Weekly Business Roundup
Publication 12- Coinbase Profits Hurt By Crypto Meltdown, U.S Inflation Eased Slightly in July, and Democrat's Climate and Healthcare Package Awaits President Biden's Signature
Published Sunday, July 14th 2022
This week, the U.S solar industry were hit by an import ban on the Xinjiang region of China, labor productivity contracted at the fastes pace in 74 years, and Donald Trump’s Mar-a-Lago home was raided by FBI agents.
Business
Coinbase Posts Steep Second-Quarter Loss Amid Crypto Meltdown
Coinbase Global Inc. reported a surprisingly large second consecutive quarter of losses, driven by the crypto market’s spring meltdown.
Coinbase lost $1.1 billion, or $4.98 a share, in the second quarter, the company said Tuesday, compared with a profit of $1.6 billion, or $6.42 a share, a year ago. Revenue fell to $808 million from $2.2 billion a year ago.
Analysts expected the company to report a loss of $2.47 a share, according to FactSet.
Coinbase is the largest U.S.-based crypto exchange and one of the top three in the world by trading volume. It is also one of the few publicly traded companies in the sector, so its earnings provide insights into an otherwise opaque market.
The entire sector has been badly stung by a selloff that began in November. Firms such as Celsius Network LLC and Voyager Digital Holdings Inc. have filed for bankruptcy protection. More than 20 smaller exchanges have shut down. Earlier this week, two other public crypto companies, Galaxy Digital Holdings Ltd. and Marathon Digital Holdings, reported wider losses than a year ago.
The second quarter was arguably the worst three-month period in the short history of cryptocurrencies. The trouble really started in early May, with the collapse of a so-called stablecoin called TerraUSD and its sister cryptocurrency, Luna.
The turmoil spread quickly, with once-highflying crypto companies slashing jobs, halting mergers and barring customers from withdrawing their money. The total value of the crypto market tumbled 56% in the quarter.
Coinbase grew rapidly since its founding in 2012, marketing itself as a place where regular people could buy and sell cryptocurrencies. It was especially profitable during the 2020-21 rally, but its rapid growth left it vulnerable when the selloff hit.
The company’s total user count did rise above 100 million for the first time, totaling 103 million in the quarter, up from 68 million a year ago.
But the number of active users fell. Coinbase’s monthly active users, which represents customers who make at least one trade in a month, fell to 9 million from a peak of 11.2 million in the fourth quarter of 2021.
That is a problem for the company, because it is still largely dependent on transaction fees for its revenue. Second-quarter transaction revenue fell 66% from a year ago. Trading comprised 82% of net revenue.
The company’s expansion into other businesses, what it calls subscription and services revenue, comprised the other 18%.
Coinbase is still largely dependent on retail traders. Retail trading comprised $616 million of its $655 million in transaction revenue.
Coinbase has tried to manage its expenses through the downturn. In May, the company decided to slow its hiring pace, and in June abruptly announced that it would cut its workforce by 18%, the first round of layoffs in its decade of operations.
In a regulatory filing, Coinbase said the Securities and Exchange Commission is investigating its listing procedures and the “classification of certain listed assets.”
The SEC said in a July court complaint that at least nine crypto assets on Coinbase’s platform are securities whose issuers failed to comply with federal investor protection laws. That lawsuit charged three men, including one former Coinbase employee, with illegally profiting from inside knowledge that those assets would soon be listed for trading on Coinbase.
U.S. Solar Shipments Are Hit by Import Ban on China’s Xinjiang Region
The U.S. solar industry is confronting fresh disruptions as U.S. officials crack down on human-rights abuses in China’s Xinjiang region, which produces almost half the world’s supply of a crucial component in solar panels.
Solar Panels in Xinjiang
Several Chinese solar-panel suppliers, among the world’s largest, have had shipments to the U.S. detained or sent back during the past several weeks as customs agents enforce a new law, industry executives and analysts say.
The extent of the disruption is still hard to gauge: The Uyghur Forced Labor Prevention Act, or UFLPA, went into effect at the end of June, and importers, suppliers and customs agents are still feeling their way on what it will take to get goods into the country, the industry executives and analysts say.
