Hold the relish, via CBS News:

Travelers at O'Hare are likely familiar with the sight of cars coming through to pick up and drop off passengers. Anyone caught stopping for too long is told to keep it moving.

The tight ship run at pickup and drop-off makes what happened around noon Saturday highly confusing. A DoorDash driver drove through secured areas before someone realized he wasn't supposed to be there.

A source told CBS News Chicago the delivery driver drove miles along the interior and restricted roads at O'Hare — potentially crossing runways — before someone spotted him from the air traffic control tower. . . Chicago police confirmed a 36-year-old man was working as a delivery driver when he "accidentally drove into an unauthorized secured area within O'Hare Airport."

The European Union is set to impose a flat €2 ($2.26) fee on billions of smaller parcels shipped – primarily from China – directly to consumers within the bloc, the Financial Times reports. A smaller surcharge will apply to warehouse-bound items.   

The EU’s proposal, which would put the squeeze on Middle Kingdom-based retailers such as Temu and Shein, aims to cover the cost of enhanced customs checks while combating “an increase in dangerous and non-compliant goods [in response to] complaints by EU  retailers of unfair competition,” per the pink paper.

Waxing worldwide protectionist sentiment presents two-sided pitfalls for suddenly put-upon merchants, illustrated by a noteworthy move from Jeff Bezos’ corporate pride-and-joy. The Information relays today that Amazon is curtailing available space in its U.S. fulfillment centers in a manner “resemb[ling] the harsh inventory caps” introduced during the 2020 plague year.

President Trump’s April announcement of 145% tariffs on Chinese goods and subsequent 90-day pause of those punitive levies has spurred Amazon and third-party vendors alike to stockpile goods, a dynamic that has helped contain price increases per recent commentary from CEO Andy Jassy. Yet earlier this month, Amazon asked resellers to “offer discounts, liquidate or even donate products to keep inventory from building up in fulfillment centers,” The Information relays.

As The Everything Store looks to forestall bulging warehouses, countervailing dynamics potentially loom for stateside shoppers and captains of industry alike. “There’ll be lower inventory across a variety of retail sector and in the parts supply [segment] of our American factories, that will leave us with fewer selections of products and likely higher prices,” Port of Los Angeles executive director Gene Seroka predicted at a media briefing Monday.  

The head of the country’s largest shipping hub added that “it typically takes about three months to send an order to a factory, have those goods made and get them ready to ship from Asia to the United States. So, this 90-day [tariff] pause is not a long time in our business.”

See the current issue of Grant’s Interest Rate Observer dated May 9 for more on the gale-force crosscurrents facing businesses in today’s tariffs-muddled backdrop, and the March 28 edition for a look at an eye-catching supply build in one financially prominent product.  

Long-dated Treasurys came under some renewed pressure following yesterday’s rebound, with 30-year yields climbing four basis points to 4.96%, while stocks ebbed by 0.4% on the S&P 500 in a low-voltage, narrow range session. WTI crude continued to tread water at $62 a barrel, gold advanced nearly 2% to $3,291 per ounce, bitcoin topped $106,000 and the VIX stayed at 18.

- Philip Grant

From CNBC:

The FBI on Thursday warned that “malicious actors” are impersonating senior U.S. officials in artificial intelligence-generated voice memos that target current and former government officials, as well as their contacts.

“If you receive a message claiming to be from a senior U.S. official, do not assume it is authentic,” the FBI said in an announcement.

On the other hand, cryptocurrency investment pitches from Howard Lutnick or the Trump family are likely the genuine article.

Who’s the dumb money now?  Retail investors got the better of the institutional crowd during the recent tariffs-induced stock market round trip, as the former contingent’s buy-the-dip proclivities paid off in a big way.

Individuals undertook $4.7 billion in net stock purchases on April 3 – when President Trump’s punitive trade levies spurred a near 5% swan-dive on the S&P 500 – on the way to a $40 billion inflow across April per JPMorgan derivatives strategist Emma Wu. Those are the highest single session and one-month figures on record.

Bank of America’s individual investor clients have acted as net buyers for 22 consecutive weeks, meanwhile, the longest uninterrupted streak of inflows since at least 2008. Conversely, equity positioning among systematic, rules-based institutional funds languishes in its bottom 12^th percentile of data dating to 2010 according to Deutsche Bank.

“In the face of daunting headlines, retail investors showed the power of diamond hands while the pros flinched,” Roundhill Investments CEO Dave Mazza told Bloomberg Thursday. “Retail isn’t constrained by benchmarks or answering to uneasy clients, so they plowed ahead and bought the dip, which worked once again.”

Yet as last month’s stock-market squall has given way to smooth sailing, “the retail [bid] appears to have slowed in May,” JPMorgan relayed Thursday.  

