Finance

Michael Novogratz
Anjali Sundaram | CNBC

Crypto investor Michael Novogratz is drawing parallels between crypto and Long Term Capital Management, a highly leveraged hedge fund that blew up in the late 1990s.
“We are going through what feels to me a little bit like a Long Term Capital Management moment in crypto,” Novogratz said on CNBC’s “Squawk Box.” “It was the big hedge fund with all the leverage, and when it started unwinding, there was repercussions everywhere. We are seeing that in the crypto space right now.”

Long-Term Capital Management was a hedge fund that rapidly collapsed in the late 1990s, rippling through the financial system because of Wall Street investment banks’ exposure to the fund. It was bailed out by the Federal Reserve.
Novogratz, CEO of Galaxy Digital, cited Celsius, a controversial cryptocurrency lending platform that paused all withdrawals on Monday, as well as the collapse of the Terra project.
“That’s causing a lot of damage around the system. That’s causing deleveraging that’s accelerated,” Novogratz said.
The longtime crypto investor said he believes a bottom is likely near for bitcoin and other digital tokens. Bitcoin briefly dropped below $21,000 on Tuesday, continuing its plunge as investors sold off risk assets.
“We’ve gone to the level that should be close to a bottom. $21,000 bitcoin $1,000 ethereum. There’s been a tremendous amount of capitulation and fear,” Novogratz said. “Usually not a good area to sell, but it doesn’t mean we can’t go lower. I think the macro environment is still pretty challenging out there.”
Bitcoin has fallen nearly 70% from its all-time high in November 2021.

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Take a look at some of the biggest movers in the premarket:
Continental Resources (CLR) – The oil and natural gas producer’s stock rallied 7.4% in the premarket after receiving a $70 per share “take private” bid from Chairman Harold Hamm and his family. The company’s board will establish an independent committee to evaluate the proposal.

Oracle (ORCL) – Oracle surged 12% in premarket trading after reporting better-than-expected profit and revenue for its latest quarter. Oracle is seeing strong demand for its cloud software as more businesses transition to a hybrid workplace.
National Vision (EYE) – The optical products retailer’s stock soared 14.3% in the premarket following news that it will be added to the S&P SmallCap 600 index. The change will be effective prior to the opening of trading on Thursday.
Twitter (TWTR) – Twitter shares rose 2.7% in premarket action following news that Elon Musk would attend an all-hands employee meeting on Thursday. Musk agreed in April to buy Twitter for $44 billion but has since threatened to back out of the deal.
Best Buy (BBY) – Best Buy fell 1.3% in premarket trading after Bank of America Securities downgraded the electronics retailer’s stock to “neutral” from “buy.” BofA points to increasing uncertainty about Best Buy’s 2023 earnings prospects.
Nokia (NOK) – Nokia was upgraded to “buy” from “neutral” at Citi, which cites improving fundamentals for the networking hardware and software maker. Citi points to particular strength for Nokia in the mobile infrastructure market. The stock added 2.8% in premarket action.

Coinbase (COIN) – The cryptocurrency exchange operator’s stock slid 4.8% in the premarket after J.P. Morgan Securities downgraded it to “neutral” from “overweight.” J.P. Morgan said the extreme 2022 decline in the crypto markets, plus Coinbase’s increased investments, make it difficult to foresee profitability in the near future.
Coty (COTY) – Coty rose 1% in premarket trading after the cosmetics company reaffirmed its financial outlook for both the current quarter and the full year. Coty is set to present at Deutsche Bank’s Global Consumer Conference today.
Philip Morris (PM) – The tobacco company said it now expects a better performance from its core business than previously anticipated, and that it continues to see growth in its IQOS electronic cigarette business. The stock rose 1% in the premarket ahead of a company presentation at today’s Deutsche Bank conference.

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A $4 billion bet on bitcoin by software firm MicroStrategy is in jeopardy after the cryptocurrency’s recent plunge.
The dot-com bubble-era firm’s bitcoin stash is now worth $2.9 billion, translating to an unrealized loss of more than $1 billion.
MicroStrategy is now faced with a possible margin call that investors fear could force the company to liquidate its bitcoin holdings.

