Raphael Stevens

Check out the companies making headlines before the bell:
Kohl’s (KSS) – Kohl’s reported adjusted quarterly earnings of 11 cents per share, well short of the 70-cent consensus estimate. Revenue was better than expected, but the retailer noted a tough sales environment as well as higher costs. Kohl’s shares fell 3.3% in premarket trading.

BJ’s Wholesale (BJ) – The warehouse retailer jumped 5.8% in the premarket after an upbeat earnings report. BJ’s beat estimates by 15 cents with adjusted quarterly earnings of 87 cents per share. Revenue and comparable-store sales were also better than expected.
Spirit Airlines (SAVE) – The airline’s board unanimously recommended that shareholders reject JetBlue’s (JBLU) $30 per share tender offer. Spirit said a JetBlue transaction would have little chance of clearing regulatory hurdles, and it is moving ahead with its plan to merge with Frontier Airlines parent Frontier Group (ULCC). Spirit fell 1.7% in premarket trading.
Canada Goose (GOOS) – The outerwear maker’s stock rallied 8.9% in premarket action after the company reported an unexpected profit as well as better-than-expected revenue. Canada Goose also raised its full-year forecast.
Target (TGT), Walmart (WMT) – The two retailers remain on watch after both suffered their worst one-day drops since October 1987 following their quarterly earnings reports this week. A surge in costs led both to report earnings that came in far below expectations.
Cisco Systems (CSCO) – Cisco tumbled 10.7% in the premarket after cutting its full-year forecast. The networking equipment maker is seeing its sales hit by Covid lockdowns in China and the war in Ukraine. Networking rivals fell in the wake of Cisco’s forecast with Juniper Networks (JNPR) down 4.6% in the premarket and Broadcom (AVGO) down 3.8%.

Under Armour (UAA) – Under Armour CEO Patrik Frisk is stepping down, as of June 1, to be replaced on an interim basis by Chief operating Officer Colin Browne. Frisk became CEO of the athletic apparel maker at the beginning of 2020, just before the Covid-19 pandemic hit, and sales have fallen nearly 50% since then. Under Armour slid 5.3% in premarket trading.
Bath & Body Works (BBWI) – Bath & Body Works reported better-than-expected profit and revenue for its latest quarter, but the personal care products retailer cut its full-year earnings forecast due to inflationary factors and increased investments. The stock slumped 6.8% in the premarket.
Synopsys (SNPS) – Synopsys rallied 4.2% in premarket trading after the design automation software company reported better-than-expected profit and revenue for its latest quarter and issued an upbeat forecast.

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It has been a vicious year for financial markets, and more punishing still for crypto assets. The market capitalisation of crypto has slumped to just $1.3trn, from nearly $3trn in November. On May 18th bitcoin traded at around $29,000, a mere 40% of its all-time high in November; the price of ether, another cryptocurrency, has collapsed just as spectacularly. Six months ago Coinbase, an exchange and the leading crypto-industry stock, was worth $79bn. Now it is valued at just $14bn, and the firm is “reassessing its headcount needs”. The sell-off comes as the Federal Reserve begins raising interest rates. Tech stocks, high-yield bonds and other risky assets have also swooned. But crypto’s bruising comedown is interesting for a deeper reason: it has exposed weaknesses in the plumbing of the system. The problems lie with the market for stablecoins, a type of cryptocurrency that is pegged to another currency, often the dollar. Added together all stablecoins, the largest of which are tether and usd coin (usdc), are worth around $170bn. These act as a bridge between conventional banks, where people use dollars, and the “on-blockchain” world, where people use crypto. The biggest such coins are also used by exchanges as a base for trading between cryptocurrencies.From May 9th, terra, then the fourth-largest stablecoin by market capitalisation, began to unravel. The implosion put pressure on tether, which is meant to be pegged one-for-one with the dollar. On May 12th its price dipped to 95 cents. Some $9.1bn in tether has since been redeemed for cash. The technology (and the jargon) associated with crypto may be newfangled, but to students of financial history, these events look familiar. They resemble the confidence crises that precede bank runs. Every stablecoin has a mechanism to maintain its peg. The simplest (and safest) method is to hold a dollar in a bank account, or in safe, liquid assets like Treasury bills, for every stablecoin token. The token can be traded