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SIX things you need to know this week in <5 minutes:
Pelosi Goes to Taiwan
TD Bank expands US footprint
Earnings season highlights
Amazon can’t stop growing its carbon footprint
An unlikely match
Which indicators = recession?
1. MACRO
Pelosi Goes to Taiwan
As we alluded to a couple of weeks ago, TSMC—located in Taiwan—is the world’s largest chipmaker.
It accounts for over half of the world’s global foundry market, which is just a fancy way of saying it makes the semiconductors companies like Apple () and Nvidia () then design.
This week, well-documented on-again-off-again Nvidia shareholder (and Speaker of the House) Nancy Pelosi traveled to Taiwan under the guise of human rights to meet with TSMC’s Chairman Mark Liu.
Pelosi became the most senior US lawmaker to visit the semiconductor powerhouse since 1996. Her trip came despite a warning against it from the White House and threats from China, which has repeatedly vowed to take Taiwan by force if necessary.
Yesterday, China flexed its muscles, launching live-fire drills unusually close to Taiwan.
GRIT’S TAKE: We used to go to war over oil, now it’s chips. As the world’s premier chipmaker, TSMS is critical to US national security.
GRIT’S ACTION: Chips are the new oil.
Under the Radar
Electric vehicles are still missing what drivers want: character & unique style. Led by an experienced leadership team, EVT Group is creating and redefining the joy of motoring for the electric age by acquiring iconic brands and helping them to bring the joy back to motoring*!
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2. DEALS
TD Bank expands US footprint
Canada’s second-largest lender just extended the country’s major bank’s shopping spree with its second big buy of the year.
After acquiring First Horizon Corp () for $13.4 billion in February (its largest deal ever), TD Bank () is closing in on US boutique investment bank Cowen Inc () .
The deal—expected to close in Q1 2023—values Cowen at $39 per share ($1.3 billion) which is a ~10% premium to the closing price prior to the announcement.
On Monday, TD sold 28.4 million shares of Charles Schwab () for $1.9 billion which it will use to fund the new purchase.
GRIT’S TAKE: Canada’s banks have been making a push to expand their presence in the high-growth US market.
GRIT’S ACTION: Net interest margins expanding…
3. STOCK MARKET
Earnings season highlights
S&P earnings growth (outside of energy) has deteriorated in 2022. Here’s a look at a few highlights from companies that reported this week.
Airbnb’s jumped 58% YoY to $2.1 billion, resulting in its first profitable Q2 to date with $379 million in net income. The company also announced a $2 billion buyback program but provided a weaker-than-expected outlook for Q3.
Despite estimating a 33% YoY drop in pandemic-related sales this year, CVS beat on the top and bottom lines and lifted full-year guidance as it successfully passed on most inflation costs to customers.
Uber posted its highest adjusted earnings ever after doubling its quarterly revenue YoY to $8.07 billion. It’s the first time the company generates free cash flow from its underlying operations.
AMD grew sales 70% YoY to $6.6 billion, topping Wall Street estimates. The chipmaker’s Q3 guidance softened but it maintained its full-year revenue outlook.
Starbucks’ margins were hurt by inflation and higher wages, but it managed to top both earnings and revenue estimates as customers show no signs of trading down or reduced demand.
GRIT’S TAKE: The theme this season is “better than feared”.
GRIT’S ACTION: Dollar-cost averaging into S&P.
4. COMMODITIES
Amazon can’t stop growing its carbon footprint
The Paris Agreement aims for net zero by 2050.
In 2019, the world’s largest retailer made an ambitious bet that it would do it by 2040.
Its carbon footprint grew by 15% that year.
This week, Amazon () announced that its carbon emissions increased by 18% in 2021 to the equivalent of 71.54 million metric tons of carbon dioxide.
Despite its best efforts, the company hasn’t been able to keep a lid on carbon emissions amid rapid growth, though it did report its carbon intensity—which divides emissions by gross merchandise sales—fell by 1.9% last year.
Last month, Amazon was pushing for a new kind of carbon credit with the goal of restoring confidence in the offsets market.
GRIT’S TAKE: This is an exclamation point on the growing demand for carbon credits.
GRIT’S ACTION: Subscribe to GRIT Carbon (free!) to stay ahead of the evolving energy landscape! Become a paid subscriber to unlock our FIRST PICK—which we wrote about to investors over the weekend—and receive our premium monthly newsletter.
5. CRYPTO
An unlikely match
Coinbase () has had a rough 2022.
A year filled with insider trading schemes and SEC probes amid borderline contagion in a Crypto Winter has been reflected in COIN shares down 65% YTD (vs. S&P -13% and Bitcoin -52%).
This week the stock surged after the crypto exchange announced a partnership with the world’s biggest asset manager.
The move is part of a larger strategy for BlackRock () —which commands over $8 trillion in AUM—to expand its presence in the space and cater to an increasing appetite for exposure to digital assets among its institutional investors.
Coinbase will provide crypto trading, custody, prime brokerage, and reporting capabilities to BlackRock’s Aladdin (institutional investor portfolio management platform) clients.
GRIT’S TAKE: Institutional adoption continues to accelerate – hedge funds, corporate treasuries, and asset managers accounted for ~75% of Coinbase’s trading volume in Q1.
GRIT’S ACTION: I started deploying capital and wrote about to paid GRIT Crypto subscribers over the weekend.
6. ENTERTAINMENT
Which indicators = recession?
Word on the street is these are the actual indicators the National Bureau of Economic Research (NBER) uses to determine whether or not we’re in a recession:
Men’s Underwear Index – according to former Fed Chair Alan Greenspan, people put off buying underwear when times are tough
Champagne Index – people have less to celebrate when a recession is looming
Lipstick Index – little luxuries to make people feel better about themselves during a downturn
Hemline Index – skirts get shorter during booms and longer during busts
Diaper Rash Index – one way to fight higher prices is to change diapers less and use more ointments and creams
Cardboard Index – cardboard is used to make boxes that are used to transport goods
R-Word Index – simply counting up the number of stories mentioning a “recession”
The Google Indicator – how often people are searching for the term “recession”
GRIT’S TAKE: *not actually the indicators used by NBER…
GRIT’S ACTION: The Reverse Cramer is also known for its legendary pinpoint accuracy.
*SOURCES
1. CNBC
3. WSJ
4. Bloomberg, S&P Global
5. CNBC
6. Bloomberg
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