Apr 16, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

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Situational awareness:

  • Executives at U.S. online lenders such as LendingClub, Kabbage and Avant are preparing for what they fear could be the sector’s first economic downturn. (Reuters)
  • Mansion owners in Vancouver are renting out their plush homes to college kids in an effort to avoid a new tax on empty homes. (Bloomberg)
  • The OECD warns in a new report that China’s policy stimulus could cause big risks to the country in the long run. (Reuters)
  • Two separate U.S. House panels have issued subpoenas to Deutsche Bank and other financial institutions as part of an inquiry into President Trump’s finances. (WSJ)
1 big thing: Bankers are already preparing for a world without cash

Illustration: Rebecca Zisser/Axios

There's an arms race underway for control of the world's money in the coming cashless society. While a future without hard currency notes may seem far away in the U.S. where more people write checks than use digital payments, globally, digital currencies are becoming the norm at a stunning pace.

Why it matters: "We might have to be prepared for a future with a lot more digital money, maybe with cash, maybe substituting for cash," Benoit Coeure, a member of the executive board of the European Central Bank, said last week during a presentation at the IMF-World Bank meetings.

  • As more people move into the middle class in emerging nations, they're showing a clear preference for cyber currency provided by tech companies.
  • Mobile payment transactions in China rose to nearly $13 trillion in just the period from January to October last year, according to official figures from the Ministry of Industry and Information Technology cited by the South China Morning Post. The transactions were largely on Alibaba's Alipay and Tencent's WeChat Pay.
  • More tech companies are moving into the space, as are unregulated currency systems like Bitcoin.

The big picture: The Bank for International Settlements is studying digital currencies, and global central banks including Bank of Canada and Bank of Japan are looking into releasing central bank digital currencies.

  • Cecilia Skingsley, deputy governor of Sweden's Riksbank, says there's a "50/50" chance the central bank launches an "e-krona" digital currency within the next 5 years.
  • In Kenya, the M-Pesa is quickly replacing cash. Government data showed that in December Kenya had 31.6 million active users of mobile money services with a population of around 50 million.

The other side: The world's largest financial institutions are working to ensure they aren't displaced in the developed world.

  • The largest U.S. banks, including Bank of America, JPMorgan Chase, US Bank and Wells Fargo, together launched online payment provider Zelle in 2017. According to JPMorgan's CFO of Consumer and Community Banking Sarah Youngwood, Zelle is now larger than Venmo.
  • JPMorgan also announced JPM Coin in February, which allows global payment and settlement between clients on the blockchain. (Just don't call it a cryptocurrency.)

The intrigue: While Jeremy Allaire, CEO of crypto finance company Circle, argues that in the cashless society no one will pay for the ability to pay, with commercial banks dominating both digital payments and debit and credit instruments, the banks would oversee the exchange of almost all money and could thereby control its cost.

  • "Payments are to their nature a monopoly," Riksbank's Skingsley said. "It may look from the outside like you have very, very many choices as a customer, but it may be a very concentrated, private system in the middle."
Bonus: Negative rates are holding back the cashless society
Expand chart
Adapted from a chart by Torsten Slok, chief economist at Duetsche Bank, and DB Research; Chart: Axios Visuals

Some nations have been slower to move away from cash than others. As the ECB's Benoit Coeure recently pointed out, in the eurozone the use of cash is actually increasing, even compared to bank cards (with the notable exception of Britain).

That may be the result of central banks' negative interest rate policy. The ECB and Bank of Japan both essentially charge interest rather than pay it for some deposits, which prods consumers and companies to hold cash instead.

2. Lyft's cry to early investors: "Remember Facebook!"
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Data: Investing.com; Chart: Harry Stevens/Axios

Lyft has fallen spectacularly since its impressive first day of trading, and with most early investors' shares still in lock-up, it may be poised for more losses.

What's happening: The company has disappointed investors and has been seized upon by short sellers, who are making a killing. Short interest had risen to $944 million as of Friday, with 15.5 million shares shorted, totaling nearly 65% of the float, or the shares available for purchase, according to data from S3 Partners.

Yes, but: Lyft is hoping this is just a rough start and can point to the early trials of Facebook to reassure investors that all is not lost. Facebook's stock lost half its value before the end of its 90-day "lock-up" period — a holding time typically 90–180 days during which certain shareholders are barred from selling their stock.

