🎙️ Bond Rally Goes Poof

[5 minutes to read] Plus: Bezos unloads $4B of Amazon stock

Together with

By Matthew Gutierrez and Shawn O’Malley

It’s Valentine’s Day, and Lyft investors were feeling love in the air today. Actually, they felt love, heartbreak, and then love once more — a true romance thriller 💘

Heartbreak came after a “clerical error” misstated expected growth in the company’s profit margins by an order of magnitude (5% reported vs. 0.5% actual) in its earnings report Tuesday evening.

Initially surging over 60%, the stock pulled way back after the correction.

💭 Ultimately, Lyft investors still found enough to love in the corrected earnings report, pushing the stock 35% higher on Wednesday.

Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

  • The global bond rally goes poof

  • A $26 billion oil deal, with regrets

  • Jeff Bezos unloads $4 billion of Amazon shares

All this, and more, in just 5 minutes to read.

POP QUIZ

How much will couples spend on Valentine’s Day this year in the U.S.? (The answer is at the bottom of this newsletter)

Chart of the Day

In The News

🪄 Global Bond Rally Goes Poof

Animated GIF

Gif by southpark on Giphy

And just like that, they’re gone. No, that’s not a Valentine’s Day musing about the one who got away. Rather, we’re talking about bond market gains since investors got hooked on the prospect of rate cuts in 2024 amid the Fed’s December meeting.

According to a Bloomberg index of global bonds, bond investors broadly are down 3.5% this year, wiping out all gains from December’s massive bond rally on speculation that a) the Fed had defeated inflation and b) would, therefore, begin cutting interest rates (good for bond prices.)

To cut or not to cut? Tuesday’s “hot” CPI report showed that those bets were premature, and non-compliant inflation data increasingly cloud the Fed’s case for cutting interest rates.

  • Market expectations for the first rate cut have been pushed back from March to July.

  • A senior rates strategist at TD Securities called the “January CPI a game changer…there’s now a real risk that price pressures begin to shift higher…This should provide momentum for further bond declines.”

Why it matters:

Traders now expect three Fed rate cuts this year, with a 70% chance of a fourth, roughly aligning with Fed leaders’ stated outlook. Just a month ago, some were expecting as many as seven cuts.

As the financial reporter Eric Wallerstein puts it, “It’s been a good year for the economy — and a bad one for bonds.”

That’s due to a few reasons.

Fomo: A stronger economy makes investors greedier, typically pushing funds out of the bond market, which offers more conservative returns, into stocks and real estate, tempted by the promise of better money-making opportunities.

Inflation expectations: Bond prices are largely shaped by the Fed’s current interest rate policy and expected future changes in interest rates, which vary based on projections for economic growth and inflation.

(⬆️ rates = bad for bond prices, ⬇️ rates = good for bond prices)

  • A strong economy increases the likelihood of inflation remaining above the Fed’s 2% target, delaying potential rate cuts.

  • Until there’s reason to believe the Fed can begin cutting rates dramatically, either in response to a recession or because inflation is thought to be under control (or both), it’s unlikely bond prices can meaningfully rally.

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🛢️ Texas Oil Driller Banks $26 Billion Deal, With Regrets

The days of making bank in Big Oil drilling could be numbered as the world shifts to cleaner energy sources. But there are still fortunes to be made in oil and gas. 

In the wild: Autry Stephens is one of the last Texas wildcatters, people who drill wildcat wells, exploring oil wells in areas not known to be oil fields.  

  • Stephens will become one of the 100 richest humans worldwide after selling Endeavor Energy Resources, which began from a well he drilled 45 years ago, to Diamondback Energy in a $26 billion stock-and-cash deal. (Stephens already was worth about $15 billion before the sale.)

  • Stephens has seen nearly everything in his 62-year career — 62 years! — from the rise of the Organization of Petroleum Exporting Countries (OPEC), the decline of U.S. crude production, and its bounceback with the shale boom.

Stephens drilled his first well in 1979, when he was 41 years old, throwing his life savings into the move. It turned out to be a good investment, and he rode the booms and busts of the oil business, even coming close to the end in 2008 and 2014 when crude prices cratered. Good luck, timing, and hard work combined to work in his favor.

