Stocks are higher this morning as earnings continue to come in. Bonds and MBS are up small.
The UAE reported that it intercepted some Iranian missiles, which means the ceasefire is probably running on fumes at this point. Iran is also making noise about having “not begun yet” to close the Strait of Hormuz. So far the Trump administration has stopped short of saying the ceasefire is over but it appears hostilities will begin again.
The Fed Funds futures took Neel Kashkari’s piece seriously about the potential for rate hikes. The December futures now see a nearly 30% chance for rate hikes this year and only a 6% chance of a rate cut.
NY Fed President John Williams made numerous references to 5/4 as Star Wars Day yesterday in his speech “There Is No Try.”
Right now, the future is difficult to see, and the risks to both sides of our mandate have increased. The extent and duration of the effects of supply disruptions and higher energy prices that are emanating from the Middle East conflict are key factors that will shape the global economic outlook. We simply can’t know how this will play out. Market expectations of the future path of oil prices are fairly benign, but several plausible scenarios entail more severe dislocations in both prices and quantities.
Because the global economy is highly integrated, the emerging supply-chain issues will have wide-ranging consequences. For example, Asian countries that play a key role in the supply of high-tech equipment are particularly exposed to shortages of various commodities. Thus, the conflict could result in a larger and broader-based supply shock that has more severe adverse consequences for inflation and economic activity.
To paraphrase our Jedi master, “Much to learn we still have.”
Interestingly he expects the pass-through of tariffs to current prices will be played out in the next few months. He did not appear to reference the fact that they will expire across the board in about 5 weeks. This means that not only will the price hikes be finished, but prices will begin to decline as tariffs disappear. It sounds like the absence of tariffs is not being factored in here. Not sure why.
Remember Gamestop, the short squeeze darling of the COVID years that was on death’s doorstep? They put out a bear hug letter for Ebay, valuing the much larger company at $56 billion or $125 a share in cash and stock. Gamestop has $9 billion in cash and a “highly confident” letter from TD Bank that it can raise the rest. Note that banks don’t put out “highly confident” letters if they are highly confident they can do the deal. They make a commitment.
Gamestop has a market cap of $10.6 billion and has $4 billion in zero coupon debt. It seems to be in the crypto trading business as well, with a side hustle as a video game retailer. Ebay stock is trading at a big discount to the $125 bid so it is clear no one takes it seriously. Gamestop stock got hammered yesterday, falling 10%.
Gamestop has been buying Ebay stock already, so the goal is put Ebay in play, hopefully smoke out a real buyer, flip the stock it owns and move on to something else. Gamestop CEO Ryan Cohen, who draws no salary and is compensated solely on Gamestock’s stock performance is trying to turn the company around, and has had some success.
This one will be fun to watch.
