Investors are walking away from commitments to invest in a company that planned to merge with Donald Trump’s Truth Social platform.
“Blank-check” company Digital World Acquisition said in a Securities and Exchange Commission filing on Friday that some backers were pulling a total of $139 million they had planned to put into the deal. Digital World had previously announced funding commitments of $1 billion.
The investors who signed up for the deal about a year ago were able to back out if it was not completed by September 20.
The investors who walked away were not disclosed in the filings, but Reuters reported that Sabby Management, which planned to put in $100 million, is one that had bowed out.
Sources told the news agency that more investors may also withdraw their commitments now that the deadline has passed and were awaiting more favorable terms to be put to them by Digital World.
The company has struggled to close the Truth Social merger and previously blamed the SEC for delaying the deal amid criminal and civil investigations.
The SEC started examining the deal in June over the possibility that Trump Media and Digital World had held discussions before the special purpose acquisition company (Spac) went public last year without informing the watchdog.
As a result, the directors of Digital World received subpoenas in June from a grand jury in the Southern District of New York.
Digital World has faced difficulty in getting sufficient shareholder approval for the merger and could be forced to liquidate and return investors’ cash if the deal is not completed. It said earlier this month it had extended the deadline for completion by three months.
Sabby Management and Trump Media and Technology Group did not immediately respond to Insider’s request for comment.
A wave of heavy selling driven by investors’ concerns that the global economy could fall into recession rocked major stock indexes around the world Friday.
The Dow Jones Industrial Average, the S&P 500 and the Nasdaq each lost more than 1.5% on Friday, with the Dow closing at its lowest level since late 2020. The S&P is down 23% since its peak in January.
As Michael George reports for “CBS Saturday Morning,” interest rate hikes aimed at cutting inflation are having a ripple effect on the economy. On Friday at the New York Stock Exchange, the president of a company called Sustainable Development Equity officiated the close of what was a terrible 486-point drop-day, preceded by a terrible week.
The market has dropped more than 5,000 points in 12 months, with more than 1,000 points lost this week. And there are more storm clouds ahead, according to UC Berkeley economist James Wilcox.
“It is very likely that we are going to have a recession, and the probability of that occurring has been rising all year really, and especially since the summer with the Fed being so aggressive about raising interest rates,” he said.
The Federal Reserve board’s trio of 2022 interest rate hikes has made borrowing harder for companies that want to grow, and for consumers — particularly those who hope to own a home. The average 30-year fixed mortgage interest rates have spiked from 3.3% to 6.7% over the past nine months thanks to the Federal Reserve board hikes.
“How much further mortgage interest rates might go up is awfully hard to know, but I think we could still see some other interest rates, auto rates, credit card interest rates, moving up, and that’ll make it more difficult for people to buy new cars or to buy more expensive cars,” said Wilcox.
In all of this, White House press secretary Karine Jean-Pierre addressed the economy on Friday.
“That is why we passed, that is why Democrats in Congress passed the Inflation Reduction Act. By the way, no Republicans supported that,” she said.
The White House also points to gas prices, which have fallen significantly over the past few months, and one part of the economiy that remains strong: the job market. Unemployment is at 3.7%.
In Tom Wolfe’s famous essay about the 1970s, “The Me Decade,” he wrote about how Americans had abandoned communal thinking in favor of personal wealth. “They took their money and ran,” he wrote.
In fact, there wasn’t much money to take.
Today, with the stock market in meltdown mode, it’s natural to look back at other times of financial woe: The Great Recession of 2008-2009. The bursting tech bubble in 2000. The crash of 1987, never mind 1929 — and all manner of mini-downturns and flash crashes in between.
The one that gives me the most dread is the long, soul-sucking slog between 1966 and 1982 — in other words, the 1970s. The stock market went up and down and up and down, but in the end went absolutely nowhere for 16 years (see below.)
Dow chart
Forget about lava lamps, platform shoes, and Farrah Fawcett, to me this is what defined the era.
What was it like back then? What can we learn from that time? And are we set up for a repeat performance?
Before we get to that, let’s examine the 1970s market. The most devastating take comes from looking at the Dow Jones Industrial Average. In January 1966, the Dow hit 983, a level it would not exceed until October 1982, when the Dow Jones closed at 991. The S&P 500 was almost as bad. After peaking in November of 1968 at 108, the S&P stalled, then touched 116 in January of 1973, stalled again and finally broke out in May 1982.