***

Those high-flying individuals may soon avail themselves of more exotic portfolio allocation options.  Industry heavyweight Partners Group “is lobbying the U.S. Department of Labor. . . to reaffirm that private equity has a place in 401(k) investment lineups,” Bloomberg reported yesterday.  Under former President Biden, the Labor Department specified that it “did not endorse or recommend such investments.”

Thursday’s bulletin comes one day after $1.8 trillion retirement services provider Empower announced it will offer private credit, equity and real estate strategies later this year in tandem with Partners and Apollo Global Management.

“A lot of private asset managers see tremendous opportunity” in the retail realm, Empower CEO Ed Murphy told The Wall Street Journal. Such an initiative is certainly understandable, as p.e. fundraising registered at $1.1 trillion in 2024 per Bain & Co., down a hefty 23% year-over-year and 40% below its 2021 highs.   

“We believe there are tremendous opportunities for retirement investors in private investing,” Murphy added to the WSJ. Tremendous though they may be, such opportunities won’t come cheap. Portfolio management fees will range from 1% to 1.6% per annum if estimates from Morningstar Direct are on the beam, compared to 0.28% for the average target date retirement fund.

The stock market’s dazzling recent run continues apace, as the S&P 500 sauntered higher by 0.6% to wrap up the week with a 2.2% gain and push further into positive territory in the year-to-date. Treasurys painted a mixed picture with two-year yields ticking to 3.98% from 3.96% Thursday while the long bond edged lower by two basis points to 4.89%. WTI crude hovered near $62 a barrel, gold ebbed to just below $3,200 per ounce, bitcoin treaded water at $103,000 and change and the VIX logged fresh post “Liberation Day” lows near 17.

- Philip Grant

The first shall be first, via a headline from The Wall Street Journal:

United Adds Caviar Service and Luxe Jammies in Race for Superpremium Travelers
 

Newly listed stocks-cum-crypto trading platform eToro joined the Nasdaq party with graceful aplomb this morning. The stock opened for trading just below $70 per share after the Robinhood rival priced just under 12 million shares at $52 each, topping its initial 10 million share target at between $46 to $50 each on the strength of an order book equivalent to 20 times the upsized deal per Bloomberg.

That outcome, which left the firm valued at $5.5 billion at day’s end, marks a long-awaited triumph for 18-year-old eToro, which unsuccessfully attempted to go public via merger with a blank check firm in 2021 at a $10 billion-plus price tag.

Might today’s gangbusters debut augur a broader thaw in the largely-frozen IPO market?  Domestic new listing volumes reached $18.8 billion from Jan. 1 through Monday by Bloomberg’s count, down 11% from the same pace last year and a fraction of the $142 billion raised in calendar 2021 according to Renaissance Capital, the largest such haul on record (that figure excludes the boom in special purpose acquisition company transactions).

Large swaths of the private universe are opting to wait out today’s fallow conditions, with nearly 40% of 150 venture capital-backed firms surveyed by Morgan Stanley early this year anticipating using tender offers to generate their next so-called liquidity event, compared to 31% eyeing an IPO to help raise cash. Yet with equity capital markets remaining finnicky since that 2021 bumper-crop, those entrants keep their eyes on the prize: 45% of surveyed firms point to an IPO as their ultimate goal, compared to 32% during a 2023 poll.

The stock market’s snappy recovery from the precipitous post-April 2 tariff “Liberation Day” selloff certainly bolsters those designs, with a pair of high-profile fintech firms potentially poised to reap the benefits. Yesterday, Chime Financial filed paperwork for a Nasdaq listing, trying its luck once more after aborting a 2023 listing effort at a provisional $15 to $20 billion price tag, then again hitting pause early last month on another attempt. 

Chime, which raised $750 million funding round at a $25 billion valuation in 2021, reported $12.9 million in first quarter net income on $518.7 million in revenue. That compares to $15.9 million and $392 million, respectively, in the year-ago period.  The app-based banking services outfit, which describes itself as “a technology company, not a bank” in the prospectus, is not a member of the Federal Deposit Insurance Commission, instead relying on partners including Stride Bank and Bancorp Bank (Grant’s Interest Rate Observer, Oct. 25, 2024) for relevant financial services.

Might fellow fintech firm Klarna Group be far behind?  The Swedish buy-now, pay-later outfit, which withdrew plans to IPO in April at a $15 billion to $20 billion valuation, famously attained a $45.6 billion price tag in 2021 before being forced to raise new cash at a $6.7 billion figure just a year later. 

