12/9/2024

Good Morning.

Fed & Labor market

• Nonfarm payrolls rose by 227,000 following an abysmal report of 36,000 in October. Unemployment rose to 4.2% further evidence of cooling in the labor market and traders speculating the Fed will make a rate cut in response. According to Bloomberg there is an 85.1% chance of a rate cut in December.

Instability in the Globe

• South Korean President, Yoon, temporarily declared martial law which plunged the nation into chaos. His term has been riddled with controversy, however he has survived an impeachment vote. France passed a no confidence vote that forced the Prime Minister and the cabinet out of office. 

  • Both nations rushed to promise liquidity and a continuation of stable markets. Large trades were made to devalue currencies due to fear of instability. 

• Syrian president Al-Assad has fled to Russia marking the end of a regime that has been in a brutal civil war for over 12 years.

In today’s newsletter we will cover: 

• Market Update

• Questions Surrounding Bitcoin 

• Trump Will Not Replace Fed Chairman Powell

• Deal of the Week: Black Rock expands its lending business in $12 B acquisition

• What to look out for this week

Markets 

Market Update

• Bitcoin has topped $100,000 for the first time in history, fueled by the hope that the cryptocurrency industry will benefit under Trump.

• The major indices closed lower than the all time highs set on Wednesday. 

• Tesla stock rose over 10% over the course of the week to a share price of $389 (Market Cap = $1.22 Trillion). This is very close to the all time high share price of $407 set back in 2021. Since then the company has greatly evolved in terms of financial condition and  technological capabilities.

Questions Surrounding Bitcoin 

• Bitcoin is up almost 40% since Trump was elected in early November. 

How Does Bitcoin differ from traditional fiat currencies?

Bitcoin and fiat currencies, like the dollar and the euro, represent fundamentally different types of assets. Fiat currencies are supported by government authority and are recognized as legal tender, meaning they must be accepted as a form of payment. In contrast, private cryptocurrencies, including Bitcoin, do not carry such legal obligations. The only exception is El Salvador, which recently became the first country to adopt Bitcoin as legal tender. Despite this Bitcoin can still be used as a means of payment between two parties without the need for a financial intermediary.

Why do people consider Bitcoin to be a hedge against inflation?

The supply of Bitcoins is fixed. The maximum number of Bitcoins that will ever exist is just under 21 million. 89 percent of the total supply of Bitcoin is already in circulation. In many fiat currencies central banks control the supply and have been increasing it significantly in recent years.

What are the Bitcoin whitepapers?

The Bitcoin whitepaper is the original thesis paper written under the pseudonym Satoshi Nakamoto on October 31, 2008 that set the basic structure of the Bitcoin network.

DOWNLOAD TO DOCUMENT HERE

Trump Will Not Replace Fed Chairman Powell

In an interview aired Sunday Donald Trump said that he will not try to replace Powell upon taking office. "No, I don't think so. I don't see it," Trump said on NBC News' “Meet the Press with Kristen Welker" when asked if he would seek to remove Powell, whose term ends in 2026.

Trump originally named Powell as Fed chair in early 2018, however he made many remarks attacking Fed policy. Trump has in the past disagreed with the Feds level of interest rates. A component of Trump's campaign promised reduced mortgage rates and the cost of borrowing for Americans, which could potentially clash with the Fed's dual mandate of price stability and maximizing employment. 

Traders anticipate that the Federal Reserve will lower interest rates at its upcoming policy meeting on December 17-18, following recent data indicating a cooling U.S. labor market. A 0.25% rate cut would reduce the Fed's policy rate to a range of 4.25%-4.50%, marking a full percentage-point decrease since the central bank initiated its easing cycle in September.

Deal of the week: BlackRock Buys HPS for $12 Billion

BlackRock is the world's largest asset manager with $ 11 trillion in AUM. Its core business is its stock and bond offering with a range of products for investors. Recently the firm has made a notable push into private markets, specifically private credit. 

Alternative asset managers with large direct lending businesses have comparable market caps with relatively smaller assets because they are able to earn more on lending than BlackRock can with its low cost investment products. Under the direction of CEO Larry Fink the company has made multiple high profile acquisitions to enter this space.

Recently BlackRock agreed to purchase credit manager HPS. An all stock deal valued at $12 Billion. HPS has $148 billion in AUM and when the deal is finalized BlackRock will be managing $220 billion in private credit.

These large acquisitions amount to over $28 billion in size as BlackRock aims to gain a large market share in private markets.

Black Rock is likely to continue to use its large size to rapidly grow its lending business in a bid to compete against other alternative asset managers. This push will likely lead to an increase in AUM and investors will likely have a positive sentiment towards this more lucrative business. 

In addition it's important to note that as a major provider of investment  products and a pioneer in financial products, BlackRock could use these acquisitions to expand its offerings to investors. Traditionally individual investors have not been able to gain exposure to private credit however a range of potential products like ETFs have been floated to change this. BlackRock is utilizing its large balance sheet and will likely make a push to not only become a massive player in direct lending but also aim to be one of the first firms to give individual investors access to this hot asset class.

What To Look Out For This Week!

Monday: Earnings: Oracle

Wednesday: November CPI 

Thursday: Earnings: Broadcom, Costco Wholesale

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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