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Central Banks Are Ganging Up on Stocks. Santa’s Rally May Not Be Coming.

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December is usually good for stocks. This time, however, central banks the world over are conspiring to make it a very long month for investors who were hoping for some reprieve after a torturous year.

The Bank of Japan joined the fray on Tuesday. After holding out longer than other Group of Seven countries, it finally allowed 10-year bond yields to rise a little bit higher than before. It’s a small gesture, to be sure, but it emphasizes that more than a decade of easy money after the financial crisis really is coming to an end.

Last week, European Central Bank President Christine Lagarde issued a shocking confession that she’s one of the biggest hawks around. Interest rates are going up and staying there, she said. Given the complexity of hiking rates in Europe, where higher borrowing costs hit some countries significantly harder than others, her resolve was eye opening.

Before that, Federal Reserve Chairman Jerome Powell had the chance to bring tidings of joy. But he decided to play Scrooge instead, promising higher-for-longer rates next year.

Maybe it’s still too early to abandon all hope of some kind of Santa rally. But if you need to sell stocks to realize losses for tax purposes, you’ve got about a week left to do it before the end of the year. That deadline is probably not helping matters.

Nor are reports of surging Covid-19 cases in China after authorities eased lockdown rules. What seemed like good news at first – the world’s second-biggest economy is key to global supply chains – things may yet turn to bad economically, in addition to the human tragedy of the illness.

At least 2022, the year of the great bear market, will soon be over.

Brian Swint

*** Join Barron’s associate editor for technology Eric Savitz and Erika Klauer, technology equity portfolio manager and research analyst at Jennison, today at noon when they discuss the outlook for technology stocks. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

***

Bankman-Fried Prepares for Extradition as Binance Wins Crypto Auction

FTX founder Sam Bankman-Fried agreed to be extradited to the U.S., The Wall Street Journal reported, and a new court hearing in the Bahamas could happen today as his lawyer hammers out an agreement on his transfer to U.S. custody to face charges in the crypto exchange’s collapse.

  • His local attorney in the Bahamas, Jerone Roberts, agreed to put together the paperwork after a conference call with Bankman-Fried and his U.S. lawyers, the Journal reported. A representative for Bankman-Fried’s U.S. lawyer wouldn’t comment to Barron’s.

  • Separately, Binance. US, the California-based arm of the world’s largest cryptocurrency exchange, won an auction to acquire digital asset lender Voyager Digital’s assets for about $1 billion, including its cryptocurrency portfolio. FTX had originally agreed to buy the assets for $1.4 billion but collapsed in November.

  • Binance. US wants to return crypto to customers “in kind, in accordance with court-approved disbursements and platform capabilities,” Voyager said. The deal includes a $10 million deposit from Binance and the payment of certain Voyager expenses up to $15 million.

  • Voyager was previously valued at as much as $3.9 billion and said it had 3.5 million customers before it failed earlier this year.

What’s Next: Critics point to FTX’s collapse and financial fallout as a reason to ban crypto, but any ban could be difficult to institute and could spell trouble for companies such as U.S.-regulated crypto broker
Coinbase Global.
It could also chase new investors away from crypto.

Jack Denton and Janet H. Cho

***


Facebook’s Meta, Twitter Face European Scrutiny

Facebook is likely breaking antitrust laws by distorting competition in the online classifieds market, the European Union’s executive branch said. If found illegal under anticompetition rules, that could cost parent company
Meta Platforms
up to 10% of its global annual revenue, potentially billions of dollars. Meta’s shares fell 4.1% Monday.

  • The European Commission said Meta tying its social network, Facebook, to its online classified ads service, Facebook Marketplace, gives Facebook users automatic access to Marketplace and provides Meta with a substantial advantage over its competitors, threatening their survival.

  • Regulators said that Meta imposes unfair trading conditions on competitors that advertise on Facebook as well as its Instagram platform. Tim Lamb, Meta’s head of competition in the region, said the allegations are without foundation and it would continue to work with regulators.

