?? Time Ticking for TikTok? (ByteDance, Microsoft) ?? Also: Money printer go Brrrr...; First Republic gets US$30 billion ?? The Discount Window!

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• US large-cap S&P 500 closed 1.76% UP ▲?
• Tech-heavy Nasdaq Composite closed 2.48% UP ▲▲
• Pan European STOXX Europe 600 closed 1.26% UP ▲?
• HK's Hang Seng Index closed 1.72% DOWN ???
• Japan's Nikkei 225 closed 0.8% DOWN ??

?? Focus

• Time Ticking for TikTok? (ByteDance, Microsoft)

?? In the Markets

• Money printer go Brrrr...
• First Republic gets US$30 billion?

?? MoneyFitt EXPLAINS

• ?? The Discount Window!

?? Focus

Time Ticking for TikTok?

Didn't we already go through this? The Biden administration is demanding Chinese tech giant ByteDance sell TikTok or face an outright ban in the US. The Trump administration did the same back in 2020 for the same national security concerns, though it eventually got blocked by several federal courts. This time it seems to be a more bipartisan move with four bills proposed (on TikTok and “other foreign-based technologies if they pose national security threats”.) The argument is that the Chinese government might use TikTok to access users’ personal information and even manipulate impressionable young Americans.?

?????? ByteDance of course denies this and (besides sharing that it's 60% owned by global investors) claims with some justification to be way more interested in making money. It has been ramping up its ad business (and undercutting rivals) and is already making e-commerce inroads in China, where last year Douyin (TikTok in China, with the same logo) sold over US$200bn of stuff, a 76% increase from 2021, with similar services already rolling out elsewhere. (And it may have friends in antitrust officials at the US Justice Department and the Federal Trade Commission, which are increasingly concerned with attempts by tech giants to buy out competitors.)?

Is time running out on TikTok in the US??

- Image credit: Counter-Strike: Global Offensive / Valve via Tenor

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?????? Several governments have already banned the app on government-issued phones devices, including Taiwan, Canada, the European Union’s governing bodies, Belgium, Denmark and, this week, the UK. In the US, the White House, the Pentagon, the Department of Homeland Security, and the State Department do the same, along with more than a dozen states on state government phones. In 2019, India and Pakistan banned it entirely for alleged data and privacy issues (and “morality issues”), along with dozens of other Chinese mobile apps, including WeChat.

?????? Since the start of 2020, TikTok's monthly active user (MAU) base doubled to reach over a billion users by the end of 2022 (Facebook has nearly 3bn). More importantly, it has upended the social media pecking order entirely, as disruptive to the business models as Apple's privacy changes were. As a result, everyone from Meta's FB and IG to Google’s YouTube has been launching a copycat feature. Would this make it easier or harder to threaten to ban TikTok now than three years ago? The parent company of Josh, one of the Indian TikTok copycats, sprung up to fill the void there, raised more than $100mn from investors including Google and Microsoft (now of course in open warfare) shortly after that ban.

?????? Tech giant Microsoft was widely expected to acquire "TikTok Global" in the 2020 episode. However, enterprise software and database company Oracle, headed by Trump supporter Larry Ellison, got the nod to buy a big stake in a partnership with Walmart and then list the company separately. Reuters reported a 2020 valuation of TikTok by some of Bytedance's investors (including Sequoia and General Atlantic, possibly lowballing) at US$50bn. By 2022, though, the app’s brand value alone had increased 215% to US$59bn, according to BrandFinance.?

?????? And since then, Microsoft, the owner of Xbox, agreed to buy gaming company Activision Blizzard (Call of Duty) in a deal worth $68.7bn, but this has been embroiled in antitrust issues and has been attempting to persuade regulators globally to clear the bid. For Microsoft, buying TikTok could be another transformational move into the consumer space to add to its Xbox gaming business... especially in a demographic that's long eluded it (who remembers Groove Music, Mixer streaming, the social network Socl, the Windows Phone OS and the Zune digital music player?) And then it would be Microsoft getting its hands on all that juicy personal data that the US senators are so keen to protect.

