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Why Australia Could (And Should) Become A Major Nuclear Power Producer

Why Australia Could (And Should) Become A Major Nuclear Power Producer Authored by Paul Sullivan via OilPrice.com, Australia is a country nearly the size of the continental US with a population of about 26 million people.It is a country with vast open spaces. Most of its population is found on its east coast in New South Wales and Queensland, some population centers in Western Australia, South Australia, the Northern Territories and on the island of Tasmania. Most of the larger populations in these areas are in a few cities and their suburbs with lots of open space between them in many places. The largest electricity grid goes down the east coast and loops over to South Australia. There is another one in Western Australia, albeit a smaller one than on the east coast, and then an even much smaller one in the Northwest Territories. These grids are not connected.  Why is this important for nuclear power?  If we are thinking about big reactors, they can only be deployed in areas where the market can support them. If we are thinking about small modular reactors, SMRs, then there are other uses for smaller cities in less densely populated areas.  Australia is energy-rich. It is the largest coal exporter in the world. It’s one of the major gas exporters, and previously even was the largest LNG exporter in the world. It has massive wind, solar, geothermal, wind, tidal, and wave energy potential. It has significant hydroelectric resources, but recent droughts have put those into question. Given its low population and vast energy resources, about 2/3rd of its energy production is exported. It is an increasing net importer of oil and refined oil products. Oil, however, is a weak spot in Australia’s energy security and resilience.  Australia’s primary energy consumption is overwhelmingly fossil fuels. About 80 percent of its electricity is still from fossil fuels, with black and brown coal dominating, but renewables have been growing in importance, especially since 2008. Overall electricity generation grew nicely until a flattening out also in 2008. It is still growing, but not nearly as quickly as it once was. There are considerable differences in fuels and methods used to produce electricity across its territories and states. New South Wales, Victoria, and Queensland use mostly coal. Western Australia is dominated by gas. South Australia uses mostly gas and a much larger percentage of renewables than any other area. Tasmania is mostly hydropower. The Northern Territories is almost dominated by an even mix of gas and oil. Except for South Australia, renewables are not a large part of electricity generation elsewhere in the country. Hydropower has been part of the energy mix in Australia for a very long time. Solar and wind really started to take hold and grow only in the 2000s. Bioenergy is a small percentage, but not entirely insignificant. Overall, for the country, coal use in electricity has been in decline. Natural gas and renewables have been increasingly used in electricity generation.  In terms of energy production, Australian coal has been on a steep growth path for some time. Oil has been in decline. Natural gas has grown greatly in recent years. In the overall big picture in energy production renewable energy is a coat of paint on top of the others. Coal dominates energy production and natural gas is a far second.  The main use of nuclear power is for electricity. However, the only nuclear reactor in Australia is in Sydney. It is a tiny 20 MW reactor that makes nuclear isotopes for medical purposes. Nuclear power can be curative in a medical sense. Many know this from personal experience.  Nuclear power is controversial in Australia. Importantly,  “Nuclear power production is currently not permitted under two main pieces of Commonwealth legislation—the Australian Radiation Protection and Nuclear Safety Act 1998 (the ARPANS Act), and the Environment Protection and Biodiversity Conservation Act 1999 (the EPBC Act). These Acts expressly prohibit the approval, licensing, construction, or operation of a nuclear fuel fabrication plant; a nuclear power plant; an enrichment plant; or a reprocessing facility. There is also a range of other legislation, including state and territory legislation, which regulates nuclear and radiation-related activities." There are also state and territory laws strictly regulating it, and in some cases, such as in Victoria, it is outright banned. So, there are many legal levels with hurdles for nuclear power.  Australia has the largest known reserves of uranium on the planet. It is the third-largest exporter of uranium. Yet is has no nuclear power plants to produce electricity. There is a possibility that the new strategic cooperation deal with the UK and the USA, the AUKUS agreement, that includes Australia getting help from the UK and the US to develop and deploy nuclear submarines, could create more conversation and debate on nuclear power. These nuclear submarines will require increasing nuclear expertise in Australia. There will be a need for that nuclear expertise to maintain and develop this fleet of nuclear submarines. In the US, many of the people working in nuclear power plants are Navy nuclear experts and engineers.  Some in Australia see the nuclear submarines deal as a marker to restart the debate on having nuclear power in the country. Others are vehemently against nuclear power. Many laws and regulations are still in place to put a check on nuclear power in the country. However, as climate change concerns continue to increase, there could be an increasing drive towards nuclear power in the country. Nuclear power plants produce no greenhouse gas emissions. The major source of greenhouse gas emissions in the nuclear fuel cycle is in uranium mining. Australia has very high per capita greenhouse gas emissions, especially if the emissions from its massive energy exports are added to the equation. Most of its domestic emissions are from the burning of coal, natural gas, oil, and oil products.  Environmentalism is growing in Australia. Recent droughts, fires, floods, and heatwaves are spurring this on. The options for lower emissions fuels do not include coal and oil, unless there are gigantic, and very expensive, programs for carbon capture and storage, CCS, and carbon capture and utilization, CCU.  The energy transition in Australia may include further moves towards natural gas, but that would cut into one of its greatest exports, LNG. The energy transition in Australia will likely include renewables, for which it has massive potential. However, renewables are intermittent and there will be a giant need for energy storage and demand management if Australia decides to take this path. With nuclear power as part of its energy transition, Australia would have another way of reducing its carbon emissions. Nuclear power is a baseload that runs 24/7, except during refueling and maintenance.  Nuclear power can have capacity factors well into the 90s. Renewables are not even close. Nuclear power could help stabilize the electricity grids of the country. It could help with the energy security, energy reliability, and energy resilience of the country. Nuclear power is over time, and on average, contrary to many media and other reports, one of the safest and least polluting sources of energy.  Retiring coal plants, and many are scheduled for retirement and have been retired, can be repurposed as nuclear plants in some places. The transition from coal to natural gas and renewables could be complemented with a transition from coal to nuclear power. Nuclear power could increase the diversity of the energy transition.  A nuclear power option that Australia could consider is small modular reactors. These produce smaller amounts of nuclear power than the standard plants. They can be built upon as modular, like building blocks, and when an area needs more power, they can be added in. They can have passive safety features well beyond the standard nuclear power plants. Next to this, they have a much lower proliferation risk.  It could be years before SMRs can be deployed anywhere in the world in large numbers, but many of the questions about standard reactors can be answered with SMRs. They are not the perfect answer, but in a world increasingly concerned about the effects of greenhouse gases like CO2 and methane, for many countries, nuclear will be close to a requirement in their energy transitions. Australia has lots of renewable energy potential, but it may be worth it to bring up nuclear once again.  Australia needs energy security, energy reliability, and energy resiliency. It also needs environmental security, environmental reliability, and environmental resilience. Australia has had some very rough times with fires, floods, droughts, storms, and more. Climate change is happening. Australia can be part of the problem or part of the solution. Tyler Durden Sat, 10/23/2021 - 21:30.....»»

