A daily market update from FS Insight — what you need to know ahead of opening bell

“The prescience, he realized, was an illumination that incorporated the limits of what it revealed — at once a source of accuracy and meaningful error.” — Frank Herbert, Dune

Overnight

Futures muted after S&P’s eight-day winning streak; Fed in focus RT

U.S. intelligence says Iran was behind presidential campaign hack FT

AI deepfakes could sway voters and disrupt elections FT

A natural-gas glut is forcing drillers to dial back – again WSJ

US oil, gas M&A activity jumped 57% last year amid industry consolidation RT

Share of people who think they’ll be out of a job in the next four months rises to record high per Fed survey NY Fed

U.S. manufacturers, retailers, and shipping agents pause new investments, expansion plans due to uncertainty over future tariffs on goods from China and other nations NYT

Trump says he may end EV tax credit; is open to naming Elon Musk as an adviser RT

Elon Musk’s Twitter takeover is now the worst buyout for banks since the financial crisis WSJ

Coming to a cash-strapped company near you: creditor-on-creditor violence WSJ

Edgar Bronfman submits $4.3 billion bid for Redstone’s National Amusements, Paramount stake WSJ

AMD signs $4.9bn deal to challenge Nvidia’s AI infrastructure lead FT

AMD deal shows AI chip business isn’t just about chips WSJ

Carl Icahn pays $2 million to settle SEC investigation tied to short-seller report WSJ

Private Equity hopes for shot of adrenaline from interest-rate cuts WSJ

Nord Stream revelations ignite dispute between U.S. allies WSJ

Tax firm carrying on Arthur Andersen brand explores IPO WSJ

GM is cutting more than 1,000 workers from its software business WSJ

How Walmart became an advertising powerhouse FT

The food industry is hitting back at claims it is ripping off U.S. consumers WSJ

Western airlines slash flights to China FT

Boeing is in crisis, Airbus is struggling to power ahead WSJ

Alaska Air, Hawaiian Airlines clear key antitrust hurdle WSJ

AstraZeneca is a cancer leader; obesity could be a bonus WSJ

National Association of Realtors names new CEO WSJ

Harley-Davidson changes DEI policy following activist pressure WSJ

Chinese developer issues $9.8bn of new debt in restructuring deal FT

Rockefeller Center reinvention aims to buck Midtown malaise WSJ

Canadian group targets 7-Eleven owner in Japan’s biggest foreign takeover approach FT

Pressure to ban mobile phones – restrictions on which could improve students’ performance – intensifies in America’s schools FT

The 50-year-old technology that brands and retailers are trying to quit WSJ

Collisions tear holes in U.S. ally’s ships as tensions flare in South China Sea WSJ

George Santos pleads guilty to fraud, identity theft WSJ

Top banker, lawyer among those missing in yacht sinking off Sicily WSJ

Phil Donahue, daytime talk-show pioneer, dies at 88 WSJ

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The number of mergers has been climbing in 2024 – a sign of rising CEO confidence. When the Fed begins rate cuts, this should boost deal activity, supporting our case for small-caps: IWM.

More in today’s Macro Minute video, linked HERE.

TECHNICAL

As Mark Newton is on break, there are no new reports or videos currently.

Click HERE for more.

CRYPTO

The new “BitVM2” paper from Robin Linus and his team, an update from their previous BitVM paper, represents a potentially significant advancement in making Bitcoin more programmable. A BitVM Bridge allows users to safely transfer their Bitcoin to a rollup and withdraw it, with shorter lock-up periods and smaller upfront capital requirements. A key feature in the BitVM2 update is “permissionless challenging,” which allows anyone to question suspicious transactions, as opposed to a fixed set of operators. Most BTC bridges are controlled by multisigs that require a t-of-n honest majority, whereas the BitVM architecture has a 1-of-n security model, because anyone can challenge a malicious action and prevent theft. BitVM2 also reduces the amount of collateral operators need to lock up and shortens the time it must be held, with the verification process falling from 70 to just 3 on-chain transactions.

Bitwise has expanded its presence into Europe with the acquisition of London-based crypto ETP issuer ETC Group, which manages over $1 billion in assets. This move adds nine European-listed crypto ETPs to Bitwise’s portfolio, including the largest physically backed Bitcoin ETP, as well as products for ETH -2.62% , SOL -2.84% , and XRP -1.46% . With this acquisition, Bitwise’s total assets under management surpass $4.5 billion, building on a successful year marked by the launch of two major spot Bitcoin and Ethereum ETPs. Bitwise plans to strategically grow ETC Group’s platform in Europe, further cementing its role as a leading global crypto asset manager.

