She’s movin'
Big sell off, Amazon all sassy, and Visa makes history.
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Market summary: 📊
Yet another soft open in the US with tech stocks dragged lower while other sectors held ground. Indian markets were closed for Holi.
US:
S&P 500 - down 0.087%
Nasdaq 100 - down 0.10%
First things first ☕
✅ Untangling the ship—workers in the Suez Canal finally managed to get the ill fated Ever Given to float again by digging into the side of the canal and letting water levels rise, while using tug boats to pull the partially floating vessel out. The ship will continue its journey towards a central point in the canal called the Great Bitter Lake, where it will be reinspected for seaworthiness. Meanwhile, the waterway will be operated 24x7 to clear off blocking traffic, with nearly 450+ ships lined up in queue. It takes about 12 hours to get through the canal, and shipping giant Maersk is estimating 6 days for the backlog to clear.
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No US, no problem 💁♀️
China will be offering deeper tax breaks to its semiconductor companies to invest in building domestic manufacturing setups, cutting reliance on foreign imports.
Some context—for the longest time, the US had been accusing Chinese companies of spying and data theft, imposing serious sanctions on them, barring them from freely buying essential semiconductor components, virtually crippling progress in critical technology for China.
For example, the US taking on Huawei brought the company from being one of the top smartphone suppliers in the world in 2018 and 2019 to virtually absent from the list altogether. The Chinese suffered for as long as they could, and with even Biden not softening up, decided they’ve had enough. It's time to build their own stuff.
Anyway, the country is already allowing tax-free imports of machinery and raw materials for several chipmakers for as long as the end of 2030, for key materials including photoresists, masks, polishing pads, and liquids, and a bunch of more aggressive doles are in the pipeline.
Also, a couple days ago we saw Bytedance invest in its own AI chips, while before that Baidu committed $2 billion for R&D to build their own processors, all meant to cut reliance on western companies Nvidia and Qualcomm.
Bottomline: China is a voracious consumer of fancy electronics, and imports over $300 billion worth of semiconductors chips each year. Cutting that volume off by even 10-20% could seriously hurt business for the entire semiconductor value chain.
If you’re holding the bag on $NVDA, $AMD, and others...
“Unprecedented” sell off 🧐
Wall Street had an interesting weekend. On Friday, a few big banks began aggressively offloading stock by the boatloads in a select few companies, modestly depressing the entire market. Clueless about what was happening, investors braced for another HUGE sell-off...
But then street whispers spread like wildfire, and within hours news broke out that a renowned hedge fund owned by billionaire Bill Hwang was actually being forced to liquidate all its holding by its bankers over concerns of illiquidity or going broke. Nearly $20 billion worth of stocks were sold, causing a micro tsunami that dragged the prices of several unrelated companies.
The process is basically called a margin call. In simple terms, Hwang’s hedge fund called Archegos Capital Management had borrowed money from big banks to buy stocks, via a financial instrument called swaps. Putting up barely $10 billion worth of assets as collateral, Hwang had managed to amass concentrated positions worth nearly $50 billion or more in public companies.
One such benefit of swaps is that nobody knows how much Hwang actually invested, or which stocks he actually owns in his portfolio.
Anyway, the recent choppiness of the markets left Hwang exposed, and by the end of Friday, banks including Morgan Stanley, Goldman Sachs, and Deutsche Bank started feeling the jitters. So the cohort got together and forced Hwang to empty his pot and return the $$ he owes.
ViacomCBS (down 30%), Farfetch (down 20%) as well as Chinese internet stocks like Baidu, Tencent were hit BIG. The forced sell off destabilized other growth stocks too, putting all our memer-brothers under immense pressure. But the internet’s fighting back with a parody account, call it even...
Bottomline: banks’ routine practice of offering hedge funds a LOT more leverage (sometimes 4x the amount of capital they run) is going to receive some scrutiny. Also, reports suggest that some of the banks like Credit Suisse and Nomura are on the hook for as much as $4 billion in losses.
BTW, here’s a good piece from the Financial Times on the subject.
Bezos ain’t retiring without pickin’ some fights 😤
Amazon is increasingly getting sassy with US lawmakers, picking Twitter fights with politicians that dare to criticize the company’s policies on treating employees, or on paying taxes.
It's part of some politicians’ morning routine to lambast one or two symbolic famous corporations to make broader points about corporate behavior, we all know that, and the common sense dictates that you’re supposed to let it pass. But not around here…
Turns out, internally Bezos is apparently extremely critical of the team's lack of fact-based responses to these tweets, and has demanded concerned managers actually address them in the court of public opinion.
Unsure how this’ll play out, but Amazon’s new CEO Andy Jassy is going to have a tough time next time he’s called in for a date with regulators in Washington.
Meanwhile, it's the Twitter investors who’re loving all the chatter and free engagement.
What matters: no company of its size has taken to a Trump-like attitude towards PR, especially when dealing with high-ranking politicians in the US. Investors and analysts are modestly stunned by Amazon’s reaction, many torn on how to interpret the aggression.
Closing out—Visa just made history 🙌
The card processing network settled its first ever payment transaction on the blockchain, specifically using a stable coin USDC that is pegged to the US dollar. Basically, instead of reconciling its transaction on its own infra, Visa confirmed it on the Ethereum blockchain.
To those unaware, Visa basically manages the infrastructure that allows a store owner to quickly check with your bank to make sure you in fact do have the money you claim to have in your account for that ₹400 macchiato you just ordered.
It's a fairly complex system, when you consider millions of transactions, but Visa has spent decades to onboard hundreds of millions of merchants worldwide on its system to enable that payment in a split second.
Anyway, the progress opens a huge gate on further opportunities around here, including eventually even bypassing banks and settling transactions in split seconds entirely on its own infra— powered by the public blockchain.
What else are we snackin’ 🍿
😷 March is jinxed - chuck your dreams of a maskless vacation on the beaches of Goa. India reported nearly 68,020 new COVID-19 cases in the last 24-hours taking the total infection to over 1.2 Crores. 291 people succumbed to the virus in the last 24 hours, and the government's slow inoculation efforts are coming under political fire.
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An amazing newsletter. Loved the reporting as always. Succinct and insightful. For users, who want to understand how the Ethereum stack works for transactions on a public blockchain, here is it in plain English from Eric Jorgenson. https://www.ejorgenson.com/blog/ethereum-101.