Tesla, SoftBank, Arm Holdings and U.S. Deficit Spending

Tesla keeps running, SoftBank examines its options for Arm Holdings and the U.S. deficit spending tracks negatively toward World War II levels.
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"Elon Musk" (CC BY-NC 2.0) by Thomas Hawk

July 14, 2020 – Tesla keeps running, SoftBank examines its options for Arm Holdings and the U.S. deficit spending tracks negatively toward World War II levels.

Today’s word count: 1,268 words (8 minutes)

Tesla Is Now Bigger Than Bank of America and American Express Combined

I think we all need to start wondering if Tesla could beat the 1927 New York Yankees. For the record, that Yankees club was one of the best to play the game, which is a superlative we may have to apply to Tesla if the company’s incredible run continues. The stock has more than tripled in value in 2020. Tesla’s latest market value surge has put significant distance between it and some notable companies – Home Depot, Intel, UnitedHealthGroup, Bank of America and American Express.

Why It Matters

Tesla has been one of the most polarizing stocks on the market of recent memory. Investors, equally passionate on both sides of the fence, have poured money into buying its shares or shorting the stock in hopes it would fall.

Rumor has it though that Tesla could reveal a surprise profit when earnings come out later this month. And if that’s the case, the momentum could push the stock up into the S&P 500, which could have a snowball effect that pushes shares even higher. A company needs four consecutive profitable quarters to be included in the index. Tesla has three; it’s longest run of profitability so far.

Numbers to Consider

  • $1,794.99 – How high Tesla’s shares jumped Monday, although it’s come down a bit before market open Tuesday.
  • $286 Billion – The lead Tesla has on other major companies such as Home Depot, Bank of America and American Express.
  • July 22 – When Tesla is expected to report earnings. 

Read More: (WALL STREET JOURNAL)

SoftBank Explores Sale or IPO for Chip Designer Arm Holdings

In a bit of a reversal, SoftBank Group is exploring alternatives on what to do with British chip designer Arm Holdings. Just four years after purchasing the semiconductor firm for $32 billion, SoftBank is weighing a full or partial sale or a public offering.

Why It Matters

In 2016, SoftBank chief Masayoshi Son hailed the Arm acquisition as a “paradigm shift” at the company, and rightfully so. Arm is a leading producer of microprocessors that power most of the world’s smartphones. But the next step was to take advantage of the “Internet of Things” or services that function on the connectivity of everyday devices. In that department, Arm’s sales have been relatively flat, resulting in a re-evaluation from SoftBank.

The decision to shed assets has gained momentum at SoftBank. Pressure from activist investor Elliott Management Corp. and concerning losses in the company’s $100 million Vision Fund have prompted action. Softbank says it plans to sell a significant amount of assets to prop itself up, and it has plenty to choose from beyond Arm. It also owns roughly $20 billion worth of T-Mobile US stock and has large stakes in Alibaba and a leading Japanese cellphone provider.

And luckily for Softbank, the chip sector has been a “reliable source of deal activity” in recent memory. On Monday, Analog Devices agreed to buy Maxim Integrated for $20 billion. If SoftBank wants to cash out on Arm, it seems the payday should be there.

Numbers to Consider

  • $41 Billion – The amount in assets SoftBank plans to sell to offset its struggles.
  • 25 Percent – How much of a stake SoftBank’s struggling Vision Fund owns in Arm.
  • $29.82 – SoftBank’s share price Tuesday Morning.

Read More: (WALL STREET JOURNAL)

Coronavirus Spending Pushes U.S. Budget Deficit to $3 Trillion for 12 Months Through June

The U.S. budget just hit a milestone – and not a good one. With deficit spending crossing the $3 trillion mark, the country set a pace to “register the largest annual deficit as a share of the economy since World War II.”

Why It Matters

The deficit was trending in the wrong direction long before the pandemic. According to Treasury data, levels were declining after approaching $1.5 trillion in 2009, the aftermath of the Great Recession. But since 2015, deficit spending has been trending up. It’s typical for deficits to widen around recessions and narrow when the economy grows. The fallout from the pandemic has seen government spending more than triple.

It has to get worse before it gets better, and the deficit gap could widen if Congress and the White House don’t reach an agreement later this month on another round of emergency spending. The previous $3.3 trillion stimulus package offered measured relief to American households and businesses.

But tax revenue is hurting significantly with widespread unemployment and business shutdowns, and the effect is magnified by governmental support, like unemployment insurance, used to provide relief. With cases surging in the South and West and reaching record-highs as a nation, a quick economic recovery is doubtful. And even though problems such as controlling the virus and supporting American households and businesses are more pressing, the egregious spending can’t be ignored long-term.

Numbers to Consider

  • $864 Billion – The deficit in June alone, a monthly record according to the Treasury Department.
  • $984 Billion – The entire gap for the previous fiscal year.
  • $3.7 Trillion – How high the Congressional Budget Office projects the deficit reaching when the fiscal year ends on Sept. 30.

Read More: (WALL STREET JOURNAL)

A Quick Look

JPMorgan Profit Drops 51% As Bank Sets Aside Billions for Coronavirus Loan Losses

  1. After setting aside $10.47 billion to cover potential pandemic-related loan losses in the second quarter, JPMorgan posted a profit of 4.69 billion. A year earlier, it was $9.65 billion. This all comes after it put aside more than $8 billion for potential loan losses in the first quarter when the crisis was much less severe.
  2. The company’s shares have fallen around 30 percent this year, a slight edge over other big-bank rivals, but still far worse than the overall market. “At $1.38 per share, the results exceeded the average analyst estimate of $1.15 a share, according to FactSet. Per-share earnings were $2.82 a year ago.”
  3. Both Citigroup and Wells Fargo also reported significant losses as a response to the coronavirus economy. Citigroup saw its second-quarter profit fall 73 percent to $1.32 billion, while Wells Fargo lost $2.38 billion in Q2.

Read More: (WALL STREET JOURNAL)

Worth Your Time

Take the Money and Run: As the Trump administration weighs a potential ban against TikTok, Snapchat is making a play to usurp its position. The company confirmed it is testing a new “experience,” allowing users to move through public content with the same vertical swiping motion as TikTok. It’s an experiment and is only available to a small percent of its user base. Still, if TikTok’s U.S. audience is up for grabs, it could be a significant power play for Snapchat and other rival apps. (TECH CRUNCH)

The Hurting Kind: Huawei is hurting. The world’s largest maker of telecom equipment and a major smartphone player has struggled to cope with U.S. sanctions limiting its access to American suppliers. And things are likely to get worse. With the U.S. viewing Huawei as a national security threat, governmental action could threaten the telecom giant’s business. (THE INFORMATION)

Tidbits

To circumvent some of the political pressure it is facing, TikTok is taking preemptive action in Australia to dissuade lawmakers’ concerns.

Google already announced it was investing $10 billion in India, but now the tech giant is in talks to hand $4 billion over to Jio Platforms.

A Couple Cents Content

Check out Justin Oh’s latest video on how to tell if a real estate investment is attractive. (YOUTUBE)

In case you missed it, take a look at the A Couple Cents Live Show from last night: Overvalued versus Attractive Growth Stocks, and Tesla Peloton, Nvidia, Salesforce, Sonos and Fisker. (YOUTUBE)

Read Justin Oh’s full breakdown on Fisker Stock ($SPAQ). (POST)

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Thanks for reading!

— Justin Birnbaum

Image:Elon Musk” (CC BY-NC 2.0) by Thomas Hawk

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