Good Morning and Happy Friday! The GameStop saga continues…with Roaring Kitty scheduling his first YouTube livestream in three years for today at 12pm ET. The news sent GameStop’s stock up 47% and Roaring Kitty’s net worth over $580 million at market close (and much higher in after hours).

The USA cricket team (yes, they have one) beat Pakistan in a historic upset at the Men's T20 World Cup. One of USA’s top players, Saurabh Netravalkar, isn't even a full-time cricketer; he's a Principal Engineer at Oracle.

The ECB will buck the Fed and cut rates for the first time in five years. U.S. regulators are opening antitrust investigations into the biggest AI companies. Plus 4 public speaking fixes, and 20 things you should know about fitness.

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_{SQUEEZ OF THE DAY}

No One is Safe From a Margin Call

Margin calls can happen to the best of us….even if you’re the world’s largest private equity firm.

In March 2022, Blackstone faced a margin call after borrowing $860 million against its stake in Bumble. Similarly, KKR disclosed in 2020 that some funds received margin calls after the securities pledged as collateral lost value during the pandemic.

Private equity firms have used margin loans backed by shares in companies they’ve taken public to supercharge returns for over a decade. But these loans come with significant risks, especially in high interest rate environments and volatile markets.

For instance, between 2021 and 2022, Blackstone took out margin loans of about $4 billion on stakes in around 6-8 companies.

These loans can offer immediate cash to investors and generate fees for managers, but they can backfire if stock prices fall significantly. In volatile markets, margin calls force private equity firms to provide additional collateral or risk losing their investments.

While margin loans have generally enhanced returns, the volatility and rising rates have led to notable setbacks. Yet, their use is unlikely to disappear anytime soon.

Takeaway: Private equity firms are masters of financial engineering, and it’s no surprise that they have successfully used margin loans to boost returns. But the high-interest era exposes their portfolio companies to risks, and just goes on to show that anyone can get margin called these days.

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_HEADLINES

Top Reads

• GameStop shares jump 30% as Roaring Kitty schedules a YouTube livestream for Friday (CNBC)

• USA defeats Pakistan at Men’s T20 Cricket World Cup (CNN)

• ECB bucks Fed, cuts rates for first time since 2019 (Axios)

• Here’s what to expect from Friday’s big jobs report (CNBC)

• Nvidia pulls back after hitting $3T in value (YF)

• Josh Harris says private equity ownership is coming to the NFL (CNBC)

• U.S. productivity growth slowed last quarter (YF)

• U.S. regulators are opening antitrust investigation into Big Tech AI companies (Axios)

• Starbucks teams up with Grubhub on delivery (CNN)

• Wall Street is contorting to replace China trade (Reuters)

• MNC bumps Vista Outdoor bid to $3 billion (Axios)

_{CAPITAL PULSE}

Markets Rundown

Stocks closed slightly lower as investors await May’s job report.

Movers & Shakers

• (+) Instacart ($CART) +9% after the grocery delivery company announced a share repurchase program.

• (+) Lululemon ($LULU) +5% after the clothing brand posted an earnings beat.

• (–) Five Below ($FIVE) -11% after the retailer offered disappointing guidance.

Private Dealmaking

• Authentic Brands Group will buy the Champion sportswear brand for $1.2 billion

• Palladium Equity Partners sold its majority stake in Trachte for $695 million

• Dolby Labs bought GE Licensing for $429 million

• ITM Isotope, a radiopharmaceuticals developer, raised $205 million

• Robinhood bought Bitstamp, a crypto exchange, for $200 million 

• ThreatModeler, a threat modeling platform, raised $60 million

For more PE, VC & M&A deals, subscribe to our Buysiders newsletter.

_{BOOK OF THE DAY}

Meganets

David Auerbach’s exploration of the phenomenon he has identified as the meganet begins with a simple, startling revelation: There is no hand on the tiller of some of the largest global digital forces that influence our daily lives: from corporate sites such as Facebook, Amazon, Google, YouTube, Instagram, and Reddit to the burgeoning metaverse encompassing cryptocurrencies and online gaming to government systems such as China’s Social Credit System and India’s Aadhaar.

As we increasingly integrate our society, culture and politics within a hyper-networked fabric, Auerbach explains how the interactions of billions of people with unfathomably large online networks have produced a new sort of beast: ever-changing systems that operate beyond the control of the individuals, companies, and governments that created them.

Meganets, Auerbach explains, have a life of their own, actively resisting attempts to control them as they accumulate data and produce spontaneous, unexpected social groups and uprisings that could not have even existed twenty years ago.

And they constantly modify themselves in response to user behavior, resulting in collectively authored algorithms none of us intend or control. These enormous invisible organisms exerting great force on our lives are the new minds of the world, increasingly commandeering our daily lives and inner realities.

“A disturbing examination of how social media technology spun out of control and what it means for the future.”

_{DAILY VISUAL}

Daily TSA Travel Data Still Strong

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_{DAILY ACUMEN}

Buffett’s Wisdom

Warren Buffett, renowned as the 'Oracle of Omaha,' has achieved unparalleled success in stock picking through a systematic approach grounded in timeless principles.

Rather than fixating on short-term gains, Buffett focuses on identifying companies with enduring market dominance potential, exemplifying his philosophy through strategic investments in Geico, Coca-Cola, and Apple.

His early recognition of Geico's disruptive business model, Coca-Cola's global brand strength, and Apple's ecosystem dominance underscores his astute investment acumen.

Buffett's success is underpinned by adherence to fundamental principles: deep understanding of businesses, long-term perspective, resilience against market noise, and emphasis on investing within one's circle of competence.

While Buffett's strategy requires dedication and expertise, alternative investment approaches aligned with individual preferences and financial goals offer viable paths to success and well-being.

In essence, Buffett's investment philosophy transcends wealth accumulation, advocating for disciplined decision-making, patience, and a balanced life perspective.

_{ENLIGHTENMENT}

Short Squeez Picks

• Is working more hours the key to success?

• 20 things everyone in their 20s should know about fitness

• 4 public speaking fixes that can fill you with confidence 

• What it takes to build influence at work

• Why do some people always get lost and others don’t

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Memes of the Day

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