Category: personnelSource: nytOct 23rd, 2021

Green Energy: A Bubble In Unrealistic Expectations

Green Energy: A Bubble In Unrealistic Expectations Authored by David Hay via Everegreen Gavekal blog, “You see what is happening in Europe. There is hysteria and some confusion in the markets. Why?…Some people are speculating on climate change issues, some people are underestimating some things, some are starting to cut back on investments in the extractive industries. There needs to be a smooth transition.” - Vladimir Putin (someone with whom this author rarely agrees) “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of its citizens.” – John Maynard Keynes (an interesting observation for all the modern day Keynesians to consider given their support of current inflationary US policies, including energy-related) Introduction This week’s EVA provides another sneak preview into David Hay’s book-in-process, “Bubble 3.0” discussing what he thinks is the crucial topic of “greenflation.”  This is a term he coined referring to the rising price for metals and minerals that are essential for solar and wind power, electric cars, and other renewable technologies. It also centers on the reality that as global policymakers have turned against the fossil fuel industry, energy producers are for the first time in history not responding to dramatically higher prices by increasing production.  Consequently, there is a difficult tradeoff that arises as the world pushes harder to combat climate change, driving up energy costs to painful levels, especially for lower income individuals.  What we are currently seeing in Europe is a vivid example of this dilemma.  While it may be the case that governments welcome higher oil and natural gas prices to discourage their use, energy consumers are likely to have a much different reaction. Summary BlackRock’s CEO recently admitted that, despite what many are opining, the green energy transition is nearly certain to be inflationary. Even though it’s early in the year, energy prices are already experiencing unprecedented spikes in Europe and Asia, but most Americans are unaware of the severity. To that point, many British residents being faced with the fact that they may need to ration heat and could be faced with the chilling reality that lives could be lost if this winter is as cold as forecasters are predicting. Because of the huge increase in energy prices, inflation in the eurozone recently hit a 13-year high, heavily driven by natural gas prices on the Continent that are the equivalent of $200 oil. It used to be that the cure for extreme prices was extreme prices, but these days I’m not so sure.  Oil and gas producers are very wary of making long-term investments to develop new resources given the hostility to their industry and shareholder pressure to minimize outlays. I expect global supply to peak sometime next year and a major supply deficit looks inevitable as global demand returns to normal. In Norway, almost 2/3 of all new vehicle sales are of the electric variety (EVs) – a huge increase in just over a decade. Meanwhile, in the US, it’s only about 2%. Still, given Norway’s penchant for the plug-in auto, the demand for oil has not declined. China, despite being the largest market by far for electric vehicles, is still projected to consume an enormous and rising amount of oil in the future. About 70% of China’s electricity is generated by coal, which has major environmental ramifications in regards to electric vehicles. Because of enormous energy demand in China this year, coal prices have experienced a massive boom. Its usage was up 15% in the first half of this year, and the Chinese government has instructed power providers to obtain all baseload energy sources, regardless of cost.  The massive migration to electric vehicles – and the fact that they use six times the amount of critical minerals as their gasoline-powered counterparts –means demand for these precious resources is expected to skyrocket. This extreme need for rare minerals, combined with rapid demand growth, is a recipe for a major spike in prices. Massively expanding the US electrical grid has several daunting challenges– chief among them the fact that the American public is extremely reluctant to have new transmission lines installed in their area. The state of California continues to blaze the trail for green energy in terms of both scope and speed. How the rest of the country responds to their aggressive take on renewables remains to be seen. It appears we are entering a very odd reality: governments are expending resources they do not have on weakly concentrated energy. And the result may be very detrimental for today’s modern economy. If the trend in energy continues, what looks nearly certain to be the Third Energy crisis of the last half-century may linger for years.  Green energy: A bubble in unrealistic expectations? As I have written in past EVAs, it amazes me how little of the intense inflation debate in 2021 centered on the inflationary implications of the Green Energy transition.  Perhaps it is because there is a built-in assumption that using more renewables should lower energy costs since the sun and the wind provide “free power”.  However, we will soon see that’s not the case, at least not anytime soon; in fact, it’s my contention that it will likely be the opposite for years to come and I’ve got some powerful company.  Larry Fink, CEO of BlackRock, a very pro-ESG* organization, is one of the few members of Wall Street’s elite who admitted this in the summer of 2021.  The story, however, received minimal press coverage and was quickly forgotten (though, obviously, not be me!).  This EVA will outline myriad reasons why I think Mr. Fink was telling it like it is…despite the political heat that could bring down upon him.  First, though, I will avoid any discussion of whether humanity is the leading cause of global warming.  For purposes of this analysis, let’s make the high-odds assumption that for now a high-speed green energy transition will continue to occur.  (For those who would like a well-researched and clearly articulated overview of the climate debate, I highly recommend the book “Unsettled”; it’s by a former top energy expert and scientist from the Obama administration, Dr. Steven Koonin.) The reason I italicized “for now” is that in my view it’s extremely probable that voters in many Western countries are going to become highly retaliatory toward energy policies that are already creating extreme hardship.  Even though it’s only early autumn as I write these words, energy prices are experiencing unprecedented increases in Europe.  Because it’s “over there”, most Americans are only vaguely aware of the severity of the situation.  But the facts are shocking…  Presently, natural gas is going for $29 per million British Thermal Units (BTUs) in Europe, a quadruple compared to the same time in 2020, versus “just” $5 in the US, which is a mere doubling.  As a consequence, wholesale energy cost in Great Britain rose an unheard of 60% even before summer ended.  Reportedly, nine UK energy companies are on the brink of failure at this time due to their inability to fully pass on the enormous cost increases.  As a result, the British government is reportedly on the verge of nationalizing some of these entities—supposedly, temporarily—to prevent them from collapsing.  (CNBC reported on Wednesday that UK natural gas prices are now up 800% this year; in the US, nat gas rose 20% on Tuesday alone, before giving back a bit more than half of that the next day.) Serious food shortages are expected after exorbitant natural gas costs forced most of England’s commercial production of CO2 to shut down.  (CO2 is used both for stunning animals prior to slaughter and also in food packaging.)  Additionally, ballistic natural gas prices have forced the closure of two big US fertilizer plants due to a potential shortfall of ammonium nitrate of which “nat gas” is a key feedstock.  *ESG stands for Environmental, Social, Governance; in 2021, Blackrock’s assets under management approximated $9 ½ trillion, about one-third of the total US federal debt. With the winter of 2021 approaching, British households are being told they may need to ration heat.  