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The Bitcoin Bubble Is Popping. Why There’s No Telling Where the Selling Stops.

MARTIN BUREAU/AFP via Getty Images

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The fear of missing out works in reverse too. Just ask anyone holding Bitcoin right now.

No one likes watching others get rich, and when it happens it does something to investor psyches. That’s one reason investment bubbles form—money rushes into a sector playing catch-up, looking for a piece of the action.

No longer. Bitcoin is down nearly $5,000 or 12%, breaking $40,000 in early Wednesday trading. It’s the tenth daily drop in the past two weeks of trading. The cryptocurrency is down about 40% from its high.

There are reasons for the recent weakness. China banned the use of cryptocurrencies for financial institutions. Other countries might be considering tighter regulation, particularly as cryptos become the currency of choice for ransomware hackers.

Tesla

stopped accepting Bitcoin as payment for vehicles.

But sometimes things go down because they are going down. Investors who bought early are looking to lock in gains, while recent arrivals to the crypto game are panicking. Selling begets selling.

When stock bubbles pop, the selling usually stops when shares drop well below intrinsic value and become attractive to a new class of value investors who didn’t partake in the market froth.

Cryptocurrencies are different. They have no intrinsic value, which means there’s no telling when the selling might stop.

Al Root

*** Join Barron’s senior managing editor Lauren R. Rublin, associate editor Eric Savitz, and lead portfolio manager for Seligman Technology Group at Columbia Threadneedle Investments Paul Wick Thursday at noon to discuss the outlook for tech companies and individual stocks. Sign up here.

***

Retail Earnings Confirm Consumers Are Ready to Shop, Again

Walmart,

Macy’s

and

Home Depot

all shattered expectations with their first quarter earnings results, confirming that stimulus checks, rising vaccination rates and cabin fever put consumers in the mood to shop.

  • Walmart CEO Doug McMillon said: “Every segment performed well,” from grocery to recreational and household improvement items. “Our optimism is higher than it was at the beginning of the year.”
  • Same-store sales at Walmart rose 6% compared with the same period last year, and U.S. e-commerce sales rose 37%. But it was the slowest online growth for Walmart since the coronavirus outbreak in early 2020.
  • Macy’s CEO Jeff Gennette reported “promising signs that our core customers are shopping again,” snapping up special-occasion outfits, watches and luggage. Comparable sales rose 62.5% over last year as stores have reopened.
  • At Home Depot, lumber keeps selling out, despite rising prices, amid a home-construction and renovation boom. “As soon as that product hits our stores, it sells,” Chief Operating Officer Ted Decker said.

What’s Next: Reflecting the range of expectations as the recovery continues, Macy’s raised its full-year outlook for sales and profits, while Walmart’s McMillon said the second half of the fiscal year carries more “uncertainty than a typical year.” Home Depot didn’t offer any guidance for the rest of 2021.

Janet H. Cho

***

New York Drops Masks and Capacity Limits, a Potential Boon to Tourism

New York officially drops mask mandates for the vaccinated and capacity limits for everything from restaurants to museums and theaters on Wednesday, a potential boon to New York City’s economy as workers return to Midtown offices and tourists repopulate Times Square.

  • For the NBA playoffs, the Nets and Knicks will each reserve half the seats at home playoff games for fully vaccinated fans, boosting capacity. Fans under age 16 who aren’t eligible or haven’t gotten vaccinated yet can accompany vaccinated adults with a negative Covid test.
  • Radio City Music Hall will open at full capacity June 19 for vaccinated, unmasked ticket holders, though it is still working out its policy. The Tribeca Film Festival will also be the first in-person film festival in North America since the pandemic, Gov. Andrew Cuomo said.
  • JPMorgan, one of the city’s biggest employers, called workers back to the office this week and told employees on Tuesday that fully vaccinated staff do not have to wear masks, Reuters reported. Employees will have to enter their vaccination status into an online database.
  • More than 42% of all New Yorkers have been fully vaccinated as of Tuesday, and 12- to 15-year-olds became eligible for the

    Pfizer

    shots last week. Nearly 53% of the state’s adults are fully vaccinated. Tourists can get vaccinated in the city.

What’s Next: The European Union on Wednesday said that it would allow fully vaccinated travelers from countries considered safe to visit as early as next week. The move would allow travelers from the U.S. to visit the 27-member bloc after having been largely restricting from doing so since the pandemic started.

Liz Moyer, Barron’s staff

***

JPMorgan Places Two Women as CEO Contenders to Lead Consumer Business

JPMorgan Chase said Marianne Lake and Jennifer Piepszak will lead the firm’s consumer & community banking operations. Both are executives at the bank and are viewed as contenders to eventually succeed CEO Jamie Dimon.

    • Lake, the bank’s consumer lending chief, and Piepszak, the chief financial officer, will co-head the unit. They’ll report to Gordon Smith, who plans to retire at the end of the year.
    • Smith is the bank’s co-president, chief operating officer, and chief of the consumer business. Daniel Pinto, who helped run the bank with Smith when Dimon was recovering from emergency heart surgery, will serve as the sole president and COO following Smith’s departure.
    • Both Piepszak and Lake are on the Barron’s 2021 list of the 100 Most Influential Women in U.S. Finance.

