The Great ‘Soon-To-Be’ Recession: How It's Impacting the Job Market and Stocks

Posted on by The INO.com Team

In an antithesis to the sluggish economic growth, indicated by annualized GDP growth rate of 1.1% in the first quartera of fiscal 2023 and a greater-than-expected decline in job openings in March to its lowest level in nearly two years, non-farm payrolls beat expectations to grow by 253,000 in April.
An earlier release by the payroll processing firm ADP foreshadowed this acceleration in job growth. According to the report, private payrolls rose by 296,000 for April, above the downwardly revised 142,000 the previous month, comfortably beating the estimate for 133,000.

However, three businesses that certainly didn’t share the optimism were Dropbox, Inc. (DBX), BuzzFeed, Inc. (BZFD), and Clubhouse Media Group, Inc. (CMGR). All of them added to the laundry list of U.S. companies lightening up on headcount in response to macroeconomic uncertainty and turbulence due to rising costs of inputs, including (and especially) capital.

Perplexed? We understand. That’s why, in this article, we attempt to go beyond the headlines and read between the lines to make sense of the roller coaster of economic data and hopefully set the record straight.

On April 27, collaboration platform DBX announced that it would be laying off 500 employees, which equates to about 16% of its workforce. According to CEO Drew Houston, this decision was in response to slowing growth due to the maturation of the business and the impact of negative headwinds on its customers.
DBX, which is on course to merge its Core and Document Workflows businesses, is also facing an imperative to focus on AI-powered products, which require completely different skill sets.

In the penultimate week of April, digital media company BZFD decided to shut down its news unit and lay off 180 people, accounting for 15% of its staff. The layoffs would affect the company’s business, content, administration, and tech teams.

With 100 employees, BuzzFeed News, which differentiated itself from the viral-content-generating brand with straightforward, insightful, and investigative reporting to win a Pulitzer Prize in 2021, lost the company about $10 million each year.

With advertising expenditure reduced amid macroeconomic headwinds, CEO Jonah Peretti succumbed to pressure from large shareholders to shut down its news operations.

On April 27, social media firm and digital agency CMGR, which was hyped to a valuation of $4 billion during the pandemic, announced that it would be laying off half its staff in what the company has dubbed as hitting the “reset” button.

Job cuts in all the businesses mentioned above seem tied by a common thread. We went from living in a largely virtual world of virtually free money, marked by a target federal funds rate of 0% to 0.25%, to a reality check in which people found life outdoors, and ten consecutive interest-rate hikes have taken the fed funds rate to a range of 5%-5.25%. Continue reading "The Great ‘Soon-To-Be’ Recession: How It's Impacting the Job Market and Stocks" →

Navigating A Major Lawsuit: Will Pharma Stock ABBV Hold Strong Under Scrutiny?

Posted on by The INO.com Team

Humira has not just been a wonder drug for treating moderate to severe rheumatoid arthritis and other debilitating auto-immune conditions for millions of people; it has been a cash cow for its manufacturer, AbbVie Inc. (ABBV). Excluding the COVID vaccine that was developed in response to the pandemic, Humira has been the world’s best-selling drug.

In return, the company has defended its fortress from potential competition from cheaper substitutes for over two decades with the help of the American patent system, which has enabled ABBV to file more than 100 patents to extend Humira’s patent protection beyond the 12 years that’s standard for other biotech drugs.

Biotech drugs like Humira are more complicated to design, develop, manufacture, and administer than pills or tablets. Consequently, their interests are protected by relatively more patents and intellectual property (IP) rights around them.

However, even by those standards, ABBV’s strategy was more aggressive, according to some experts, considering that some of Humira's patents covered things such as the drug's formulation and manufacturing methods.

But ABBV’s approach of taking no prisoners may be coming back to bite it this time around. In this article, we will look into the specifics and potential consequences of its alleged transgressions.

Under The (Double-Barreled) Gun

On April 25, ABBV was sued by a nationwide class of consumers who have accused the drug maker of fraudulently and illegally inflating the cost of Humira by as much as 470% over the past two decades.

The class action lawsuit filed in the U.S. District Court for the Northern District of Illinois alleges that the drug maker had repeatedly raised the publicly-listed price paid by consumers while offering pharmacy benefit managers (PBMs) lower and undisclosed net prices for its blockbuster drug.

ABBV has allegedly exploited this covert arrangement to charge its consumers exorbitantly while helping PBMs to profit excessively by pocketing a portion of the larger spread between the publicly listed price and the private net price they paid for the drug. Continue reading "Navigating A Major Lawsuit: Will Pharma Stock ABBV Hold Strong Under Scrutiny?" →

As Banks Collapse, Start Looking Ahead

Posted on by Matt Thalman

Almost two months ago, I wrote about how you could buy exchange-traded funds, both long or short, to play what, at the time, we were told was a one-off banking crisis with just Silicone Valley Bank.