Why did the market go sideways for 16 years? Mostly it was soaring inflation and interest rates. Monthly CPI climbed from .9% in January 1966 to 13.6% in June 1980. Meanwhile, gas prices went from 30 cents a gallon to $1. To fight this inflation, the Federal Reserve raised the Fed Funds rate from 4.6% in 1966 all the way to 20% in 1981. That was bad for the market because higher interest rates make future company earnings, and ergo stocks, less valuable. Which in part explains the market’s swoon year to date.
American economist and Under Secretary of the Treasury for International Affairs Paul Volcker (1927 – 2019) (left) and politician and US Secretary of the Treasury George P Shultz talk during the annual International Monetary Fund (IMF) meeting, Washington DC, September 26, 1972. (Photo by Benjamin E. ‘Gene’ Forte/CNP/Getty Images)
According to veteran market analyst Sam Stovall, fears of repeating the errors made in the ’70s are influencing the Federal Reserve’s actions today.
“The Fed has told us that it had planned on not making the same mistakes of the late 1970s, where they raised rates but then eased off out of fear of creating a deep recession, only to have to raise rates again,” Stovall says. “What the Fed is trying to avoid is to create a decade of economic choppiness. They want to be aggressive with the Fed funds rate now and corral inflation, so that we have either a V shape or at least a U shaped recovery rather than one that looks like a big W (to quote from ‘It’s a Mad, Mad, Mad, Mad World’).”
Stovall, who began working on Wall Street in the late 1970s, was schooled by his father, the late Robert Stovall, also a high-profile investor and pundit. (The Wall Street Journal did a fun piece about the two of them and their distinct investing styles.)
Jeff Yastine, who publishes goodbuyreport.com, points to some other unfavorable trends for stocks in the 1970s, noting that “many of the biggest US stocks were ‘conglomerates’ — companies that owned lots of unrelated businesses without a real plan for growth.” Yastine also reminds us that Japan was ascendant back then, often at the expense of the US, and that technology (chips, PCs, and networking) had yet to make any real impact. All this would change in the 1980s.
Another factor was that the stock market was richly valued heading into the 1970s. Back then a group of go-go stocks dubbed the Nifty Fifty led the market. This group included the likes of Polaroid, Eastman Kodak, and Xerox, many of which sold for more than 50 times earnings. When the market crashed in the 1970s, the Nifty Fifty was hit hard, with some stocks never recovering. I can’t help but think of the potential parallels with the FAANG or MATANA — otherwise known as tech — stocks of today.
It really does seem we’ve come full circle. Or so suggests legendary investor Stan Druckenmiller in a recent conversation with Palantir CEO Alex Karp. “First of all, full disclosure, I’ve had a bearish bias for 45 years that I’ve had to work around,” Druckenmiller says. “I like darkness.”
“When I look back at the bull market we’ve had in financial assets — it really started in 1982. And all the factors that created that not only have stopped, they’ve reversed. So there’s a high probability in my mind that the market at best is going to be kind of flat for 10 years, sort of like this ‘66 to ‘82 time period.”
Yikes. So what’s an investor to do?
Let’s check in with someone who was steeped in the market back then. “Well, first of all, I entered the business as a security analyst in 1965,” recalls Byron Wien, vice chairman of Blackstone’s Private Wealth Solutions group. “I remember it was a period where it was tough to make money, unless you were a really good stock picker. But I remember making money. I remember building my net worth and buying some biotech stocks that did well. And I hold some of them to this day.”
Now, let’s go back and take a closer look at what happened 50 years ago. For one thing it’s important to note the dividend yield of the S&P 500 averaged 4.1% from 1966 to 1982, so investors in the broader market were at least getting some income. (Getting a read on the Dow’s yield back then proved difficult, but in other periods it has averaged less than 2%.)
So while the 1970s was a terrible time for investors, dividends mitigated some of the misery by allowing the more diversified S&P 500 to outperform the Dow 30 — something to think about going forward. Unfortunately the dividend yield for the S&P 500 is now about 1.6%: first because stock prices are high and second because more companies are doing stock buybacks in lieu of dividends. However, I would expect the yield to climb as companies increase payouts to attract investors.
The Dow was also looking a bit hoary back then as it included the likes of Anaconda Copper (replaced by 3M in 1976), Chrysler and Esmark (replaced by IBM and Merck in 1979 ) and Johns Manville (replaced by American Express in 1982).
Of course, some stocks like Altria, Exxon, and packaged goods companies did well back in the 1970s. “Wherever demand for the products and services remained fairly consistent,” Stovall says. “You still have to eat, smoke, drink, go to the doctor, heat your home, etc.”
For some companies, the 1970s was their heyday.
“The nice thing is, there were companies that did very, very well in that environment back then,” Druckenmiller says. “That’s when Apple Computer was founded [1976], Home Depot was founded [1978], coal and energy companies, chemicals made a lot of money in the ’70s.”