What’s Next: Piepszak and Lake start effective immediately, leading a unit that generated more than $50 billion in revenue last year.

—Connor Smith and Carleton English

***

ECB Warns on Heightened Risks to Financial Stability

Financial stability risks are increasing in Europe notably in specific industries and countries due to the uneven impact of the coronavirus pandemic, the European Central Bank said Wednesday in a report warning about the “considerably higher insolvency rates” of potential zombie companies.

  • The ECB warns in particular about higher levels of corporate debt throughout the region. Notably, “a higher corporate debt burden in countries with larger services sectors could increase pressure on governments and banks in these countries,” Vice President Luis de Guindos said.
  • As governments withdraw the massive support they extended to businesses during the pandemic, “considerably higher insolvency rates than before the pandemic cannot be ruled out, especially in certain euro area countries,” the ECB said its latest Financial Stability Review.
  • The central bank also warns about “the potential for abrupt asset price corrections” after the financial markets’ rallies of the last six months, coupled with rising prices in the European residential market.
  • The banking sector’s market valuation may have risen in the past few months, but bank profitability remains low and prospects for lending demands uncertain, the ECB says, calling for an increase in bad loans provisions.
  • As for the nonbanking financial sector (aka “shadow banking”), the ECB warns that it has “large exposures to corporates with weak fundamentals and are sensitive to a yield shock.”

What’s Next: The number of bankruptcies fell by 18% in the EU in 2020, as governments offered blanket protections to all businesses to help them cushion the Covid-19 pandemic impact. As the economy recovers, the number of zombie firms will become apparent, creating a new set of policy problems.

Pierre Briançon

***

Biden Touts Infrastructure Investments While Visiting Ford’s F-150 Electric Vehicle Plant

President Joe Biden, a self-described “car guy,” test drove

Ford Motor’s

F-150 Lightning, an all-electric, zero-emission truck that will be formally unveiled Wednesday night. “This sucker is quick,” he told reporters during Tuesday’s visit to the Dearborn, Mich., plant.

  • The F-150 Lightning, part of $22 billion Ford is investing in electric vehicles through 2025, goes on sale early next year. It is an example of Biden’s goal of having electric vehicles built by American auto workers and powered by U.S. batteries. “The future of the auto industry is electric,” he said.
  • Biden said the U.S. lags behind China in electric vehicles, with one-third the market share of China’s, and only 100,000 public charging stations compared with China’s 800,000. Biden’s $2.3 trillion infrastructure plan would invest $174 billion in EVs, including 500,000 charging stations.
  • His proposal would also expand manufacturing, offer consumer rebates for buying electric vehicles, enlarge U.S. battery-making capacity, and convert school buses, transit buses, and Postal Service vehicles to electric versions.
  • “Treasury Secretary Janet Yellen told the U.S. Chamber of Commerce on Tuesday that the investments and tax proposals in Biden’s plan “will enhance the net profitability of our corporations and improve their global competitiveness,” adding, “We believe the corporate sector can contribute to this effort by bearing its fair share.”

What’s Next: Transportation Secretary Pete Buttigieg, Commerce Secretary Gina Raimondo and other administration officials met Tuesday with Sen. Shelley Moore Capito (R., W.Va.), Senate Commerce Committee Chairman Roger Wicker (R., Miss.), and others who are drawing up a narrower, less expensive Republican counterproposal to Biden’s infrastructure plan.

Janet H. Cho

***

Dear Moneyist,

I am a 63-year-old man considering separating from my domestic partner, with whom I have been for 33 years. My partner owns the apartment in which we have lived for almost 30 years. I contribute to the maintenance and utilities roughly in proportion to our respective incomes; my income has always been less than his, and my net worth is about half of his. All other expenses (groceries, travel, entertainment, etc.) are split equally.

He comes from a family of some means and has benefited from a trust fund and several inheritances over the years. My family was lower middle class, and I have been financially independent from my family since finishing college. Through hard work, frugality and consistent investing, I have acquired a net worth of approximately $3 million.

When same-sex marriage became a possibility in New York, he declined to consider it because he did not want to take on any possible financial obligations that a future divorce might entail. My question for you is whether I have any reasonable expectation of “spousal” support or a financial settlement to help with my future (greatly) increased anticipated living expenses.

For the past three-plus decades, we have lived and been regarded by family and friends as a married couple, although we have always kept our finances separate. We both share the responsibility for the ending of our relationship, so I believe that we should both share the financial burden of my moving out and setting up my own household.

I’m hoping to remain friends with my partner, but I’m anticipating this being a contentious issue and would welcome your input. What is reasonable to expect, if anything, in terms of a financial settlement from him?

—Soon to be Single in Manhattan

Read The Moneyist’s response here.

Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn

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