| |  | TOGETHER WITH |  | | | Good morning.
Is the IRS taking forever to process your tax refund? Consider relaxing. Last month, the quarterly interest rate the agency has to pay on delinquent refunds — beginning 45 days after filing — rose to 4%, a full percentage point higher than last quarter.
The average tax refund last year was $2800, which would earn $112 in interest for the first quarter payment that comes late. It might not be a ton, but it’s better than the S&P 500 right now. | | | • | | Markets went down again Monday, over worries about the great unknown. | | • | | A major acquisition could boost Philip Morris International’s smoke-free business. | | • | | The real winner of meme stock mania might be the IRS. | | | | |  | Markets | The Fed’s Balancing Act May Have Tipped Over Market Fears | | Pain, lots of pain. Take one quick look at your Robinhood, Schwab, or Vanguard app and you’ll get the picture.
After the S&P 500’s worst start to a year since 1939, markets are staring down one simple question: can Jerome Powell pull off a Sully Sullenberger-esque performance and deliver a ‘soft landing.’ Or have we simply run out of river? | Hindsight is 2022 | | In a whirlwind of uncertainty, let’s start with a handful of knowns. Last week, in an attempt to head off broad and durable inflation, Jerome Powell raised the federal funds rate by 50 bps. The move comes straight from the Volcker textbook, but has caused a fundamental paradigm shift in how investors view capital allocation. The market caps of companies that make little money today but promise (read: hope) to make money tomorrow (disruptive tech, biotech) have been hammered the hardest. Again, just as the textbooks would suggest.
Yet the sheer violence of the 4.3% selloff in the NASDAQ on Monday signals more than just a reaction to a simple rate hike. Markets are grappling to assess whether the Fed — having fundamentally misjudged the severity of inflation just a few months ago — has the necessary tools (or even skillset) to thread the needle between cooling the kind of inflation that hasn’t been seen since the ‘70s without tipping the economy into a recession.
So far in May, the market has cast a clear vote: | • | | Sebastien Galy, a macro strategist at Nordea Asset Management, told the WSJ “The market doesn’t know how high the Fed has to go to control inflation, and we have the sense of a global slowdown.” He added, “There are a lot of negatives that are happening in the market.” | | • | | Compounding problems for US equities are macroeconomic headwinds across the globe. In China, exports grew by just 3.9% in April, the slowest rate in two years, in the face of unpredictable Covid-19 regulations and sagging global demand. Premier Li Keqiang has warned of a “grave” employment backdrop. | | | | “In hindsight, there’s a really good chance that the Fed should have started tightening earlier,” Karen Dynan, a Harvard economist and former Treasury official, told The New York Times last week.
What’s Good? The US dollar has risen to within a coin toss of two-decade highs against several major currencies, alleviating some inflationary pressure (for Americans, at least). And while consumer confidence has taken a dip, US unemployment is at its lowest level since the 1960s. | | | | | | Tobacco | Philip Morris Sets its Sights on Acquiring Swedish Smokeless Tobacco Company |  | | Cigarette king Philip Morris International (PMI) wants to see its business burning at both ends — but not literally.
In its latest move to pivot its business toward smoke-free products, PMI has honed in on acquiring Swedish Match, a Stockholm-based tobacco multinational with rip-roaring success in the smoke-free sector. On Monday, both companies confirmed negotiations have entered advanced talks and that a deal could be reached this week. | Where There’s No Smoke, There’s Fire | | PMI — which sells Marlboros, Chesterfields, Phillip Morris, and other branded cigarettes in non-US markets — has faced the same crisis as every other major competitor in the space: anti-smoking PSAs work. Really, really well. Consumers have burned through fewer and fewer cigarettes every year for nearly two decades (aside from a brief, stress-induced uptick in 2020). PMI has aggressively pivoted into e-cigarettes, vapes, and other forms of smokeless tobacco, and its stated goal is to generate more than 50% of net revenue from smoke-free products by 2025. Last year, smokefree products generated 31% of PMI's $31 billion net revenue, up from 24% in 2020.
