Joe Biden releases his proposed budget

04th March 2023 – 10th March 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,861.59	11,138.89	24.80	31,909.64	2,120.53	14,894.18
-4.55%	-4.71%	34.13%	-4.44%	-4.91%	-5.26%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
17,412.90	$1,872.70	$20.61	$82.64	82.02	87.27
-1.03%	0.54%	-3.62%	-3.91%	0.37%	0.42%

Source: MarketWatch 

Hello Saturday,

This week, President Biden releases his proposed budget, crypto lender Silvergate announces liquidation, and more companies adopt ChatGPT. 

• Biden’s proposed budget imposes a minimum 25% tax on the wealthy, increases support for social security plans, and eliminates subsidies for oil and gas companies. 
• Silicon Valley Bank is placed in receivership after it records billions in losses and its stock falls 60%; the global banking sector is spooked. 
• The Department of Justice sues to block JetBlue’s acquisition of Spirit Carriers, preventing the formation of the fifth biggest airline in the US to protect customers from higher fares and fewer options. 
• Several major companies across the globe announce that they are using OpenAI’s ChatGPT technology, including Salesforce, Shopify, and Instacart. 
• Silvergate Capital, a major crypto lender, announces the winding down of operations; plans to repay all deposits fully.
• Adidas warns of a potential full-year operating loss in 2023, the first in over three decades, due to the termination of its highly lucrative deal with Ye, formerly known as Kanye West.

Taking stock | Budgetinc. | Silicon Crater Bank | Jet blues | ChatGPT under the hood | Cryptonite snowball | Ye did us | Invest wisely

Taking stock

Wall Street ended the week in the red after the US saw its biggest bank failure since 2008 with Silicon Valley Bank shutting down. S&P lost 4.55%, the Dow dropped 4.44%, and Nasdaq fell 4.71%. 

Budgetinc.

President Joe Biden proposed the budget for the fiscal year 2024 (October 1, 2023, to September 30, 2024) to Congress on Thursday. Here are the highlights of the $6.8 trillion budget:

• The budget includes increased taxes on corporations and high earners of about $5 trillion over the next decade. It includes a minimum 25% tax on the wealthiest 0.01% in the country. 
• This is primarily to support the new social spending programs to support middle-class and low-income earners. 
• Such increased taxes on the wealthy also aim to help reduce budget deficits by almost $3 trillion over the course of the decade. 
• The proposed budget includes increased defence spending by 3.2% from the fiscal year 2023 to $842 billion. 
• The budget allocates over $6 billion to assist Ukraine and more than $7 billion in the way of support to refugees and unaccompanied minors to the US. 
• Tax subsidies for oil and gas companies worth tens of billions of dollars are proposed to be scrapped. 
• The budget also proposes eliminating a special tax subsidy for cryptocurrency and certain other transactions, saving about $24 billion. 

Silicon Crater Bank

In a shocking development that has spooked global markets, California regulators shut down Silicon Valley Bank (SVB) on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. This transpired only a few days after the bank’s woes had become well-publicised, leaving many depositors in the lurch, with billions of dollars stranded.

The collapse of SVB, which was the 16th biggest bank in the US as of December 2022, appears to have been an indirect consequence of the rising interest rates in the US. The bank held several long-term bonds that had accumulated a massive $15 billion worth of unrealised losses due to interest rate hikes. It was eventually warned by Moody’s Investors Service that these unrealised losses likely meant it would get a credit downgrade.

This left SVB in a tight spot, and it decided to offload a portion of these bonds at a loss of $1.8 billion. But Moody’s ended up downgrading the bank anyway! This then led to a massive exodus of depositor funds, and SVB stock ended up falling 60% before Californian regulators finally stepped in.

Given that SVB mainly catered to the start-up community, and given that 89% of the bank’s deposits were uninsured as of December 2022, its collapse could have wide-ranging ramifications for the local economy. In addition, observers are concerned that many more banks might be ticking time bombs with similar hidden risks on their books.