?? In the Markets

The European Central Bank raised interest rates by 0.50% on Thursday, exactly as it repeatedly said it would, sticking with its fight against inflation despite turmoil in the banking sector, particularly in large regional US banks and the largely unrelated chaos over at Switzerland's Credit Suisse, a G-SIB (Globally Systemically Important Bank), which at 2 am drew on the emergency cash offered by Swiss authorities. The ECB rejected suggestions that its aggressive rate hike programme threatened financial stability, arguing that eurozone banks were resilient and that higher rates would help their profit margins.

??????? Credit Suisse drew SFr50bn ($54bn) from the Swiss central bank and will buy back about SFr3bn of its debt to boost liquidity and calm investors' frazzled nerves. The stock closed off its highs of the day but still gained 19% in Swiss trading, leaving the price down only 97.6% from its all-time high in 2007.

A rate hike... now?

- Image credit: Everything Everywhere All At Once / A24 via Tenor

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Sentiment in US markets was also good, with a strong rebound kicking off when a consortium of the largest US banks came to the rescue of embattled California lender, First Republic Bank (see below).?

Money printer go brrrr...

Meanwhile, reports emerged that loans disbursed through the lending facility announced by the Fed on Sunday came to $11.9bn in its first three days of operations. That's a decent sum, showing its usefulness in stabilising the financial system, but it pales in comparison to drawdowns through the Fed's existing discount window ?? facility, which ballooned from $4.55bn a week ago to a record high of $152.85bn... an increase of $148.3bn! Together with the BTFP, that comes to $160bn. (At the start of 2022, the discount rate was basically zero. Now it's 4.75%.)

?????? This is basically the Fed printing more money, a sharp reversal of its rate-hiking and quantitative tightening (QT) inflation-busting monetary policy over the last year.

Boing

- Image credit: FRED / St. Louis Fed

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?????? As reported on Monday's bumper MFM: Announced late Sunday, banks can now access the Fed’s new facility, the Bank Term Funding Program (BTFP), which will offer loans of up to one year to lenders in exchange for a pledge [at face value] of their investment-grade bonds, backed by the FDIC and $25 billion in cash from the Treasury. (Actually, it's quite similar to the Fed’s existing “discount window” for banks to get cash for short-term liquidity if they really need it.)

?????? The "money printer go brrr" meme is a reference to monetary policy during the pandemic of increasing the money supply to boost the economy, with the sound of a printing press churning out money out of thin air.

- Image credit: Tenor

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First Republic gets US$30 billion?

JPMorgan, Bank of America, Citi, and Wells Fargo will each deposit $5bn, with Goldman Sachs and Morgan Stanley each putting in $2.5bn. Five others will contribute $1bn each. Useful injection of money, of course, but save the praise... it was all done at zero risk to the banks given the US government backstop announced last weekend.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.” A joint statement by the banks

?????? After rebounding 10% on the news (after a 64% drop over the last week), First Republic actually cratered again, dropping 17% in after-hours trading on news it would suspend its dividend “during this period of uncertainty”.

?????? Turns out that, as reported by The Information, earlier this year, the CEO of First Republic had been begging the Fed and the FDIC to exclude his bank from proposed new banking rules designed to help protect the financial system in the event of a bank collapse.?

?????? And in a not-exactly-prescient move, rating agency Moody’s placed all of First Republic's long-term ratings for First Republic on watch for a downgrade. Rival rating agencies Fitch and S&P Global slashed the bank's ratings on Wednesday.

Hello hello, credit rating agencies, WHY... ARE... YOU... SLEEPING?

- Image credit: Finding Nemo / Pixar via Tenor

MoneyFitt EXPLAINS?

?? The US Discount Window

• The discount window is a lending facility the Federal Reserve provides to eligible depository institutions, such as banks to borrow funds on a short-term basis. They use it to borrow money to meet their reserve requirements or to address temporary liquidity needs.
• Banks borrowing from the discount window is not necessarily a bad look as it is a common practice for banks to access the discount window during times of financial stress or to meet short-term funding needs. But consistently borrowing a lot from it could indicate underlying financial weakness or an inability to manage liquidity effectively, a cause for concern for regulators, investors, and depositors.
• The discount rate is the interest rate at which banks can borrow from the discount window, and the Federal Reserve sets it. The rate is usually higher than the federal funds rate, which is the rate at which banks lend to each other overnight.