  • When the period ended, Facebook shares fell further, dropping to $19.05 a share. Early investor Peter Thiel cashed out the majority of his investment around that time, and Accel Partners, another of Facebook's early backers, reportedly dumped 50 million shares on the market.
  • Trading volume in the stock after its lock-up ended was unusually high, with 157 million shares trading hands, versus a 30-day average of 31 million, per the New York Times.

What Lyft will be telling investors: The shares Thiel sold for around $400 million would be worth closer to $4 billion today with Facebook trading near $180 a share.

3. Disney's big plans for Hulu
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Data: Company and analyst reports; Chart: Axios Visuals

When Disney unveiled its streaming plans last week, most of the focus was on its new family-friendly streaming service Disney+, Axios' Sara Fischer writes. On Monday, we got a better glimpse into what Disney's long-term streaming plans may be. (Hint: It may not be about the total destruction of Netflix via Disney+.)

Driving the news: AT&T said Monday it's selling its minority stake of Hulu back into Hulu's streaming video joint venture, giving Disney a total of 66% ownership of Hulu and Comcast/NBCUniversal a 33% share.

  • It's unclear whether Comcast would sell its stake to Disney, but Variety's Todd Spangler notes that the fact that the Hulu stake was sold back into the joint venture, rather than to Disney, "is further indication that NBCU wants to remain a key player in Hulu."

Why it matters: It's looking like Disney's streaming plan is to build a stable of strong streaming services that it can bundle together at an efficient cost. So even if the Disney+ service isn't a Netflix killer, its services bundled together could look like a nice alternative to Netflix.

4. Brazil's Bolsonaro is making investors nervous

The CEO of Brazil's state-controlled oil company Petrobras says there was no government interference in the company's decision not to increase the price of diesel after he received a phone call from President Jair Bolsonaro.

About the call: Castello Branco, Petrobras' CEO, said Bolsonaro simply warned him during the call about the risks of a potential new truckers' strike if diesel prices rose, Reuters reports.

  • "The decision was taken by Petrobras management, no one told the company to cancel the price rise," Branco said.

Background: Bloomberg had previously reported that Bolsonaro made the call to tell Branco not to make the price hike, and Petrobras' stock fell by 8% after the news. Investors are worried that Brazil's new president, who came to office promising to jail his political opponents and praising the country's previous military dictatorship, will take a more hands-on approach to business decisions in Latin America's largest economy.

  • The Brazilian government effectively owns more than 60% of Petrobras, even though it is a publicly traded company.
  • Given not just the 20-year dictatorship in Brazil, but the penchant for state involvement of previous South American leaders like Cristina Fernandez de Kirchner and Hugo Chavez (and the unremarkable results), investors are understandably a bit uneasy.

The bottom line: Bolsonaro has routinely been referred to as a fascist by critics, and any indication that he's planning to put political interests over business interests at Petrobras is worrisome for Petrobras investors as well as just about any industry that does business with the government.

5. The story of the $1.275 million bet on Tiger Woods
William Hill US CEO Joe Asher (L), James Adducci (C) and SLS Las Vegas general manager Paul Hobson. Photo by David Becker/Getty Images for William Hill US

A 39-year-old self-employed daytrader named James Adducci is the man behind the $85,000 bet on Tiger Woods winning The Masters that paid out $1.275 million, Golf Digest's Stephen Hennessey reports.

How it happened: Adducci "flew from Wisconsin to Las Vegas earlier in the week to place the wager, which he claims to be his first-ever bet on sports in his life. A man with a mortgage on his house, two student loans and two car loans decided he would take $85,000, which he said was 'everything I had that I could afford to lose,' and place it on Tiger."

"Why? 'I just thought it was pre-destined for him to win,' Adducci explained when reached on the phone on Monday afternoon."

  • Hennessey reports that Adducci took $85,000 in cash out of a bank and carried it in a backpack that he purchased from Walmart that day in Las Vegas. He then took a shared Lyft "so he could save $2," with a mother and her child, who were talking about how they were struggling to find the money to pay rent.

The bottom line: "After being turned away by two casinos, Adducci arrived at the SLS Las Vegas Hotel & Casino, operated by William Hill, and after Director of Trading Nick Bogdanovich discussed with his boss, the sportsbook decided to accept the wager, which ended up being the largest individual payout on a futures bet in the sportsbook conglomerate's U.S. history."

Dion Rabouin