1 big thing: Crypto taxes are complicated

Illustration of a glowing coin on top of a pile of receipts 

Bonus chart: 📉 Down down down

2. Catch up quick

3. Child care shortage slowly easing

4. 📉 Fertilizer pullback 

😅 Welcome back. Somehow it's Monday again. The holidays are fast approaching. Sam Bankman-Fried is still talking to the press; but isn't ready to chat with Congress just yet. Hmmm. 

Today's newsletter is 775 words, 3 minutes.

Tell your friends and colleagues to sign up here up for Axios Markets!

Today's newsletter was edited by Kate Marino and copy edited by Lisa Hornung.

Markets

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Stay on top of the latest market trends and economic insights

Axios Markets

1 big thing: Congress and crypto

CFTC Chair Rostin Behnam testifies before the Senate Ag committee on FTX. Source: Bloomberg/Contributor

3. Savings plunge

4. Factory slowdown is here

🥳 Happy Friday! In just a bit we'll get the November jobs numbers — will the strong labor market show any signs of weakness? Stay tuned. 

Meanwhile, a bill to avert a rail strike is headed to President Biden's desk later today. 

Today's newsletter is 830 words, 3.5 minutes.

1 thing Emily doesn't love: "shrinkflation." It's that phenomenon where a company reduces the packaging size of a product so it doesn't have to raise the price. The one that gets me is ice cream pints that are less than 16 ounces.  

You'll be glad to know that a 71-year-old semi-retired lawyer named Edgar Dworsky is on the case — exposing shrunken portion sizes. The New York Times profiled him last weekend.

But this isn't a new thing. The last time inflation was running hot, even gumball manufacturers got in on the trend. Making the insides of the balls hollow to save sugar costs, Bloomberg reports.

Readers, have you noticed anything "shrinkflate" lately?

1 big thing: The West's answer to OPEC

Illustration of an oil barrel with a red discount tag. 

3. Why you should ignore the Dow

4. The big split

5. Charted: 📉 Cooling bond yields

🌮  Tuesday. Still early enough in the week to accomplish things! Emily here. Today Matt's back with the latest on the oil market. And I'm starting to think about books. Specifically, what to read over the holidays. 

The latest possibility: "Chip War," by Chris Miller, which covers the drama behind one of the most mission-critical industries of our time, and was just named Business Book of the Year by the Financial Times. What's on your reading list? Email us some ideas.

Today's newsletter is tk words, tk minutes.

🍬1 thing Matt Likes: Cinnamon candies. 

Having come down with COVID for the first time last week, my doc prescribed me the anti-viral Paxlovid. I'm feeling much better now, thanks. A downside to the drug, however, is the awful metallic taste it leaves in your mouth. (It's like your tongue has been chromed.)  

Luckily, through the miracle of Google, I discovered a treatment—cinnamon candies. And in my case, that means the seasonally available holiday sweet Brach's Cinnamon Imperials that my wife usually stocks up on this time of year. I can attest that they're a delicious, though temporary, antidote to Paxlovid mouth.  

✨ Today's newsletter was edited by Kate Marino and copy edited by Lisa Hornung.

1 big thing: The U.S. chip boom is just beginning

Photographer: Maurice Tsai/Bloomberg via Getty Images

3. Bullish is back

Illustration of a bull leaning ever so slightly into the image. 

Lower-income countries’ debt crisis is getting worse, World Bank says

4. Global debt report card: Not great

5. 2022's media winner

🏃🏻‍♀️ It's a busy December week. Let's go!

Today we've got 1,184 words, an 4.5 minute read.

Today's Axios Markets was edited by Kate Marino and copy edited by Lisa Hornung. 

1 big thing: Strike averted, almost definitely 

Activists in support of unionized rail workers protest outside the U.S. Capitol on Tuesday (Photo: Anna Moneymaker/Getty Images)

3. It's all relative 

4. Jassy is still not a fan of unions

Happy December! It's Emily. Today we're going deep on union fights and vibes from the Fed. 

🤨 Meanwhile, I'm wondering: Do you folks play pickleball? Today I learned that the sport has grown so popular that real estate agents use it to sell houses: The number of for-sale listings that mention pickleball rose 86% over the last year, per WSJ.