Enter Swedish Match, which has made a killing on products that, well, aren’t nearly as likely to kill customers (in 2019, Swedish Match earned FDA approval to advertise its smokeless-tobacco offerings as products with a lower risk of causing mouth cancer, lung cancer, and heart disease than traditional cigarettes). For PMI, acquiring Swedish Match presents the perfect opportunity to accelerate its transition: | • | | Smoke-free products represented over 65% of Swedish Match’s total revenue last year, amid double-digit sales growth. Leading the pack was Zyn, its lozenge-like “nicotine pouch” that sold nearly 174 million cans in the US last year, which the company’s website says translates to a 64% market share of the nicotine-pouch sector. | | • | | Overall, the deal could be worth more than $15 billion, according to WSJ sources familiar with the negotiations. | | | | One variable that could send any possible deal up in smoke remains: on Wednesday, Swedish Match will report its first-quarter earnings for the year. Should the acquisition go through, it would mark PMI’s fifth, and largest, deal since the beginning of 2021. | | | | | | SPONSORED BY LMNT | The Better Summer Beverage | We won’t name any names, but a lot of popular sports drinks on the market are little more than glorified sugar water. What you really need is the right balance of electrolytes 一 those vital minerals that help your body regulate chemical reactions, maintain cell fluid balances, and more. And with summer on deck, we want to tip you off to a tasty hydrating beverage called LMNT (pronounced “ELEMENT”). Here’s what’s in it: | | | | | | | | Taxes | Meme Stock Mania Propels the IRS to Record Tax Haul | | Last year’s meme stock frenzy may have turned a handful of Reddit-addicted retail traders into millionaires — and squeezed a handful of short-selling hedge funds into double-digit losses — but the big winner was a bearded old man in a top hat. We’re talking, of course, about Uncle Sam.
The Internal Revenue Service reported a record amount of tax revenues for the first eight months of the fiscal year, propelled by a rash of earnings from retail stock traders. | From Meme to C.R.E.A.M. | | Since the federal fiscal year kicked off in October, tax collections are up 42% over the same period as in pre-pandemic 2019, the Treasury says. In other words, Uncle Sam’s next suit should be a patriotically pinstriped Armani. The $2.7 trillion in levies the IRS has collected as of May 5 is also the most in history, more than last year’s $2.1 trillion — in fact, this fiscal year’s tax revenue topped $2 billion in the first six months for the first time ever.
According to the Congressional Budget Office, much of the haul comes from corporations, whose tax bills from October to March were up 22% from a year earlier, and are on pace for a new annual record of $454 billion. Yet a shocking amount of tax revenue is coming from capital gains made by regular Americans, after meme stock communities and apps like Robinhood briefly turned securities trading into a pastime as commonplace as baseball: | • | | According to Treasury data, the amount of individual taxes collected this fiscal year — which includes income from small business proceeds and the sale of stocks, but does not include income or employment taxes — is $452 billion, almost triple the $152 billion at the same point in 2019. | | • | | “A big chunk of it has come from short-term capital gains,” Lou Crandall, Wrightson ICAP’s chief economist, told Bloomberg. “Meme stocks were very, very good to the IRS.” | | | | Slimming Down: Feeling flush, the Treasury Department is cutting down on the amount of debt it’s selling — the $103 billion in long-term securities at auctions this week is $7 billion slimmer than the last quarterly sale in February. | | | | | | Extra Upside | • | | Uber’s CEO says it will be “hardcore about costs” and cut down on hiring due to a “seismic shift” in market conditions. | | • | | Twenty internet providers have signed up to provide free or low-cost internet to low-income households in the US. | | • | | Behind every big headline or emerging theme, there's the data that underpins the story. When we want to understand the numbers behind a topic, the deeper context that we can't get just from reading news — we turn to our friends at Chartr. Their visual newsletter is packed with charts on business, tech, entertainment, and society – under 5 minutes to read and at no cost to you. Sign up today.* *Partner | | | | | | |  | Just For Fun | | | | | Written by Sean Craig and Brian Boyle. | | No longer want to receive these emails? Unsubscribe here. Copyright © 2022 The Daily Upside, LLC., All rights reserved. 1230 York Avenue, Box 154, New York, NY 10065 | | | | |
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