Notably, recent developments at the firm may augur poorly for IPO hopefuls banking on the artificial intelligence revolution. After trumpeting that AI was performing the duties of 700 customer service agents in early 2024, Klarna co-founder Sebastian Siemiatkowski backpedaled from that stance in a Thursday interview with Bloomberg: “Cost, unfortunately, seems to have been a too-predominant evaluation factor when organizing this [structure]. What you end up having is lower quality.”

After curtailing new hires for over a year, Siemiatkowski detailed plans to resume adding (human) headcount, envisioning “an Uber type of setup” whereby employees can work remotely in a flexible, gig-economy type capacity. “Really, investing in the quality of the human support is the way of the future for us.”   

Stocks managed to consolidate their recent rip with a flat showing on the S&P 500, though continued strength in the mega-cap tech complex masked softness in less hallowed quarters. Treasurys remained in the pain chamber with 2- and 30-year yields each rising a further three basis points to 4.05% and 4.97%, respectively, while WTI crude pulled back below $63 a barrel and gold slipped 2% to $3,181 per ounce. Bitcoin finished slightly lower at $103,400 and the VIX crept towards 19.

- Philip Grant

From Bloomberg:

CrowdStrike Holdings, Inc. Chief Executive Officer George Kurtz disclosed last month that he’d gifted over $1 billion worth of his company’s stock to undisclosed recipients, sharply reducing his influence over the company in an unusual move for a tech founder.

The disposition is the latest in a series of transactions that have slashed his voting power in CrowdStrike to 2.5% from 31% in 2022, according to the company’s latest proxy statement. . .

The drawdown in his voting stake has been so dramatic that Kurtz in December triggered a clause eliminating all of CrowdStrike’s super-voting stock — a class of shares in place at companies like Alphabet, Inc. and Meta Platforms, Inc. to preserve the founders’ voting power. Those Class B shares formerly held 10 votes each and made up the majority of Kurtz’s equity.

“It is very normal that founders would progressively decrease their stake,” said Belén Villalonga, a professor at New York University who has researched how founders and their families maintain control through dual-class structures. “What I have not seen very often is that the founder would dilute themselves and would sell below the point that would trigger the disappearance of those privileges.”  

They’re back!  Negative nominal bond yields are creeping back into the fore following a brief reprieve, reaching $23 billion in outstanding obligations last week, marking a 15-month high. The global stack of upside-down paper famously topped $18 trillion in late 2020 before melting away during the subsequent inflation conflagration.

The epicenter of that interest rate downshift rests high in the Alps, with Switzerland’s government bonds due in three years or less all sporting subzero yields-to-maturity. The Swiss National Bank will trim the 0.25% benchmark policy rate to zero at its next meeting on June 19, two-thirds of Bloomberg-surveyed economists reckon. Pantheon Macroeconomics’ Melanie Debono anticipates a 50-basis point rate cut to minus 0.25% next month, while peers at Goldman Sachs and Nomura predict that outcome later in the year.

“We [have not] ruled out negative interest rates,” SNB President Martin Schlegel told reporters last week, adding that “no one likes” such a policy but unwelcome currency strength may force the central bank’s hand. The Swiss franc reached its strongest level versus the dollar in a decade last month, dipping to 0.81 to the buck from 0.91 in January.

A well-worn playbook governs such currency suppression efforts: the SNB purchases euros then diversifies into dollars and other currencies, buying, among other things, U.S. stocks.  The stateside equity portfolio stood at $141.6 billion across 2,397 firms as of March 31 per the freshly released form 13-F.

Though that practice of shunting freshly-conjured francs into productive enterprises marks a noteworthy departure from economic orthodoxy, the gnomes have their limits. At the SNB’s April 25 shareholder meeting, Schlegel flatly rejected calls to add bitcoin and other digital ducats to the bank’s portfolio, stating the “cryptocurrency cannot fulfill the requirements for our currency reserves” owing to inconsistent market liquidity and “very, very high” volatility.

That’s not to say that the Schlegel et al. have fully turned their backs to the digital asset revolution. Among its updated equity holdings include 639,800 shares of Strategy, Inc. (née MicroStrategy) up 24% since Dec. 31 to leave the SNB as the leveraged bitcoin speculation vehicle’s 26^th largest share-hodler.  Over the past 52 weeks, MSTR has logged a 314% peak-to-trough trading range, compared to about 100% for bitcoin itself.

Lesson learned: when President Trump says “buy,” you buy. Stocks ripped by 3.3% on the S&P 500 following the weekend trade developments since Friday, pushing gains on the broad average to about 4% from the Commander-in-chief’s bulled-up Thursday command and virtually erasing year-to-date declines.

