Better Call BlackRock

Plus: Another breakthrough in the fight against Alzheimer’s disease. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 4, 2023

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TOGETHER WITH

Good morning.

What? You thought Jay Powell would let the streak end at nine?

The Federal Reserve raised interest rates for the 10th consecutive time on Wednesday, with a quarter-point hike that brings the benchmark federal funds rate to a target range of 5% to 5.25%. This latest increase came by a unanimous decision from the Federal Open Market Committee, which also appeared to hint that it might need a rate-raising breather after going 10 for 10 to curb inflation. Eagle-eyed Fed watchers (is there any other kind?) noticed that the committee did not use the phrase “additional policy firming” in Wednesday’s statement, as it had in March. But let’s be clear, it also didn’t mention anything about cuts.

Morning Brief

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The US government is calling on a familiar ally.

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There’s another step toward the cure for Alzheimer’s.

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Olive Garden is in acquisition mode.

Banking

BlackRock Tasked With Cleaning Up Banking Mess

BlackRock, the world’s largest asset manager, also plays a less heralded role in the financial services industry: emergency plumber.

Following the collapse of Silicon Valley Bank and Signature Bank, the FDIC has found itself a reluctant owner of some $114 billion worth of securities. But everything must go, and the agency has recruited BlackRock’s Financial Markets Advisory (FMA) unit to help find some willing buyers.

Back in BlackRock

The FMA has been here before. Amid the last financial crisis in 2008, the firm was hired to help sort through the fallout from Bear Stearns’ and American International Group’s implosions. Then, when the pandemic rocked the world in 2020, BlackRock swooped in to help buoy the corporate bond market. Now, it faces its greatest challenge yet. SVB, Signature Bank, and First Republic Bank held more combined assets than all 25 of the federally insured institutions that went belly up in 2008’s economic meltdown, according to an analysis by The New York Times (for those keeping score at home, that’s about $532 billion today vs an inflation-adjusted $526 billion in 2008). And even with First Republic’s goodies already snapped up by JPMorgan Chase, the $114 billion worth of remaining assets that need to be sold off would mark the largest ever such job.

But a lot has changed since 2008. Asset managers, by nearly any metric, are now the clear kings of the financial services sector. BlackRock itself has exploded since 2008, with its assets under management growing from around $2 trillion then to a staggering $9.1 trillion today, according to its most recent earnings report. And while the FMA is usually a rounding error for the firm’s accounting books, analysts tell Bloomberg that the division’s role as the government’s trusted pipe fitter does offer something BlackRock values: influence and connections with Washington power brokers. Those cozy connections made it an obvious choice for the big clean-up gig:

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The FMA is sorting through roughly $87 billion of SVB investments and another $27 billion from Signature, according to Bloomberg. That includes residential and commercial mortgage-backed securities, as well as collateralized mortgage obligations.

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So far, according to Bloomberg, the firm has successfully handled a round of mortgage-backed securities sales. It’s now likely to sell around $2 billion worth of assets a week.

“BlackRock really does appear to be the go-to when it comes to large-scale, politically salient and systemically important types of asset sales and management,” Saule Omarova, a professor at Cornell Law School, told Bloomberg. “It creates this very important potential avenue for BlackRock to cultivate a kind of relational power with the federal government.”

Larry Fink’s Personal Revolving Door: That relational power manifests itself in obvious ways. Wally Adeyemo, the current US Deputy Secretary of the Treasury, worked at BlackRock for two years as a senior advisor and interim chief of staff to CEO Larry Fink. Brian Deese, meanwhile, worked as a BlackRock higher-up between stints as an economic adviser in the Obama and Biden administrations. Round and round and round the revolving door goes.

– Brian Boyle

Health

Eli Lilly’s Alzheimer’s Drug Shows Potential in Final Trials

The World Health Organization picked 2030 as a seemingly random stretch goal for finding a cure for the global scourge that is Alzheimer’s Disease. Stunningly, it now looks like the medical industry might be on track to get it done.

On Wednesday, pharmaceutical giant Eli Lilly announced that its experimental drug, donanemab, slowed the progress of Alzheimer’s in a final stage trial, setting the stage for FDA approval.

The Bad Kind of Protein

Donanemab reportedly slowed the disease by 35% over a year-and-a-half trial of more than 1,000 patients in the early stages of Alzheimer’s. Similar to Eisai and Biogen’s drug, Leqembi, which was approved in January, Eli Lilly’s treatment works by attacking amyloid proteins that have built up to toxic levels in the brain.

It’s still not fully agreed upon exactly what role amyloid protein plaque plays in Alzheimer’s because while everyone with the disease has the plaque, not everyone with the plaque has the disease, similar to the relationship between tumors and cancer. The plaque may be a signifier of Alzheimer’s but not necessarily the root cause.