🎦 Sam Bankman-Fried continued his post-collapse media tour yesterday. (Watch)

Today's newsletter is 1,107 words, 4.5 minutes.

1 thing Emily LIKES: Wordle, the daily word game. And, as it turns out, so do a lot of our readers.

Many of you wrote in to say the puzzle words should stay random and not be themed, as the solutions were over Thanksgiving weekend. 

That's what makes the game fun, Sandy in Fargo writes in an email. "Remove that, and it becomes just another skill game, with the accompanying angst if you miss," she wrote us. "[W]hen it ain’t BROKE, don’t UNFIX it."

Personally, I'm fine either way — the mystery of whether the word is random or themed keeps me on my toes.

Thanks to all who wrote in. Please keep the emails coming! We love to hear from you. 

Tell your friends and colleagues to sign up for Axios Markets here!

Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.

National

Analysts have been slow to slash their target prices on Tesla — despite a price drop that's destroyed more than half a trillion dollars in paper gains over the last year.

The big picture: The fact that analysts still think Tesla should be worth $290 a share —  70% above the current market price of $170 — reflects the difficulty the market is having in adjusting to the new reality of higher interest rates.  

(H/t to Bloomberg, which spotlighted the growing gap between analysts and the market on Tesla.)

Between the lines: As we've written (again and again and again) high-interest rates are kryptonite for share prices of tech-driven companies. This is especially true for companies that make relatively little money now but expect vast profits in the future when their products inevitably change the world. 

Tesla is the textbook example of just such a company.

Catch up quick: After the Fed cut interest rates to almost zero during the COVID crisis in March 2020, the stock exploded upward.

It rose a seemingly absurd 1300% between late March 2020 and early November 2021, when the Fed signaled it would start raising rates to combat inflation. 

Since then, Tesla has collapsed by nearly 60%, vaporizing more than $700 billion in market value. 

Yes, but: Tesla is not alone here. Other highly valued technology shares have gotten crushed by the change in interest rates, most notably Meta. 

Tesla's tumble also reflects the fact that Elon Musk ended up buying and running Twitter on a whim, forcing him to sell billions of dollars worth of shares to help pay for the purchase. 

And Meta's share doldrums are partially driven by CEO and founder Mark Zuckerberg's pet virtual reality environment, which has cost the company billions (and the red ink will likely grow "significantly." )

The two companies' year-to-date stock losses — 50% and 70%, respectively — are far worse than the Nasdaq composite's 30% drop this year. 

The bottom line: Given the incredible run that Tesla had at times over the last couple of years, it's understandable why analysts are slow to recognize the new reality. But when they do, it could set off a new bout of selling. 

Tesla stock analysts resist harsh market reality

The average target price is 70% higher than Tesla's current market value

Tesla

A chart showing Tesla's share price in comparison to the analyst consensus price from Nov. 22, 2017 to Nov. 21. 2022.

Analysts have been slow to slash their target prices on Tesla — despite a price drop that&#x27;s destroyed more than half a trillion dollars in paper gains over the last year.The big picture: The fact that analysts still think Tesla should be worth $290 a share — 70% above the current market price of $170 — reflects the difficulty the market is having in adjusting to the new reality of higher interest rates.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

The residential real estate market has screeched to a halt, and some economists believe home prices are about to drop significantly.

The big picture: Existing home sales have fallen for nine straight months. The supply of single-family homes is growing. And with mortgage rates near 7%, experts say a large-scale housing slowdown is becoming increasingly likely.

What they're saying: "In one line: Collapse in prices is coming," wrote Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics.

Pantheon estimates that existing home prices will keep falling, ultimately dropping by about 20% from their June peak of around $414,000.

Goldman Sachs analysts also recently cut their outlook for home prices, from roughly flat next year to down 4%, noting that "unsustainable levels of housing affordability to continue weighing on housing demand."

Between the lines:  Until recently, economists had pooh-poohed the prospect of a nationwide price slump, suggesting that persistently low inventories of houses to buy would put something of a floor under the market. 