Michael Saylor, chairman and chief executive officer of MicroStrategy, first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.
Eva Marie Uzcategui | Bloomberg | Getty Images

Having once lost $6 billion at the height of the dotcom bubble, software entrepreneur Michael Saylor is no stranger to volatility in the financial markets.
In 1999, MicroStrategy, Saylor’s software firm, admitted to overstating its revenues and erroneously reporting a profit when it actually made a loss. The fiasco shaved over $11 billion off MicroStrategy’s stock market value in a single day.

Now, more than two decades later, MicroStrategy is again facing questions over some of its accounting practices — this time in relation to a $4 billion bet on bitcoin.
The world’s biggest cryptocurrency briefly tumbled below $21,000 Tuesday, a key level at which MicroStrategy would be faced with a possible margin call that investors fear could force the company to liquidate its bitcoin holdings.
MicroStrategy was not immediately available for comment when contacted by CNBC.

$1 billion loss

Saylor first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

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His belief was a common one among the crypto faithful — that bitcoin provides a store of value uncorrelated with traditional financial markets.

That’s turned out to be a risky gamble, with digital currencies now moving in lockstep with stocks and other assets plunging amid fears of an aggressive interest rate hiking cycle from the Federal Reserve.
Bitcoin’s price plunged 10% to $20,843 on Tuesday, extending a brutal sell-off and dragging it deeper into levels not seen since December 2020. That comes after crypto lending firm Celsius halted withdrawals on Monday, citing “extreme market conditions.”
MicroStrategy has bet billions on the cryptocurrency — $3.97 billion, to be exact. As at March 31, MicroStrategy held 129,218 bitcoins, each purchased at an average price of $30,700, according to a company filing.

With bitcoin currently trading at $22,818, MicroStrategy’s crypto stash would now be worth just over $2.9 billion. That translates to an unrealized loss of more than $1 billion.

Margin call

To add to MicroStrategy’s woes, the company now faces what’s known as a “margin call,” a situation where an investor has to commit more funds to avoid losses on a trade augmented with borrowed cash.
The company took out a $205 million loan from Silvergate, a crypto-focused bank, to continue its bitcoin buying spree. To secure the loan, MicroStrategy posted some of the bitcoin it held on its books as collateral.
Silvergate did not immediately return a request for comment.

On an earnings call in May, MicroStrategy Chief Financial Officer Phong Le explained that if bitcoin were to fall below $21,000, it could be faced with a margin call where it’s forced to cough up more bitcoin — or sell some of its holdings — to meet its collateral requirements. Bitcoin briefly slipped below that level Tuesday.
“Bitcoin needs to cut in half or around $21,000 before we’d have a margin call,” Le said at the time. “That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there.”
It’s not yet clear if MicroStrategy has pledged more funds to secure the loan.
In June, Saylor insisted the company has more than enough bitcoin to cover its collateral requirements. The cryptocurrency would need to slump to $3,500 before it had to come up with more collateral, he added.
Shares of MicroStrategy, considered by some as a proxy for investing in bitcoin, tumbled more than 25% on Tuesday, taking its year-to-date losses to over 70%. That’s even worse than bitcoin’s performance — the No. 1 digital coin has roughly halved in price since the start of 2022.
Saylor hasn’t yet commented on bitcoin’s drop below $21,000. He posted a new profile picture on Twitter Monday showing his face with lasers coming out of his eyes — a nod to a meme signaling bullishness on bitcoin.
A few hours after, Saylor tweeted: “In #Bitcoin We Trust.”
WATCH: Crypto enthusiasts want to reshape the internet with ‘Web3.’ Here’s what that means

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The prospect that the Fed and other central banks will be forced to hike interest rates more aggressively has reignited fears of a global recession.
Investors are awaiting a landmark monetary policy announcement from the Federal Reserve on Wednesday, with bets on a 75 basis point interest rate hike rising.
“What we’re currently seeing is central banks somehow starting to panic … therefore we have this big stock market correction, I think rightly so,” said Carsten Brzeski, global head of macro at ING. 

