News: Market chatter? Not from Biden's White House

Tuesday, May 10, 2022

Market chatter? Not from Biden's White House

May 10, 2022

By Kate Davidson and Aubree Eliza Weaver

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Quick Fix

VOLATILITY — Another day, another stock market nosedive. Our Ben White looks at what the White House is saying (spoiler alert: not much so far) and whether and when it makes sense for an administration to weigh in on market moves.

STABILITY — The Federal Reserve released its semiannual report on financial stability. Our Victoria Guida, who combed through the details, weighs in on the surprisingly upbeat tone of what was expected to be a downer of a report. (See above.)

OPPORTUNITY — Our Sam Sutton takes a closer look in today's MM at Binance's decision to help back Elon Musk's Twitter takeover with a $500 million investment. It's a move the crypto exchange's top executives say will keep them close to the ear of Tesla's libertarian founder as he pushes to recast the social network as a free speech haven and payments network.

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Driving the Day

Treasury Secretary Janet Yellen testifies at Senate Banking on the Financial Stability Oversight Council annual report at 9:45 a.m. … President Joe Biden is scheduled to deliver remarks on inflation at 11:30 a.m. … Fed Governor Chris Waller speaks to the Economic Club of Minnesota at 12:45 p.m. ET … the Federalist Society for Law and Public Policy hosts a virtual discussion on a central bank digital currency at 1 p.m. … Treasury releases monthly spending, revenue and deficit figures at 2 p.m.

WE DON'T TALK ABOUT MARKETS (NO, NO, NO) — Team Trump gabbed about markets constantly. The Biden White House? Not so much. The past few weeks are a very good reminder why — stocks are on a massive slide for the year, driven down by inflation angst, rate hike fears and Russia's war in Ukraine, Ben White writes.

The tech-dominated Nasdaq has lost more than a quarter of its value this year, the S&P is down close to 17 percent, and the Dow nearly 12 percent. The major indices all tanked again Monday, prompting Rep. Jim Jordan (R-Ohio) to tweet, "Your 401k misses President Trump."

Traders work on the floor of the New York Stock Exchange on Friday.

Traders work on the floor of the New York Stock Exchange on Friday. | Spencer Platt/Getty Images

Ben asks: "So should Biden just come out and talk about it? It seems untenable for Biden or some other senior official not to come out and say something significant about the state of the stock market.

"It would be easy enough to cheerlead the low unemployment rate and suggest that market turbulence, while unsettling, is to be expected as the global economy adjusts following the worst of the pandemic and that people should maybe chill a little.

"But market commentary is just not in the Democratic Party's DNA. That goes back at least to the Clinton White House and admonishments from senior officials like top economic adviser and later Treasury Secretary Bob Rubin who warned staffers to never, ever talk about stock market moves."

You can read more from Ben in Politico Nightly.

FED SANGUINE ON FINANCIAL STABILITY — You'd think all this market turmoil would set Federal Reserve officials on edge. But the folks charged with monitoring risks to the financial system seem … not all that freaked out?

Victoria Guida tells MM that while the report flags a whole bunch of risks , including the potential for commodity market shocks and, as always, cyberattacks, the tone was subtly optimistic — at least compared to the previous report, which included warnings about the elevated risk appetite around cryptocurrencies, meme stocks and special purpose acquisition vehicles.

"Now, risk appetite has clearly cooled, asset prices have come down somewhat and risky borrowing has slowed," Victoria writes. "So a lot of what the report discusses seems to just be general recession risk. But they seem sanguine that the financial system won't necessarily amplify those things."

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

BINANCE JUMPS ON THE MUSK WAGON — POLITICO's Sam Sutton sends this dispatch to MM on the big news last week that Binance is chipping in $500 million to back Elon Musk's Twitter acquisition:

"Considering that Twitter has long been a megaphone for some of crypto's top evangelists — and a grassroots tool for those pushing Washington on digital asset policy — Musk's intentions have resonated with Binance founder Changpeng 'CZ' Zhao.

"'There's a very strong mission alignment,' Zhao said in a video released by Binance on Saturday, adding that he viewed the investment as an opportunity to help Twitter modernize its platform for Web3, a loosely defined term that refers to the next generation of the internet. 'I hope to see other crypto players fund more key platforms in society. I think that's important for the industry to grow.'"

That latter point matters just as much as the former.

"Twitter is vital to crypto's information ecosystem. It's where founders hawk tokenized startups, anonymous sleuths air out possible frauds and communities form around blockchain-based decentralized networks. It's also where top players, including Musk, Zhao or Square CEO and Twitter co-founder Jack Dorsey, can flex their political muscles with their followers – Washington policymakers got a taste of this during last year's debate over infrastructure bill language.

"In that sense, Binance's investment in Twitter is a signal to its very-online users about Zhao's views on the practical application of digital assets for traditional internet companies.

"'[Zhao's] got a following, a cult following (that has pejorative connotations to it), but people really see this guy – in his company, in his Twitter followers – as someone who is leading people somewhere," said a source close to the company. "He's got views on a ton of different things; including how people consume their information.'

"It's not Zhao's first foray into the information game either. Binance took a $200 million stake in Forbes earlier this year and is also the primary owner of CoinMarketCap — a widely used data website that tracks digital asset prices across hundreds of crypto exchanges. With Twitter, Binance could help build blockchain-based tools that could reduce the influence of bots, spam accounts or scammers who have flocked to the platform to tout shady crypto projects, according to the exchange's Chief Communications Officer Patrick Hillmann.

