticism than they have physical retailers, even though those chains are also struggling with labor shortages and rising wages.

Even before talk of an inflation-driven recession heated up this year, Wish’s revenue had spiraled lower, as the end of pandemic shutdowns and reduced spending on marketing caused some customers to flee. Revenue fell 18% last year and it booked a $361 million loss. Its first-quarter results did not improve the picture much: In early May it announced negative free cash flow of $148 million as revenue sank 76%.

Wish’s CEO, Vijay Talwar, appointed after founder Piotr Szulczewski stepped down as CEO late last year, is now heading up a turnaround that involves paring down to a much smaller workforce and employing new strategies to keep its users from bolting. In theory, a recession should be good for a consumer seller like Wish. In reality, its problems may be recession-proof.—Laura Mandaro

Alibaba’s Feint
Don’t get too excited about a recovery in Chinese tech based on Alibaba’s results. The Chinese e-commerce giant said revenue for the quarter through March rose 9%, helping drive a 13% rally in shares in New York. But the results largely predate China’s severe Covid-19 lockdown in Shanghai starting in late March, which has hit supply chains for manufacturers and retailers. A bad sign: Alibaba didn’t provide an annual revenue forecast for the fiscal year ending in March 2023.—Shai Oster

In Other News…
Instagram plans to slow the pace of hiring in the second half of the year, Bloomberg reported.

The U.K.’s Competition and Markets Authority has opened a new investigation into Google’s ad business.

Dell said its quarterly revenue rose 16% to $26.1 billion, boosted by sales of business PCs.

New From Our Reporters
A Top China VC Firm Struggles to Raise Funds After 10% Return, U.S. Investor Fears

To Combat Declining Staff Morale, FTC Chair Khan Lifts Public Speaking Ban as Deputy Issues Apology

Creator Economy Winter, TikTok’s Rivals and NFTs: Highlights From the Creator Economy Summit

What We’re Reading
A Profile of Stripe’s Founders

Q&A With Epic CEO Tim Sweeney