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The trouble with meme stocks is that sometimes reality gets in the way.
Consider
GameStop,
which burst onto the investment scene in January and landed its champion on Reddit Wall Street Bets a starring role in a Congressional hearing, and potentially, a movie or two.
The videogame retailer was still trading north of $167 per share at Wednesday’s close. That’s a far cry from the high of $483 when GameStop mania was in full swing, but still gives it a valuation of 72 times cash flow for the unprofitable company.
Along comes the news that
Netflix
is branching into gaming, led by a former Electronic Arts and Facebook executive. At first blush, who cares — the video quality of games streaming over Netflix would seemingly be quite rudimentary compared with the quality Xbox or Playstation users might expect. Alternatively, Netflix could bring games to mobile phones, but that is already an incredibly crowded market.
But it doesn’t take such a big leap of imagination to imagine Netflix as the pipe delivering games, just as it does movies and television shows. That seems to be the role GameStop wants for itself, under the direction of former Chewy founder Ryan Cohen and the gaggle of former Amazon executives he’s hired. GameStop shares dropped 6% in after-hours trade, while Netflix shares added 3% in the extended session.
Back to reality, and just to reiterate, there are no Netflix games yet, and there is not even a suggestion of a Netflix gaming portal. Maybe Netflix can become the meme stock now.
—Steve Goldstein
*** In the latest episode of Barron’s Streetwise podcast, columnist Jack Hough talks with the CEO of home generator company Generac, whose shares have shot up twice as fast as Tesla’s. Listen here.
***
Inflation Running Faster Than Expected, But Fed Still Sees It as Transitory
Inflation has increased notably and is likely to remain elevated in the coming months until it cools off, Federal Reserve Chairman Jerome Powell told the House Financial Services Committee on the first of his two-day appearance on Capitol Hill.
- The last three monthly inflation readings—including June’s 5.4% one-month gain—have been stronger than expected, as Powell acknowledged Wednesday. The Fed has said that inflation will rise this year, but the increase would be temporary.
- U.S. consumer prices continued to accelerate in June at the fastest pace in 13 years. The producer-price index, which tracks the prices businesses receive for their goods and services, jumped 7.3% in June from a year earlier.
- The Beige Book, a collection of observations on economic conditions from the Fed’s 12 districts, pointed to strong demand for a variety of goods and services, including new and used cars, travel and tourism.
- Larry Fink, CEO of the world’s biggest asset manager BlackRock, told CNBC he doesn’t believe inflation will be fleeting. “It is my view that inflation is going to be more systematical,” he said Wednesday. “Now we are saying jobs are more important than consumerism.”
What’s Next: Businesses told the Fed in the Beige Book that they’re not sure when they can increase production to meet all the pent-up demand. They still can’t get many supplies on time because of bottlenecks and jobs remain open, raising the costs of materials and labor.
—Liz Moyer
***
China’s Growth Slows But Shows Resilience in Second Quarter
The Chinese economic recovery slowed slightly in the second quarter of the year but appeared more resilient and balanced as domestic demand beat expectations.
- China’s gross domestic product rose 7.9% in the quarter ended in June, in line with forecasts, and nearly 13% in the first half, compared to the same period of 2020, when the Covid-19 pandemic hit.
- Industrial output was up 8.9% in the quarter, exceeding forecasts, as did retail sales, which increased by 13.9%, the National Bureau of Statistics said Thursday.
- China now looks largely on track to meet the government’s official 6% growth target for this year, according to analysts. The Chinese central bank last week lowered its reserve requirements for the country’s banks in order to help them support the recovery.
- The country’s customs office said earlier this week that imports in June had increased by 37%, a much faster pace than the 32% increase of Chinese goods exports.
What’s Next: China’s growth may seem to slow in the second half of the year because of base effects, when the economy’s performance will be compared to the same period of 2020. But the current recovery looks more sustainable than forecast, possibly alleviating the need for further government or central bank stimulus.
—Pierre Briançon
***
Facebook Joins Amazon in Asking FTC Chair to Recuse Herself
Facebook
wants Federal Trade Commission Chair Lina Khan to recuse herself from participating in the agency’s stalled antitrust case against the social media giant, arguing that her long history of criticizing it and other tech companies prevents her from being impartial.