Companies must prove that imports weren’t produced by forced labor, and the level of documentation required by authorities so far has caught many in the industry off guard, analysts say.
The industry has struggled in the past few years with a series of disruptions, from rising materials costs to the threat of new tariffs on major panel manufacturers. Lawmakers are trying to address some of those problems with tax incentives and other measures to support the solar industry included in the Inflation Reduction Act, which could pass Congress as soon as this week.
The latest delays arising from the UFLPA are a reminder that plenty of supply-chain problems still remain—particularly as the Biden administration tries to balance aims of being tough on China, which dominates solar manufacturing, with its ambitious renewables goal.
The White House didn’t respond to requests for comment. A spokesperson for the U.S. Customs and Border Protection didn’t comment on panel-import disruptions.
Lawyers, auditors and analysts have warned clients that delays are piling up. Top China-based solar-panel manufacturers Longi Green Energy Technology Co. , Jinko Solar Co. and Trina Solar Co. are among those affected, people with knowledge of the events say. Longi has temporarily halted a panel factory in Vietnam that supplies the U.S. as a result, some of those people say.
It is likely to be six months before import challenges related to the new law are resolved, wrote Philip Shen, managing partner at boutique investment bank Roth Capital Partners LLC, in a research note on July 30. In a worst-case scenario, U.S. customers could see 10 gigawatts or more of supplies delayed, Mr. Shen wrote in an earlier note, equivalent to nearly half of what the U.S. installed last year.
Chip Makers Expect Demand Slowdown to Expand Beyond PCs, Smartphones
The chip industry that was bracing for a difficult period with laptop sales slumping is adjusting to a wider and sharper slowdown even as semiconductor companies prepare to spend billions of dollars on new factories.
“The market is worse than we thought it would be,” Mark Murphy, chief financial officer at memory maker Micron Technology Inc., said Tuesday. On the same day, President Biden signed an investment plan that allocates more than $50 billion to finance future U.S. chip development and production.
Micron Building
The latest sign of near-term concern, though, is that auto makers are becoming more cautious consumers of chips after struggling for about two years to secure adequate supply, Mr. Murphy added at an investor event. “We are certainly seeing broader weakening,” he said.
Micron’s latest comments build on a flurry of bad news from chip makers, which have cited slowdowns in sales linked to PCs, graphics cards and videogames. Intel Corp. shocked the market two weeks ago with a quarterly loss and cut its full-year outlook. Advanced Micro Devices Inc. days later issued a muted outlook, and Nvidia Corp. on Monday warned that sales would come in below its own forecast.
The industry is reacting with rapid belt tightening, creating a disconnect between its near-term outlook and long-term prospects for semiconductor sales to more than double by the end of the decade—as well as the billions of dollars it plans to spend on new plants, fueling growth.
Smartphone chip designer Qualcomm Inc. said Monday that it signed a deal with contract chip maker GlobalFoundries Inc. to secure more than $4 billion of its manufacturing capacity through 2028. Micron said Tuesday that it would invest $40 billion in cutting-edge memory-chip manufacturing in the U.S., part of a $150 billion global investment plan over the coming decade. Intel, the U.S.’s biggest chip maker by revenue, is expanding its facilities in Arizona and building a new plant in Ohio, among other projects that could cost hundreds of billions of dollars if fully built out.
Intel Plant in Arizona
Washington plans to underwrite some of that expansion to ensure factories are built in the U.S. with funding that has enjoyed rare bipartisan support and is aimed at counteracting the industry’s shift toward Asia in recent decades. Mr. Biden said the new law represents “a once-in-a-generation investment in America itself.”
“The market is worse than we thought it would be. We are certainly seeing broader weakening”
Economics
U.S Inflation Ticked Down Slightly to 8.5% in July
The pace of price increases slowed in July as energy costs dropped, pulling annual U.S. inflation down slightly from a four-decade high.
The Labor Department on Wednesday said the consumer-price index, a measure of what consumers pay for goods and services, rose 8.5% in July from the same month a year earlier, down from 9.1% in June. June marked the fastest pace of inflation since November 1981.
