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Of course. Twitter’s board caved and it will now be sold to Elon Musk for about $44bn. Seems a snip for the ‘digital town square where matters vital to the future of humanity are debated’… Twitter stockholders will receive $54.20 in cash for each share of Twitter stock that they own upon closing of the proposed transaction. The purchase price represents a 38% premium to Twitter’s closing stock price on April 1st. The deal remains subject to regulatory and shareholder approval…which it means it is not cast in stone just yet. Of $25.5bn in debt, some $12.5bn of that is a margin loan held against Tesla stock. So in a roundabout way does that mean that Tesla shareholders actually have some leverage over the world’s town square? Apart from that, that loan is tied to the value of Tesla stock – what if it drops 20%, 40%? Moreover, Musk needs to find $21bn in equity financing, so needs backers or presumably he might need to sell some more of his Tesla stock to finance it…margin calls anyone? Finally, a company that generates roughly $400m in FCF each year will barely cover the interest cost of the leveraged buyout of this scale…does Musk have strategies for better monetizing the platform? If not, it’s a trophy asset like owning a football club, which is fine if you are Musk but who else wants to stick, say, $200m in to it and get nothing in return? And if they do, they are not moms and pops so who are they – Saudis, Chinese, Russian? You might be taking Twitter back from Wall Street but who’s it being handed over to?

 

So, what about free speech? Republicans keen to see Donald Trump reinstated on the platform might be disappointed he has ruled out a return already. Others will be thankful, but the truth is we don’t know what free speech looks like if the rules are dictated at the whim of a billionaire who wants to send people to Mars and thinks EV cars will save the planet. And he’s a billionaire with a very chequered history with the SEC … do they really feel that a take-private move will be best? I mean, Musk has hardly been a voice of calm and reason on the platform in the past…nor has he stuck to some very basic securities laws. And as noted above, will it be at the whim of only Musk or a bunch of Chinese and Saudi investors who probably don’t think free speech is that great. But I for one hope he succeeds, at least in making it a place where spam bots are defeated! 

 

Bellwether? AB Foods says it simply (emphasis mine): “All our food businesses are experiencing increasing inflationary pressures in many areas including raw materials, commodities, supply chain and energy. Action has been taken to offset these higher input costs through operational cost savings and, where necessary, the implementation of price increases. However, the benefit of price increases inevitably lags input cost inflation. While we have no businesses in either country, commodity and energy prices have increased further following the Russian invasion of Ukraine. As a result, we now expect a greater margin reduction in these businesses than previously expected for the full year. We expect recovery in the run-rate of these margins but the full effect of margin recovery is now anticipated in our next financial year.” 

 

In Primark, progressive easing of COVID-related restrictions is helping and an improvement in like-for-like sales is evident in the UK and Ireland. Selling space will be 10% higher, which gives management scope to project total sales for Primark in the second half to be ahead of the second half of the 2019 financial year. But again, inflation: “Reflecting further inflationary pressures, we now expect a greater reduction in the second half operating profit margin than previously expected although the full year Primark margin will be some 10%. We still anticipate Primark’s adjusted operating profit in the second half will be ahead of the same period last year.” Shares in AB Foods are down 22% this year, sliding a further 3% in early trade today. 

 

HSBC meanwhile reported a 28% drop in pre-tax profits, though at $4.2bn it was still ahead of expectations. Slowing growth in China and provisions for bad loans related to the war in Ukraine were both factors in the decline. Shares fell about 2% in early trade in London. Rising Covid cases in Hong Kong and the city’s ongoing struggles haven’t helped.  

 

Stocks in Europe staged a fightback on Tuesday, mirroring a sharp rebound for Wall Street on Monday at the close. Major bourses were broadly higher in early trade, with the FTSE and DAX both trading around +1% higher for the session. Earlier the Dow Jones reversed a 500-pt decline to end the day up more than 230pts. The S&P 500 similarly erased early losses to end the day up almost 0.6%. The Nasdaq finished +1.3% higher as rates fell…looks like de-risking saw some flight to safety in Treasuries and this lifted tech….these drawdowns are never simple and never in a straight line. RBC: “We are trimming our year-end 2022 S&P 500 price target from 5,050 to 4,860. The recent move up in bond yields was the biggest contributor to the downward revision to our forecast.” 

 

Market is pricing for aggressive rate hike cycle with multiple 50bps hikes to 1.9% by August and 2.7% by the end of the year, a level at which it would be actively restraining potential. It would be the swiftest pace of rate hikes since the Volcker era…75bps in May? 

 

Earnings today come from 3M, Boeing, General Electric, Alphabet, General Motors and Visa. So far earnings are fine. Earnings are beating estimates by 7.2%, with 76% of companies topping projections, says Credit Suisse. EPS growth is on track for 11.9%, assuming the current beat rate of 7.2% for the remainder of this season, they say. Megacap tech is beaten down and could surprise to the upside…time to pick up the leadership baton again? People are a little spooked by the Netflix story but is it likely that Alphabet and Microsoft are in the same boat?

Gold was down hard…natural during broad de-risking selloff as investors shift gold for cash, buying USD and Treasuries for safety, to cover margin calls on stocks before the snap back. Tested the lows of March 16th and March 22nd. 

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