Cyclical areas like consumer discretionary and financials did not do as well.
Some of the takeaways for investors today are always true: Avoid both overvalued stocks and those of slow-growth companies. It may also pay to own dividend yielding stocks and to diversify. And it’s worth noting that if we do have some sort of repeat of 1966-1982, stock picking becomes more important perhaps versus passive investing and index funds.
It wasn’t all darkness back in the 1970s. The disco balls lit up some stocks. You just had to look that much harder to find them. That’s a likely scenario going forward as well.
This article was featured in a Saturday edition of the Morning Brief on Saturday, September 24. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
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The Federal Reserve escalated its fight against inflation this week, instituting a major rate increase and saying more will likely follow. The moves will cause a jump in the number of unemployed Americans by the end of next year, the central bank said.
The Fed has put forward a series of aggressive interest rate hikes in recent months as it tries to slash price increases by slowing the economy and choking off demand. But the approach risks tipping the United States into a recession and causing widespread joblessness.
Fed Chair Jerome Powell on Wednesday acknowledged that rate hikes would cause pain for the U.S. economy, as growth slows and unemployment rises. He added, however, that “a failure to restore price stability would mean far greater pain later on.”
The job losses forecasted by the Fed this week would by the end of 2023 raise the unemployment rate from its current level of 3.7% to 4.4%. That outcome would add an estimated 1.2 million unemployed people, according to Omair Sharif, the founder of research firm Inflation Insights.
Those job losses will disproportionately fall on some of the most vulnerable workers, including minorities and less-educated employees, according to economists and studies of past downturns.
Here are the groups of workers who would most likely lose their jobs if unemployment rises:
Black and Hispanic workers
Black workers would be among the first to lose their jobs if unemployment spikes, since they’re disproportionately concentrated in industries sensitive to economic downturns. Racial discrimination often influences choices made by companies about which workers to fire, economists said.
“The Fed’s actions really do mean some disparate impact for Black workers in the American economy,” Michelle Holder, a labor economist at John Jay College of Criminal Justice, told ABC News.
The vulnerability of Black workers in a downturn manifested during the most recent recession, in spring 2020, when the pandemic caused higher unemployment for Black workers at every education level when compared with their white counterparts, a RAND Corporation study found.
Overall, the unemployment rate for Black workers in the early period of the pandemic peaked at 16.8%, while the unemployment rate for white workers reached only 14.1%.
Between the late 1980s and mid-2000s, government employment data shows “considerable evidence” that Black workers are among the first ones fired as the economy weakens, according to an economic study published in 2010 in Demography, an academic journal.
“To be blunt, discrimination still occurs in the American labor market,” Holder said.
Federal Reserve Board Chairman Jerome Powell hosts an event on “Fed Listens: Transitioning to the Post-pandemic Economy” at the Federal Reserve in Washington, D.C., on Sept. 23, 2022.
Kevin Lamarque/Reuters
A similar dynamic of disproportionate job losses impacts Hispanic workers, the economists said.
William Spriggs, the chief economist at the AFL-CIO labor union and a professor of economics at Howard University, said Hispanic workers would suffer acutely in a downturn brought about by interest rate hikes, since they’re disproportionately represented in the construction industry.
When the Fed raises rates, it often leads to a spike in mortgage rates, causing prospective homebuyers to put off their purchases and builders to delay further construction. U.S. 30-year fixed-rate mortgages jumped to 6.29% on Thursday, the highest level in 14 years, according to Freddie Mac’s mortgage market survey.
As of last year, Hispanic workers made up nearly a third of all construction workers, according to a National Association of Home Builders analysis of government data published in June.
“We’ve already seen construction work is slowing,” Spriggs told ABC News. “Those construction workers get hit first.”
Less-educated workers
Another group that would stand among the first to end up jobless amid a downturn is less-educated workers.
Two years ago, during the pandemic-induced recession, less-educated workers suffered far more acute job losses than their better-educated peers, according to a study published in 2021 by the Institute for New Economic Thinking.
In general, when the economy weakens, poorly educated workers endure a more negative effect on employment than their better-educated counterparts, according to a study published by the Minneapolis Federal Reserve in 2010.
In the Great Recession, the employment rate for workers with just a high school diploma fell 5.6%, while the employment rate for workers with a college degree fell less than 1%, the study found.
“Workers who tend to fare better when the economy contracts are better-educated workers,” said Holder.
Young workers
Data from the two most recent recessions, in 2020 and 2007, indicates that young workers suffer disproportionately when the economy contracts.