Monthly, the CPI was flat in July after rising for 25 consecutive months, the result of falling energy prices such as gasoline. Core CPI, which excludes often-volatile energy and food prices, eased to 0.3% last month, down sharply from June’s 0.7% gain.
Price pressures abated across energy categories, with gasoline down 7.7% in July from the prior month. Used-car prices, up sharply earlier in the pandemic, also dropped on a month-to-month basis, as did airline fares and apparel.
Grocery prices were up 1.3% in July from the prior month and rose 13.1% in July from a year ago, the fastest annual pace since 1979. Dining out costs also rose.
“It’s kind of a mixed blessing for individual households—they probably like what they see on gasoline prices coming down, but they’re still seeing the pain on the food side,” said Brian Bethune, an economist at Boston College.
Food prices could moderate in coming months as supply improvements filter through to consumers, Mr. Bethune said. “For the things that really eat a hole in our pockets, gasoline and food, we’ve seen the turning point in gasoline and I think we’re on the cusp of some declines in food.”
Elevated inflation is the byproduct of rapid growth as the U.S. rebounded from the Covid-19 pandemic, fueled in part by lower interest rates and government stimulus. The Federal Reserve faces the challenge of tightening monetary policy to cool the hot labor market and slow demand enough to curb inflation, but not so much as to set off a recession.
Fed officials lifted interest rates in both June and July, and will meet again in September to consider a further increase. Fed Chairman Jerome Powell has said the central bank wants to see clear and convincing evidence that price pressures are subsiding before slowing or suspending rate increases.
The slowdown in the one-month measure of core inflation was upbeat news for the Fed, said Omair Sharif, who leads forecasting firm Inflation Insights. But inflationary pressures continue to broaden, which could stymie the sustained step down in core inflation that the Fed is looking for, he said.
“While the moderation in core inflation was a good sign, it seems like the Fed still has some work to do,” said Mr. Sharif.
“For the things that really eat a hole in our pockets, gasoline and food, we’ve seen the turning point in gasoline and I think we’re on the cusp of some declines in food”
U.S Productivity Contracts for Second Straight Quarter at Fastest Pace in 74 Years
U.S. labor productivity declined for the second consecutive quarter as overall economic output contracted and employers spent more on labor as they added workers.
U.S. nonfarm labor productivity—a measure of goods and services produced in the U.S. per hour worked—fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter, the Labor Department said Tuesday. Economists had estimated a drop of 5%.
Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter, Labor said. Economists had expected a 9.5% increase.
Quarterly productivity figures are volatile, but the weak second-quarter number follows a 7.4% pullback in the first quarter, the sharpest drop in 74 years. Together with rising labor costs, the report points to the challenges for the Federal Reserve’s efforts to tamp down inflation that is running at a four-decade high.
Rising productivity is the key to improving living standards; it allows companies to raise wages without raising prices and fueling inflation. Instead, businesses appear to be paying workers more to produce less. The higher unit labor costs suggest companies will either endure lower profits or pass on higher costs to consumers.
“The trend in productivity growth has worsened compared to prior to the pandemic, and the surge in unit labor costs makes the Fed’s challenge of getting inflation back down to its 2% target all the more challenging,” Wells Fargo economist Sarah House said in a research note.
The consecutive negative productivity readings are a reversal from earlier in the pandemic, when the economy was expanding rapidly and businesses appeared to be adopting new technology to cope with worker shortages and limits to face-to-face contact.
“The trend in productivity growth has worsened compared to prior to the pandemic, and the surge in unit labor costs makes the Fed’s challenge of getting inflation back down to its 2% target all the more challenging”
Rapidly Growing Wages Keeps Upward Pressure on U.S Inflation
Workers’ wages are rising briskly, a factor contributing to four-decade high U.S. inflation.
Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year, the Labor Department said Friday. The rapid earnings growth adds to other evidence that employers are continuing to increase pay as they try to find and keep workers in a tight job market.
Wage gains help consumers spend money in the face of higher prices for restaurant meals, groceries and lodging. But many companies are having to pay more for labor at the same time that other business expenses are rising, including for transportation and logistics, said Omair Sharif, head of forecasting firm Inflation Insights LLC.