-
Facebook petitioned for Khan’s recusal two weeks after
Amazon,
which is facing multiple FTC investigations, asked Khan to recuse herself from its pending acquisition of film production and distribution company MGM Holdings and any other antitrust matters involving the tech giant. - Facebook cited Khan’s journal articles, public statements, now-deleted Twitter posts, and her work on a 16-month congressional investigation into tech companies. “For the entirety of her professional career, Chair Khan has consistently and very publicly concluded that Facebook is guilty of violating the antitrust laws,” it said.
- When Khan was a legal director for the Open Markets Institute, a political advocacy group, it argued for the FTC to reverse its approval of Facebook’s acquisitions of Instagram and WhatsApp. Those mergers are a large part of the FTC’s lawsuit against the company.
- The FTC didn’t comment on Facebook’s petition. Asked at her Senate confirmation hearing whether she would have to recuse herself from tech company cases given her previous work, Khan said she did not have any financial conflicts that would be grounds for recusal under ethics laws.
What’s Next: A federal judge on June 28 dismissed the FTC’s lawsuit against Facebook as legally insufficient, but gave the regulator 30 days to rethink its arguments and amend its suit. Any amended litigation would be subject to a vote from an agency now under Khan’s leadership.
—Max A. Cherney and Janet H. Cho
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Airlines Are Returning to Profitability After Pandemic
Airlines are getting back to profitability for the first time since the pandemic.
Delta Air Lines
on Wednesday was the first airline to report second-quarter earnings, posting a profit as domestic leisure travel rebounded.
- Delta said that excluding special items, it earned $1.02 a share in the quarter. The results beat consensus estimates, which called for a loss of $1.33 a share.
- Delta’s stock lost 1.6% on Wednesday, and may have not reacted positively because its results weren’t surprising. The airline predicted months ago that the second quarter would be a turning point for profitability, in anticipation of a robust summer travel season.
-
American Airlines Group
also issued a positive update with a forecast for a “slight” second-quarter pretax profit. The airline also said it was profitable in June for the first time since December 2019, excluding special items. - While U.S. vacation travel has returned, a full recovery for airlines is long way off because business and international travel remain weak, The Wall Street Journal reported.
What’s Next: Delta’s outlook also was encouraging. It indicated that travelers are booking flights further in advance. Airlines including
United Airlines Holdings
are ordering new planes. Other carriers are set to report earnings in the coming weeks.
—Mary Romano and Daren Fonda
***
U.S. Coronavirus Cases Have More than Doubled in Recent Weeks
The average number of U.S. Covid-19 cases has doubled to more than 23,000 cases a day from three weeks ago, per Johns Hopkins University. Health experts blame the increase on summer socialization, a lower vaccination rate in some areas and among younger people, and the Delta variant.
- The more easily transmissible Delta variant accounted for an estimated 57.6% of new U.S. cases as of July 3, including about 87% of the new cases in the region that includes Iowa, Kansas, Missouri and Nebraska, according to the Centers for Disease Control and Prevention.
- New cases in Los Angeles County recently exceeded 1,000 for three straight days for the first time in months. And in Missouri, new infections have spiked 63% in the past two weeks.
- Ajay Sethi, an associate professor at the University of Wisconsin-Madison, said that even though the Delta variant is the most infectious strain, “there are areas of the country where too many people have not yet gotten vaccinated and wrongly believe that the pandemic is over.”
- In Tennessee, the state health department has stopped encouraging adolescents to get Covid-19 and other vaccines, and won’t send postcards reminding them about their second vaccine shots, amid pressure from Republican state lawmakers, The Tennessean reported. Cases there have doubled to an average of 418 per day.
What’s Next:
Norwegian Cruise Line
sued Florida over the state’s prohibition against businesses requiring customer vaccinations, saying the law puts it in “an impossible dilemma” in trying to comply with state laws and CDC recommendations. Gov. Ron DeSantis’s office called the suit meritless.
—Janet H. Cho
***
I cover most of my parent’s expenses—what tax breaks am I eligible for?
Do you pay over half the cost of supporting a parent? If so, your parent is your dependent for federal income tax purposes. As such, you may be entitled to some meaningful tax breaks.
For unmarried individuals, a common (and expensive) error is filing as a single taxpayer when more favorable head of household (HOH) filing status is allowed. Compared to single taxpayers, heads of households are entitled to wider tax brackets and bigger standard deductions. So, using HOH filing status can save you significant bucks at tax return time.
Read more here.
—Bill Bischoff
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—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Callum Keown, Rupert Steiner