During the pandemic-induced recession, young workers became jobless at a much higher rate than older workers, according to a study released by the left-leaning Economic Policy Institute in 2020.
From spring 2019 to spring 2020, the overall unemployment rate among workers ages 16 to 24 rose from 8.4% to 24.4%, while unemployment for workers ages 25 and older rose from 2.8% to 11.3%, the study found.
A similar outcome followed the Great Recession. Between 2007 and 2010, workers between the ages of 16 and 24 suffered a more dramatic drop in employment than any other age group, according to a Brookings Institution analysis of government data that focused on the ratio of employed workers in a given demographic compared to its representation in the population as a whole.
Raj Subramaniam’s credibility was on the line this week as the FedEx chief executive tried to project confidence that he could correct the US parcels group’s course after failing to deliver on the upbeat forecasts he made just three months ago.
The company has long been seen as an economic bellwether, so when it previewed a substantial earnings miss this month, it not only sparked the largest daily drop in its shares but also sent a shudder through the wider market.
Now, though, Wall Street is asking whether FedEx’s own errors were more to blame than slowing demand.
Subramaniam took a beating from Wall Street analysts on an earnings call on Thursday when they grilled him on FedEx’s new cost-savings plan, asked why its peers had not reported a similar downturn and questioned whether it had the right leadership.
On September 15, the Memphis-based parcel service announced that its revenue for the three months to August would fall roughly $800mn short, driven by an unexpectedly large drop in global demand. The resulting guidance of adjusted earnings per share of $3.44 was far below Wall Street estimates of $5.14. Net income dropped more than 20 per cent to $875mn.
“How did it catch you so off guard?” one analyst asked on the call, sceptical of FedEx’s claim that such a sharp fall off was largely because of a changing global economy.
After riding a wave of pandemic demand for package shipping as people ordered more online, FedEx is now contending with a supply chain that is shifting back towards more normal volumes. Demand had been hit hardest in Asia and Europe, Subramaniam said, predicting a global recession.
But analysts asked whether mismanagement had played a part.
“Do you feel like you’ve got the right senior team in place to lead FedEx into the future?” a second analyst asked pointedly. Subramaniam ignored another analyst’s question on whether FedEx had made any “management mistakes”.
Subramaniam took over FedEx only six months ago, when founder Fred Smith stepped down. Three weeks ago Smith’s son, Richard, became head of FedEx Express, a controversial move as the division has been hit hardest by the drop in demand.
“We’re not screaming nepotism, but one could come to that conclusion. It’s not a good look for Richard because he just doesn’t have the experience that prior Express leaders did,” Barclays analyst Brandon Oglenski said in an interview. FedEx Express’s operating income plunged 70 per cent in the quarter to August, as shipping volumes fell 11 per cent.
FedEx this week announced plans to slash $2.2bn-$2.7bn from costs this fiscal year, primarily by cutting flights, parking aircraft, suspending some Sunday service, and closing some locations. It withdrew its full-year guidance, citing “uncertainty”.
Subramaniam said “what really got us” was “tremendous” unanticipated cost inflation. In response, FedEx announced it would raise its delivery prices 6.9 per cent from January, along with surcharges for delivering to remote areas and “peak residential pricing” in the US.
Yet a fourth analyst asked how the company could push through its largest price increase after volumes took a double-digit hit. “Isn’t that going to exacerbate the volume decline?” he asked.
The chief executive was also chastised for appearing first on CNBC last week instead of hosting a conference call to discuss the earnings miss with analysts. And in a blunder emblematic of the earnings discombobulation, FedEx accidentally released its results on Thursday hours before it meant to, attributing the mistake to a technical issue.
As the world’s largest cargo airline, FedEx is more exposed to global macroeconomic changes than its competitors, making it a pointer to where economic growth is headed.
“These numbers, they don’t portend very well” for the global economy, Subramaniam told CNBC.
Other logistic industry barometers point to slowing demand. According to Freightos, a logistics booking service, the cost of shipping from Asia to the west coast has fallen 80 per cent from a year ago, when US retailers were scrambling to secure goods for the holiday season.
The lower ocean freight prices have also cut demand for air freight, an expensive alternative for companies hurrying to secure supplies: air rates this September are half what they were this time last year, Freightos said.
Some supply chain executives question whether FedEx’s troubles should be seen as a sign of worse to come, however.
Its warning had “caused quite a stir”, Mario Cordero, executive director of California’s Port of Long Beach, told the Financial Times. But he doubted that it heralded “the worst scenarios” some analysts saw for the domestic economy. The supply chain was simply “normalising” after the pandemic drove an extended surge in demand, he said.