“The entire cost structure of operating a business has increased, including wages,” Mr. Sharif said. “That’s allowing firms in a high-inflation environment to pass those costs on to consumers.”
Higher wages and job growth, combined with a contraction in overall economic output, are weighing on labor productivity.
Mr. Sharif pointed to airlines as an example of the wage-price dynamic. Some airlines have negotiated double-digit wage increases for pilots, as carriers struggled to hire enough of them to meet fast-rising demand for flights. Meanwhile, jet-fuel costs have shot up. Those factors have likely converged to drive up the price of plane tickets, Mr. Sharif said. In June, airfares were up 34.1% from a year earlier.
Wage growth is continuing to run at a fast clip as some other price pressures are abating. The average cost of a gallon of regular unleaded gasoline was $4.06 in early August, compared with $4.72 a month earlier, according to AAA.
Commodity prices for wheat and grain have also eased. Improvements in backlogs and supplier delivery times in business surveys suggest that supply-chain snarls are unraveling.
Strong wage growth is a concern for Federal Reserve officials, economists say. “They view the labor market as too tight. They think wage growth is too fast,” said Nick Bunker, economist at jobs site Indeed.
“The entire cost structure of operating a business has increased, including wages. That’s allowing firms in a high-inflation environment to pass those costs on to consumers”
World
Democrats’ Climate, Healthcare and Tax Package Passes House - Awaiting President Biden’s Signature
The House passed a climate and healthcare bill Friday that will soon head to President Biden’s desk, the culmination of a yearlong push Democrats hope will motivate their voters in the midterm elections but that Republicans cast as harmful government overreach.
U.S President, Joe Biden
The party-line 220-207 vote comes less than a week after the Senate passed the measure. It imposes new taxes on large, profitable corporations, spends $87 billion over a decade on new workers and technology at the Internal Revenue Service, caps insulin costs for Medicare recipients, puts Medicare on course to negotiate drug prices and funds hundreds of billions in tax subsidies intended to combat climate change.
“This is a substantive policy achievement,” said House Ways and Means Committee Chairman Richard Neal (D., Mass.). He acknowledged there was “perhaps a bigger version” but said “you carve out victories as you can get them.”
Republicans said the bill, named the Inflation Reduction Act, would do little to tamp down price increases. They said the new taxes would ultimately hit ordinary Americans by squeezing companies that could otherwise raise wages or add jobs, just as the economy is slowing.
House Minority Leader Kevin McCarthy (R., Calif.) said that the tax increases would hurt businesses, put ordinary Americans under the scrutiny of tax agents, and discourage drugmakers from developing new medicines in the service of giving tax breaks to wealthy buyers of electric vehicles.
”A vote for this bill is a vote to help the well-connected get further and further ahead, while leaving the needs of hard-working American families behind,” he said.
House Minority Leader, Kevin McCarthy
Mr. Biden said the measure would lower costs for prescription drugs, healthcare and energy. “Today, the American people won. Special interests lost,” he said in a tweet after passage.
The package is the end result of stop-and-go work on the bill that started last year. An initial $3.5 trillion vision was whittled down to roughly $2 trillion. That bill, dubbed Build Back Better, passed the House, only to be blocked in the Senate by centrist Sen. Joe Manchin (D., W.Va.). Talks between Mr. Manchin and Senate Majority Leader Chuck Schumer (D., N.Y.) yielded a deal leading to the final package.
While the bill is far smaller than they originally envisioned, House Democrats have largely united behind it, with House Speaker Nancy Pelosi (D., Calif.) and leaders of the progressive and other wings of the party announcing their support.
House Speaker, Nancy Pelosi
The bill, before some last-minute changes in the Senate version, was set to raise a total of $739 billion in revenue over 10 years and spend a total of $433 billion. The Congressional Budget Office hasn’t released a revised score of the package’s final language.
Along with a new 15% corporate minimum tax, the bill creates a 1% excise tax on companies’ stock buybacks and sets aside roughly $300 billion for reducing the deficit.
Mr. Biden said on Twitter that he would sign the bill into law next week, and that he would hold a celebratory event at the White House on Sept. 6. Both chambers of Congress are now on recess through August.