freely by buyers and sellers; when a seller wants to offload their stablecoin they either sell it on the open market, or redeem it for its dollar value from the issuer, who then destroys the token. usdc and tether use versions of this method.Others, like terra, are called “algorithmic stablecoins”, because they use an automated process to support the peg. Their main distinguishing feature, however, is in how they are backed. Terra is backed by luna, a cryptocurrency issued by Terraform Labs, which also runs terra. The idea was that holders of terra could always redeem it for one dollar’s worth of newly minted luna. On May 5th, when luna was trading at $85 a piece, that meant a terra holder could redeem it for 0.0118 lunas. If for some reason terra was trading at less than $1, arbitrageurs could swoop in, buy a terra, redeem it for luna and sell that for a profit.That system worked as long as luna had some market value. But on May 9th the price of luna began to slide. And that in turn put pressure on terra’s peg—causing a rush to redeem. The supply of luna ballooned. On May 10th 350m tokens existed. By May 15th 6.5trn did. As the price of luna collapsed, terra also went into free fall. Its price is now hovering at around 10 cents. Luna is worthless. Do Kwon, the founder of Terraform, has tried to resuscitate terra. He has turned the blockchain off and on again, “burned” tokens and attempted to split the blockchain. But nothing has worked so far. Terra’s implosion has had wider and more worrying repercussions: it has prompted flight from tether. Those fleeing may have felt anxious about the lack of detail regarding tether’s backing. The company once said it backed its tokens with “us dollars”, a claim New York’s attorney-general said in 2021 was “a lie”. Now the firm says its tokens are “backed 100% by Tether’s reserves”. This appears to be some mix of cash, Treasuries and corporate debt, but the company has refused to disclose the details, claiming that its asset mix is its “secret sauce”. As with many past bank runs, where depositors fled to safety, holders have sold off terra and tether and rushed to tokens perceived to be of higher quality. One example is usd coin, which holds only cash or Treasuries, and publishes regular audited reports to that effect. Dai, another stablecoin backed by crypto and managed by algorithms, has managed to maintain its peg. Still, that other stablecoins have survived might be small comfort if tether does not. If tether really is backed by illiquid assets, or perhaps assets that have fallen in value this year, then the more some holders redeem its tokens, the less remains in the pot for others. The implosion of the world’s biggest and oldest stablecoin would be much more catastrophic than was terra’s. Tether is not only a financial bridge between crypto and conventional money—ie, dollars in bank accounts—but also between all kinds of crypto pairs that are traded on exchanges. The three biggest and most liquid cryptocurrency pairs on Binance, the biggest exchange, for instance, are bitcoin and tether; ether and tether; and Binance’s own stablecoin, busd, and tether.Tether redeems only its big users, who are pulling $100,000 or more from it at a time, and even then at its discretion. Nonetheless, redemptions have continued apace over the past week. The loss of the peg on May 12th was a reflection of the stinginess of that system. Smaller holders who wanted out had to sell the token on the open market. The stablecoin has not fully recovered its peg. For a year it traded at or above $1; since May 12th, it has traded slightly below it. Crypto’s most important bit of plumbing is still leaking. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The modern Indian state has a proud statistical heritage. Soon after the country gained independence in 1947, the government resolved to achieve its development through comprehensive five-year plans. The strategy, though economically inadvisable, nonetheless required the creation of a robust data-gathering apparatus. In 1950 PC Mahalanobis, the leading light of Indian statistics, designed the National Sample Survey, which sent staff to the far corners of the vast country to jot down data regarding its mostly illiterate citizens. The survey’s complexity and scope seemed “beyond the bounds of possibility”, reckoned one American statistician. Of late, however, admiration has been replaced by alarm. India’s statistical services are in a bad way. Across some measures, figures are simply not gathered; for others, the data are often dodgy, unrepresentative, untimely, or just wrong. The country’s tracking of covid-19 provides a grim example. As the pandemic raged across India, officials