There are even growing concerns about the widespread loss of life if this winter turns out to be a cold one, as 2020 was in Europe.  Weather forecasters are indicating that’s a distinct possibility.   In Spain, consumers are paying 40% more for electricity compared to the prior year.  The Spanish government has begun resorting to price controls to soften the impact of these rapidly escalating costs. (The history of price controls is that they often exacerbate shortages.) Naturally, spiking power prices hit the poorest hardest, which is typical of inflation whether it is of the energy variety or of generalized price increases.  Due to these massive energy price increases, eurozone inflation recently hit a 13-year high, heavily driven by natural gas prices that are the equivalent of $200 per barrel oil.  This is consistent with what I warned about in several EVAs earlier this year and I think there is much more of this looming in the years to come. In Asia, which also had a brutally cold winter in 2020 – 2021, there are severe energy shortages being disclosed, as well.  China has instructed its power providers to secure all the coal they can in preparation for a repeat of frigid conditions and acute deficits even before winter arrives.  The government has also instructed its energy distributors to acquire all the liquified natural gas (LNG) they can, regardless of cost.  LNG recently hit $35 per million British Thermal Units in Asia, up sevenfold in the past year.  China is also rationing power to its heavy industries, further exacerbating the worldwide shortages of almost everything, with notable inflationary implications. In India, where burning coal provides about 70% of electricity generation (as it does in China), utilities are being urged to import coal even though that country has the world’s fourth largest coal reserves.  Several Indian power plants are close to exhausting their coal supplies as power usage rips higher. Normally, I’d say that the cure for such extreme prices, was extreme prices—to slightly paraphrase the old axiom.  But these days, I’m not so sure; in fact, I’m downright dubious.  After all, the enormously influential International Energy Agency has recommended no new fossil fuel development after 2021—“no new”, as in zero.  It’s because of pressure such as this that, even though US natural gas prices have done a Virgin Galactic to $5 this year, the natural gas drilling rig count has stayed flat.  The last time prices were this high there were three times as many working rigs.  It is the same story with oil production.  Most Americans don’t seem to realize it but the US has provided 90% of the planet’s petroleum output growth over the past decade.  In other words, without America’s extraordinary shale oil production boom—which raised total oil output from around 5 million barrels per day in 2008 to 13 million barrels per day in 2019—the world long ago would have had an acute shortage.  (Excluding the Covid-wracked year of 2020, oil demand grows every year—strictly as a function of the developing world, including China, by the way.) Unquestionably, US oil companies could substantially increase output, particularly in the Permian Basin, arguably (but not much) the most prolific oil-producing region in the world.  However, with the Fed being pressured by Congress to punish banks that lend to any fossil fuel operator, and the overall extreme hostility toward domestic energy producers, why would they?  There is also tremendous pressure from Wall Street on these companies to be ESG compliant.  This means reducing their carbon footprint.  That’s tough to do while expanding their volume of oil and gas.  Further, investors, whether on Wall Street or on London’s equivalent, Lombard Street, or in pretty much any Western financial center, are against US energy companies increasing production.  They would much rather see them buy back stock and pay out lush dividends.  The companies are embracing that message.  One leading oil and gas company CEO publicly mused to the effect that buying back his own shares at the prevailing extremely depressed valuations was a much better use of capital than drilling for oil—even at $75 a barrel. As reported by Morgan Stanley, in the summer of 2021, an US institutional broker conceded that of his 400 clients, only one would consider investing in an energy company!  Consequently, the fact that the industry is so detested means that its shares are stunningly undervalued.  How stunningly?  A myriad of US oil and gas producers are trading at free cash flow* yields of 10% to 15% and, in some cases, as high as 25%. In Europe, where the same pressures apply, one of its biggest energy companies is generating a 16% free cash flow yield.  Moreover, that is based up an estimate of $60 per barrel oil, not the prevailing price of $80 on the Continent. *Free cash flow is the excess of gross cash flow over and above the capital spending needed to sustain a business.  Many market professionals consider it more meaningful than earnings.  Therefore, due to the intense antipathy toward Western energy producers they aren’t very inclined to explore for new resources.  Another much overlooked fact about the ultra-critical US shale industry that, as noted, has been nearly the only source of worldwide output growth for the past 13 years, is its rapid decline nature.  Most oil wells see their production taper off at just 4% or 5% per year.  But with shale, that decline rate is 80% after only two years.  (Because of the collapse in exploration activities in 2020 due to Covid, there are far fewer new wells coming on-line; thus, the production base is made up of older wells with slower decline rates but it is still a much steeper cliff than with traditional wells.)  As a result, the US, the world’s most important swing producer, has to come up with about 1.5 million barrels per day (bpd) of new output just to stay even.  (This was formerly about a 3 million bpd number due to both the factor mentioned above and the 2 million bpd drop in total US oil production, from 13 million bpd to around 11 million bpd since 2019).  Please recall that total US oil production in 2008 was only around 5 million bpd.  Thus, 1.5 million barrels per day is a lot of oil and requires considerable drilling and exploration activities.  Again, this is merely to stay steady-state, much less grow.  The foregoing is why I wrote on multiple occasions in EVAs during 2020, when the futures price for oil went below zero*, that crude would have a spectacular price recovery later that year and, especially, in 2021.  In my view, to go out on my familiar creaky limb, you ain’t seen nothin’ yet!  With supply extremely challenged for the above reasons and demand marching back, I believe 2022 could see $100 crude, possibly even higher.  *Physical oil, or real vs paper traded, bottomed in the upper teens when the futures contract for delivery in April, 2020, went deeply negative.  Mike Rothman of Cornerstone Analytics has one of the best oil price forecasting records on Wall Street.  Like me, he was vehemently bullish on oil after the Covid crash in the spring of 2020 (admittedly, his well-reasoned optimism was a key factor in my up-beat outlook).  Here’s what he wrote late this summer:  “Our forecast for ’22 looks to see global oil production capacity exhausted late in the year and our balance suggests OPEC (and OPEC + participants) will face pressures to completely remove any quotas.”  My expectation is that global supply will likely max out sometime next year, barring a powerful negative growth shock (like a Covid variant even more vaccine resistant than Delta).  A significant supply deficit looks inevitable as global demand recovers and exceeds its pre-Covid level.  This is a view also shared by Goldman Sachs and Raymond James, among others; hence, my forecast of triple-digit prices next year.  Raymond James pointed out that in June the oil market was undersupplied by 2.5 mill bpd.  Meanwhile, global petroleum demand was rapidly rising with expectations of nearly pre-Covid consumption by year-end.  Mike Rothman ran this chart in a webcast on 9/10/2021 revealing how far below the seven-year average oil inventories had fallen.  