“A vote for this bill is a vote to help the well-connected get further and further ahead, while leaving the needs of hard-working American families behind”
Donald Trump Won’t Oppose Release of Search Warrant Following FBI Raid at His Mar-a-Lago Home
The Justice Department on Thursday asked a Florida judge to unseal the warrant FBI agents used to search former President Donald Trump’s Mar-a-Lago home this week, along with a list of items they took from the property.
Former U.S President, Donald Trump
The request raises the prospect that underlying reasons for the extraordinary search of the former president’s home could soon become public.
“I personally approved the decision to seek a search warrant in this matter,” Attorney General Merrick Garland said in his first public remarks since Monday’s search. “The department does not take such a decision lightly.”
Attorney General, Merrick Garland
Mr. Garland said he filed the motion in light of Mr. Trump’s confirmation of the search on the day it happened and the “substantial public interest” in the matter. He didn’t provide details of the investigation, and didn’t take questions from the news media.
The former president late Thursday said on his social-media site that he wouldn’t oppose the release of the court documents, encouraging their “immediate release,” while adding he viewed the process as partisan.
Mr. Trump was given a copy of the warrant and a list of items that were taken during the search and his aides had previously declined requests to release them. According to people familiar with the search, some of the documents contained highly classified national-security information.
News organizations had submitted court filings asking for the public release of the search warrant and related materials. Ultimately, that decision is up to U.S. Magistrate Judge Bruce Reinhart, the judge in South Florida who approved the search warrant. Judge Reinhart asked for an update by Friday afternoon about whether Mr. Trump’s lawyers would oppose the requests for unsealing.
Mr. Trump, in a post on his social-media platform after Mr. Garland spoke, said his representatives had been “cooperating fully” and added, “The government could have had whatever they wanted, if we had it.”
People familiar with the matter have said that agents were concerned that additional sensitive information had remained at Mar-a-Lago even after Mr. Trump’s aides had relinquished some information to investigators. An inventory of the items seized could shed light on what agents were looking for and provide insight into why federal investigators pursued the search.
Monday’s search of Mr. Trump’s Mar-a-Lago home and social club in Palm Beach, Florida, was a dramatic escalation of a monthslong investigation into the former president’s handling of classified information.
“I personally approved the decision to seek a search warrant in this matter. The department does not take such a decision lightly”
China
China Reports Higher Consumer Inflation, Underlying Weak Demand
China’s headline consumer inflation rate surged to its fastest pace in two years in July, but a drop in core inflation points to a different problem: weak domestic demand.
After edging up just 0.9% in 2021 and staying largely within the government’s comfort zone since the start of the pandemic, headline consumer prices in the world’s second-largest economy rose by 2.7% in July from a year earlier, accelerating from June’s 2.5% gain, as food prices soared, China’s National Bureau of Statistics said Wednesday.
Chinese National Bureau of Statistics Headquarters
The pace of increase was the fastest in two years, touching a level not seen since July 2020 and approaching the government’s target of around 3%.
Still, it fell short of a forecast for a 2.9% increase among economists. The headline inflation reading missing expectations, despite surging food prices, reflects weaker domestic demand for other goods and services, economists say, indicating that Beijing’s efforts to stimulate consumption have fallen flat amid continued Covid-19 restrictions that have suppressed demand.
Core inflation, which strips out volatile food and energy prices, slowed to 0.8% growth in July, the lowest level in 14 months, due to slack domestic demand. China’s household spending remains one of the weakest links in the overall economy, which has been weighed down by a prolonged property-market slump and frequent Covid flare-ups across the country.
Since August, more than 1,000 Covid infections have been detected in just two provincial-level areas, Hainan and Tibet, prompting local authorities in both places to tighten restrictions and conduct mass testing. Haikou, a provincial capital of 2.8 million people on the southern resort island of Hainan, was put under lockdown on Wednesday.
Covid Lockdown in Hainan
Though China hasn’t struggled with rampant inflation like other large economies, the current combination of sluggish underlying growth and accelerating increases in energy and food prices on display in Wednesday’s data release could put Beijing’s policy makers in a conundrum familiar to their counterparts in other capitals.