Treasurys endured a bull-flattening selloff with 2- and 30-year yields jumping 10 and 6 basis points, respectively, to 3.98% and 4.89%, while WTI crude maintained momentum at $62 a barrel and gold dropped nearly 3% to $3,237 per ounce. Bitcoin hovered at $102,000 while the VIX retreated to 18, down nearly seven points over the past week.

- Philip Grant

“Spies are everywhere in [the] cutthroat fintech industry,” a Thursday headline from The Information proclaims.  

The tech publication goes on to detail widespread corporate espionage across the startup-heavy financial technology realm, with a quartet of entrants recently filing suit against competitors, alleging pilfered trade secrets or customer data. Litigants include “decacorn” credit card and cash management concern Brex, which scored a $12.3 billion valuation during a January 2022 funding round.  

Human resources software firm Rippling, meanwhile, “used a honeypot trap to catch an alleged spy” acting for rival Deel in March, with the staffer unsuccessfully attempting to flush his phone down the toilet after a Dublin-based judge ordered him to hand over the device. Deel has countersued Rippling for defamation.

“Theft is bad,” venture capitalist Eric Bahn told The Information, “I realize it’s a gray line, but bringing general know-how isn’t so bad for me, [it’s] just part of the cycle of innovation that makes Silicon Valley so unique and innovative.”

***

The Trump administration’s regulatory relaxation, meanwhile, spurs one prominent industry player to (re)expand its horizons.  SoFi Technologies CEO Anthony Noto predicted on CNBC last week that the self-described “one-stop shop for digital financial services” will allow customers to invest in cryptocurrencies by the end of this year, reversing a 2023 retrenchment from digital assets as a condition of receiving its bank charter.  

“We want to actually make a bigger, more comprehensive push into cryptocurrency [this time], to include really providing crypto or blockchain capabilities in each product area that we have,” Noto declared. The San Francisco-based outfit reported $771 million in revenue during the first quarter, up 33% year-on-year, likewise raising its full-year forecast to $3.28 billion from $3.24 billion using the midpoint of provided ranges.

SoFi’s mushrooming top-line, alongside double-digit growth in assets, loans and deposits, has delighted Mr. Market of late, with shares up 90% over the past 52 weeks compared to 21% for the KBW Bank Index. The stock changes hands at 2.2 times book per value per share, nearly double that of the KBW gauge.

The state of the firm’s balance sheet, however, raises eyebrows in some quarters. Christopher Whalen, publisher of The Institutional Risk Analyst, wrote on April 30 that SoFi’s reported 330 basis points of net losses on its $18 billion personal loan portfolio stands slightly below that of analogue peer CapitalOne. However, net losses grow towards 5% after including delinquent loans sold by SoFi to other lenders, while its credit card charge-offs stood near 11%, “a loss rate that compares with Capital One and other, more aggressive consumer lenders.”

Overall, “the levels of net loss on the bank’s unsecured consumer loan book are eye-opening,” Whalen relays, particularly considering that the provision for credit losses ebbed by 21% from the opening three months of 2024. “As and when credit costs actually start to rise among U.S. banks, the unsecured consumer book at SoFi may become a larger concern.”

See the analysis “Credit risk for the young” in the Jan. 17 edition of Grant’s Interest Rate Observer for an in-depth look at potential hazards lurking within the suddenly sprawling fintech-cum-crypto complex, in which depositors often do not enjoy a government backstop via the Federal Deposit Insurance Corp.

A $4 billion weekly decline in Reserve Bank credit leaves the Fed’s portfolio of interest-bearing assets at $6.662 trillion. That’s down $16 billion from this time last month and 25.3% south of the early 2022 high-water mark.

Investors dutifully followed President Trump’s intraday instruction to “go out and buy stocks now,” pushing the S&P 500 to a near 1.5% advance as of early afternoon before the rally lost some steam late in the day to leave the broad index with a 0.6% gain. Treasurys came under heavy pressure with two-year yields spiking a dozen basis points to 3.9% and the long bond rising to 4.83% from 4.77% Wednesday, while WTI crude climbed back to $60 a barrel and gold retrenched to $3,308 per ounce as outsized volatility continues apace. Bitcoin rocketed above $101,000 for its first trip above six figures in three months, while the VIX fell below 23.

- Philip Grant

From the New York Post:

A hungry 7-year-old boy somehow drove his little sister nine miles to get a McDonald’s breakfast — with their shocked mom saying he’s “probably grounded for the rest of his life.”

Police in Ogden, Utah were first alerted to a reckless driver at 8 a.m. on April 27, holding off on a chase when the caller said that “the driver appeared to be a young child,” according to ABC4.

The white SUV finally came to a stop when it hit a parking strip — and responders found the 7-year-old driver and his 5-year-old sister unscathed. Officials then realized that the pint-sized duo had made it nine miles from their home in Clearfield — with cash in hand to buy Happy Meals at a McDonald’s.