Analysts acknowledged in interviews that economic changes certainly played a role, but thought FedEx had created some problems for itself, including “decisions to clog up the network with a bunch of lower-yielding ecommerce”, according to Bernstein’s David Vernon.
UPS has also signalled a more difficult environment, but in more tranquil language and with confidence that its network could weather the storm.
Oglenski, of Barclays, echoed long-held concerns expressed on the call about how FedEx measures up to its closest rival. The company had about half the operating profitability of UPS, he said, “because FedEx is much less efficient”.
Vernon wondered whether FedEx executives had been so focused on “putting a rosy vision out there” at June’s investor day “that they maybe took their eye off the ball”.
At the time, Subramaniam gave a bullish assessment of FedEx through 2025, saying that it stood “at a pivotal moment”. It was, he said then, “delivering both next quarter’s profits and the next quarter century of our legacy”.
Walk into a Walmart, Target, any drugstore chain in your neighborhood or a corner bodegafor New York City dwellers, and chances are you’ll find an Ivory Soap bar, or a pack of 10 bars for under $5, sitting on the shelf.
This iconic cake of soap, invented almost 150 years ago, has become a part of Americana largely by advertising its two strange merits: “It Floats” and it’s “99+44⁄100% Pure.”
The original product is a no-frills, plain white, mild-scented bar soap with the name “IVORY” etched into it in script. Impressively, it has stayed exactly that way for 143 years – barring the addition of an Aloe scented variety, and is also still around.
Ivory soap’s longevity flies in the face of a notoriously fickle market for personal beauty products where new trends can appear and disappear in a flash.
So why has Ivory Soap stood the test of time? One theory is because of its clever advertising and branding. Ivory Soap packaging famously, and relentlessly, touts the attributes of purity and buoyancy.
“That’s brilliant execution,” said David Placek, founder of Lexicon Branding, a branding expert who has helped name such popular consumer products as “Swiffer,” “Blackberry” and “Dasani.”
“Just think about it. How many other soaps can you think of that tout an attribute that’s analogous to “It Floats?” said Placek. “I can’t think of another. It makes you remember it because it also makes you think about other soaps that don’t float.”
Because Ivory Soap’s taglines have remained consistent and endured for over a century and through generations of consumers, they’ve seeped into the subconscious, said Placek.
“Even if you’ve not used Ivory Soap you know about it and you remember it,” he said.
Ivory Soap is the brainchild of Procter & Gamble. Not the huge multinational consumer brands conglomerate that it is today, but of two individuals – Harley Procter (son of P&G cofounder William Procter) and James N. Gamble (son of P&G’s other cofounder, James Gamble).
It was in the late 19th century, a period when river bathing was prevalent among large swaths of the population. Now imagine losing your grip on a bar of soap when you’re immersed waist-deep in murky water.
But what if there was a soap bar that could float?
An AdAge article about Ivory Soap’s invention explained how Gamble at the time was trying to create a new type of gently formulated soap. The R&D process inadvertently created a batch of soap that was found to float because air bubbles got trapped inside.
Gamble, according to P&G’s website, recognized the “floating soap” could revolutionize the washing experience in more ways than one.
He initially thought the floating soap could be used both for laundry and for washing up. Over time, the soap bar primarily became a bath soap.
Naming the soap was another story.
According to P&G legend, Harley Procter same upon the word “ivory” while attending church and thought it perfectly fit the new soap’s look and feel and both men adopted “Ivory Soap” as the name.
P&G launched the soap in 1879 hyping it not only as a soap bar that floated but for its purity.
That claim, according to the company, hinged on a study of the soap by chemistry professors at the request of the inventors. One study showed the soap had only a small amount of impurities – 56/100 of a percent – of a non soap material in it.
So they decided to play that up in Ivory Soap’s advertising, rounding it up to create its second iconic tagline – “99 and 44-100% pure.”
P&G maintains that while it continues to innovate its Ivory Soap, the product is still made with a simple formula free of dyes and parabens meant to gently cleanse the skin.
It has, however, extended the brand to other products.
In the 1950s, according to the AdAge article, P&G launched a light-duty dishwashing detergent under the Ivory brand, followed by liquid hand soaps in the 1980s and moisturizing body washes in 1996 with the introduction of Ivory Moisture Care. Today, the Ivory personal care portfolio also includes baby care products, hair and body washes and deodorant.
Ivory soap has become so iconic that in 2001 P&G donated a collection of its Ivory Soap artifacts to the Smithsonian Institution, including its earliest advertising and a bar of unused soap from the 1940s.