This supply deficit is very likely to become more acute as the calendar flips to 2022. In fact, despite oil prices pushing toward $80, total US crude output now projected to actually decline this year.  This is an unprecedented development.  However, as the very pro-renewables Financial Times (the UK’s equivalent of the Wall Street Journal) explained in an August 11th, 2021, article:  “Energy companies are in a bind.  The old solution would be to invest more in raising gas production.  But with most developed countries adopting plans to be ‘net zero’ on carbon emissions by 2050 or earlier, the appetite for throwing billions at long-term gas projects is diminished.” The author, David Sheppard, went on to opine: “In the oil industry there are those who think a period of plus $100-a-barrel oil is on the horizon, as companies scale back investments in future supplies, while demand is expected to keep rising for most of this decade at a minimum.”  (Emphasis mine)  To which I say, precisely!  Thus, if he’s right about rising demand, as I believe he is, there is quite a collision looming between that reality and the high probability of long-term constrained supplies.  One of the most relevant and fascinating Wall Street research reports I read as I was researching the topic of what I have been referring to as “Greenflation” is from Morgan Stanley.  Its title asked the provocative question:  “With 64% of New Cars Now Electric, Why is Norway Still Using so Much Oil?”  While almost two-thirds of Norway’s new vehicle sales are EVs, a remarkable market share gain in just over a decade, the number in the US is an ultra-modest 2%.   Yet, per the Morgan Stanley piece, despite this extraordinary push into EVs, oil consumption in Norway has been stubbornly stable.  Coincidentally, that’s been the experience of the overall developed world over the past 10 years, as well; petroleum consumption has largely flatlined.  Where demand hasn’t gone horizontal is in the developing world which includes China.  As you can see from the following Cornerstone Analytics chart, China’s oil demand has vaulted by about 6 million barrels per day (bpd) since 2010 while its domestic crude output has, if anything, slightly contracted. Another coincidence is that this 6 million bpd surge in China’s appetite for oil, almost exactly matched the increase in US oil production.  Once again, think where oil prices would be today without America’s shale oil boom. This is unlikely to change over the next decade.  By 2031, there are an estimated one billion Asian consumers moving up into the middle class.  History is clear that more income means more energy consumption.  Unquestionably, renewables will provide much of that power but oil and natural gas are just as unquestionably going to play a critical role.  Underscoring that point, despite the exponential growth of renewables over the last 10 years, every fossil fuel category has seen increased usage.  Thus, even if China gets up to Norway’s 64% EV market share of new car sales over the next decade, its oil usage is likely to continue to swell.  Please be aware that China has become the world’s largest market for EVs—by far.  Despite that, the above chart vividly displays an immense increase in oil demand.  Here’s a similar factoid that I ran in our December 4th EVA, “Totally Toxic”, in which I made a strong bullish case for energy stocks (the main energy ETF is up 35% from then, by the way):  “(There was) a study by the UN and the US government based on the Model for the Assessment of Greenhouse Gasses Induced Climate Change (MAGICC).  The model predicted that ‘the complete elimination of all fossil fuels in the US immediately would only restrict any increase in world temperature by less than one tenth of one degree Celsius by 2050, and by less than one fifth of one degree Celsius by 2100.’  Say again?  If the world’s biggest carbon emitter on a per capita basis causes minimal improvement by going cold turkey on fossil fuels, are we making the right moves by allocating tens of trillions of dollars that we don’t have toward the currently in-vogue green energy solutions?” China's voracious power appetite increase has been true with all of its energy sources.  On the environmentally-friendly front, that includes renewables; on the environmentally-unfriendly side, it also includes coal.  In 2020, China added three times more coal-based power generation than all other countries combined.  This was the equivalent of an additional coal planet each week.  Globally, there was a reduction last year of 17 gigawatts in coal-fired power output; in China, the increase was 29.8 gigawatts, far more than offsetting the rest of the world’s progress in reducing the dirtiest energy source.  (A gigawatt can power a city with a population of roughly 700,000.) Overall, 70% of China’s electricity is coal-generated. This has significant environmental implications as far as electric vehicles (EVs) are concerned.  Because EVs are charged off a grid that is primarily coal- powered, carbon emissions actually rise as the number of such vehicles proliferate. As you can see in the following charts from Reuters’ energy expert John Kemp, Asia’s coal-fired generation has risen drastically in the last 20 years, even as it has receded in the rest of the world.  (The flattening recently is almost certainly due to Covid, with a sharp upward resumption nearly a given.) The worst part is that burning coal not only emits CO2—which is not a pollutant and is essential for life—it also releases vast quantities of nitrous oxide (N20), especially on the scale of coal usage seen in Asia today. N20 is unquestionably a pollutant and a greenhouse gas that is hundreds of times more potent than CO2.  (An interesting footnote is that over the last 550 million years, there have been very few times when the CO2 level has been as low, or lower, than it is today.)  Some scientists believe that one reason for the shrinkage of Arctic sea ice in recent decades is due to the prevailing winds blowing black carbon soot over from Asia.  This is a separate issue from N20 which is a colorless gas.  As the black soot covers the snow and ice fields in Northern Canada, they become more absorbent of the sun’s radiation, thus causing increased melting.  (Source:  “Weathering Climate Change” by Hugh Ross) Due to exploding energy needs in China this year, coal prices have experienced an unprecedented surge.  Despite this stunning rise, Chinese authorities have instructed its power providers to obtain coal, and other baseload energy sources, such as liquified natural gas (LNG), regardless of cost.  Notwithstanding how pricey coal has become, its usage in China was up 15% in the first half of this year vs the first half of 2019 (which was obviously not Covid impacted). Despite the polluting impact of heavy coal utilization, China is unlikely to turn away from it due to its high energy density (unlike renewables), its low cost (usually) and its abundance within its own borders (though its demand is so great that it still needs to import vast amounts).  Regarding oil, as we saw in last week’s final image, it is currently importing roughly 11 million barrels per day (bpd) to satisfy its 15 million bpd consumption (about 15% of total global demand).  In other words, crude imports amount to almost three-quarter of its needs.  At $80 oil, this totals $880 million per day or approximately $320 billion per year.  Imagine what China’s trade surplus would look like without its oil import bill! Ironically, given the current hostility between the world’s superpowers, China has an affinity for US oil because of its light and easy-to-refine nature.  China’s refineries tend to be low-grade and unable to efficiently process heavier grades of crude, unlike the US refining complex which is highly sophisticated and prefers heavy oil such as from Canada and Venezuela—back when the latter actually produced oil. Thus, China favors EVs because they can be de facto coal-powered, lessening its dangerous reliance on imported oil.  It also likes them due to the fact it controls 80% of the lithium ion battery supply and 60% of the planet’s rare earth minerals, both of which are essential to power EVs.     