And we’re back: the potent recent rally in stocks has helped confer bullish tidings across speculative-grade credit, with the Bloomberg U.S. Leveraged Loan Index logging its eighth consecutive green finish Friday to push average prices near 95 cents on the dollar for the first time since the April 2 “Liberation Day.”

A revived primary market pipeline accompanies the rebound, with last week logging a half-dozen domestic loan launches, the busiest such stretch since late March. The issuance market remained shut for 14 consecutive sessions through mid-April, the longest uninterrupted drought since Bloomberg began tracking the statistic in 2013.

The reprieve has not been lost on some observers. “Companies should take advantage of the current 90-day tariff pause and the resulting more favorable market conditions before another potential spike in volatility later in the year,” opined Bank of America credit strategist Yuri Seliger. “The rest of the year might be a sloppy mess,” a leveraged finance banker told the Financial Times. “I firmly believe now is a good time to go.”

Indeed, intensifying fundamental headwinds could constrain further expansion in risk appetite. LCD PitchBook relayed Friday that rating agency downgrades within the LSTA U.S. Leveraged Loan Index outpaced upgrades at a 3.4:1 clip over the first four months of the year, the worst such year-to-date ratio in at least a decade, outside of the 2020 plague year.  The trailing 12-month downgrade-to-upgrade ratio stood at 2.7:1 on April 30, up from 1.9:1 a year earlier.

The population of speculative grade borrowers in the fixed-rate realm struggling to stay afloat is likewise on the hop. Distressed bond face value (meaning those trading at option-adjusted spreads north of 1,000 basis points) within U.S. high-yield reached $100 billion at the end of April, Bloomberg credit analysts led by Philip Brendel write today, up $44 billion from February after that metric logged a 33-month low at the start of the year. “Sharp surges in distressed from long-term, docile ranges have historically spelled out trouble for the high yield market,” Brendel et al. relate.

A similar upward distressed lurch took place in April and May 2022, the Bloomberg team finds, presenting a “faulty” sell signal as high-yield went on to deliver a 19.3% return over the next 34 months. However, two-month surges through August 2007, June 2011, October 2014 and November 2018 each marked “opportune points to abandon junk bond and distressed debt positions.”

Stocks slipped by 0.6% on the S&P 500 as the broad index’s near two-week winning streak went by the wayside, while long-dated Treasurys also came under some pressure with 30-year yields rising four basis points to 4.83% (the two-year note held steady at 3.83%). WTI crude failed once again to catch a bid at $57 a barrel, gold ripped higher by nearly 3% to $3,331 per ounce, bitcoin pulled back below $94,000 and the VIX rose one point towards 24.

- Philip Grant

From The Wall Street Journal:

A bipartisan bill introduced in the Senate on Thursday calls for the U.S. Mint to end production of the one-cent coin.

Pennies these days are more likely to end up lost or buried under couch cushions than to be used for transactions, according to detractors. Each one cost 3.7 cents to make last year. . . Some 60% of actively circulating coins, or as much as $14 billion, sit in coin jars, according to the Federal Reserve.

Meanwhile, the cost of making a penny increased 20% in the 2024 fiscal year, according to the Mint.

Not loving it: McDonald’s delivered soggy first quarter earnings this morning, reporting that same store sales in the U.S. fell 3.6% from the first three months of last year.  That compares to sell side expectations of a 1.4% decline and marks the worst such showing since Covid-addled 2020. 

One fewer business day versus 2024’s leap year-enhanced calendar partly explained the downshift, though store traffic broadly ebbed during the period as “consumers today are grappling with uncertainty,” per McDonald’s CEO Chris Kempczinski.  Notably, a near-double digit industrywide traffic among lower income diners was nearly matched by the mid-range cohort during the most recent period, “a clear indication that the economic pressure. . . has broadened,” the executive added.

Such spreading adversity could soon manifest in a showcase macro data series, one observer believes. Noting that respondents to the University of Michigan’s consumer sentiment anticipate the largest one-year uptick in unemployment since at least 2015, Apollo chief economist Torsten Sløk predicted Tuesday that tomorrow’s non-farm payrolls print for April could materially undercut consensus expectations of 130,000 new positions, perhaps tipping into outright contraction. Coloring the case for the first such decline since 2020: the Bureau of Labor Statistics’ latest survey took place during the week after President Trump’s tariff “Liberation Day” spurred severe market convulsions.

Trade-related tumult has, in turn, helped spur notable pain in the energy patch. Benchmark WTI crude prices dipped below $58 per barrel early Thursday, down more than 25% since Inauguration Day to reach the lowest levels since early 2021.