Lexicon Branding’s Placek said Ivory Soap is a product way ahead of its time. “It was ‘pure’ before pure, clean and simple products became as popular as they are with consumers today,” he said.
“What do you think of the merge?” I recently innocently asked William “Wills” de Vogelaere, co-founder of Spankchain and probably half a dozen other protocols in the grisly underworld of Ethereum.
I was, of course, referring to the long-awaited software upgrade which booted Ethereum’s miners and replaced them with a cohort of environmentally friendly stakeholders on September 15.
“You mean Ethereum’s delusion?” de Vogelaere rejoined bitterly.
“Oho!” I thought. This could get juicy. It turned out de Vogelaere was voicing an opinion rarely broadcast in public: that the merge was a mistake. Or, if not an italicized mistake, some kind of irrelevant distraction.
“It didn’t add anything of value really other than the environmental factor,” he fulminated.
In de Vogelaere’s view, the whole enterprise has been a naive capitulation. The influential people fretting about Ethereum’s enormous carbon footprint, he said, were only ever exploiting environmentalist fears for their own cynical ends. “No one actually gives a shit if something’s green, so long as it works,” he said. “Corporations don’t fucking care as long as they can be perceived to care.”
Maronn’! Admittedly, it’s not hard to see why people like de Vogelaere are in a bad mood—since the merge unfolded, the price of ETH has tanked. Bitcoin supporters are ridiculing the change. Dark mutterings about Ethereum now being a “security” have raised the hackles of even the most old-school of Ethereum connoisseurs—and even driven some to the embrace of a long-ago spurned band of fanatical Ethereum militants. (We’ll get to that.)
As de Vogalaere told me, the notion that public opinion of Ethereum would improve in the wake of the merge may have proven to be a canard. The regulators, he said, will hardly change their tune now this one environmental grievance has been eliminated, especially given that newfound willingness to brand it a security.
And yes, yes, the merge was a fabulous display of technical competence. Merging Ethereum in real-time was the equivalent of switching up a car’s engine as it booms full-throttle down a freeway, so we’re told. It’s groundbreaking from an R&D perspective—but so was the atom bomb.
Even so, de Vogelaere believes, the supposed technical improvements of the merge are overhyped. It was supposed to facilitate various upgrades that would introduce more efficiencies into the network. But de Vogelaere believes these solutions have long existed anyway, in the form of sidechains—appendages to the flagship network that use different validation methods—such as Polygon. Only Ethereum’s computing environment, the “Virtual Machine,” has any real value, he argued—and that isn’t affected in any meaningful way by the shift to the staking model.
He also (good heavens!) pointed out that those who don’t have the minimum amount to stake independently—32 ETH, around $42,500 dollars and dropping at time of writing—have to stake via centralized exchanges like Coinbase. That means putting the majority of Ethereum on a corporate exchange with a single point of failure.
So, we’ve established that Ethereum’s price is now in the shitter and the regulators are on the move. But is de Vogelaere’s view perhaps just a minority one?
Not so! Kristy Leigh-Minehan, a longtime Ethereum miner (who may admittedly be a little bit biased), is not quite anti-merge in the same rancorous vein as our de Vogelaere. Rather, she wonders whether it came about a bit too soon. “The move to proof of stake is a key part of Ethereum’s DNA and was always intended,” she said. “It was necessary and required for future optimizations and scalability features—the question everyone needs to ask themselves is: was now the right time?”
Minehan isn’t so sure. “I, personally, do not think it was in the current regulatory climate,” she said. She wonders whether the prospect of ETH being newly classed as a security could risk “scaring validators, operators, and entrepreneurs.” The primacy of American regulators in particular, she added, can be unnerving. Echoing de Vogelaere, she said: “There is no denying Ethereum has taken root in the USA–that will be its biggest strength and weakness.”
At least some pedigreed Ethereum advocates remain sanguine. “It could be the case that this has some impact on regulatory decision making,” ventured Mat Dryhurst, a left-leaning podcaster and one of the earliest adopters of NFTs. “But to be honest, I don’t get much of an impression that is too much of a concern on the dev side. People are excited to build more utility for the network, and the merge felt like a celebration of another milestone on a long roadmap.”
But isn’t it admittedly a bit overhyped? “It is not a grand technological innovation, and I don’t think it was intended to be,” Dryhurst demurred. “Rollups, zkEVMs [zero-knowledge virtual machines] etc are still needed to scale. I think if anything it just establishes credibility for this corner of crypto, and increases confidence that other ideas being discussed will be executed upon.” He added that he was recently at ETH Berlin and that the energy was “as optimistic as ever.”
