FTX, Neom, US Fed, Bed Bath & Beyond, and Kebabs

Hi Folks and welcome to the resurrection of the of my Friday Finance Weekly blog. Its been almost 10 years, since I last posted so I have restarted the numbering. Please feel free to forward this email to friends, family and frenemies (that’s how long its been since I posted, this is actually a word now). Let’s get right to it.

FTX has been front and centre over the last several months and they recently announced that, “We are pleased to be in a position to propose a Chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest (~9%) for non-governmental creditors.” That sounds decent, but creditors are up in arms because of the following –

• Crypto Assets (its no longer being referred to as currency) were locked up for almost 2 years.

• If you had 10 Solana’s (that may be the wrong terminology) when FTX filed for bankruptcy they were worth $143 and the receiver is offering $170. However, 10 Solana’s today is approximately $1,480.

• One Bitcoin, two years ago was approximately $19,600 and today its $62,000.

Creditors are missing the point, it’s always nice to look backwards but if they did have access to the coins for the last two years, there would be no guarantee that they would have simply held on to them. Crypto wants to be treated like an assets, similar to real-estate then they need to appreciate the bankruptcy process. If this was a real estate project and all the creditors got their money back with a 9% rate, they would throwing a party. Creditors should take the deal and invest everything in something much more stable like Coinye (Kanye West’s, thankfully defunct crypto scheme). Source CNN, PCMAG.

Saudi Arabia announced a very ambitious project, Neom (sounds futuristic and cool, so check it out at www.neom.com)

• Original project scope: $1.5Tn total cost, 170 kilometers of total distance, 9 million residents. Surprise, the project is reportedly way over budget and dealing with several construction issues. New estimates place the total project cost at over $2Tn – roughly double the total value of the country’s Public Investment Fund. The US GDP is just over $20Tn, just to put things into perspective.

• Revised project expected to be just 2.4 kilometers long by 2030 (~1.4% of its planned length)

• Projected to have at least 1.5 million residents by 2030, The Line is now anticipating closer to 200,000 (13% of the original goal).

This highly ambitious project is already under construction and there is a fair bit of controversy regarding the construction issues being villages begin forced to move. I am all for this project, but will high performing, functioning alcoholics (asking for a friend), be able to order a double Tanqueray 10 and soda? (Source: WSJ).

Sooo, interest rates have gone up a little bit since I last wrote. In the US, it's jumped from 0% to 5%, so a modest increase. Money is pouring into fixed-income securities, and US Treasuries are taking on their traditional role of providing a reliable source of return year after year. In 2023 alone, investors earned $900B in annual interest from the US Government. The US economy is booming despite the higher rates, so a rate cut seems unlikely until the latter part of 2024. In March alone, the Fed paid $89B in interest payments, which equates to around $2M a minute. In 2023, Musk only made around $3,600 a minute, just to give a reference point. This bond party won't stop for a while, as the US has to fuel its insatiable deficit. A colleague recently sent me a meme with a simple line: 'DEBT EATS EQUITY,' which is probably the theme of the year. (Source: Bloomberg).

Bed Bath & Beyond (BBB) is in the news. They are currently suing Hudson Bay Co (HBC) to the tune of $300M. HBC coordinated a last-ditch financing plan; the offering allowed HBC to acquire nearly all of BBB’s convertible preferred shares/warrants. These were subsequently converted at a 98% discount to market. Common shares were then traded to generate quick gains to the tune of $300M. BBB became a meme stock during that time and is now suing based on the ‘short-swing profit’ rule, which is designed to prevent executives (and outside investors with over 10% equity) from profiting on insider info. Those who are subject to this rule must return any profits from short-term trading (i.e., buying/selling within 6 months). There were supposed to be ‘blockers’ preventing this type of transaction, but they were not enforced. This isn’t really insider trading, but I would imagine that HBC was acting in bad faith. BBB was a brand that tried to be everything for everyone. I couldn’t think of a reason to ever go into the store. The good thing about BBB is that it has finally fulfilled its mandate by going beyond. (Source: Bloomberg)

This is news to me, but the de facto national dish of Germany is the kebab. The cost of kebabs has been gradually increasing and currently is around $8.50 USD. The German Left Party has proposed using state funds to provide a subsidy to bring the price of a kebab down to $5.30 - $2.70 USD. Kathi Gebel, a member of the Left Party's executive committee, said, ‘When young people demand: Olaf, make the kebab cheaper, then it's not an internet joke, but a serious cry for help!’ Approximately 1.3B kebabs are eaten every year, and if the subsidy is taken seriously, the cost to the government will be around $4.3B USD. Personally, I am all for this; let’s also subsidize gin, red wine, and Halal Guys. (Source: Sky News)