Gig in the Crosshairs

Hey Influence Traders,

Happy Mother’s Day to all the #PowerMom’s out there!

Its the weekend, which means its time for the Weekly Roundup.

We’ve got headline winners and losers this week, with a good cast of supporting players.

The Highlights

      • A big divorce will move money and impact philanthropic giving for decades
      • The NY area is finally opening up
      • Big Tech had a big week
      • Pharma takes an intellectual property hit
      • DC ripples are making waves for the gig economy

DC Action

      • Independent Contractor Status Challenged: The Department of Labor announced that it was rescinding the Trump-era independent contractor rule effective this coming Thursday. This will have a massive impact on many sectors of the economy, but particularly for gig workers.

The DOL stated that it wants to maintain workers’ minimum wage and overtime compensation protections under the Fair Labor Standards Act (FLSA). The rule clarified the standard for employee versus independent contractor under the FLSA and imposed an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).

This will make it harder for businesses to classify workers as independent contractors as opposed to employees and will subject more workers to minimum wage and overtime regulations, as well as making them eligible to participate in employer-sponsored health and retirement plans. It will also increase the pool of workers eligible to unionize.

This comes on the heels of the House passing the Protecting the Right to Organize Act (“PRO Act”), which will make it easier for unions to organize workers. 

      • Intellectual Property Rights: Trade Representative Katherine Tai announced that the Biden administration was considering waiving patent protection for COVID-19 vaccines. The news was a shock to the pharma industry as well as foreign governments.

      • Dems Taking Notice: Apparently some democrat strategists have been reading Power Moves because they are starting to voice concern over the possibility of losing majorities in next year’s midterm elections, particularly after losing a runoff House race in Texas.

On average, the president’s party loses 30 House seats in midterm elections, with the biggest losses coming during first terms.

In 2018, Republicans lost 41 seats under President Donald Trump. In 2010, Democrats lost 63 seats in what President Barack Obama termed “a shellacking.”

Let’s just say, at this point, the woodshed door is open.

PowerMoves Portfolio Roundup

Andrew Giovinazzi made some moves to our Power Moves Starting Lineup this past week:

      • We took delivery of our two Palantir (Ticker: PLTR) May07 22.5 puts since we are still covered with the May21 21.5 puts. We’re looking for the tech turnaround to give this a needed boost.
      • Taiwan Semiconductor (Ticker: TSM) dropped hard Friday after a strong open so we bought back the TSM May21 120 calls and sold the May21 123 calls. TSM rallied hard and the calendar was way too passive, meaning we didn’t make enough on a rally. Watch for bigger moves in the semiconductors next week.

Power Mover of the Week

The nominees are …

      • Melinda French Gates: Bill and Melinda Gates are divorcing after 27 years of marriage, amid a torrent of rumors (who knew Bill was a player!). With the transfer of over $2.4 billion in various stocks to Melinda, she is officially a billionaire.

Cascade Investment Group, the holding company created by Bill Gates, transferred stock in two of Mexico’s largest companies to Melinda, $500 million in Coca-Cola FEMSA (Ticker: KOF) and Grupo Televisa (Ticker: TV), along with $1.8 billion-worth of shares in Canadian National Railway (Ticker: CNI) and AutoNation (Ticker: AN).

The total estate to be divided up is roughly $145 billion and will involve a transfer of assets seen in only a few other divorces.

Melinda will stay involved in the $50-billion Bill & Melinda Gates Foundation, as well as run her own philanthropic organization, and I will be keeping an eye on where she might make #PowerMoves.

Cascade, which was created with the proceeds of Microsoft (Ticker: MSFT) stock sales and dividends, is Bill Gates’s largest asset, with a 10% ownership stake in Deere & Co. (Ticker: DE), which should benefit from Biden’s infrastructure plans.

      • The Tri-State Area: New York, New Jersey and Connecticut announced that they will be reopening on May 19.

Restaurants, offices, retail stores, theaters, museums, barber shops, amusement parks and gyms and fitness centers will all be allowed to operate at full capacity for the first time since the COVID shutdowns.

In addition, NYC will resume 24-hour subway service on May 17 to the delight of … some.

      • Bars and Restaurants: The Small Business Administration announced a $28.6 billion federal aid program to restaurants, bars, caterers and other food businesses. That is tasty.