The gleeful old guard
There is, maybe, one cohort that fully agrees with all de Vogelaere and his ilk’s dire diagnoses of the merge—and is unabashedly jubilant about them. They are the custodians of another now-defunct network that, they would argue, was, like the miners, also betrayed by the craven handlers of Ethereum proper: an older, abandoned iteration of Ethereum network called Ethereum Classic whose supporters are arguably the most OG that you can get in the brief but melodramatic lifespan of Ethereum politics.
Ethereum Classic was born in 2016 in the wake of a deleterious hack of the Ethereum network’s first decentralized autonomous organization, or The DAO. Mainstream Ethereum developers voted overwhelmingly to “roll back” the hack and make victims’ whole, which a few sticklers viewed as a deadly betrayal of Ethereum’s core principle of immutability. They clung to the old, hacked network, and Ethereum was cleft in two. They have been waiting ever since for the merge, believing that newly unemployed miners (whom they actively tried to seduce) would flock to Ethereum Classic in search of new revenue.
Incredibly, after six years of patient anticipation, they were right.
“We’ve seen significantly increased interest in Ethereum Classic in the last couple of months,” said Bob Summerwill, the executive director of the ETC Cooperative, the foundation behind the development of Ethereum Classic, whose ticker is ETC. “The merge was obviously a catalyst.” He added that the amount of mining power on the network has since increased around tenfold, and that Ethereum Classic is now the third largest proof-of-work chain by market cap and second by volume.
Summerwill, as with others, pointed out that fears around U.S.-capture of the network and newly vigorous regulators may have galvanized many of these miners and driven them to ETC. “Ethereum Classic seems to be benefitting from providing a known and likely safer alternative on these concerns,” he said. It has nevertheless been a bumpy start: Ethereum Classic, as with many others, took a recent dip, and its miners are operating at a loss. “We’re still trying to find a new equilibrium,” Summerwill said.
Still, it’s a somewhat stunning reversal. After years of agonizing waiting, you have to wonder whether the curmudgeonly old pedants of the Ethereum Classic network—and, even, Ethereum’s would-be regulators—have got the last laugh.
As de Vogelaere said: “ETH may have played its motherfucking self.”
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A specialist trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 22, 2022. REUTERS/Brendan McDermid
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NEW YORK, Sept 23 (Reuters) – A week of heavy selling has rocked U.S. stocks and bonds, and many investors are bracing for more pain ahead.
Wall Street banks are adjusting their forecasts to account for a Federal Reserve that shows no evidence of letting up, signaling more tightening ahead to fight inflation after another market-bruising rate hike this week.
The S&P 500 is down more than 22% this year. On Friday, it briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in U.S. stocks before paring losses and closing above that level.
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With the Fed intent on raising rates higher than expected, “the market right now is going through a crisis of confidence,” said Sam Stovall, chief investment strategist at CFRA Research.
If the S&P 500 closes below the mid-June low in the days ahead, that may prompt another wave of aggressive selling, Stovall said. This could send the index as low as 3,200, a level in line with the average historical decline in bear markets that coincide with recessions.
While recent data has shown a U.S. economy that is comparatively strong, investors worry the Fed’s tightening will bring on a downturn. read more
timeline of the market
A rout in bond markets added pressure on stocks. Yields on the benchmark 10-year Treasury, which move inversely to prices, recently stood at around 3.69%, their highest level since 2010.
Higher yields on government bonds can dull the allure of equities. Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond yields rise.
Michael Hartnett, chief investment strategist at BofA Global Research, believes high inflation will likely push U.S. Treasury yields as high as 5% over the next five months, exacerbating the selloff in both stocks and bonds.
“We say new highs in yields equals new lows in stocks,” he said, estimating that the S&P 500 will fall as low as 3,020, at which point investors should “gorge’ on equities.
Goldman Sachs, meanwhile, cut its year-end target for the S&P 500 by 16% to 3,600 points from 4,300 points.
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable,” wrote Goldman analyst David Kostin. read more
Investors are looking for signs of a capitulation point that would indicate a bottom is near.
The Cboe Volatility Index, known as Wall Street’s fear gauge, on Friday shot above 30, its highest point since late June but below the 37 average level that has marked crescendos of selling in past market declines since 1990.
Bond funds recorded outflows of $6.9 billion during the week to Wednesday, while $7.8 billion was removed from equity funds and investors plowed $30.3 billion into cash, BofA said in a research note citing EPFR data. Investor sentiment is the worst it has been since the 2008 global financial crash, the bank said.
Kevin Gordon, senior investment research manager at Charles Schwab, believes there is more downside ahead because central banks are tightening monetary policy into a global economy that already appears to be weakening.