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, June 13, 2022.
Brendan McDermid | Reuters

Global stock markets diverged on Tuesday after a worldwide sell-off in the previous session, as analysts assessed the longevity of the bear market and risk of recession.
U.S. stock futures bounced in early premarket trade on Tuesday after the S&P 500 slid back into bear market territory the day before. 

Investors are awaiting a landmark monetary policy announcement from the Federal Reserve on Wednesday, with bets on a 75 basis point interest rate hike rising in light of a shock 8.6% annual inflation print for May.
The prospect that the Fed and other central banks will be forced to hike interest rates more aggressively in order to rein in inflation — at a time when growth is slowing across most major economies — has reignited fears of a global recession.

Profit recession

Guy Stear, head of EM and credit research at Societe Generale, told CNBC on Tuesday that while a recession was looking more likely, there were two prongs to consider.

“One is the pure economic outlook, and secondly the profit outlook. I would actually be more worried about profits than I would about economic growth itself,” Stear said. 
He said that the more-than 25-year trend of profit rising as a percentage of GDP was “more or less finished,” given the ongoing themes of deglobalization, higher energy and input costs, and higher wages.

“So I think that no matter what happens in terms of the economic outlook – and yes, the likelihood of an economic recession is mounting – the likelihood of a profit recession is mounting a lot faster.”

Central banks ‘starting to panic’

As well as the Fed, the Bank of England, Bank of Japan and Swiss National Bank are all set to announce monetary policy decisions this week. Each is facing its own set of economic challenges, along with the global problems of soaring food and energy costs, and supply chain disruptions.
“What we’re currently seeing is central banks somehow starting to panic, markets clearly facing all of a sudden this new era of higher interest rates, therefore we have this big stock market correction, I think rightly so,” said Carsten Brzeski, global head of macro at ING. 
“With central banks now tightening monetary policy, somehow panicking, the likelihood of a recession in the U.S., but also in the euro zone towards the end of the year, has clearly increased.”

Wall Street’s overnight losses bled into markets in Asia-Pacific on Tuesday, with major bourses largely declining and Australia’s S&P/ASX 200 plunging more than 3.5% on its return to trade following a public holiday. European markets were choppy on Tuesday as the Stoxx 600 index jumped to a 1% gain at the start of trading, before sliding back to the flatline around an hour later.

Get defensive

In terms of positioning in response to the current pullback, Soc Gen’s Stear suggested that several defensive areas of the corporate credit market could offer some protection for investors.
“My personal view in terms of where we are on the bear market is we’re about three-fifths of the way through it in credit markets, so I’m waiting for another 80 basis point widening in terms of credit, which means losses of probably not double digits, but close to, in the equity markets before I really start to get interested in terms of valuations,” he said.
In particular, Stear identified energy and utilities, the latter of which he argued represents a necessity in the move towards clean energy and the green transition. However, he also remains positive on the banking sector.
“I think banks have deleveraged so much in the past 10 years that they’re a lot less sensitive to the economic variations, particularly in Europe, than they would have been 10, 15, 20 years ago, so I think that’s more of a defensive sector than people realize,” Stear said.

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401(k) statements provide individuals with information about investments and total savings, among other things.
They will soon include “lifetime income illustrations,” which estimate the monthly retirement income generated by a lump sum of money.
The data may be a rude awakening. But it helps reframe how people think about 401(k) savings. Younger savers likely have ample time to make up a shortfall.

I think it’s very helpful for helping people start to think about outcome, and not emphasize the big pile of money.

Philip Chao
principal and chief investment officer at Experiential Wealth

Blackcat | E+ | Getty Images

The big-picture view of a lump sum may tell investors little about how their total savings will or won’t adequately fund their retirement lifestyle. A $125,000 nest egg may sound like an ample amount to some savers, but may seem less so if they realize it translates into roughly $500 or $600 a month, for example.
“For the bulk of Americans, it’ll be a wake-up call,” Richard Kaplan, a law professor at the University of Illinois, said of the new disclosures.