Click HERE for more.

First News

An Ungraceful Taxit. A controversial corporate strategy caught the attention of both the public and of government officials around the mid-2010s. U.S. companies began relocating their official headquarters abroad – not for operational reasons, but to reduce their tax burden. The practice, known as tax inversion, sparked intense debate in corporate-finance circles and led to notable confrontation between major corporations and the U.S. government.

In case you’re wondering, tax inversions involve a U.S. company merging with a foreign entity and subsequently moving its legal headquarters to the corresponding foreign country. The primary motivation? Substantial tax savings. It didn’t help that in the run-up to the period of the greatest tax-inversion activity, the U.S. maintained one of the world’s highest corporate tax rates, at ~35%. By relocating to countries with more favorable tax environments, such as Ireland or the Netherlands, these firms could dramatically reduce their tax obligations.

The moves were transparent: most companies maintained their core business activities and management in the United States, changing only their official address. The strategy allowed them to slash their tax liabilities without substantially altering their business practices – if at all.

Several prominent corporations pursued tax inversions. Namely:

1. Pfizer-Allergan: In 2015, pharma giant Pfizer attempted a $160 billion merger with Ireland-based Allergan, aiming to relocate its headquarters to Ireland and book substantial tax savings.
2. Burger King-Tim Hortons: Burger King’s 2014 merger with Canadian coffee chain Tim Hortons also drew attention for its cozy premise: move the HQ next door (Canada) to reap lower tax rates.
3. Medtronic-Covidien: Medical-device manufacturer Medtronic merged with Irish company Covidien in 2015, relocating its headquarters to the Emerald Isle to save some major green.

While financially advantageous, these corporate strategies were sure to spark significant political and social controversy – and they did. Critics argued that the companies were evading their fair share of U.S. taxes – a sentiment that resonated with many, including government officials.

How not to merge

In the meantime, tax inversions were only gaining in popularity, and so the U.S. government began to respond. The Obama administration was particularly outspoken, contending that such moves unfairly shifted the tax burden to smaller businesses and individuals lacking the resources for such complex financial maneuvers.

In 2014, the Treasury Department implemented new regulations designed to diminish the appeal of tax inversions. The rules aimed to close the loopholes companies had been exploiting. Still, the corporate sector demonstrated considerable ingenuity, continually finding new ways to circumvent regulations. The watershed moment happened in 2016, when the Treasury introduced more stringent regulations specifically targeting the Pfizer-Allergan merger. The new rules significantly complicated the use of inversions for tax avoidance, ultimately leading to the cancellation of the Pfizer-Allergan deal.

Combined with mounting public clamor, the regulatory crackdown effectively halted the tax-inversion trend. In 2017, the Tax Cuts and Jobs Act finally eliminated the incentive at the heart of the scheme by reducing the U.S. corporate tax rate from 35% to 21%, thus enhancing the U.S.’s international competitiveness and giving companies precious few reasons to relocate overseas.

Patting down expats

Any physical person who happens to be facing tax bills at the level of a large corporation (or small country), i.e. an individual not lacking the resources for the complex financial maneuvers described above, may want to keep in mind the IRS’s Eduardo Saverin Rule, which is part of the expatriation tax provisions of the U.S. tax code.

Named after one of the co-founders of Facebook, who renounced his U.S. citizenship shortly before Facebook’s IPO in 2012 in order to avoid paying taxes on a massive windfall, the rule illustrates the maxim that hell hath no fury like a government agency scorned. At one point, Saverin commanded a third of Facebook shares, which he got in return for a $30,000 cash infusion into the then-nascent company, which needed the money to pay for crucial servers. Saverin’s cut-and-bail on his country of birth was widely perceived as an attempt to avoid paying hefty U.S. capital gains taxes on his Facebook shares.

In response to his and similar cases, Congress enacted Section 877A of the Internal Revenue Code, which imposes what is essentially an exit tax on certain individuals who give up their citizenship to avoid paying U.S. taxes. While not created specifically for Saverin, the provision gained renewed attention and the informal moniker The Eduardo Saverin Rule due to his high-profile case.

Under this rule, ‘covered expatriates’ – U.S. citizens or long-term residents who renounce their citizenship or green card, and who meet certain income-tax liability or net-worth thresholds – are treated as if they sold all their worldwide assets at fair market value on the day before expatriation. They must pay U.S. tax on the deemed gain, subject to an exclusion amount (adjusted annually for inflation). This has been a public-service announcement. GRIT