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Vittoria Light, Trieste, Italy
This 223 foot lighthouse is one of the worlds tallest stone tower. The lighthouse was constructed in 1927. The main lighthouse has a nautical range of 22 miles.
Voslapp Rear Range Light, Wilhelmshaven, Germany
This lighthouse was built in 1962. It stands at 201 feet tall. The current lighthouse replaced a 1907 lighthouse. The site is open to visitors in northwest Germany but the tower is closed to the public.
*Feel free to send us your photos of Lighthouses to be featured in our weekly market observations. *
Boosted deal-making
Last year we mentioned that a bonus from Trump winning the Presidency would be an increase in deal activity in terms of initial public offerings, and mergers and acquisitions. Although that trend has not been exactly true, there are some signs that it could happen. The administration seems very open to deals between companies, unlike the previous administration which blocked deals across numerous industries. Late last Friday, Trump announced that he supports a deal between Nippon Steel and U.S. Steel. The deal has been under scrutiny for over a year under both Biden and Trump. At one point both did not support the deal. However, on Friday that changed. Trump’s administration will support this deal despite it being in a critical industry where a foreign company acquires a U.S. company. The reason Trump changed his tune is that Nippon will keep U.S. Steel’s operations in the U.S. and the company will invest $14 billion into its U.S. operations.
According to Trump’s post, he will announce the details of this deal sometime this week at a rally in Pittsburgh. His post claims that the deal will create 70,000 jobs and add $14 billion to the U.S. economy. Trump also claimed the bulk of this investment from Nippon would occur over the next 14 months.
A week before this announcement from Trump, Nippon Steel told Reuters that they would invest $14 billion into U.S. Steel’s operations including up to $4 billion in a new steel mill if the Trump administration green-lit the agreed upon deal between the two companies.
This announcement from Trump sent U.S. Steel shares soaring by more than 20% to close Friday. For now, it appears the company will remain American and will grow through a partnership.
If this deal goes through as explained it will be a huge boost for the U.S. steel and manufacturing industries. The investment from Nippon also would ensure that steelmaking will continue to live on in Pittsburgh for decades to come.
The proposed deal would create the world’s third-largest steel producer by volume.
The White House has not responded to questions regarding the deal since the announcement but has highlighted it as a partnership that will benefit Americans.
The United Steelworkers were against the deal as recently as Thursday when they urged Trump to block the deal despite the $14 billion investment pledge from Trump.
Trump’s support of deals was a reason we continued to hold U.S. Steel shares across various client accounts. The valuation was right, and we were more than happy to ride out the storm caused by a rejection of the deal.
Disclaimer: MacNicol & Associates Asset Management Inc. holds shares of U.S. Steel across various client accounts.
Salesforce makes a splash
Salesforce announced it had signed a definitive agreement to acquire cloud data management company, Informatica on Tuesday. This was not the first time investors heard about this deal as Informatica shares soared on Friday afternoon from a report of a deal.
The deal is worth $8 billion and values Informatica at $25 per share. Informatica shares closed Thursday below $20. Quite a 20% pop in 2 days. Under the terms of the deal, Informatica shareholders will receive cash for their Class A and Class B-1 common shares. Salesforce will fund the deal through cash and new debt. As of last quarter, Salesforce had $8.8 billion in cash and cash equivalents. Salesforce has not relied on long-term debt financing in size over the years.
Salesforce described this acquisition as part of their AI strategy as they seek to further assist enterprise clients. Salesforce CTO said in a press release that “the combination of Informatica’s advanced catalog and metadata capabilities with our Agent force platform delivers…. a comprehensive understanding of their (customer) data through truly autonomous, trustworthy AI agents”.
On the deal front, we think Salesforce paid way too much in terms of Informatica’s valuation. Salesforce is betting on Informatica’s AI strategy and will leverage its customer base and data stack to expand and grow. Salesforce has been a standout example in the technology industry in recent years. The company is embracing the shift into AI by actively building and acquiring tools to support it.
This acquisition is the latest from Salesforce who have acquired Slack, Tableau, and MuleSoft since 2018.
Decentralized becomes centralized
For those who follow cryptocurrencies, you know a major bull thesis for the technology is the decentralization aspect of the sector. The technology allows for peer-to-peer transactions without an intermediary. You could say crypto attempts to democratize aspects of finance. However, due to the accumulation of Bitcoin by individuals and institutions, the largest holders of Bitcoin have now become the world’s largest asset managers. These asset managers have launched numerous products that invest in cryptocurrencies like Bitcoin available to all types of investors.
