📈 SoftBank's record-breaking year

SoftBank is well 'ard | Batten down the inflation hatches |

Hi Reader, here's what you need to know for May 13th in 3:09 minutes.

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Today's big stories

  1. SoftBank posted strong quarterly earnings, smashing Japanese profit records at the same time
  2. World-famous short seller Carson Block wants you to know that short sellers aren’t your enemy – Read Now
  3. US inflation hit its highest level in more than a decade, but the pickup might just be temporary

Arigatō But No Arigatō

Arigatō But No Arigatō

What’s Going On Here?

SoftBank reported the highest-ever annual profit for any Japanese company on Wednesday, even though investors have been giving its stock a wide berth (tweet this).

What Does This Mean?

SoftBank’s Vision Fund – the world’s biggest tech-focused venture capital fund – seriously benefited from last quarter’s tech stock rally, and not just because it boosted the shares of its already-listed investments like Uber. The rally also encouraged some of the company’s startup investments – including Coupang, the “Amazon of South Korea“ – to make their stock market debuts. Both factors worked together to push the Vision Fund’s profit up for the third quarter in a row, making the fund the biggest driver of SoftBank’s record-breaking full-year earnings. That’s quite the about-turn: the Vision Fund was the reason for the company’s biggest loss in its history early last year.  

Why Should I Care?

For markets: All is not well.
SoftBank’s stock price has been on a tear in the past year, and investors reckon its share buyback program – which reduces the supply of shares in the market, in turn boosting the prices of those that are left – has had a lot to do with it. But things have taken a wrong turn in the last couple of months: the company’s share price has dropped 14% since its two-decade high in March – both because it’s so far failed to promise more buybacks, and because it’s been caught up in the recent tech stock selloff.

Zooming out: Carmakers are (still) in trouble.
SoftBank’s annual profit is roughly double the country’s previous high, but Toyota needn’t feel too put out about losing its record: the carmaker announced on Wednesday that its quarterly profit almost doubled from a year ago, and it said it’s expecting its sales and profit to return to pre-pandemic levels this year. Still, that confidence is the exception among automakers, not the rule: its rivals are still battling a chip shortage that’s losing them billions of dollars in revenue.  

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2. Analyst Take

Why Short Sellers Aren’t The Enemy

What’s Going On Here?

Stock markets went a little crazy at the start of the year, with small investors working together to drive up out-of-favor stocks and hurt the short sellers betting against them.

The narrative became the financiers versus the people, which is why plenty of bystanders cheered when New York-based hedge fund was forced to abandon its short positions on GameStop.

Carson Block – founder of hedge fund Muddy Waters, who found fame exposing several US-listed Chinese companies as fraudulent – gets it. He does.

But short sellers, Carson says, aren’t the enemy. In fact, they’re the “pebble in shoe” of “dirtbags”, “charlatans”, and “shitcos”.

So we sat down with Carson, and asked him why he thinks you should cut short sellers some slack.

Read or listen to the Insight here

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Tick Tick… Boom?

Tick Tick… Boom?

What’s Going On Here?

No pressure, guys: fresh data on Wednesday showed the prices of US goods and services ticking higher at their fastest rate in more than a decade last month.

What Does This Mean?

America’s spending big at the moment, with inflation rising by the most since 2009 in April. Between strong demand, supply bottlenecks, and the trillions the US government’s pumped into the economy, consumer prices increased 0.8% last month compared to the one before – while the “core” inflation measure (which excludes unstable food and energy costs) climbed at its fastest since 1982.

The jump was much bigger than economists expected, and well above the Federal Reserve’s (the Fed’s) target. That could spell trouble for investors: if prices rise too rapidly, the US central bank might hike interest rates sooner than expected in a bid to cool the economy down. And that could prompt investors to ditch suddenly more expensive-looking stocks.

Why Should I Care?

For markets: There’s some guesswork involved here.
The inflation conundrum is complicated by the “base effect”. April inflation was up 4.2% on a year ago, sure, but prices back then were depressed by the pandemic-induced economic shutdown. That artificially low base will continue to muddy the all-important annual price-rise waters next month too – and allow the Fed to argue that any pickup in inflation is only temporary.

The bigger picture: Things should settle down.
Rising inflation expectations have played a big part in the recent tech-stock selloff, but they’re not the only culprit. High demand for “put options” – which provide protection against those selloffs – has forced market makers to limit their risk by taking the other side of the bet, in turn increasing the swings in tech stocks’ prices. Still, that volatility should start to ease when about a third of the options contracts in question expire on May 21st.

Copy to share story: https://www.finimize.com/wp/news/tick-tick-boom/

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💬 Quote of the day

“The significant problems we have cannot be solved at the same level of thinking with which we created them.”

– Albert Einstein (a German-born theoretical physicist)
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