Such concerns have hit the banking sector hard: American and European banks lost a total of $150 billion in market value over the last two days of this week. It remains to be seen whether the Federal Reserve will end up lowering interest rates to try and prevent a contagion.

Jet blues

This week the US Department of Justice (DOJ) sued to block JetBlue Airways’ acquisition of Spirit Carriers. Last summer, JetBlue and Frontier Airlines fought a long battle to acquire the budget carrier, and JetBlue finally won with a $3.8 billion proposed deal. 

If this deal were to go through, it would eliminate the competition provided by Spirit’s low-cost airfares, leaving Americans with high air travel costs and fewer options — about half of all the ultra-low-cost airline seats are provided by Spirit in the US. And according to Spirit, every time the airline starts flying a route, the average airfares fall by 17%. 

Source: Statista

If JetBlue were to acquire Spirit, it would form the fifth-biggest airline in the country. Blocking of industry consolidations like these is important and is a sign of a healthy economy as it prevents monopoly and allows consumers to have wider choices at fair prices. The last airline merger in the US was when Alaska Airlines acquired Virgin America in 2016 — this too only happened after the DOJ asked Alaska Airlines to reduce its codeshare with American Airlines.  

ChatGPT under the hood

OpenAI, the creator of ChatGPT, recently launched an Application Programming Interface (API) for ChatGPT. And many big companies worldwide have already announced that they will be using this service.

• Salesforce said it was integrating this technology into its customer relationship management tools as well as Slack, its workplace messaging platform. 
• Shopify will use ChatGPT for its new shopping assistant, providing customers with personalised recommendations and help with other requests. 
• Instacart, the grocery delivery and pick-up service app, will use ChatGPT for a new search engine feature to provide users with everything from recipes to ingredient alternatives.
• Quizlet, a platform that provides study tools such as flashcards, has rolled out a feature called Q-Chat to serve as a personal tutor for students using OpenAI’s technology.

ChatGPT launched in November 2022, and in just two months, it reached 100 million active users. While it may seem like ChatGPT smoked Google, the truth is that the search engine has been working on conversational search AI for years — the company, in fact, has been preaching how such technology is the future for a long time.

How did Google miss the first-mover advantage despite having more powerful tech? It’s mainly because the company is cautious about its reputation and customer relationships and has been hesitant to make its bots, such as LaMDA and Bard, public sooner. 

Cryptonite snowball

Silvergate Capital, which has served as one of the two primary banks for cryptocurrency transactions, announced liquidation on Wednesday. The bank’s stock plummeted more than 36% in after-trading hours as investors digested the news of one of the biggest crypto lenders winding down its operations. Bitcoin fell to a three-week low after this news. 

This liquidation comes after a string of bankruptcies and scandals throughout 2022 in the crypto industry that has left the once $3 trillion worth industry to be worth only around $1 trillion. While this is an orderly wind down, and the bank plans on making good on all of the deposits, it is the first example of crypto trouble spilling into the traditional banking system — Silvergate is a federally insured traditional lender. 

Ye did us

In October 2022, Adidas had to scrap its highly lucrative deal with Ye, formerly known as Kanye West, which led to a massive fourth-quarter loss for the footwear giant, as posted this Wednesday. 

Adidas reported an operating loss of €724 million (about $736 million) and warned that it could see its first full-year loss in over 30 years in 2023. This is primarily due to the €500 million hit related to unsold Yeezy stock — Yeezy was the nine-year-long partnership of the German footwear brand with the rapper and designer Ye. This partnership was broken off last year due to antisemitic comments by Ye.  

Invest wisely 

Just like every country carefully chalks out a yearly budget to maximise revenue and minimise deficit, you too should draw out a financial plan of your own. And an important part of an individual’s financial plan is investments. You can now build an investment portfolio with Appreciate that helps you minimise risk and maximise returns by offering you a wide range of helpful tools and easy access to domestic and US markets. Download the app today! 

Warm regards,
Another week
in the markets