Happy Friday!

📝 Focus

• Howzat! Disney loses subs (but 🏏...!!!)

📊 In the Markets

• UK hikes, US Chickens, Twitter -Musk

📖 MoneyFitt Explains

🎓 The US Debt Ceiling and why we ALL should care

📝 Focus

Howzat! Disney loses subs (but 🏏...!!!)

Walt Disney shares ended the day down nearly 9% on Thursday as a surprise drop in subscribers sent panicked traders to the exits on fears that the entertainment giant was sacrificing growth to stem mounting losses in its streaming business. The drop wiped out $16bn of market value (share price X number of shares) from the company, or about half the entire value of competitor Warner Bros Discovery, which dropped 5% in sympathy.

..... ▷ Returning CEO Bob Iger has been under pressure to stem the bleeding at streaming unit Disney+ where costs had exploded during an aggressive buildout during the pandemic. His strategy has largely involved better cost management and introducing price hikes, which in general would not suggest huge subscriber growth anyway. Going forward, Disney will raise the price of the ad-free tier of Disney+ again and drive more subscribers toward Disney+'s ad-supported tier, which on balance could improve monetisation. What stunned US investors, though, was the loss of 4 million subscribers globally, compared to the average estimate from Wall Street's Finest of 1.3 million net additions, according to Visible Alpha.

..... ▷ BUT the subscriber losses were driven mostly from cancellations at Disney+ Hotstar in South Asia after it lost the streaming rights for Indian Premier League cricket. In the first quarter, Disney+ Hotstar lost 4.6mn paid subscribers, meaning the rest of Disney+ globally still gained (a bit.) Wall Street's Finest was, apparently, flabbergasted that Indian cricket fans would stop subscribing when cricket content --their main reason for having Hotstar in the first place-- disappeared after Disney's 5-year $2.6bn contract ended in 2022. (It lost digital streaming rights to Viacom18, a joint venture between Reliance Industries and Paramount Global, which paid $3bn. Disney kept TV rights for its Star India channels for another $3bn.​​) Hotstar subscribers generate lower average revenue per user to Disney, so the scale of the $16bn selldown of the whole company seems extreme.

📊 In the Markets

Hiking in the UK: Markets in Asia and Europe were little changed on Thursday as investors continued to digest the latest US inflation data. The UK saw an expected 0.25% hike in interest rates to 4.5%, the 12th consecutive hike from the Bank of England, the UK's central bank.

..... ▷ The UK's battle with inflation continues, with March prices up 10.1%, but interestingly the BoE no longer expects the economy to enter recession this year as a result of the endless stream of rate increases. Won't be exciting at zero growth for the first half of 2023 and then 0.9% by the middle of 2024, but not a recession, thanks to falling energy prices and Spring Budget spending. But core inflation (excluding food, energy, booze and fags) at 5.7% is still more than double the 2% target and there is still a risk of more £ interest rate hikes ahead.

Stateside: The tech-heavy Nasdaq was pulled higher by the likes of Google-parent Alphabet, up over 4% on a positive response to its latest generative AI push (see MFM), while the broader S&P 500 ended lower, dragged down by Walt Disney's 8.7% fall (see Focus above) on a drop in streaming subscribers, and fresh pain at troubled Californian bank PacWest on a drop in deposits, sending its shares down by almost a quarter and leading to selling in sympathy across many other regional banks.

..... ▷ As we wrote just last Friday, Shorting Bank Shares IS Different because as soon as trust in a bank evaporates, so will the bank, unlike in normal, non-banking companies, where share price movements and what's really happening in the company may have a tenuous relationship at best. Shares in PACW last Friday dropped by about half on reports it was "exploring strategic options." On Thursday it reported deposits down 9.5% last week (everyone who wanted out got their money)... and the shares dropped 23%. JPMorgan CEO Jamie Dimon is asking regulators to investigate the shorting (bets they will go down) of bank shares, echoing calls from the American Bankers Assoc. Hedge funds have made millions shorting banks this year, are (of course) rejecting this..

Game of Chicken: A postponement of Friday's meeting about raising the debt ceiling 🎓 was spun positively by the White House, but the risks of this extremely dangerous game of chicken are mounting, with the sides further apart than ever before.

..... ▷ Treasury Secretary Janet Yellen said the notion of defaulting on the debt was “unthinkable” and would badly undermine the US and global economy and lambasted Trump’s idea that Republicans should allow the US to default on its debts if spending cut demands weren’t met.

A mini-explainer on WHY WE CARE about the US debt ceiling (see 🎓Explainer below on what it IS):

• The US Treasury market is considered to be one of the most liquid and stable markets in the world, making it an important benchmark for other financial markets. It's the core building block for almost all asset valuations worldwide.

• Treasuries serve as a benchmark for valuing other fixed-income securities, such as bonds issued by corporations and municipalities and Treasury yields are often used as a reference rate for setting interest rates on loans and other financial products, such as mortgages and student loans.

• The US Treasury market serves as a benchmark for determining the risk-free rate, which is the rate of return on an investment with no credit risk. This rate is used as a benchmark for valuing other investments, including shares traded on every stockmarket in the world.

Musk UnTweets (we wish): Elon Musk cheered Tesla investors when he said on Thursday that Twitter is getting a new CEO and that he will move “to being exec chair & CTO, overseeing product, software & sysops.” Tesla rose 2% on the assumption that a fully focused Elon Musk will be good for the company, though that seems like a long shot: he referred to Twitter as "X/Twitter" reflecting his grand plans to turn it into a "super-app" and then “the biggest financial institution in the world.”

..... ▷ Under Musk, Twitter’s core advertising business has suffered and the Twitter Blue subscription service (longer tweets, edits and a badge) has been controversial and takeup has been slow. Technical outages have surged and previously banned users have made it back on the platform (with axed right-wing Fox News host Tucker Carlson to start a new show there.) Twitter co-founder and ex-CEO (and an early supporter of the Musk takeover) Jack Dorsey has backed a new decentralised version of Twitter called Bluesky, which is still invite-only and has seen its downloads explode over the last few months. Dorsey actually started the project under Twitter back in 2019, when he Tweeted about its being a protocol called AT like SMTP (email protocol) rather than a platform. (Dorsey's also backing another decentralized social network protocol called Nostr, which has an additional crypto angle.)

📖 MoneyFitt Explains

🎓️ The United States Debt Ceiling

• The debt ceiling is a limit set by the US Congress on the amount of debt the federal government can incur. The debt ceiling does not control or limit the ability of the Federal Government to run deficits or incur new debt, it only limits the ability to pay off already incurred debt. - (Denmark is the only other Western country with a debt ceiling, but it’s currently much higher than needed.)

• The debt ceiling is separate from the Federal budget and appropriations process, which sets spending levels for the government. It is regularly raised by Congress to allow the government to borrow more money to finance its operations, such as paying for military expenses, entitlement programs like Social Security and Medicare, and interest on existing debt. The debt ceiling is said to have been raised over 100 times since its inception in 1917.

• In recent years, the debt ceiling has become a point of political contention, with some members of Congress refusing to raise it unless certain policy demands are met. If the debt ceiling is not raised, the government would not be able to borrow any more money and would only be able to spend what it takes in through taxes and other revenue. This could lead to a government shutdown or a default on its debt obligations, both of which could have severe US and global economic consequences.