struggled to keep tabs on its toll. Officially, covid has claimed more than half a million lives in India; The Economist’s excess-deaths tracker puts the figure far higher, between 2m and 9.4m. India’s government has also hampered efforts to assess the pandemic’s global impact, refusing at first to share data with the World Health Organisation (who), and criticising its methods. The preference for flattering but flawed figures is pervasive. In education, state governments regularly ignore data showing that Indian children are performing woefully in school and instead cite their own administrative numbers, which are often wrong. In Madhya Pradesh, a state in central India, an official assessment showed that all pupils had scored more than 60% in a maths test; an independent assessment revealed that none of them had. Similarly, in sanitation, the central government says that India is now free of open defecation, meaning that people both have access to a toilet and consistently use it. Anyone who takes a train out of Delhi at dawn and looks out of the window, however, might question the claim. When it comes to poverty, arguably India’s biggest problem, timely figures are not available. Official estimates are based on a poverty line derived from consumption data in 2011-12, despite the fact that more recent but as yet unpublished numbers exist for 2017-18. By contrast, Indonesia calculates its poverty rate twice a year. India’s government explains its approach by pointing to discrepancies between recently gathered data and national accounts statistics—but many suspect the true reason is that newer data would probably show an increase in poverty.In some cases, flawed data seem more a problem of methodology than malign intent. India’s gdp estimates, for instance, have been mired in controversy ever since the statistics ministry introduced a new series in 2015 (a change that was in the works before the current government entered office). Arvind Subramanian, a former government adviser, calculated that the new methodology overestimated average annual growth by as much as three to four percentage points between 2011-12 and 2016-17. Although current advisers insist that the official methodology is in line with global standards, other studies have also found problems with the calculations. The erosion of India’s statistical infrastructure predates the current government, but seems to have grown worse in recent years. Narendra Modi, the prime minister, has previously bristled at technocratic expertise and number-crunching. (“Hard work is more powerful than Harvard,” he said in 2017.) India’s data woes are also troubling for what they suggest about the ability of the state to provide the essential public services needed to foster long-run growth. The statistics ministry, short of staff and resources, is emblematic of the civil service. Data-gathering has become excessively centralised and over-politicised. A National Statistical Commission was set up in 2005 and tasked with fixing India’s data infrastructure. But its work has been complicated by turf wars and internal politics; it is widely considered toothless, including by former members. Who’s countingThe situation is not hopeless, perhaps because of statisticians’ past efforts. According to the World Bank, the quality of Indian data is still in line with that of other developing countries, even after years of neglect. India’s new goods-and-services tax and digital-welfare infrastructure are yielding troves of data. Leading Indian statisticians argue that an empowered regulator could fix existing problems. State governments and departments are also doing their bit. Telangana, a southern state, is investing in its own household surveys, for example. India’s rural-development ministry recently released a dataset covering 770,000 rural public facilities, such as schools and hospitals, inviting data whizzes to peruse the figures and suggest improvements. Civil society is also responding. During the pandemic, dozens of volunteers co-operated to produce granular, timely estimates of covid cases. New technologies could help gather data quickly and cheaply, over phones and tablets.Yet in a modern economy there is no substitute for high-quality national data-gathering. The sunlight provided by accurate figures is often unwelcome for an increasingly autocratic government: transparency invites accountability. But neglect of the statistical services also leaves Indian policymakers flailing in the dark, unable to quickly spot and respond to brewing economic and social problems. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Few chinese companies have caught the imagination of global investors like its technology firms. But they have suffered a catastrophic spell. At one point in March, they had lost about 70% of their value since their 2021 peak. On March 14th Alex Yao of JPMorgan Chase and his team published a set of gloomy reports on internet firms such as Alibaba, an e-commerce giant, Dingdong, an online grocer, and Netease, a maker of computer games. Mr Yao fretted about the industry’s prospects over the next year, owing to China’s economic slowdown, its regulatory crackdown on tech and its souring relations with the West. Some of the reports even described the sector as “uninvestible”. That word caused a bit of a furore. JPMorgan lost its position as the lead underwriter for the listing in Hong Kong of Kingsoft Cloud, a Chinese cloud-computing firm. According to Bloomberg on May 10th, editors at the bank had in fact tried to replace “uninvestible” with the less apocalyptic “unattractive”. But some mentions slipped past them.Using the word was undiplomatic. But was it justifiable? It has been bandied around quite freely in recent years, applied not just to the usual suspects, such as Russian or Iranian assets fenced off by financial sanctions, but also to less obvious candidates. Jim Cramer of cnbc, a tv channel, described oil stocks as uninvestible in January 2020, calling them the new tobacco. Not so long ago, the same was said about big banks and the whole of southern Europe.The odd thing is that the word has become more common even as the world has become more investible. Thanks to financial innovation and globalisation, far-flung assets are far easier to buy than they used to be. Back in 1988 msci’s emerging-markets equity index included only ten countries with a combined market capitalisation of just over $50bn. The index now includes 24 countries with a market value of $6.9trn. At the end of last year the value of global investible assets reached a record high of $179trn, according to State Street, an asset manager. That is equivalent to 186% of world gdp in 2021, up from 116% in 2000.Even in his unedited report, Mr Yao did not argue that it was impossible to hold Chinese internet stocks. Indeed, he advised global investors to remain “neutral” on 11 of them. So what was on his mind? He worried that the depositary receipts of some internet firms might be delisted from American exchanges, because China has been reluctant to open the books of its auditors to American regulators. This in itself would not make them uninvestible, because the shares of most of these companies can also be bought in Hong Kong, as Mr Yao himself pointed out. But he saw this regulatory row as the latest manifestation of the geopolitical risks faced by China, which became more salient after Russia invaded Ukraine. Because of these risks, he said, global investors were likely to shun Chinese internet firms over the next 6 to 12 months, however cheap they became. During this “stage”, he argued, these stocks could no longer be valued by simply projecting their earnings and cashflow. Only after foreign investors had departed would his “valuation frameworks” regain relevance, presumably because the remaining investors (locals and China specialists) would be less sensitive to Sino-American relations. He recommended revisiting the sector only when this new stage arrived.When would that be? The answer, he admitted, depended on “many unpredictable factors outside our forecast capability”. It turns out he was right. In a more upbeat report on May 16th he said that the second stage had already arrived, well ahead of schedule. Thanks to some encouraging noises on the delisting dispute, Mr Yao believes that geopolitical risks have receded enough to give his valuation framework some purchase once again. He duly offered new, higher price targets for 18 companies. His editors were, then, right that “uninvestible” was the wrong word. “Unanalysable” would have been better, if even uglier. It is not that Chinese internet stocks could not be bought, merely that they could not be valued using Mr Yao’s preferred framework, which could not accommodate geopolitical risk. Unfortunately, few assets these days are entirely free of such risks. Anyone taking a view on commodity prices (and thus on inflation, and therefore interest rates) is also taking a view on war and peace. If more investible assets are not to become unanalysable, stockpickers may have to invest in a broader view of the world. Read more from Buttonwood, our columnist on financial markets:Why Italy’s borrowing costs are surging once again (May 14th)Who wins from carnage in the credit markets? (May 7th)Slow pain or fast pain? The implications of low investment yields (Apr 30th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More