Why it matters:

Stephens joins other private oil guys to cash in on shale wealth, including CrownRock’s Timothy Dunn, who sold to Occidental Petroleum (a Warren Buffett favorite) for $11 billion in December. 

  • As WSJ reports, “The frenzy of deals has reshaped the oil patch, consolidating the scrappy drillers who set off the shale boom among larger producers seeking scale and premium acreage.”

  • Stephens’ Endeavor is one of the only remaining big, privately-held drillers, and it had about 350,000 net acres, producing 200,000 barrels of oil daily. 

Bottom line: The sale to Diamondback allows it to compete with ConocoPhillips and Exxon in the Permian Basin, which includes western Texas and southeastern New Mexico.

More Headlines

💔 Uber, Lyft, and Deliveroo stage Valentine’s Day strike 

🛒 Instacart to lay off 7% of workforce amid heated competition

💰 Senate passes $95 billion aid bill, includes funding for Ukraine, Israel

😬 Why the U.S. auto industry is freaking out about China’s electric cars

🤖 Only “natural persons,” not AI, can patent things In the U.S. in new ruling


🤑 Jeff Bezos Sells $4 Billion of Amazon Stock in 4 Days

Speedy Gonzalez! Jeff Bezos has unloaded about $4 billion worth of Amazon stock in the last four trading days, the first time the billionaire has sold the company’s stock since 2021. 

A rich life: Amazon said on Feb. 2 that Bezos plans to sell up to 50 million shares of Amazon over the next year, cashing in on a terrific run for the stock (up 71% over the past 12 months). 

  • Soon, Bezos could be the wealthiest person in the world again, with a fortune that has risen $22.6 billion this year, putting him around the $200 billion net worth mark.

  • Since 2002, Bezos has sold about $30 billion in Amazon shares. Mostly, he gives stock, including shares worth about $230 million, to nonprofit organizations as recently as last fall.

  • Bezos is still the largest shareholder of the company he founded in 1994 out of a garage in Seattle. 

Sunny days: Bezos tends to concentrate his stock sales rather than spread them out over months. His selling activity hasn’t been a good indicator of how Amazon’s stock performed in the ensuing 12 months, per analysts. 

  • Bezos hasn’t said why he’s selling shares, but he recently moved to Miami from Seattle. That move is likely partly due to Washington’s new 7% capital gains tax, which Florida doesn’t have.

  • Bloomberg estimates that the move to the Sunshine State has saved Bezos about $300 million thus far. 

Why it matters:

On the move: Bezos avoided the ~$300 million tax bill, which would have been a nice chunk of change for the state of Washington. 

  • Last year, the state raised $855 million from its new capital gains tax, half of which came from just 10 people (no, not us).

  • The new tax has received some criticism in Washington, including from the super-wealthy people most impacted by the change. Billionaire Ken Fisher said he’s moving out of the state to Texas, and other well-to-do individuals have fled for greener pastures. 

As for Bezos, he seems to be enjoying his post-Amazon executive life, sailing this winter in the Caribbean on his $500 million yacht while keeping busy with his workouts and philanthropy.

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Quick Poll

For Valentine's Day, there will be lots of gift giving and exchanging of little luxuries. How often do you buy new accessories?

(Jewelry, watches, etc.)

Login or Subscribe to participate in polls.

Yesterday, we asked: Do you think Patrick Mahomes will exceed Tom Brady’s Super Bowl victories?

— In favor of Team Mahomes: “Of course he will…step aside Tom, there is a new GOAT in town!

— Wrote another, “Just no.

— Added a third, “No, Tom Brady will remain the GOAT for a really long time. Patrick is great and might be the most talented QB the NFL has seen, but I do not believe he will have the long career that Tom had. It will be extremely difficult for another player to win 7 and go to 10 Super Bowls.”

TRIVIA ANSWER

53% of Americans are expected to partake in Valentine’s Day festivities, spending roughly $26 billion in aggregate.

See you next time!

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