The point at the time was that it was unlikely that Silicone Valley Bank was the only bank that took on outsized risks, and therefore it was unlikely they would be the only bank that would have problems.

Fast forward almost two months. We have had three banks, Silicone Valley included, fail in the U.S., and Credit Suisse needing a loan from the Swiss Nationals bank. We have also, more recently, had several bank stocks take massive noise dives as investors fear they are the next bank to fail. And we even had Pacific West Bank announce that they are looking at potential sale options and strategies to sure up the company.

We can all sit here and believe what Janet Yellen and Federal Reserve Chairman Powell tell us about the financial sector's health and go on with our day.

But, while the overall financial sector may very well be as healthy as they claim it is, a lot of banks, both big and small, are seeing their stock prices tank. And as an investor, when I see this type of price destruction, I immediately think, "Am I missing a good or even great investment opportunity while this plays out?"

As I said two months ago, I can't tell you if the banks will go higher or lower in the near future from where they sit today; I am not that intelligent.

But I know that the big banks, not the regional ones, will survive this crisis in the long run. And, based on history, i.e. the 2007-2008 financial crisis, the big banks are likely to get even more significant.

If anyone thought the big banks were "too big to fail in 2008," they are even more prominent today. Hence, they are indeed too big to fail today.

Furthermore, since the bank was failing, JPMorgan Chase just bought most of First Republic Bank's assets. That move has made JPMorgan even larger; big banks are getting even bigger. Continue reading "As Banks Collapse, Start Looking Ahead" →

Dollar Stores Change As Inflation Rises

Posted on by The INO.com Team

Editor’s Note: Our experts here at INO.com cover a lot of investing topics and great stocks every week. To help you make sense of it all, every Wednesday we’re going to pick one of those stocks and use Magnifi Personal to compare it with its peers or competitors. Here we go…

Dollar stores - the no-frills discount retailers - were known for catering to the most cash-strapped consumers. These chains expanded rapidly to meet the needs of that demographic, with more than 19,000 Dollar General stores and more than 16,000 Dollar Tree and Family Dollar outlets now in North America.

But now, dollar stores’ demographic is changing, as inflation drives more and more middle-income consumers through their doors. One primary factor behind this trend is U.S. grocery prices, which were up 8.5% from March of 2022.

This emerging trend has led the industry’s two biggest chains - Dollar General (DG) and Dollar Tree (DLTR) - to both announce plans to remodel almost twice as many stores as they will open this year. Dollar General and Dollar Tree will increase the number of refitted stores by 11.4% and 25.6% from last year, respectively.

Both are investing heavily in freezers and coolers to meet growing demand for groceries from U.S. consumers who have shifted more spending from discretionary items to essential items like food.

Dollar General will increase capital spending by 22% this year, to $1.9 billion—about 142% above what it spent in the pre-pandemic fiscal year to January 2020. Dollar Tree is increasing its capital expenditure this year by about 60% to $2 billion, nearly double what it spent in the fiscal year to February 2020.

However, profit margins are lower for groceries than other items, so dollar stores have little incentive to push too far into the terrain of the likes of Walmart (WMT). UBS notes that dollar stores’ operating margins were more than double those of grocery chains last year. So, the number of food items available at dollar stores will be limited.

With that in mind, let's compare the largest of the dollar stores, Dollar General, against Walmart over this past volatile and inflationary year. The quick and easy way to do this to ask Magnifi Personal to run the comparison for us. It’s as simple as asking this investing AI to: “Compare DG to WMT.” Continue reading "Dollar Stores Change As Inflation Rises" →

Subpoenas to Biden Agencies Over Social Media 'Censorship': Impact on Big Tech and Stock Market

Posted on by The INO.com Team

Holocaust survivor Susan Sontag, when asked, summed up her lesson from her struggle with a simple yet profound observation that 10% of any population is cruel, no matter what, and that 10% is merciful, no matter what, and that the remaining 80% could be moved in either direction.

The above observation has not just stood the test of time; it holds true for political ideologies and economic doctrines as well, as revolutionaries and public enemies over the ages have found out to their respective triumphs and desolations.

However, in the age of information and the Internet, social media has become the new battleground for conflicting subcultures to shape narratives and influence the 80% to write a preferred version of history.

This ongoing and intensifying conflict reached another flashpoint when House Judiciary Committee, chaired by Republican Jim Jordan, subpoenaed three government agencies on Friday, April 28, as part of investigations into alleged censorship.

This has followed subpoenas sent in February to chief executives of Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN),Apple Inc. (AAPL), Meta Platforms, Inc. (META), and Microsoft Corporation (MSFT) demanding information on how they moderate content on their online platforms.

In this article, we will get into the details of the subpoena, followed by an exploration of what regional and temporal differences in the definition of appropriateness and appropriateness in the limits of free speech mean for the business prospects of big tech companies. Continue reading "Subpoenas to Biden Agencies Over Social Media 'Censorship': Impact on Big Tech and Stock Market" →