As chemical engineer Robert Rapier pointed out in an April 11 analysis for Oilprice.com, the 20-plus year domestic fracking boom has served to shift the U.S. from a major net energy importer to a net exporter, meaning that declining oil prices would serve to aggravate the already-yawning trade deficit rather than act as a net tailwind for consumer spending.  Indeed, the recent downdraft represents a “flashing warning sign” for broader economic health, Rapier writes, adding that “the same people chanting ‘drill, baby drill’ may find themselves wondering why rigs are being idled, capital expenditures are being slashed and jobs are being cut.”

Suffice it to say, the recent course of asset prices reflects no such darkening commercial picture, as the S&P 500 wrapped up a ninth consecutive advance today, marking its longest winning streak since April 2020.  That prior episode, of course, took place during the lockdown-induced economic cessation (which famously featured a brief interlude of negative nominal crude oil prices), nonetheless auguring an extended spell of ravenous risk appetite. 

Is a sequel in the cards? Yesterday brought the following Bloomberg bulletin: “A blank-check firm led by Anthony Pompliano, a cryptocurrency influencer, podcaster and investor, has filed for an initial public offering to raise $200 million.”

Reserve Bank credit stands at $6.66 trillion following a $13 billion weekly decline. The Fed’s portfolio of interest-bearing assets is down $21 billion from the beginning of April and 25.3% from its early 2022 peak.

Stellar earnings reports from mega-cap mainstays Meta and Microsoft helped ensure continued bullish tidings, though late selling pressure left the S&P 500 higher by 0.6% rather than its 1.5% intraday peak. Treasurys gave back some recent gains with 2- and 30-year yields jumping 10 and 8 basis points, respectively, to 3.7% and 4.74%, while WTI crude staged an afternoon rebound to $59 a barrel and gold sank more than 2% to $3,234 per ounce. Bitcoin pushed towards $97,000 while the VIX consolidated just below 25.

- Philip Grant

We’ve got good news, and bad news: A Morgan Stanley-led banking consortium breathed a sigh of relief Monday, offloading the final $1.23 billion in debt tied to Elon Musk’s 2022-era buyout of social media platform X Holdings (née Twitter).

The first-lien loan priced at 9.5% and a 98 cent on-the-dollar discount, Bloomberg reports, with demand for the issue topping $3 billion. By contrast, the lender syndicate had been fielding bids closer to 60 cents on the dollar only months ago, a discount which would have spelled serious pain.

“If I were Morgan Stanley, I’d be walking on air,” retired Johns Hopkins University finance professor Jeffrey Hooke relates to Bloomberg. “Could you have hoped for a better result as a lender? I don’t think so. [They] were deep in the abyss but got rescued.”

Yet as banks finally clear their balance sheets of the $80 billion in hung deal detritus lodged during 2022’s asset price downshift, primary markets are once again providing little accommodation in the wake of the April 2 tariff “Liberation Day.”  

Domestic junk bond issuance stands at $7.9 billion in the month-to-date, Bloomberg relays today, marking the slowest April since 2008, with the $5.1 billion in new leveraged loans representing the fifth-flimsiest single supply month dating to 2013.  Banks, which had planned to underwrite $38 billion in euro- and dollar-denominated financing transactions to help fund leveraged buyouts as of the end of March, have since been obliged to house $4.6 billion in orphaned paper.

Bullish conditions remain in place as stocks shook off some early weakness to post a 0.6% gain on the S&P 500, narrowing year-to-date losses to 5%. Treasurys also remained on the front foot, with 2- and 30-year yields dipping a further two and five basis points respectively to 3.65% and 4.64%, while WTI crude sank to $60 a barrel and gold pulled back to $3,320 per ounce. Bitcoin finished little changed near $95,000 while the VIX continued to deflate at 24 and change.

- Philip Grant

BlackRock’s shareholders are being urged to vote against chief executive Larry Fink’s pay at the group’s upcoming annual meeting, setting up a tense remuneration vote at the world’s biggest asset manager for the second year in a row. . .

According to ISS, Fink’s pay is closer to $36.7 million versus the $30.1 million the company disclosed. By “adjusting for the lag in equity grant reporting,” Fink’s awards increased by about 33% from 2023, ISS said. . .

ISS also raised concerns with a new carried interest pay program that BlackRock launched in February. Like Goldman earlier this year, the BlackRock chief’s bonus will include the new award, entitling Fink to a share of the profits generated by the group’s private markets funds for generating growth in this segment.

Behold the crypto comeback: the price of bitcoin has returned to positive territory during the year-to-date, erasing a downdraft that reached 18% earlier this month.  The preeminent digital ducat logged a near 12% advance last week, marking its best such performance since the aftermath of President Trump’s re-election last fall.