But my Power Mover of the Week is … Big Tech

It was a big earnings season for the “Big 5" in tech, which not only beat but, in some cases, crushed analysts’ estimates.

Today, the Big 5 account for almost 22% of the value of the S&P 500.

      • Amazon (Ticker: AMZN) had its best first quarter on record, with a 44% increase in sales to $109B, which resulted in a 3x rise in profits.
      • Apple (Ticker: AAPL) saw a 54% rise in sales, another first-quarter record, which resulted in a doubling of profits to $24B.
      • Google (Ticker: GOOG) doubled its profit to $18B, primarily driven by a 49% sales increase at YouTube.
      • Facebook (Ticker: FB) saw sales rise 48% to $26B, which resulted in a 2x increase in profits, and its users now include nearly half the Earth’s population.
      • Microsoft (Ticker: MSFT) had a growth in PC sales that allowed MSFT to post its strongest revenue growth since 2018.

Power Loser of the Week

      • Jobs: Unemployment ticked up to 6.1% as businesses added just 266,000 jobs in April. This figure was well below analyst’s expectations of 1 million new jobs.

The U.S. still is still more than 8 million jobs below pre-pandemic levels, and companies like MGM Resorts (Ticker: MGM) and most fast-food chains say that stimulus checks and generous unemployment benefits are hurting hiring efforts (What!? Who knew?).

Some economists are worried that this will lead to price increases as companies have to raise hiring incentives.

      • COVID Vaccine Makers: Trade Representative Katherine Tai’s announcement that the Biden administration was prepared to waive patent protection for COVID-19 vaccines was a blow to the pharma industry.

Pharmaceutical stocks in the U.S. and Europe plunged on the news.

Many developing countries have been pushing for such waivers to create more equitable access to vaccines, while countries with big pharma, such as Germany, which is home to BioNTech SE (Ticker: BTNX) and CureVac (Ticker: CVAC), are against such plans. They argue that patent protection is necessary to encourage innovation and risk taking.

This is a departure from the traditional position of the U.S. and is being driven by political ripples coming from D.C.

It’s anticipated that the World Trade Organization will take up debate on the matter later this month. Ironically, my sources are telling me this is just political theater and will do nothing to help get vaccines out to the world.

Regardless, pharma stocks took a hit, with Moderna (Ticker: MRNA) doubling down on bad news by missing its revenue estimates.

      • Peloton: Peloton (Ticker: PTON) made the decision to recall and stop selling its treadmill after a number of safety incidents and one death. PTON shares fell 15% on the news. Stick to bikes!

      • U.S. Oil and Gas Security: Future prices rose after Colonial Pipeline, the operator of the biggest gasoline pipeline in the U.S., shut down operations late Friday following a ransomware attack from a group called DarkSide.

The attack threatens to disrupt the supply of gas and diesel to the East Coast and was serious enough that President Biden was briefed on the incident.

Colonial is a key supply artery for the eastern half of the U.S., delivering 2.5 million barrels a day from Houston to North Carolina and 900,000 barrels a day to New York.

But my Power Loser of the Week is … The Gig Economy.

The Department of Labor’s decision to rescind the independent contractor exemption will have a major impact on gig economy stocks, like Uber (Ticker: UBER) and Lyft (Ticker: LYFT) … and it won’t be positive.

When the DOL announced its decision, Labor Secretary Marty Walsh specifically pointed out that “in a lot of cases, gig workers should be classified as employees” and the success of these companies should “trickle down to the worker.”

Treating drivers as employees will potentially raise employment and benefit costs. UBER immediately dropped 6% on the news, LYFT 10%, and DoorDash (Ticker: DASH) 7.6%.

Many gig workers and voters are against this plan as they like the freedom of being independent contractors, with over 58% of California voters shooting down a state-specific proposal last year.

This is an opening salvo from Walsh, a former union leader, who is expected to lay the groundwork for more employee protections and unionization in the U.S.

Andrew Giovinazzi, my Power Income Portfolio partner, and I are going to keep an eye on trades to put around gig companies …

Until the industry figures out how to navigate these waters, these companies will see volatility. Once they do figure it out, a long-term buying opportunity could occur as they reset revenue expectations.

Cutting Through the Noise for You,

Frank

 

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