Even if demand fell because of surging mortgage rates, they reasoned, there would still be enough buyers for the relatively small number of houses for sale, meaning prices likely wouldn't drop much. 

Yes, but: While analysts are coming around to the idea that house prices could see a correction, they still don't expect an outright bust.

Unemployment remains low. And most homeowners who bought in recent years have locked in rock-bottom rates, making their payments affordable.

That means a surge in defaults — like the one that crashed the U.S. housing market in 2008 and 2009 — is unlikely, economists say. 

Bottom line: Some decline in home prices is likely in the offing. It won't be a disaster. And lower prices will be welcomed by frustrated, would-be buyers. 

"Collapse" in home prices is coming, experts say

They don't expect a crash, but a slowdown seems likely.

Housing

The U.S. chip boom is just beginning

President Biden travelled to Arizona where TSMC plans to invest $40 billion in chip-making

Semiconductors

Chip giant Taiwan Semiconductor Manufacturing Co.&#x27;s decision <a class="gtmContentClick" data-vars-link-text="to triple its investment in Arizona" data-vars-click-url="https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-to-triple-U.S.-chip-investment-to-40bn-to-serve-Apple-others" data-vars-content-id="794bc006-f2fe-4a9a-9a19-5a11a42e7daf" data-vars-headline="The U.S. chip boom is just beginning" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://asia.nikkei.com/Business/Tech/Semiconductors/TSMC-to-triple-U.S.-chip-investment-to-40bn-to-serve-Apple-others" target="_blank">to triple its investment in Arizona</a> is part of a national rush to re-shore key inputs for the American economy.Driving the news: President Biden traveled to TSMC&#x27;s Arizona plant on Tuesday to bask in the glow of the announcement. The company — which by some measures <a class="gtmContentClick" data-vars-link-text="manufactures over half the world&#x27;s chips" data-vars-click-url="https://focustaiwan.tw/business/202210010008" data-vars-content-id="794bc006-f2fe-4a9a-9a19-5a11a42e7daf" data-vars-headline="The U.S. chip boom is just beginning" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://focustaiwan.tw/business/202210010008" target="_blank">manufactures over half the world&#x27;s chips</a> — said the three-fold increase would bring its investment to around $40 billion.

The Russian oil price cap that went into effect Monday could, over time, be an important Western counterweight to OPEC in determining world oil prices.

Driving the news: After months of wrangling, the mechanism to try to cap prices of Russian crude oil shipped by sea went into effect on Monday.

Parties to the deal include the G7, the European Union and Australia, all of whom agreed that the highest price they'd pay for Russian oil would be $60 a barrel.  

For its part,  Russia has rejected the idea of the price cap, though in practice its pariah status means it's selling oil on the global market for less than $60 a barrel, analysts say. 

The price cap is designed to limit windfall profits Russia might reap from energy prices that have surged because of its invasion of Ukraine.

But it's also supposed to provide incentives for Russia to keep producing the oil which the world economy still needs. India and China are now buying most Russian crude.

The big picture: No one knows how effective the new price-capping plan will be at achieving those goals. 

But the birth of a buyers club formed by the world's richest nations to coordinate their purchasing decisions in pursuit of specific prices still amounts to a major moment for world oil markets. 

While Russia is its current focus, such a group could perhaps be a plausible counterweight to OPEC, the cartel of oil-producing countries that has tried to maximize revenues for its members since it was established in 1960.  

What they're saying: "If you're OPEC, you're looking at this and you're saying, 'Wait. You know, I'm not sure this Russian-focused tool couldn't be used against us,'" Kevin Book, an analyst at energy research firm ClearView Energy Partners tells Axios.

Similarly, analysts from Rystad Energy noted on Monday that "the general view among OPEC countries is that the price cap idea sets a bad precedent and could be implemented against that group in the future."

Yes, but: U.S. policymakers are keen to stress that the current price-cap coalition is focused only on Russia, rather than the broader oil markets. 

"This is not a buyers cartel. This is a sanctions regime directed at Russia," said Ben Harris, a Treasury department official, while speaking at Harvard University on Monday, adding, "This is not about a global buyers cartel for all oil. This is about oil that is coming out of Russian soil and nothing else." 