Meanwhile, blank-check firm Cantor Equity Partners – an affiliate of Cantor Fitzgerald, the brokerage heretofore led by Commerce Secretary Howard Lutnick – detailed plans last week to form a so-called bitcoin treasury company via a merger with Twenty One Capital, Inc., sending investors into a lather as shares vaulted nearly 200% over the four sessions through Friday.

The vehicle, launched in partnership with bold-faced industry names Tether, Bitfinex and SoftBank, provisionally sports a fully-diluted market value of $12 billion by Bloomberg’s lights, triple the $4 billion price tag attached to its cache of 42,000 bitcoins (by contrast, Michael Saylor’s bitcoin acquisition firm Strategy trades at roughly double its net asset value). The frenzied rally speaks to potent institutional and individual demand for such contraptions, notes Keefe, Bruyette & Woods analyst Bill Papanastasiou, with investors “essentially. . . betting on the fastest horse for [accumulating] bitcoin exposure.”

Cantor’s foray marks the third crypto M&A deal valued at $1 billion or higher in the last two months, The Wall Street Journal relays, with Michael Novogratz-led crypto exchange Galaxy Digital preparing a Nasdaq direct listing in the coming weeks following a green light from Trump-appointed regulators at the Securities and Exchange Commission.

Total transaction value across the industry stands at $8.2 billion in the year-to-date per data from Architect Partners, nearly triple the total seen across 2024. “There’s optimism that finally things changed,” Architect founder Eric Risley tells the WSJ. “There’s a genuine interest in the market in taking advantage of this regulatory moment” adds Ryne Miller, co-chair of the crypto practice at law firm Lowenstein Sandler.  See the March 28 edition of Grant’s Interest Rate Observer for a closer look at the President’s wholesale, opportunistic embrace of digital assets.

The recent levitation in turn propels an infamous speculative plaything back to the financial fore. The price of Fartcoin reached its best levels since January this morning, as a near 200%, one month rally has pushed its market value to $1.2 billion. That figure outstrips the capitalization of roughly 60% of Russell 2000 Index components.

A round of consolidation followed last week’s steep rally in stocks, with the S&P 500 shaking off some moderate intraday weakness to log a flat finish, while Treasurys enjoyed a bull-steepening move with 2- and 30-year yields dropping seven and five basis points, respectively, to 3.67% and 4.69%. WTI crude pulled back below $62 a barrel, gold rebounded to $3,348 per ounce, bitcoin remained just south of $95,000 and the VIX settled near 25 after testing 27 at lunchtime.

- Philip Grant

We’ve got boots on the ground: American Airlines pulled its full-year earnings guidance this morning, stating that it will furnish an updated figure “as the economic outlook becomes clearer.”  The Fort Worth-based carrier pegged second quarter adjusted earnings per share at $0.75 using the midpoint of management’s range, trailing the $0.96 consensus guesstimate.

“We came off a strong fourth quarter, saw decent business in January and really domestic leisure travel fell off considerably as we went into. . . February,” American CEO Robert Isom relayed on CNBC this morning.

Those would-be vacationers have company in the workaday realm. Keith Waddell, CEO of staffing firm Robert Half, warned yesterday that “business confidence levels moderated” over the first three months of the year as President Trump’s trade-focused agenda took shape, with “client and job seeker caution” serving to “elongate decision cycles and subdue hiring activity.” First quarter revenues at the employment bellwether slipped 8.4% year-over-year to $1.35 billion, short of the $1.41 billion sell-side bogey, while management anticipates a 7% top-line drop during the current period.

A broader consumer barometer likewise points to less than rude health, with Procter & Gamble revealing today that net sales over the three months through March slipped 2% year-over-year to $19.78 billion, short of the sell-side’s $20.11 billion consensus.

P&G now expects organic revenues and core EPS to grow by 2% and 3%, respectively, during its fiscal year ending June 30 instead of the 4% and 6% figures which management reiterated during its late January earnings call.  Analysts at Stifel termed those fiscal third quarter results “disappointing,” while peers at JPMorgan characterized the guidance downshift as “worse than feared.”

Thus far, that trio of downbeat updates is par for the course during this unfolding earnings season.  Though fewer than 20% of S&P 500 Index components had reported their results by Tuesday, the term “recession” popped up on 44% of those conference calls, the Financial Times reports, citing data from FactSet.  That compares to a 3% frequency during calls covering the fourth quarter of last year. “CEOs are a really unhappy bunch at the moment,” Steven Purdy, head of credit research at TCW, observed to the pink paper.