But there’s good news: Many people, especially those with decades to retirement, have ample time to fix any shortfalls.

Lifetime income estimates provide a rough guide

Fatcamera | E+ | Getty Images

Many 401(k) savers will see the disclosures for the first time on their next quarterly statements, due to U.S. Department of Labor requirements. Those statements, issued by plan administrators, will arrive in the days and weeks after June 30.
The new policy is a result of federal legislation — the Secure Act — passed in 2019.

Workers should use the estimates as a rough guide instead of gospel or as a guarantee, Kaplan said.
In technical terms, they show how much approximate income you’d get per month for the rest of your life if you were to buy an annuity with your 401(k) savings at age 67.

For the bulk of Americans, it’ll be a wake-up call.

Richard Kaplan
law professor at the University of Illinois

There will be two estimates on your statement: One is for a “single life” annuity, which pays income to an individual buyer for life. The other is for a “qualified joint and survivor” annuity, which pays income for an individual and a surviving spouse for life.
The estimates are based on your current 401(k) balance. They don’t, for example, project how a 35-year-old’s savings will grow and how that future nest egg would translate into monthly income. As a result, their income may seem paltry at first glance.
The illustrations also don’t account for Social Security or any retirement savings outside of that 401(k) plan — which means the estimate is likely to be at least a slight underrepresentation. They also assume your full balance is fully “vested,” which may not be the case, especially for newer hires.
The estimates are likely to be most actionable for savers with many years to retirement instead of those near retirement age, since the former have more time to course-correct, Kaplan said.
“Most of this is directed at younger people, with this being a midstream correction,” Kaplan said.

Use estimates to rewire your thinking

Getty Images

Perhaps the most useful aspect of the new policy is how it helps people rewire their thinking around retirement savings, according to Philip Chao, principal and chief investment officer at Experiential Wealth, based in Cabin John, Maryland.
The typical person saves money with each paycheck without thinking of a future income goal. Savers should instead ask themselves how much of their prior salary they want to replace in retirement, Chao said.
Someone who earned $100,000 a year before tax may decide $70,000 or $80,000 a year in retirement would be adequate to fund their lifestyle.
Any 401(k) savings, pension income and Social Security payments would then aim to replace that monthly or annual income amount, Chao said. That income will generally satisfy two buckets: essential expenses (such as housing and food) or discretionary expenses (such as vacation). Financial planners generally recommend that individuals fund those necessities with guaranteed income sources such as Social Security, pensions or annuities, if possible.
“I think it’s very helpful for helping people start to think about outcome, and not emphasize the big pile of money,” Chao said of the new illustrations. “It’s really about how much money do I need to provide me a sustainable lifetime income. What is that number?”
Without going through this rough budgeting exercise, Americans may be saving too much or too little without knowing it.
“We should save enough for what we need, not go hog wild,” Chao said. “But what is enough? If you don’t know what is enough, how do you know you’ve saved enough?”

Unlike the new Labor Department requirements, many plan administrators offer online resources that help 401(k) investors gauge how their current account balances will fund their future income needs, by factoring in some assumptions about investment earnings and current contribution rates.
Other organizations, including AARP and the American Institute of Certified Public Accountants, also offer free online retirement-income calculators.
After getting a rude awakening from the new 401(k) income illustrations, savers can use an online calculator to get a better understanding of their situation and alter their contributions as needed, Chao said.
For example, investors might be saving 3% of their paychecks while their employer offers a dollar-for-dollar 401(k) match on up to 4% — which means the worker is effectively leaving free money on the table, he said.

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Stocks may go into a deeper tailspin.
Canaccord Genuity’s Tony Dwyer predicts 1980s-era interest rate hikes will exacerbate the turmoil and make a recession seem increasingly more likely.