“It will take us longer to get out of this rut not only because of slowdown around the world but because the Fed and other central banks are hiking into the slowdown,” Gordon said. “It’s a toxic mix for risk assets.”
Still, some on Wall Street say the declines may be overdone.
“Selling is becoming indiscriminate,” wrote Keith Lerner, co-chief investment officer at Truist Advisory Services. “The increased probability of breaking the June S&P 500 price low may be what it takes to invoke even deeper fear. Fear often leads to short-term bottoms.”
A key signal to watch over the coming weeks will be how steeply estimates of corporate earnings fall, said Jake Jolly, senior investment strategist at BNY Mellon. The S&P 500 is currently trading at around 17 times expected earnings, well above its historical average, which suggests that a recession is not yet been priced into the market, he said.
A recession would likely push the S&P 500 to trade between 3,000 and 3,500 in 2023, Jolly said.
“The only way we see earnings not contracting is if the economy is able to avoid a recession and right now that does not seem to the odds-on favorite,” he said. “It’s very difficult to be optimistic on equities until the Fed engineers a soft landing.”
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Reporting by David Randall; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Nick Zieminski and David Gregorio
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Starlink logo is seen on a smartphone in front of displayed Ukrainian flag in this illustration taken February 27, 2022. REUTERS/Dado Ruvic/Illustration
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Sept 23 (Reuters) – SpaceX CEO Elon Musk said on Friday that he would activate the firm’s satellite internet service, Starlink, in response to U.S. Secretary of State Antony Blinken’s tweet that the United States took action “to advance internet freedom and the free flow of information” to Iranians.
The U.S. Treasury Department on Friday issued guidance expanding internet services available to Iranians despite U.S. sanctions on the country, amid protests around Iran following the death of a 22-year-old woman in custody.
A Treasury official briefing reporters said: “Our understanding of Starlink is that what they provide would be commercial grade, and it would be hardware that’s not covered in the general license; so that would be something they would need to write into Treasury for.”
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A U.S. State Department spokesperson later said of Friday’s updated license that it was self-executing and that “anyone who meets the criteria outlined in this general license can proceed with their activities without requesting additional permissions.”
Musk could not be reached for comments or clarification regarding Starlink’s clearance to operate in Iran.
Iranians have been protesting over the death of Mahsa Amini last week while in police custody after being arrested by the morality police for wearing “unsuitable attire”.
Musk said on Monday that the company wanted to provide Starlink satellite broadband service – already provided to Ukraine for its fight against Russia’s invasion – to Iranians, and would ask for a sanctions exception.
The U.S. State Department spokesperson added that if SpaceX were to determine that some activity aimed at Iranians requires a specific license, “OFAC would welcome it and prioritize it”.
“By the same token, if SpaceX determines that its activity is already authorized and has any questions, OFAC also welcomes that engagement,” the State Department spokesperson said.
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Reporting by Daphne Psaledakis and Akash Sriram in Bengaluru; additional reporting by Kanishka Singh; Editing by Shailesh Kuber and Sandra Maler
Our Standards: The Thomson Reuters Trust Principles.
(Reuters) – Some investors are backing out of Digital World Acquisition Corp’s plan to acquire former U.S. President Donald Trump’s social media firm Truth Social, the blank-check firm said on Friday.
Digital World said it had received termination notices from private investment in public equity (PIPE) investors ending nearly $139 million in investments out of the $1 billion commitment it had previously announced.
Investors, who signed the PIPE commitment about one year ago, are free to move their money after the Sept. 20, 2022 deadline if the deal has not completed.
Digital World did not disclose the investors that pulled out. Sources told Reuters Sabby Management, which had committed $100 million to the PIPE, is one of the investors who have terminated.
Sabby Management declined to comment.
More investors could pull out in the next few weeks, sources said, as they can terminate anytime after the deadline. Many are waiting for DWAC to propose more preferred terms to PIPE investors, sources added. The deal between the special purpose acquisition company (SPAC) and Trump Media and Technology Group (TMTG), which owns Truth Social, has been on ice due to civil and criminal probes into the circumstances around the agreement.
TMTG did not immediately respond to a request for comment.
The SPAC had been hoping the U.S. Securities and Exchange Commission, which is reviewing Digital World’s disclosures on the deal, would have given its blessing by now. Digital World said this month it would extend the deal’s life by three months after its bid for a 12-month extension from its shareholders fell short.
(Reporting by Akash Sriram and Nivedita Balu in Bengaluru, Svea Herbst-Bayliss and Krystal Hu in New York; Editing by Maju Samuel and Josie Kao)