What we're watching: How rising tensions between OPEC and the West could play into the oil cartel's closely watched decisions on output in the coming months. (After holding a virtual meeting Sunday, OPEC and its allies, including Russia, voted to stick with its previously agreed-upon production targets.)

Oil-producing nations such as Saudi Arabia are trying to simultaneously manage longstanding defense relationships with the U.S. (where officials want an increase in output), growing linkages to authoritarian countries like Russia and China — and an uncertain outlook for crude oil demand due to China's unsteady economy. 

Some 70 years later, the West has an answer for OPEC

Some 70 years later, the West has a response to OPEC

The Russian oil price cap that went into effect Monday could, over time, be an important Western counterweight to OPEC in determining world oil prices.Driving the news: After months of wrangling, the mechanism to try to cap prices of Russian crude oil shipped by sea went into effect on Monday.

U.S. oil prices briefly fell to their lowest level since 2021 on Monday, as investors braced for a further slowdown in China's economy.

Why it matters: The surprising decline in energy prices over the last few months should further ease inflation pressures, potentially setting up the Fed — and other central banks — to slow the interest rate hikes that hammered markets this year.   

The big picture: Six months back, the world seemed at risk of running dangerously short of oil and gas, due to Russia's attack on Ukraine. Now, oil prices are back to pre-war levels and prices at the pump are falling. 

In June, U.S. gasoline prices topped $5 a gallon for the first time. Now they're a bit higher than $3.50. 

Benchmark U.S. crude oil — the West Texas Intermediate futures contract price  — was more than $120 a barrel that month, prompting a series of releases from the U.S. Strategic Petroleum Reserve. Now they're almost 40% less, touching sub-$74 levels on Monday before rebounding slightly.

In Europe, prices for natural gas — which Russia largely supplied — soared to records in August, as nations rushed to stockpile gas supplies for winter. They're down 60% since then. 

State of play: The tumble is tied to the situation in China, where drastic COVID-related lockdowns of major urban centers — and a rash of protests in response — have upended the economy, potentially adding to the drag on economic growth this year. 

The recent burst of protests against the lockdowns is also adding an unexpected element of political uncertainty.        

Meanwhile, in Europe, governments stockpiled Russian gas while they still could and tapped new sources of liquified natural gas. Conservation efforts cut usage and a lucky stretch of mild weather reduced heating demand. There's likely enough stockpiled to get through the winter now.

In the U.S., oil prices — tightly tied to expectations of global growth — first slumped as expectations for a recession in Europe, and to a lesser extent, the U.S. itself grew in recent months.  

What we're watching: The Dec. 4 meeting of OPEC and its partner Russia in Vienna, and whether the powerful oil cartel will cut production to try to keep oil prices from dropping more. 

Oil prices are back near pre-Ukraine war levels

Fears of an energy price apocalypse have subsided, for now.

Illustration of an oil barrel spilling oil, forming an erratic line chart. 

U.S. oil prices briefly fell to their lowest level since 2021 on Monday, as investors braced for a further <a class="gtmContentClick" data-vars-link-text="slowdown in China&#x27;s economy" data-vars-click-url="https://www.axios.com/2022/11/28/china-covid-lockdown-protests-xi-jinping" data-vars-content-id="e2530b79-0b94-48d3-97a9-5849275af0ff" data-vars-headline="Oil prices are back near pre-Ukraine war levels" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/11/28/china-covid-lockdown-protests-xi-jinping" target="_self">slowdown in China&#x27;s economy</a>.Why it matters: The surprising decline in energy prices over the last few months should further ease inflation pressures, potentially setting up the Fed — and other central banks — to slow the interest rate hikes that hammered markets this year.

Matt Phillips

Stories

The U.S. chip boom is just beginning

Some 70 years later, the West has an answer for OPEC

Oil prices are back near pre-Ukraine war levels

"Collapse" in home prices is coming, experts say

Tesla stock analysts resist harsh market reality

Newsletter editions

🍪 Chip boom politics

🛢 Buyer's club

😬 Tax man cometh

🏀 Congress' ball

Labor pains