  • Meta is fully cooperating with the investigations. Europe has comprehensive regulations on Big Tech, including the European Commission’s sweeping rules governing behavior in digital markets and services. The heaviest regulation applies to “very large online platforms,” defined as reaching more than 10% of Europe’s 45 million-person population.

  • The relatively new Digital Services Act creates new obligations for online platforms. Some of Twitter’s changes under Elon Musk’s ownership have prompted EU lawmakers to warn that it risks running afoul of the DSA’s provisions, especially around media freedom and pluralism.

What’s Next: Twitter reported having 238 million global users in the second quarter of this year, before it was bought by Musk. Since Europe’s DSA’s new regulation came into force last week, online platforms have three months to report the number of active users in the EU.

Jack Denton and Janet H. Cho

***

Epic to Pay Record FTC Settlements Over Privacy, In-Game Purchases

Epic Games will pay two record-breaking settlements adding up to $520 million to resolve Federal Trade Commission civil complaints that its “Fortnite” videogame violated child online privacy protections and tricked people into buying things unintentionally. Epic neither admitted nor denied the findings.

  • The first complaint, in federal court, said Epic collected personal information of players under age 13 without notifying parents or getting parental consent. The FTC also said the game enabled real-time voice and text chat features for children and teens by default. Epic will pay $275 million.

  • In the other case, filed in administrative court, Epic will pay $245 million in customer refunds. The FTC’s complaint was about tactics Epic used to get players to buy virtual currency for extras in “Fortnite.” It also made cancellation and refund options hard to find.

  • The FTC has been examining practices that make unintended purchases easy but refunds difficult. In November,
    Ericsson’s
    Vonage subsidiary agreed to pay $100 million. The FTC alleged it made the cancellation of internet-based phone service difficult and charged unexpected fees.

  • “Fortnite” appeared in 2017 and became an instant hit. Earlier in December, Epic revealed a new account type for players under 13 that doesn’t allow access to chat and purchasing features without consent from a parent or guardian.

What’s Next: Epic said the practices outlined in the FTC’s cases aren’t how “Fortnite” operates. Under the settlements, Epic has to make changes to the game to protect users, set up a privacy program, and obtain regular independent audits.

Liz Moyer

***

Pot Stocks Deflate On Report Bank Rules Excluded from Budget

Congress is rushing to approve a federal budget this week, but one issue might not make the final cut: a provision that would allow cannabis-related businesses to access banking services, MarketWatch reported. Cannabis stocks have come under pressure, with the
AdvisorShares Pure US Cannabis ETF
down more than 18% on Monday.

  • Individual stocks also fell on the news:
    Green Thumb Industries
    fell 12.1%;
    Curaleaf Holdings
    declined 16.7%;
    Trulieve Cannabis
    fell 17.5%;
    Cresco Labs
    fell 13.5%, and
    Verano Holdings
    fell 15.3%. Canopy Growth lost 7.3%;
    Tilray
    lost 8.6%; and
    TerrAscend
    lost 20.7%.

  • The Secure and Fair Enforcement Banking Act, which would free financial services companies and lenders to work with legitimate cannabis companies, has passed the House seven times. Rep. Ed Perlmutter (D., Colo.), who first introduced the bill in 2013, is retiring next month.

  • Voters in 21 states and Washington, D.C., have legalized marijuana for recreational and medical use, but it is federally regulated by the Drug Enforcement Administration as a drug in the same category as heroin and LSD. The inability to access banks forces the businesses to operate as cash-only.

What’s Next: Proponents of the SAFE banking act, including Senate Majority Leader Chuck Schumer (D., N.Y.), are still aiming to get it passed despite opposition from lawmakers including Senate Minority Leader Mitch McConnell (R., Ky.). They may have to wait until the next Congress.

Janet H. Cho

***

Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

Each month, we’ll start a new challenge and invite newsletter readers—you!—to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.

Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

Are you ready to compete? Join the challenge and pick your stocks here.

***

—Newsletter edited by Liz Moyer, Rupert Steiner.

Credit: marketwatch.com

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