However, even for China, mining enough lithium, cobalt, nickel, copper, aluminum and the other essential minerals/metals to meet the ambitious goals of largely electrifying new vehicle volumes is going to be extremely daunting.  This is in addition to mass construction of wind farms and enormously expanded solar panel manufacturing. As one of the planet’s leading energy authorities Daniel Yergin writes: “With the move to electric cars, demand for critical minerals will skyrocket (lithium up 4300%, cobalt and nickel up 2500%), with an electric vehicle using 6 times more minerals than a conventional car and a wind turbine using 9 times more minerals than a gas-fueled power plant.  The resources needed for the ‘mineral-intensive energy system’ of the future are also highly concentrated in relatively few countries. Whereas the top 3 oil producers in the world are responsible for about 30 percent of total liquids production, the top 3 lithium producers control more than 80% of supply. China controls 60% of rare earths output needed for wind towers; the Democratic Republic of the Congo, 70% of the cobalt required for EV batteries.” As many have noted, the environmental impact of immensely ramping up the mining of these materials is undoubtedly going to be severe.  Michael Shellenberger, a life-long environmental activist, has been particularly vociferous in his condemnation of the dominant view that only renewables can solve the global energy needs.  He’s especially critical of how his fellow environmentalists resorted to repetitive deception, in his view, to undercut nuclear power in past decades.  By leaving nuke energy out of the solution set, he foresees a disastrous impact on the planet due to the massive scale (he’d opine, impossibly massive) of resource mining that needs to occur.  (His book, “Apocalypse Never”, is also one I highly recommend; like Dr. Koonin, he hails from the left end of the political spectrum.) Putting aside the environmental ravages of developing rare earth minerals, when you have such high and rapidly rising demand colliding with limited supply, prices are likely to go vertical.  This will be another inflationary “forcing”, a favorite term of climate scientists, caused by the Great Green Energy Transition. Moreover, EVs are very semiconductor intensive.  With semis already in seriously short supply, this is going to make a gnarly situation even gnarlier.  It’s logical to expect that there will be recurring shortages of chips over the next decade for this reason alone (not to mention the acute need for semis as the “internet of things” moves into primetime).  In several of the newsletters I’ve written in recent years, I’ve pointed out the present vulnerability of the US electric grid.  Yet, it will be essential not just to keep it from breaking down under its current load; it must be drastically enhanced, a Herculean task. For one thing, it is excruciatingly hard to install new power lines. As J.P. Morgan’s Michael Cembalest has written: “Grid expansion can be a hornet’s nest of cost, complexity and NIMBYism*, particularly in the US.”  The grid’s frailty, even under today’s demands (i.e., much less than what lies ahead as millions of EVs plug into it) is particularly obvious in California.  However, severe winter weather in 2021 exposed the grid weakness even in energy-rich Texas, which also has a generally welcoming attitude toward infrastructure upgrading and expansion. Yet it’s the Golden State, home to 40 million Americans and the fifth largest economy in the world, if it was its own country (which it occasionally acts like it wants to be), that is leading the charge to EVs and seeking to eliminate internal combustion engines (ICEs) as quickly as possible.  Even now, blackouts and brownouts are becoming increasingly common.  Seemingly convinced it must be a role model for the planet, it’s trying desperately to reduce its emissions, which are less than 1%, of the global total, at the expense of rendering its energy system more similar to a developing country.  In addition to very high electricity costs per kilowatt hour (its mild climate helps offset those), it also has gasoline prices that are 77% above the national average.  *NIMBY stands for Not In My Back Yard. While California has been a magnet for millions seeking a better life for 150 years, the cost of living is turning the tide the other way.  Unreliable and increasingly expensive energy is likely to intensify that trend.  Combined with home prices that are more than double the US median–$800,000!–California is no longer the land of milk and honey, unless, to slightly paraphrase Woody Guthrie about LA, even back in the 1940s, you’ve got a whole lot of scratch.  More and more people, seem to be scratching California off their list of livable venues.  Voters in the reliably blue state of California may become extremely restive, particularly as they look to Asia and see new coal plants being built at a fever pitch.  The data will become clear that as America keeps decarbonizing–as it has done for 30 years mostly due to the displacement of coal by gas in the US electrical system—Asia will continue to go the other way.  (By the way, electricity represents the largest share of CO2 emission at roughly 25%.)  California has always seemed to lead social trends in this country, as it is doing again with its green energy transition.  The objective is noble though, extremely ambitious, especially the timeline.  As it brings its power paradigm to the rest of America, especially its frail grid, it will be interesting to see how voters react in other states as the cost of power leaps higher and its dependability heads lower.  It’s reasonable to speculate we may be on the verge of witnessing the Californication of the US energy system.  Lest you think I’m being hyperbolic, please be aware the IEA (International Energy Agency) has estimated it will cost the planet $5 trillion per year to achieve Net Zero emissions.  This is compared to global GDP of roughly $85 trillion. According to BloombergNEF, the price tag over 30 years, could be as high as $173 trillion.  Frankly, based on the history of gigantic cost overruns on most government-sponsored major infrastructure projects, I’m inclined to take the over—way over—on these estimates. Moreover, energy consulting firm T2 and Associates, has guesstimated electrifying just the US to the extent necessary to eliminate the direct consumption of fuel (i.e., gasoline, natural gas, coal, etc.) would cost between $18 trillion and $29 trillion.  Again, taking into account how these ambitious efforts have played out in the past, I suspect $29 trillion is light.  Regardless, even $18 trillion is a stunner, despite the reality we have all gotten numb to numbers with trillions attached to them.  For perspective, the total, already terrifying, level of US federal debt is $28 trillion. Regardless, as noted last week, the probabilities of the Great Green Energy Transition happening are extremely high.  Relatedly, I believe the likelihood of the Great Greenflation is right up there with them.  As Gavekal’s Didier Darcet wrote in mid-August:  ““Nowadays, and this is a great first in history, governments will commit considerable financial resources they do not have in the extraction of very weakly concentrated energy.” ( i.e., less efficient)  “The bet is very risky, and if it fails, what next?  The modern economy would not withstand expensive energy, or worse, lack of energy.”  While I agree this an historical first, it’s definitely not great (with apologies for all the “greats”).  This is particularly not great for keeping inflation subdued, as well as for attempting to break out of the growth quagmire the Western world has been in for the last two decades.  What we are seeing in Europe right now is an extremely cautionary case study in just how disastrous the war on fossil fuels can be (shortly we will see who or what has been a behind-the-scenes participant in this conflict). Essentially, I believe, as I’ve written in past EVAs, we are entering the third energy crisis of the last 50 years.  If I’m right, it will be characterized by recurring bouts of triple-digit oil prices in the years to come.  