Feds aren't backing down.

It’s 1929, the great Depression. 15 million Americans are unemployed. You wonder what they did to … you know, blow off steam. Well swallowing live animals had caught on in the country as Harvard grads swallowed goldfish, college students in Illinois swallowed baby mice, while kids in Oregon were swallowing live worms. Shockingly, this movement didn’t catch on.

Alright so today we’ve got:

• Feds playing a game of chicken with the debt crises.

• Kids adopting dumb flip phones.

• Commercial real estate is crumbling

  Let’s do a scan.

The Big Picture

In hot pursuit of their inflation target of 2%, federal reserve raised interest rates by a quarter percentage taking it to 5-5.25%, a 16 year maximum. DOW lost 270 points and 10 year treasury bonds decreased from ~3.43 to ~3.4% . Western Alliance Bancorp, PacWest Bancorp shares fell more than 20 and 50% after hours respectively and PacWest is in talks of a sale. So, three banks are dead; one is possibly up for sale, and the other don’t look so good. Federal reserve chairman Jerome Powell said we might expect a ‘mild’ recession.

So how did we get here? Well that’s a long discussion, but here’s a short summary over the last 20 odd years of federal income vs debt.

In 2000, the Federal reserve or the central bank i.e. USA, for the first time since 1835 made more money than they spent. So taxes and receipts > spending on social security, defense, medicare and interest. 3 crises happened after that : 9/11, 2008 and covid. In each of those occasions the Federal reserve spent money on defense, injected stimulus and… then another stimulus to go deeper and deeper into debt. US debt now crossing $31 trillion, Treasury secretary Janet Yellen says the country could be unable to pay this level of debt as soon as June 1st. Federal reserve, in closing is going to look at clear indications of economic slowdown to pause rate hikes.

Sector Sweep

Tech

• Gen Zers are dumping smartphones for flip phone. No, not smart flip ones, the dumb old ones which won’t break. Nokia is selling tens of thousands of these flip phones/ month as Gen Zers want to detach from the incessant notifications of modern smartphones.

• In other smartphone news, Apple and Google are improving notifications for tracking detection of user phones. Individuals would be alerted if nearby devices tracking them with devices like Airtag.

• Social media shopping scams went up to $1.2 billion targeting adults ages: 18-29. Most likely scams were tech support, sweepstakes or people posing as friends/relatives.

• Uber’s revenue for the last 3 months grew 29% as their stock went up 17% over the last 12 months. Uber said their delivery business went up as advertisers for Uber Eats increased to 705 YOY.

• Overall capital spend to realize 5G technology is now $300 billion. 5G is expected to power industries right from autonomous washing machines, autonomous vehicles to autonomous mining.

Automotive

• Ford hit a $1.8 billion profit this quarter and cut prices on its EV Mustang Mach E by 8%.

Health

• Johnson & Johnson, Pfizer are cutting back on programs which support patients copay raising costs on drugs like Trifakta, used in treating cystic fibrosis.

• Pharmaceutical company Merck’s insurers would be partially responsible for $1.2 billion cyberattack that US has blamed on Russia. The cyberattack disrupted Merck’s operations which appeared to originate from a Ukrainian tax software.

Commercial Real Estate

• $300 million San Francisco tower is 70% vacant as commercial real estate is taking a hit in major cities across the country. This has been mainly due to rise in vacancy rates and increase in interest rates.

That’s all for today folks. Do keep a lookout for our weekly email about stock deep dives and personal finance strategies this Saturday.

BTW, do tell us how we did. Just hit us with a reply.

Cheers!

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