Peak Weed Jokes But Not Peak Inflation

Twitter adopted a poison pill over the weekend to defend itself against Elon Musk’s takeover bid. Just as Musk made a weed joke with his $54.20 per share bid, Twitter’s board responded with its own weed joke in the shareholder rights plan. If Musk or someone else acquires 15% of Twitter shares, other shareholders will be entitled to pay $210 to acquire shares “having a then-current market value of twice the strike price.” So $420 again.

We get it, guys. You really like to smoke marijuana. Haut-larieux.

The consensus on Wall Street is that the board will reject Musks’ offer as too low. While this is a steep premium to where the stock was trading before Musk announced he had become the company’s largest shareholder, it is well below the 52 high. $73.34 weeks. What would be a fair price? Most Wall Street analysts have price targets well below $70. Prior to the start of the Musk affair, analysts at Bank of America saw the stock rise to $54, the JP Morgan Chase team had a price target of $56 and Goldman Sachs had a price target of $30. In a recent note, analysts at Bank of America speculated that $60 might be a reasonable counteroffer.

There has been a lot of speculation that the action around Twitter could attract other buyers. It seems unlikely. Big tech companies like Alphabet or Facebook’s Meta know they’re on a leash with antitrust regulators. Apple wants to expand its existing business and not dive into the controversy that could arise from owning the platform that launched Donald Trump. At a time of high inflation, companies are looking to control costs rather than undertake Twitter’s turnaround project in a reasonably profitable form.

There is a lot of speculation at the moment that we may have peaked in inflation with last week’s Consumer Price Index and Producer Price Index reports. It seems premature. It is true that the stabilization of gasoline prices and a strong base effect – gasoline prices were already high a year ago – may dampen the overall figure a little, but there is ample evidence that the inflation continues to accelerate. The Federal Reserve Bank of New York’s indicator of one-year inflation expectations, for example, rose again in March to a new high of 6.6%. Import prices are also expected to continue to increase thanks to the extension of containment measures related to COVID-19 in China and the ongoing war in Ukraine. Surveys of manufacturers by regional Fed banks also point to higher prices.

Larry Summers, the prominent Democratic economist who correctly predicted that the Biden administration’s U.S. bailout would drive inflation much higher, recently pointed out that we are much closer to double-digit inflation in years 1970 than people think. If we calculated inflation like they did in the 1970s, we would almost certainly have double digit inflation. He also said stagflation – rising unemployment and still high inflation – is the most likely outcome for the US economy. Similarly, stagflation expectations hit their highest level — 66% — since June 2008 in Bank of America’s survey of professional fund managers.

Goldman Sachs has the probability of a recession in the next two years at 35%. Luckily they didn’t say 42%.


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