Along with Richard Nixon taking the US off the gold standard in 1971, the high inflation of the 1970s was caused by the first two energy crises (the 1973 Arab Oil Embargo and the 1979 Iranian Revolution).  If I’m correct about this being the third, it’s coming at a most inopportune time with the US in hyper-MMT* mode. Frankly, I believe many in the corridors of power would like to see oil trade into the $100s, and natural gas into the teens, as it will help catalyze the shift to renewable energy.  But consumers are likely to have a much different reaction—potentially, a violently different reaction, as I noted last week.  The experience of the Yellow Vest protests in France (referring to the color of the vest protestors wore), are instructive in this regard.  France is a generally left-leaning country.  Despite that, a proposed fuel surtax in November 2018 to fund a renewable energy transition triggered such widespread civil unrest that French president Emmanuel Macron rescinded it the following month. *MMT stands for Modern Monetary Theory.  It holds that a government, like the US, which issues debt in its own currency can spend without concern about budgetary constraints.  If there are not enough buyers of its bonds at acceptable interest rates, that nation’s central bank (the Fed, in our case) simply acquires them with money it creates from its digital printing press.  This is what is happening today in the US.  Many economists consider this highly inflationary. The sharp and politically uncomfortable rise in US gas pump prices this summer caused the Biden administration to plead with OPEC to lift its volume quotas.  The ironic implication of that exhortation was glaringly obvious, as was the inefficiency and pollution consequences of shipping oil thousands of miles across the Atlantic.  (Oil tankers are a significant source of emissions.)  This is as opposed to utilizing domestic oil output, as well as crude from Canada (which is actually generally better suited to the US refining complex).  Beyond the pollution aspect, imported oil obviously worsens America’s massive trade deficit (which would be far more massive without the six million barrels per day of domestic oil volumes that the shale revolution has provided) and costs our nation high-paying jobs. Further, one of my other big fears is that the West is engaging in unilateral energy disarmament.  Russia and China are likely the major beneficiaries of this dangerous scenario.  Per my earlier comment about a stealth combatant in the war on fossil fuels, it may surprise you that a past NATO Secretary General* has accused Russian intelligence of avidly supporting the anti-fracking movements in Western Europe.  Russian TV has railed against fracking for years, even comparing it to pedophilia (certainly, a most bizarre analogy!).  The success of the anti-fracking movement on the Continent has essentially prevented a European version of America’s shale miracles (the UK has the potential to be a major shale gas producer).  Consequently, the European Union’s domestic natural gas production has been in a rapid decline phase for years.  Banning fracking has, of course, made Europe heavily reliant on Russian gas shipments with more than 40% of its supplies coming from Russia. This is in graphic contrast to the shale output boom in the US that has not only made us natural gas self-sufficient but also an export powerhouse of liquified natural gas (LNG).  In 2011, the Nord Stream system of pipelines running under the Baltic Sea from northern Russia began delivering gas west from northern Russia to the German coastal city of Greifswald.  For years, the Russians sought to build a parallel system with the inventive name of Nord Stream 2.  The US government opposed its approval on security grounds but the Biden administration has dropped its opposition.  It now appears Nord Stream 2 will happen, leaving Europe even more exposed to Russian coercion.  Is it possible the Russian government and the Chinese Communist Party have been secretly and aggressively supporting the anti-fossil fuel movements in America?  In my mind, it seems not only possible but probable.  In fact, I believe it is naïve not to come that conclusion.  After all, wouldn’t it be in both of their geopolitical interests to see the US once again caught in a cycle of debilitating inflation, ensnared by the twin traps of MMT and the third energy crisis? *Per former NATO Secretary General, Anders Fogh Rasumssen:  Russia has “engaged actively with so-called non-governmental organizations—environmental organizations working against shale gas—to maintain Europe’s dependence on imported Russian gas”. Along these lines, I was shocked to listen to a recent podcast by the New Yorker magazine on the topic of “intelligent sabotage”.  This segment was an interview between the magazine’s David Remnick and a Swedish professor, Adreas Malm.  Mr. Malm is the author of a new book with the literally explosive title “How To Blow Up A Pipeline”.   Just as it sounds, he advocates detonating pipelines to inhibit fossil fuel distribution.  Mr. Remnick was clearly sympathetic to his guest but he did ask him about the impact on the poor of driving energy prices up drastically which would be the obvious ramification if his sabotage recommendations were widely followed.  Mr. Malm’s reaction was a verbal shrug of the shoulders and words to the effect that this was the price to pay to save the planet. Frankly, I am appalled that the venerable New Yorker would provide a platform for such a radical and unlawful suggestion.  In an era when people are de-platformed for often innocuous comments, it’s incredible to me this was posted and has not been pulled down.  In my mind, this reflects just how tolerant the media is of attacks on the fossil fuel industry, regardless of the deleterious impact on consumers and the global economy. Surely, there is a far better way of coping with the harmful aspects of fossil fuel-based energy than this scorched earth (literally, in the case of Mr. Malm) approach, which includes efforts to block new pipelines, shut existing ones, and severely restrict US energy production.  In America’s case, the result will be forcing us to unnecessarily and increasingly rely on overseas imports.  (For example, per the Wall Street Journal, drilling permits on federal land have crashed to 171 in August from 671 in April.  Further, the contentious $3.5 trillion “infrastructure” plan would raise royalties and fees high enough on US energy producers that it would render them globally uncompetitive.) Such actions would only aggravate what is already a severe energy shock, one that may be worse than the 1970s twin energy crises.  America has it easy compared to Europe, though, given current US policy trends, we might be in their same heavily listing energy boat soon. Solutions include fast-tracking small modular nuclear plants; encouraging the further switch from burning coal to natural gas (a trend that is, unfortunately, going the other way now, as noted above); utilizing and enhancing carbon and methane capture at the point of emission (including improving tail pipe effluent-reduction technology); enhancing pipeline integrity to inhibit methane leaks; among many other mitigation techniques that recognize the reality the global economy will be reliant on fossil fuels for many years, if not decades, to come.  If the climate change movement fails to recognize the essential nature of fossil fuels, it will almost certainly trigger a backlash that will undermine the positive change it is trying to bring about.  This is similar to what it did via its relentless assault on nuclear power which produced a frenzy of coal plant construction in the 1980s and 1990s.  On this point, it’s interesting to see how quickly Europe is re-embracing coal power to alleviate the energy poverty and rationing occurring over there right now - even before winter sets in.  When the choice is between supporting climate change initiatives on one hand and being able to heat your home and provide for your family on the other, is there really any doubt about which option the majority of voters will select? Tyler Durden Tue, 10/26/2021 - 19:30.....»»