"'We're looking at this as an R&D investment. It's not a commercial interest for us in a traditional manner where we're looking to put in 'this' amount of money we expect to get 'these' returns,' Hillmann said in an interview. `We think this is going to be one of the greatest laboratories that the Web3 industry will ever have access to to start to actually test some of these theories we have – and we thought it was too important to pass up.'

"With that said, there's also no guarantee that Binance's aims would align with those of the other investors bankrolling Musk's acquisition — a roster that includes the venture firm Andreessen Horowitz, Fidelity, Qatar's sovereign wealth fund and Oracle co-founder Larry Ellison — or if Musk himself will heed the crypto exchange's suggestions.

"'[Elon] has been very clear that this is his project and that our investment in this is to come in and to have a seat at the table and to be able to make suggestions,' Hillmann said. 'But in the end, he will be the decision maker.'"

GOLDMAN STEPPING BACK FROM THE SPAC GAME — Bloomberg's Sridhar Natarajan and Ruth David: "Goldman Sachs Group Inc. is pulling out of working with most SPACs it took public, spooked by new liability guidelines from regulators and throwing into doubt the fate of billions raised for those blank-check vehicles. The Wall Street giant, the second-biggest underwriter of special purpose acquisition companies last year, has been telling sponsors of the vehicles it will be ending its involvement, according to people with knowledge of the matter"

SEC EXTENDS COMMENT PERIOD ON CLIMATE RULE, REOPENS COMMENTS ON OTHERS — Our Sam and Katy O'Donnell: "The SEC is extending the comment period for its proposed climate disclosure rule from May 20 until June 17, the agency said Monday. It will also reopen the comment periods for 30 days for proposed rules on private fund investor protections and alternative trading systems."

As SEC Chair Gary Gensler noted in a statement, the three rules have drawn significant interest from a wide group of investors, market participants and other stakeholders, including a bipartisan group of lawmakers, who pushed the agency for more time to comment on the complex proposals. It may seem small, but it's an important win for them.

SURGING MORTGAGE RATES ADD TO BIDEN'S ECONOMIC WOES — Our Katy O'Donnell: "One of the pillars of the Biden economy is in danger of going wobbly. Mortgage rates are surging at the fastest pace in 40 years, threatening to push homeownership out of reach for many Americans and to deprive consumers of potentially billions of dollars in spending power as the home-refinancing wave fades.

"While a softening market may help tamp down skyrocketing housing prices, the rising rates mean fewer Americans will be able to build wealth through homeownership."

FIRST IN MM: BIPARTISAN CALL FOR FASTER ACTION ON SHELL COMPANIES — Victoria again: "Six senior senators have urged Treasury Department leadership to act faster to implement a sweeping shell company crackdown that still has not been finalized despite being mandated by Congress early last year.

"'Vladimir Putin's invasion of Ukraine has only amplified the importance of the [new law]," wrote the bipartisan group of lawmakers in a letter Monday led by Sen. Elizabeth Warren (D-Mass.).

Ukraine

YELLEN: UKRAINE WAR BRINGS UNCERTAINTY FOR GLOBAL ECONOMY — Bloomberg's Christopher Condon: "Treasury Secretary Janet Yellen highlighted continuing dangers to the global economy from Russia's invasion of Ukraine and the pandemic, in prepared remarks to lawmakers on an annual financial-risk report. 'There is the potential for continued volatility and unevenness of global growth as countries continue to grapple with the pandemic,' Yellen said in the text of remarks released Monday by the Treasury Department."

U.S. TO LIFT TARIFFS ON UKRAINIAN STEEL — NYT's Ana Swanson: "The Biden administration will announce that it is lifting tariffs on Ukrainian steel for one year, halting a measure that President Donald J. Trump placed on that country and many others in 2018, according to a copy of the announcement that will be released on Monday and was viewed by The New York Times."

Fed File

FED'S BOSTIC SAYS CAN DO 'MAYBE TWO, MAYBE THREE' HALF POINT HIKES, THEN ASSESS — Reuters: "The U.S. Federal Reserve can stick to half point interest rate hikes for the next two to three meetings then assess how the economy and inflation are responding before deciding whether further rises are needed, the Atlanta Fed president said."

FED RATE HIKES ARE GOOD FOR BANKS, UNLESS THEY END IN A RECESSION — WSJ's Charley Grant: "Interest rates are going up, but bank stocks aren't. JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp and Morgan Stanley have slumped this year after two years of big pandemic gains. All four banks are off their 52-week highs by more than 20 percent, including a 28 percent drop at JPMorgan. That compares with a 14 percent drop in the S&P 500."

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Fly Around

It's ending as fast as it began for retail day traders, whose crowd-sourced daring was the pre-eminent story of pandemic equities. — Bloomberg's Lu Wang

With first-quarter U.S. earnings in the final stretch , corporate growth expectations for the current quarter and 2022 mostly are declining as costs surge for oil and other supplies and interest rates rise. — Reuters' Caroline Valetkevitch

Mother Jones investigates private equity — With more than a dozen stories, the series looks at everything from how landlords tried to cash in on the pandemic, to Congress' biggest private equity investors and Sen. Elizabeth Warren's fight against what she calls "legalized looting."

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