Despite needing more research on that end, the market and medical community has responded positively to Eli Lilly’s news:

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After the announcement, Eli Lilly’s stock rose from about $415 per share to $431, roughly 4%, by the New York market close.

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Citigroup analyst Andrew Baum called donanemab the “new gold standard” in Alzheimer’s drugs, and Paresh Malhotra, a professor of clinical neurology at Imperial College London, said “we are now entering the treatment era of Alzheimer’s disease,” Bloomberg reported.

Side Effects: Eli Lilly’s drug is not flawless and came with some nasty results. It caused brain swelling and bleeding in 24% and 31% of subjects, respectively. Three people died who took the drug and suffered one or both of those symptoms. In a note, Bloomberg Intelligence analysts John Murphy and Sam Fazeli said while it reduced Alzheimer’s progression at a rate similar to Leqembi, the rate of serious complications was much worse. Still, any progress, no matter how small, on a disease that affects more than 55 million people worldwide, is good news indeed.

– Griffin Kelly

SPONSORED BY MONOGRAM

A New Frontier in the $19.4B Joint Replacement Market

May the Fourth be with Monogram as they try to revolutionize knee replacement surgery with robotics and custom implants. This squad is planning to list on Nasdaq, hoping to cut through the $19.4B joint replacement market like a lightsaber through butter – and you have less than one week to invest in Monogram’s current funding round.

Storm-trooper-level “accuracy”: Most knee replacements today are done manually, with as many as 100,000 joint replacements failing every year.

Monogram is planning on using their cutting-edge robotics and 3D-printing to make these surgeries more precise and personalized.

They’ve already filed for 20 patents and their first-of-its-kind surgical robot can potentially reduce surgery prep time by as much as 70%.

And they’ve successfully demonstrated their tech for virtual audiences of 5,000+.

Join the movement to potentially transform orthopedic surgery with surgical robotics.

Become a Monogram investor before their intended Nasdaq listing. Fund your investment before 5/10.*

M&A

Darden Restaurants to Buy Ruth’s Chris Steak House Owner

(Photo Credit: North Hills/Flickr)

Welcome a new member to the family.

Olive Garden parent Darden Restaurants apparently has no reservations about expanding in a down economy. On Wednesday it agreed to buy Ruth’s Hospitality Group in a $715 million all-cash deal expected to close in June. So be prepared for the debut of the even more confusingly named Darden’s Ruth’s Chris Steak House.

Meat and Potatoes

Darden is known for affordable chains like Yard House and Bahama Breeze, but also its slightly more high-end brands like The Capital Grille and Eddie V’s Prime Seafood (no connection to Pearl Jam’s lead singer). Ruth’s will mark its first acquisition since Cheddar’s Scratch Kitchen in 2017 for $780 million. This latest deal values Ruth’s at $21.50 per share.

While Darden already has two steak-centric chains under its umbrella, adding a third with 150 locations will only make it more competitive amidst growing demand for red meat:

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Texas Roadhouse, a chain with more than 600 locations across the US, has grown to be one of the most popular franchises in the country. On a recent earnings call, executive Michael Bailen said the brand averaged more guests in the first seven weeks of 2023 than in any other period in its history and that same-store sales were up roughly 16%.

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Bloomin’ Brands’ Outback Steakhouse has also seen a bit of a bump lately as its earnings continue to surpass Wall Street estimates. This past quarter, Bloomin’ saw $1.24 billion in revenue, compared to $1.14 billion during the same period in 2022. And year-to-date, its stock value has risen roughly 22%.

Out Of The Frying Pan: Just like the rest of us during our weekly grocery store visits, restaurants are still sweating over rising food costs. In its 2023 state of the industry report, the National Restaurant Association found that 92% of operators said inflated food prices pose a significant issue to their businesses. The hope is that the public’s desire to meet with friends and enjoy the restaurant experience they so sorely missed during the pandemic will continue to counteract increased menu prices.

– Griffin Kelly

Extra Upside

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Ee-i-ee-i-oh-no: US Department of Labor says McDonald’s had 305 minors, including 10-year-olds, working illegally.

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Lengthy battle: Don’t expect your favorite TV shows back anytime soon.

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We are standing at a moment of truth for Artificial Intelligence. On one hand, we have ample evidence of using AI to fuel economic activity (e.g. Uber adopting AI to help predict when you may be craving Sweetgreen). On the other hand, AI may be a shockwave in the job market, with executives at IBM planning to reduce workforce in favor of AI technologies. To fully understand the depth of AI’s economic impact, there’s no better resource than Patent Drop — a twice-weekly newsletter that unpacks how AI, and many other technologies, are shaping our future. Sign up for no cost here.**

**Partner

Just For Fun

Drone show.

Eagle eye.

Disclaimer

*Disclosure: This is a paid advertisement for Monogram Orthopedics’ Regulation A+ offering. Learn more at invest.monogramorthopedics.com/disclaimers

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