Wall Street’s still-sanguine stance contrasts markedly with that dour mood. Bloomberg equity strategists led by Gina Martin Adams pointed out Tuesday that the bottom-up consensus 2025 earnings growth forecasts for the S&P 500 stands at 7.9%, virtually matching the typical 7.7% profit expansion seen since 2010.  “In the face of tariff uncertainty, average growth seems somewhat unrealistic,” Adams et al. wrote, adding that a base 20% levy applied to oversees input costs could spur an outright decline in earnings among the blue chippers.

How to buttress one’s portfolio against that potent potential pressure point?  See the brand new edition of Grant’s Interest Rate Observer dated April 25 for a bullish look at one modestly-valued player in an industry described by one investor as “insulated from the peculiarities of these tariffs as almost any that we can think of.”

Reserve Bank credit remains little changed at $6.68 trillion, edging lower by $2 billion over the past week. The Fed’s portfolio of interest-bearing assets has declined by $23 billion from the end of March and 25.1% from the 2022 peak.

Manic price action continues apace, with stocks logging their third straight sharp rally following Monday’s downdraft, leaving the S&P 500 at its best levels since the near 10% relief rip logged on April 9.  Treasurys also enjoyed a strong bid with 2- and 30-year yields four and six basis points, respectively, to 3.77% and 4.77%, while WTI crude rose towards $63 a barrel and gold rebounded to $3,345 per ounce. Bitcoin consolidated recent gains at $93,400 while the VIX retreated to 26.5, down a further two points on the day.

- Philip Grant

Laws are like sausages, it’s better to let the machines make them. From the Financial Times:

The United Arab Emirates aims to use AI to help write new legislation and review and amend existing laws, in the Gulf state’s most radical attempt to harness a technology into which it has poured billions.

The plan for what state media called “AI-driven regulation” goes further than anything seen elsewhere, AI researchers said, while noting that details were scant. Other governments are trying to use AI to become more efficient, from summarizing bills to improving public service delivery, but not to actively suggest changes to current laws by crunching government and legal data. . .

Rony Medaglia, a professor at Copenhagen Business School, said the UAE appeared to have an “underlying ambition to basically turn AI into some sort of co-legislator,” and described the plan as “very bold.”

Retail doubles down: The spring selloff has done little to mute animal spirits, with leveraged long exchange-traded funds gathering a net $6.6 billion during the five days through April 11, per a Thursday Bloomberg bulletin. That’s more than double any prior weekly haul over the past two years and roughly ten times the sum flowing to bearish-biased products. Thanks to an influx of fresh cash, shares outstanding across the 50 most popular leveraged ETFs jumped 20% from the April 2 “Liberation Day” through the end of last week, Citigroup-compiled data show.

“Amongst our most active traders, we see a willingness, if not eagerness, to embrace the volatility in hopes of maximizing their profit potential,” Interactive Brokers’ chief strategist Steve Sosnick told Bloomberg, noting that six such leveraged vehicles ranked among the platform’s top 25 most actively traded assets last week. “There’s a generation of investors who have become quite willing to accept risk.” 

Indeed, another type of pitfall appears front of mind for that bulled-up cohort: the fear of missing out. “These ETFs are very popular because they help investors get back into the market quickly and aggressively,” observed Matt Maley, chief market strategist at Miller Tabak + Co. “A lot of them are worried that we’ll get another big V-shaped recovery.”

After both the March 2020 Covid swoon and 2022 “transitory” selloff promptly gave way to roaring bull markets, the dip-buying impulse is hard-wired into market psychology.  Witness the $4.7 billion in net stock purchases by individuals on April 3 – when the S&P 500 responded to President Trump’s aggressive tariff proposals with a 4.8% drop – the largest single session shopping spree on record by JPMorgan’s lights.  

Of course, that strategy works until it doesn’t. BNY Mellon head of markets macro strategy Bob Savage drew the analogy last week of a repeatedly-stretched rubber band which snaps back time and again before, finally, breaking apart. “Outsized moves down [can] have a tipping point linked to volatility and the state of the economy,” Savage wrote.  In the meantime, old habits die hard.

Better late than never: Reserve Bank credit stands at $6.681 trillion after ticking higher by $3.1 billion over the week ended April 16.  The Fed’s portfolio of interest-bearing assets is down $31 billion since the middle of March and remains roughly 25% below its early 2022 peak.

Stocks were clubbed by 2.4% on the S&P 500 to extend the blue-chip gauge’s two-plus-month drawdown to 16%, though a late rally shaved about a percentage point from the day’s losses. Treasurys fared little better as curve steepening continues apace; the long bond settled at 4.91% after changing hands near 4.5% to start the month. WTI crude retreated below $63 a barrel, gold leapt higher by 3% and change to $3,425 per ounce, bitcoin rose above $87,000 and the VIX settled near 34 after a four point advance.

- Philip Grant