If consumer inflation pushes up against the government’s 3% target, policy makers will “face the dilemma of choosing between inflation and growth,” economists from China International Capital Corp. told clients in a note this week . They predict consumer inflation will ease to about 2.3% by the end of the year, though inflation could pick up again next year, approaching 3%.
In China, the biggest single driver of inflation has been pork prices, which reversed a 6% year-over-year decline in June by surging more than 20% in July, according to China’s statistics bureau. That pork rise lifted overall food prices, and will likely continue to increase in coming months, analysts say, even as the government releases hogs from state reserves and clamps down on hoarding.
Chinese leaders have been on guard against spiraling consumer prices for fear that they might trigger social unrest. Premier Li Keqiang, speaking at the World Economic Forum last month, said only that consumer inflation would remain below 3.5% this year, given ample supplies of food and energy.
Chinese Premier, Li Keqiang
Compared with the U.S. and U.K., where households are wrestling with inflation at multidecade highs due in part to surging energy costs, consumer price pressure in China has remained, at least prior to the recent run-up in pork prices, generally subdued.
The reason for that, however, is itself a source of worry: Chinese domestic demand is anemic and shows little signs of improvement, with consumer confidence falling amid widening layoffs, a housing downturn unseen in more than a decade and the threat of repeated Covid lockdowns.
China’s Bursting Housing Bubble Compounds Beijing’s Economic Woes
China’s deflating property bubble is imperiling the world’s second-largest economy with effects that could ripple for years.
Home prices are dropping in many cities after a long period of increases, data from Chinese real-estate developers and official statistics show. Sales of apartments nationwide by the country’s largest developers have slumped annually for 13 consecutive months, according to industry-data provider China Real Estate Information Corp.
And millions of “presold” apartments that buyers have paid for remain unfinished, leading some purchasers to threaten to withhold mortgage payments. Home buyers could refuse to pay back up to $370 billion in home loans if their apartments aren’t finished, analysts estimate. Most Chinese banks, they say, should be able to absorb the losses, making a financial crisis unlikely.
Unfinished Building Project in China
The bigger risk is to China’s economy. Bank of America research analysts noted in a report last month that approximately 9% of the housing floor space that was presold in 2020 and 2021 risks not being completed on schedule because of developers’ financial troubles, affecting roughly 2.4 million households.
“Such incidents, if left unchecked and spread out, could dampen market confidence, hit property sales and investment, weigh on economic growth, and cause social instability” right before an important twice-a-decade Communist Party congress later this year, the analysts wrote. The closely watched conclave is expected to see Chinese President Xi Jinping secure an unprecedented third term in power.
Chinese President, Xi Jinping
China recorded a 0.4% expansion in second-quarter gross domestic product from a year ago, its worst economic performance since the start of the coronavirus pandemic. While much of the slowdown was due to Covid-related lockdowns and restrictions, a 7% contraction in the real-estate sector contributed to the weak output.
The damage, which is spreading across industries from building materials to real-estate services and is causing loan losses to pile up at banks, will be difficult to repair quickly, say economists.
The property slump is also hitting consumer confidence when China’s broader slowdown is weighing on personal incomes and asset values. “The economic prospects, the consumer sentiment and the way people are looking at the future have changed,” said Alicia García-Herrero, Asia-Pacific chief economist at investment bank Natixis. “I don’t think it’s a crisis, as some people call it. But it is one more big reason behind the idea that China’s economy is going to decelerate.”
Credit stress in China’s property sector hasn’t spread to global markets, though international investors have suffered roughly $100 billion in losses from Chinese developers’ dollar bonds due to defaults and steep price declines, according to data from Bloomberg and Barclays Research.
Chinese commercial banks have been slow to recognize and report nonperforming real-estate loans, but many have dialed back lending to the property sector. Land sales to developers have also plummeted, cutting off a major source of revenue for local governments and signaling that far fewer new property projects will be rolled out in the coming years.
“The economic prospects, the consumer sentiment and the way people are looking at the future have changed. I don’t think it’s a crisis, as some people call it. But it is one more big reason behind the idea that China’s economy is going to decelerate”
One of your best writings, great read!!
Coin base is to unreliable, can’t see them making stable cash flows in the next 5-7 years👎