According to data over 1% of all global ETF assets is Bitcoin. U.S. ETFs now hold over 1.2 million Bitcoin surpassing the world’s largest holder, Satoshi Nakamoto. Satoshi Nakamoto is the name of the presumed person or persons who developed and launched Bitcoin over a decade ago. There has never been confirmation of Satoshi’s identity. If you have not heard the story about Satoshi, it is fascinating. We recommend you dive into it if you have any free time.
Back to the world’s largest holders. According to data, Satoshi is the worlds largest single holder of Bitcoin. The other largest holders include U.S. asset managers, crypto exchanges like Binance, and Kraken, as well as both the U.S. and Chinese governments.
Approximately 5.7% of Bitcoin’s supply has yet to be mined, 7.5% of its supply has been lost according to industry experts, and over 70% of Bitcoin is owned directly or indirectly by individuals. Despite asset managers like BlackRock, Fidelity, and Grayscale dominating the ownership of Bitcoin, individuals have exposure through these managers and own the financial assets. However, most individuals do own their Bitcoin directly, their exposure is indirect.
We bring this all up due to some news pieces we read this week. The first is on the ownership breakdown of Bitcoin, and the second on Michael Saylor, and MicroStrategy’s exposure to Bitcoin.
MicroStrategy is a large holder of Bitcoin and Saylor is a huge Bitcoin bull. He speaks at conferences, posts on social media, and regularly does interviews regarding Bitcoin. His company which operates in business intelligence, mobile software, and cloud-based services has dived heavily into Bitcoin. His balance sheet has a large exposure to Bitcoin, the two assets (Bitcoin and MicroStrategy stock) are heavily correlated. As of December 31, 2024, MicroStrategy held 447,470 Bitcoin on its balance sheet according to Saylor. In a press release made this week, the company claimed they have purchased even more Bitcoin, and they now hold almost 600,000 Bitcoins. Bitcoin is worth approximately $41 billion and MicroStrategy’s market capitalization is $102 billion. Bitcoin makes up a chunk of their business so it’s no surprise to see Saylor blab about Bitcoin.
The company has aggressively bought more Bitcoin by issuing debt, common equity, and preferred shares. Saylor has called his company’s capital raising and subsequent purchase of Bitcoin, riskless arbitrage in past interviews. This claim is false as what he is doing is not riskless. He is taking on leverage and making bold and confident moves that come with heavy risk. What happens when the price of Bitcoin pulls back heavily (like it has in the past) and investors flee? What about the interest payments on the issued debt or the dividends on the preferred shares when liquidity dries up or the underlying assets (Bitcoin) that back these obligations drop in value? Saylor has essentially built a leveraged volatility machine and many retail investors could be caught holding the bag.
Our final point comes from a question period this week at what looked to be a conference for Bitcoin and crypto. Saylor was asked by an attendee about proof of stake/reserves. This essentially proves you physically hold the assets in some sort of crypto wallet (or in this case numerous wallets). This proof of stake technology is a supportive feature for crypto, but Saylor refused once again to publish or release this information. He stated MicroStrategy does not plan to do so due to security risk and a few other accounting reasons. Right now, companies are not required to publish this proof of stake data. Even conglomerate crypto exchanges like Coinbase are not required to do so.
Many online this week were linking Saylor’s refusal to report proof of reserves to an occurrence almost 25 years ago when Saylor was fined by the SEC in 2000 for falsifying MicroStrategy’s financial results.
We think the best exposure to crypto, and Bitcoin is direct. Although we do not have heavy exposure to the asset, we think it belongs in some investor portfolios, but it is important to manage risk. Leveraging yourself up to buy more Bitcoin in a bull market is the opposite of risk management. It is irresponsible.
In non-MicroStrategy news, meme-stock favorite GameStop announced it has bought 4,710 Bitcoin in a press release. Earlier this year the company announced it was looking into creating a Bitcoin Treasury.
Feeling the tariffs
German sandal maker, Birkenstock announced they will be raising prices two weeks ago to help offset the impact of global tariffs in their earnings release. After a strong quarter, the sandal marker stated that tariffs will raise consumer prices, and they will be subsequently releasing a timeline of when consumers will see higher prices soon. Well, just two weeks later the German company stated that prices would rise in the third quarter. Prices will rise on footwear imported despite Birkenstock’s major focus on expanding its market share in the U.S.