Category: worldSource: nytOct 26th, 2021

A Tale Of Two Civilizations

A Tale Of Two Civilizations Authored by Alasdair Macleod via GoldMoney.com, In recent years, America’s unsuccessful attempts at containing China as a rival hegemon has only served to promote Chinese antipathy against American capitalism. China is now retreating into the comfort of her long-established moral values, best described as a mixture of Confucianism and Marxism, while despising American individualism, its careless regard for family values, and encouragement of get-rich-quick financial speculation. After America’s defeat in Afghanistan, the geopolitical issue is now Taiwan, where things are hotting up in the wake of the AUKUS agreement. Taiwan is important because it produces two-thirds of the world’s computer chips. Meanwhile, the large US banks are complacent concerning Taiwan, preferring to salivate at the money-making prospects of China’s $45 trillion financial services market. The outcome of the Taiwan issue is likely to be decided by the evolution of economic factors. China is protecting herself against a global credit crisis by restraining its creation, while America is going full MMT. The outcome is likely to be a combined financial market and dollar crisis for America, taking down its Western epigones as well. China has protected herself by cornering the market for physical gold and secretly accumulating as much as 20,000-30,000 tonnes in national reserves. If the dollar fails, which without a radical change in monetary policy it is set to do, with its gold-backing China expects to not only survive but be able to consolidate Taiwan into its territory with little or no opposition. Introduction On the one hand we have America and on the other we have China. As civilisations, America is discarding its moral values and social structures while China is determined to stick with its Confucian and Marxist roots. America is inclined to recognise no other civilisations as being civilised, while China’s leadership has seen America’s version and is rejecting it. Both forms of civilisation are being insular with respect to the other, and their need to peacefully cooperate in a multipolar world is increasingly hampered. Understanding another nation’s point of view is essential for peaceful harmony. This truism has been ignored by not just America, but by the Western alliance under American coercion. The Federal Government and its agencies are pursuing a propaganda effort against China’s exports and technology, while the average American appears less troubled. Perhaps we can put this down to a nation based on immigrants having a more cosmopolitan psyche than its predominantly Anglo-Saxon establishment. In Europe, it sometimes appears to be the other way round, with the politicians more prepared to tolerate China than their US counterparts. But then geography is involved, and the silk roads do not involve America, while rail links between China and Western Europe work efficiently, delivering vital trade between them. Economic interdependency is rarely considered. Nor are the potential consequences of diverging economic and monetary policies. While China has been squeezing domestic credit, the West has been issuing currency and credit like drunken sailors on shore leave. Being starved of extra credit, China’s economy has been deliberately stalled, and there is a real or imagined crisis developing in its property markets. Only now, it has become apparent that the West’s major economies are running into troubles of their own. Economic destabilisation heightens the risk of conflict, and perhaps the timing of the build-up of tensions in the South China Sea and over Taiwan is not accidental. On Wall Street there is an air of complacency, with the US investment community led by the big banks ignoring the developing risks of this dysfunction. In the context of deteriorating relations between China and America and with China’s growing contempt for US political resolve, Taiwan is becoming extremely important geopolitically. China’s plans for Taiwan Taiwan is in the world’s geopolitical crosshairs with President Xi insisting it returns to China. The West, which has failed to protect Taiwan from China’s claims of sovereignty in the past, thereby endorsing them, is only now belatedly coming to its aid with a new Pacific strategy. But the signals already sent to the Chinese are that the Western alliance is too divided, too weak to prevent a Chinese takeover. This surely is the reasoning behind China’s attempts to provoke an attack on its air force by invading Taiwan’s airspace. And all the West can do is indulge in finger-wagging by sailing aircraft carriers through the Taiwan Strait. Taiwan matters, being the source of two-thirds of the world supply of microchips. Faced with a pusillanimous west, this fact hands great power to China — which with Taiwan corners the market. Furthermore, the big Wall Street banks are salivating over the prospects of participating in China’s $45 trillion financial services market and are preparing for it. China has thereby ensured the US banking system has too much invested to support the US administration in any escalation of the Taiwan issue. The actual timing of China’s escalation of the Taiwan issue appears related to the AUKUS nuclear submarine deal. That being so, the posturing between China and the Western Alliance has just begun. There are four possible outcomes: China backs off and the tension subsides, America and the Western Alliance back off and China gets Taiwan, there is a negotiated settlement, or a military war against China ensues. In this context it is important to understand the civilisation issue, which increasingly divides China and America. There is little doubt that the hitherto normal relationship between America and China was disrupted by President Trump becoming nationalistic. His “make America great again” policy was a declaration of a trade war. That was accompanied by a political attack on Hong Kong, which provoked China into taking Hong Kong under direct mainland control. There followed a technology war, leading to the arrest of the daughter of Huawei’s founder in Canada. There appears to be little change in President Biden’s policy against China. Now that his administration has bedded in, China is beginning to test it over Taiwan. To give it context, we should understand the Chinese culture and why the state is so defensive of it, and how the leadership views America and its weaknesses. For that is what is behind its economic divergence from the West. China’s changing political culture Since becoming President, Xi has reformed China’s state machinery. After assuming power in 2012, he needed to clear out the corrupt and vested interests of the previous regime. He instigated Operation Fox Hunt against corrupt officials, who, it was estimated, had salted away the equivalent of over a trillion dollars abroad. By 2015 over 180 people had been returned to China from more than 40 countries. Former security chief Zhou Yongkang and former vice security minister Sun Lijun ended up in prison and Hu Jintao’s powerful Communist Youth League faction was marginalised. By dealing ruthlessly with corrupt officials Xi got rid of the vested interests that would have potentially undermined him. He consolidated both his