Wall Street Breakfast: 'Bird Is Freed'

‘Bird is freed’

Weekend Bite, a Seeking Alpha Original Series: In this episode, we’re joined by Andrew Hecht, Founder of the Hecht Commodity Report and a veteran contributor at Seeking Alpha. The discussion covers everything commodities, including his views on gold, copper vs. oil, and more. Kim Khan will also review Catalyst Watch and the new poll for the week.

A new era at Twitter (TWTR) means new leadership and Elon Musk has been quick to update his platform bio to “Chief Twit.” The billionaire has finally completed his $44B acquisition of the social network, which will now operate as a private company. Among those departing the firm will be CEO Parag Agrawal, CFO Ned Segal, as well as Vijaya Gadde, the head of legal policy, and Sean Edgett, who has been general counsel at Twitter since 2012 (their combined termination payouts are set to top $200M).

What’s next? “The bird is freed,” Musk wrote in his latest tweet, and reportedly brought in Tesla (TSLA) engineers to meet with Twitter product leaders to dig into details and help him understand programming code. Musk also showed up carrying in a kitchen sink to Twitter’s headquarters in San Francisco. He joked “let that sink in,” but some feel that he’s rather going to weed out everything but the kitchen sink.

“The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner, without resorting to violence,” he wrote. “There is currently great danger that social media will splinter into far right wing and far left wing echo chambers that generate more hate and divide our society. That said, Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences! In addition to adhering to the laws of the land, our platform must be warm and welcoming to all, where you can choose your desired experiences according to your preferences.”

Still gotta make money: “Fundamentally, Twitter aspires to be the most respected advertising platform in the world that strengthens your brand and grows your enterprise,” Musk continued. He has also suggested Twitter should move toward subscriptions and remove ads from Twitter Blue, a premium program that gives users additional features. More recently, Musk has indicated the need to step up product innovation in an attempt to create an “everything app” that incorporates payments, shopping and commerce. (188 comments)

Tech carnage

Forget the crypto winter, there’s a Big Tech winter taking place in the markets. Many of the inflated growth stock prices that had surfaced when the Fed held interest rates near zero have deflated in 2022, and the latest earnings are not making their case any better. A macro storm that includes an advertising slowdown, worries about expenses, and softening consumer spending are sending investors fleeing to the sidelines and wiping away billions of dollars in market value in the interim.

Quote: “Across the board, tech continues to miss and there is tactical pain ahead,” said Brent Thill, a tech analyst at Jefferies. “We’re in for a dark winter. From small to big to large – no one is immune. We are still probably a quarter or two away from the fundamentals bottoming.”

Amazon: Shares of the retail behemoth and cloud provider plunged 12.7% AH on Thursday after posting a downbeat sales forecast and missing on revenue estimates. Amazon Web Services (AMZN) also recorded its weakest growth on record, while the company’s gloomy outlook doesn’t bode well for the holiday shopping season. “As we’ve done at similar times in our history, we’re taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere,” said CFO Brian Olsavsky.

Apple: The iPhone maker was initially down 4% in after-hours trading, but managed to finish the session by eking out a slight gain. Macs selling at a record pace outweighed a slight miss on iPhone sales, while Apple (AAPL) beat estimates on both the top and bottom lines. “We reported record revenue of $90.1B, which was better than we anticipated despite stronger-than-expected foreign currency headwinds,” noted CEO Tim Cook. “We reached another record on our installed base of active devices, and across our Services, we continue to see enthusiasm and strong engagement from our subscribers.”

Zero-COVID

The city of Wuhan, where COVID-19 all began (or at least was first recorded), has gone into lockdown, as China sticks to a zero-COVID policy despite heavy economic costs. More than 800K people in one district were told to stay at home until Oct. 30, and it’s not alone in observing the strict strategy with coronavirus cases spreading across the country. Nearly 30 cities are currently observing some degree of lockdown measures, according to analysts at Nomura, with around 207M people affected in regions accounting for almost a quarter of China’s GDP.

Quote: “The COVID situation in China has deteriorated at an alarming pace, but abandoning zero-COVID now could be perceived as conceding that the strategy did not work in the first place,” said Ting Lu, chief China economist at Nomura, when heavy lockdowns resurfaced earlier this year.

Since then, Communist Party leader Xi Jinping has only doubled down on the draconian measures, which seek to eliminate outbreaks as soon as they occur at just about any cost. China remains one of the only countries in the world to still employ such a strategy, which is likely to remain in place at least until March, “when the political reshuffle will be fully completed and the new leaders fully take over the cabinet.” China just wrapped up its 20th National Party Congress, which saw Xi Jinping tighten his grip on power and stack the new Politburo Standing Committee with allies, loyalists and protégés.

Movement: While China’s zero-COVID strategy has weighed on its economy and market in the past, additional forces were at play overnight. Equities in Hong Kong led losses across Asia, with the Hang Seng Tech Index tumbling as much as 6%, as U.S. Under Secretary of Commerce Alan Estevez commented on an agreement with allies to limit some chip-related exports to China. “We expect to have a deal done in the near term,” he told an event at the Center for a New American Security, outlining that the new curbs would restrain Beijing’s military systems. (23 comments)

Topping 7%

Rising Treasury yields and an aggressive Federal Reserve has sent mortgage rates soaring this year, with things doubling over the course of 2022. In fact, the 30-year fixed-rate mortgage averaged 7.08% with an average 0.8 point for the week ending Oct. 27, up from last week when it averaged 6.94% and higher than 3.14% a year ago, according to the Freddie Mac Primary Mortgage Survey. The developments are starting to cool real estate prices, with the increase in borrowing costs locking many potential customers out of the market.

Snapshot: While housing is generally one of the most volatile sectors of the economy, residential fixed investment was one of the lowlights of yesterday’s GDP report. The industry decreased at a 26.4% annual pace in Q3, its worst showing in relation to the metric since the subprime mortgage crisis in 2007.

“The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to greater stagnation in the housing market,” said Sam Khater, Freddie Mac’s Chief Economist. “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month. In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

Commentary: “With average effective mortgage rates now north of 7%, virtually all housing affordability metrics we track are now in unprecedented territory – including our favored homeownership payment/income ratio,” Raymond James analyst Buck Horne wrote in a research note last week, downgrading homebuilders like KB Home (KBH), Lennar (LEN), M.D.C. Holdings (MDC) and PulteGroup (PHM). Horne now calculates that the monthly finance for a median existing home would now be almost 42% of a median family’s gross income, topping the prior 40% record that marked the 2006 housing peak. (5 comments)

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