Birkenstock recently stated that they would be focusing on expanding their sales in the U.S. as they see open shelf space in their industry.
Birkenstock shares went public on the New York Stock Exchange in late 2023. Shares are up 48% since but have lagged this year.
The impact of global tariffs will be felt by consumers. The impact will be broad and impact most products. Expect a bit of an uptick in inflation soon.
Trump’s new initiative
In a surprising move, President Donald Trump posted on social media last week that he plans to bring Fannie and Freddie public once again through an offering. Fannie and Freddie are U.S. government-sponsored enterprises that buy residential mortgages on the secondary market and provide liquidity, stability, and affordability in the housing market. He stated that the government will keep its implicit guarantees and continue to oversee the two companies.
This announcement came as a surprise to some but Trump and some of his inner circle have hinted at this in the past. Fannie and Freddie have been under the government’s control since 2008 after they suffered massive losses during the subprime mortgage crisis.
Shares of both companies still trade Over the Counter, and they hit their highest levels since 2008 on Wednesday. Neither have traded on an actual exchange since the mortgage crisis and their largest shareholder remains the U.S. government.
The combined market value of the two companies was $17 billion as of May 27th, 5x more than when Trump won the election in November. The U.S. Treasury owns preferred shares and warrants to purchase 80% of their common stock in the firms.
The largest holder other than the government is Bill Ackman’s Pershing Square which holds 10% of Fannie’s OTC shares according to LSEG data.
If Trump does end up bringing Fannie and Freddie public once again through an offering and the government continues to implicitly guarantee both company’s debt, these companies could provide tremendous risk-reward for investors. From the early explanation it looks like the government (ie. taxpayers) will bear the risk and shareholders will share in the profits and benefits.
We will say that buying these OTC stocks is very risky right now as shares have gone on a huge run, no actual deal framework has been released, and the implementation lacks any concrete plan (as of now). The biggest key to this will be convincing investors that nothing will change regarding these companies’ guarantees. Another aspect lawmakers will be watching if these companies go public will be how mortgage rates will be impacted.
Regardless of how you feel, it’s an interesting ripple of this administration. And before you ask, shares still have a long way to go to return to their pre-mortgage crisis levels:
Midday on Wednesday Palantir announced a partnership with Fannie Mae to launch an AI-powered detection unit to combat mortgage fraud and save the U.S. mortgage market from future losses. Quite the dynamic partnership as Palantir continues to spread its market.
The pros of tariffs (for the U.S.)
According to U.S. customs revenue (which includes tariffs), revenue was up 150% in April from a year earlier.
The U.S. has generated approximately $21 billion in tariff revenue since Trump’s policies have been put into effect.
The current lower tariffs would generate approximately $250 billion in revenue on an annualized basis. The revenue would be even higher if the higher rates come into effect a few months down the road.
Although the number sounds great, Trump’s new tax Bill will reportedly decrease government revenue by almost $500 billion a year.
Quite the new revenue stream for the government but not enough to impact the U.S. national debt or even fiscal deficit.
Nvidia report
On Wednesday afternoon Nvidia was due to report earnings and all eyes were on the company. Many were hoping for strong beats, and continued margin expansion. The earnings were described by some as a ‘macro level event’.
The rest of the Magnificent Seven and the entire technology sector were watching the results closely as Nvidia has led the charge on the AI boom.
Margins have recently been under pressure for Nvidia after rapid expansion last year. Nvidia’s recent quarter was quite noisy with the implementation of tariffs, and even more Chinese export restrictions being implemented by the U.S. government. Trump’s administration banned the sale of the H20 chip in China which was already a low-tech version of their ‘western’ product. Analysts believe Nvidia will continue to develop a new product offering for its Chinese customers that meets U.S. export regulations.
Nvidia has decreased its dependence on China in recent quarters but will still be impacted by this new export restraint. Expanding their market share in alternative markets will be a key driver for this reporting period.
Nvidia earnings-per-share for the quarter came in at $0.81 versus a consensus estimate of $0.75. Revenue also beat estimates ($44 billion versus $43 billion estimate). However gross margins and data center revenue both came up short of expectations.
MacNicol & Associates Asset Management
May 30, 2025
The Weekly Beacon -May 30 2025