“Typically, I’ve been bullish over the years. But there’s a money availability problem,” the firm’s chief market strategist told CNBC’s “Fast Money” on Monday. “Ultimately, you have to have money to buy stuff, to do stuff and to invest in stuff. And, the avenues for money availability have largely closed down since the beginning of the year.”
In a note out this week, Dwyer warns the Federal Reserve is “under significant pressure” to cut inflation by clamping down on demand. He contends the economy is on the cusp of rate spikes reminiscent of Paul Volcker’s tenure as Fed chair.
“Debt-to-GDP in the Volcker era was at a generational low,” said Dwyer. “So, debt to GDP wasn’t anywhere near the issue it is today. We’re at generational high at 138% debt to-GDP. So, if you’re going to take a levered economy and shut it down, that’s not good.”
On Monday, the S&P 500 lost 4% and closed in bear market territory. The tech-heavy Nasdaq fell 5% and the Dow dropped 876 points, its first time ever closing own 600-plus points three days in a row.

Arrows pointing outwards

The pain on Wall Street coincided with a jump in the benchmark 10-year Treasury Note yield. The move comes a day ahead of the Fed’s policy meeting on interest rates.

“We’ve taken limited money availability, bloated inventories because of the supply chain constraints, cratered CEO and consumer confidence into a lower demand environment in a levered system,” said Dwyer.” “Upside in the market, upside in the economy or upside in anything has to come with more money.”
According to Dwyer, the market won’t reach “the” bottom until the central bank abandons its tightening policies.
“The Fed has to signal a turn,” he said.
Disclaimer

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In an alternate universe, America clearly passed its peak in inflation a couple of months ago; the Federal Reserve is still talking tough but investors have started to expect less monetary tightening, a great relief for stockmarkets; and Joe Biden can at last sense victory over rising prices, arguably the greatest nemesis of his presidency thus far. Until a few days ago many thought America would be inhabiting that other world. Alas, a brutal batch of data has awoken them to a more dispiriting reality. Inflation, far from peaking, seems to be gaining altitude, with potentially dramatic consequences for the Fed, for investors and for American politics.On June 10th the Bureau of Labour Statistics reported that the consumer-price index in May was 8.6% higher than a year earlier, the fastest annual rate of inflation since 1981. More concerning was the momentum. Month on month, consumer prices rose by 1%, well above the 0.3% increase in April.Adding to the grim news was a plunge in consumer sentiment to a record low, as measured by a closely watched survey from the University of Michigan. The principal cause was stubbornly high inflation. Consumers now expect an average inflation rate of 3.3% over the next five to ten years, up from their expectation of just 3% a month earlier. This does not yet mean that inflation expectations are “unanchored”—a much-dreaded condition that could set the stage for an upward spiral in prices—but it certainly is enough to stir fear at the Fed. The broadening of inflationary pressures, from goods such as cars and electronics to wages and rental costs, darkens the backdrop. And motorists will have noticed the surging price of petrol, which, for the first time ever, now exceeds $5 a gallon. Had America been in the more benign alternate universe, talk now would have centred on when the Fed might be able to adopt a more relaxed posture. Indeed, as recently as May 23rd, Raphael Bostic, president of the Fed’s branch in Atlanta, said the central bank may want to pause its interest-rate increases at its meeting in September, in order to take stock of all the latest developments. Such restraint now seems off the table. Instead, bond pricing has shifted in a far more hawkish direction. It is a foregone conclusion for most investors that the Fed will raise rates by half a percentage point on June 15th, for the second straight meeting. Beyond that, some are now betting on three-quarter-point increases at meetings in July and September. The last time the Fed delivered such a jumbo rate rise was in 1994 under Alan Greenspan.The prospect of the central bank slamming on the monetary brakes has unnerved markets. The S&P 500, Wall Street’s flagship stock index, has tumbled by 5% since the inflation data were released. Tech stocks, from Amazon to Tesla, have sold off even more sharply. And for some high-risk assets, the carnage has been far worse. The price of Bitcoin fell by more than 10% on June 13th after Celsius, a cryptocurrency lending firm, paused all withdrawals from its platform because of “extreme market conditions”. The historical record suggests that America would be lucky to escape a recession when the Fed tightens so aggressively.For Mr Biden’s administration, the economic frustrations are only deepening. On one hand, inflation is much more than just an American problem. In Britain, consumer prices have been rising even faster, hitting an annual pace of 9% in April. From Germany to Australia, inflationary pressures are bubbling up. Even Japan, long mired in deflation, is not immune. The rapid ascent in food and energy prices, caused in large part by Russia’s invasion of Ukraine, is a global affliction. Continuing snags in cross-border supply chains, stemming from the covid-19 pandemic, have made matters worse. Mark Zandi, an economist with Moody’s Analytics, an arm of a credit-rating agency, estimates that Russia’s war and the lingering covid pandemic account for nearly two-thirds of the annual rise in inflation over the past year.On the other hand, American voters will not be so forensic in their analysis of price trends, nor so forgiving in their assessment of Mr Biden’s responsibility. Just over 500 days into his presidency, 53.6% of Americans disapprove of his performance, while 39.7% approve, according to calculations based on polls by FiveThirtyEight, an analysis website. That negative gap of 13.9 percentage points is the worst at this point in the electoral cycle for any president since at least the second world war. Mid-term elections, due to be held in November, rarely go well for the president’s party. Sky-high inflation could make them an unmitigated disaster for Democrats, with Republicans on track to wrest control from them of both the Senate and the House of Representatives. More

Amazon is “definitely a stock to own,” according to Sid Choraria, a senior portfolio manager who previously attracted the attention of Warren Buffett.
Klaus-Dietmar Gabbert | Picture Alliance | Getty Images

Check out the companies making headlines in midday trading Monday.
Coinbase, Microstrategy — Shares of cryptocurrency-related companies sold off as the price of bitcoin and other digital tokens pulled back sharply. Crypto exchange Coinbase dropped more than 11%, while software name and big bitcoin holder Microstrategy slumped 25%. Bitcoin tumbled below $23,000 on Monday, hitting its lowest level since December 2020, as investors dump crypto amid a broader sell-off in risk assets.

Astra Space — Shares of the rocket builder plunged 23% after a weekend launch carrying NASA satellites failed to reach orbit. Astra’s rocket LV0010 took off on Sunday from launch complex 46 at Cape Canaveral in Florida, carrying two satellites on NASA’s TROPICS-1 mission. The mission represents the company’s second mission failure in three launches this year.
Revlon — Shares cratered over 42% following reports Friday that said the cosmetics company is preparing to file for bankruptcy as early as this week. A Wall Street Journal report citing unnamed sources said Revlon has been struggling with a high debt load, rising competition and greater supply chain pressures.
DocuSign — Shares of the software company fell again Monday, shedding more than 10%. This follows Friday’s 24% decline on the heels of the company missing first-quarter earnings and cutting billings growth guidance. The stock also got another downgrade from Wall Street, with Wolfe Research moving the stock to underperform from peer perform.
Prologis — The warehouse giant’s shares dropped more than 7% after the company said that it will acquire its smaller rival Duke Realty in an all-stock deal valued at about $26 billion, including debt, in a vote of confidence for the red hot industrial real estate sector.
Amazon, Tesla — Beaten-up tech shares took a hit during Monday’s intense sell-off. Amazon slid 5.5%, while Tesla was down about 7.1%. Netflix fell 7.2%, while Meta Platforms dropped 6.4%. The tech-heavy Nasdaq Composite slipped 4.7%, reaching a fresh 52-week low. 

Zendesk — The software stock fell more than 7% after Morgan Stanley downgraded the name to equal weight from overweight. Morgan Stanley sees few near-term catalysts after Zendesk management’s decision to remain independent. The Wall Street firm also noted that Zendesk’s customer base is more cyclically sensitive.
— CNBC’s Jesse Pound and Sarah Min contributed reporting.
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