public support and his iron grip on the Communist Party for the decade ahead. His public approval ratings remain extraordinarily high to this day. On the economic front Xi faced major challenges. Having become the world’s manufacturer, a sharp wealth divide opened between China’s concentrated manufacturing centres and rural China. Some 600 million people are still subsisting on a monthly income of less than 1,000 yuan ($156) a month. A rapidly increasing urban population has been denuding the rural economy of human resources and undermining the family culture. The wealth disparity between city and country has become an important political issue, which is why as well as refocusing resources towards agriculture Xi has clamped down on super-rich entrepreneurs and their record-breaking IPOs. In his Common Prosperity policy, Xi declared that he was not prepared to let the gap between rich and poor widen, and that common prosperity was not just an economic issue but “a major political issue related to the party’s governing foundations”. Following decades of communism under Mao, after China’s initial recovery and development Xi is now clamping down on unfettered capitalism. He and his advisers have observed the disintegration of family values in America and the rise of individualism at the expense of family life; and with popular culture how these trends are being adopted by China’s youth. The state has now shut down western-style social media, and erased celebrity culture. The social impact of cultural change is often overlooked, but it is at the forefront of China’s policy-makers’ consideration. For millennia, a state-controlled Chinese civilisation endured. Despite the Cultural Revolution, the post-war Mao Zedong years failed to erase it. Never sympathetic to free markets, statist thoughts have turned inwardly to Confucius and Marx to escape the obvious failings of American capitalism and its decline from familial values to individualism and rampant speculation. This is what Xi reflects in his presidency. His chief adviser, his éminence grise, is Wang Huning who operates in the political shadows. From all accounts, Wang is extremely clever, speaks French and English, spent a year in America and is a deep thinker who, having examined them, has rejected western values in favour of Chinese tradition. NS Lyons, an analyst and writer living in Washington, DC, has written an interesting article about Wang, published on Palladium Magazine — it is well worth reading. As we saw with the UK’s temporary éminence grise, Dominic Cummings, the power to influence possessed by such a person is considerable, but always in a statist context. The economics of free markets are not involved, except as a source of revenue to fund statist ambitions. The result is an assumption, an ignorance of economic affairs concealed by an automatic acceptance of the status quo. This is Wang’s weak point, and insofar as Xi relies on his advice, it is the President’s as well. Wang appears to be promoting a Confucian/Marxist hybrid civilisation which is intended to unify China’s many ethnic groups in a government-set culture, reverting to a morality of yesteryear. Comparing China’s future with that of American democracy and its moral degradation, the approach is understandable and enjoys popular support. But the consequences are that the state is drifting backwards towards its Marxist roots. The central command over the economy is exemplified in energy policy: power entities have been instructed to keep factories running without power outages, irrespective of coal and natural gas costs. In fact, the management of the economy was never relinquished by the state, which is now redoubling its efforts to retain control over economic outcomes. All one can say is that so far, the Chinese appear to have made considerably less of a mess managing their economy and currency compared with America’s Federal Government and its central bank. The political consequences are also important. By stemming the tide of Western moral decadence in her own territory China is insulating herself from the rest of the American-dominated world. This is being bolstered by steps to shift the emphasis from the export trade towards domestic consumption to improve living standards. In the process China will become more of an economic fortress, mainly interested in Africa and the Americas as sources of raw materials and commodities rather than as export markets to be fostered. China’s internationalism of the last four decades is increasingly redirected and confined to the Eurasian continent over which she exercises greater degrees of political and economic control. Which brings us back to the issues of Taiwan and the South China Sea, which China sees as consolidating her rightful political and cultural borders. However, the increasing autarky of both China and America is making the Taiwan issue more difficult to resolve peacefully. And we must also consider the opposing directions of drift for their two economies, which could decide the outcome. The US’s economic condition and outlook There is a mistaken assumption that the US’s economic troubles relate solely to the consequences of the covid lockdowns. Certainly, the Fed timed its funds rate cut to the zero bound and its current and unprecedented rate of quantitative easing of $120bn every month to March 2020, when lockdowns in Europe and the UK commenced. And it was becoming clear, despite President Trump’s prevarication, that the US would follow. But that ignores developments which preceded covid. Probably due to earlier tapering of QE in 2019, financial markets signalled a developing slump, with the S&P 500 falling 35% in 23 trading sessions to mid-March 2020 — eerily replicating the Wall Street Crash between end-September and late October 1929. It took the reduction of the Fed funds rate to the zero bound, and $120bn of monthly QE feeding into pension funds and insurance companies to turn markets higher. The yield on 10-year US Treasuries fell to 0.5% and equities markets soared on the back of a new basis of relative valuation. After the repo blow-up in September 2019, it became clear that bank balance sheets were too constrained to extend additional bank credit, and conventionally, that might have marked the turn of the bank credit cycle, which was why the comparison with late-1929 was so apt. Furthermore, the banks became less interested in extending credit to Main Street than to Wall Street after financial markets stabilised. The recovery in equities and their move into new high ground is simply asset inflation. Speculators have been quick to add to the Fed’s QE liquidity by drawing on bank and shadow bank credit to play the game. Figure 1 shows how margin loans have nearly doubled as the bull market in equities proceeded from late-March 2020. Never has so much leverage been seen in US securities markets. During covid lockdowns, beyond pure survival few in industry made judgements about the future. It was commonly assumed that when lockdowns ceased business would return to normal. But this made no allowance for the passage of time and the evolution of consumer needs and wants. Eighteen months later, we find that supply chains are still wrongfooted, disrupted by covid shutdowns and not supplying newly needed goods. Consumer demand patterns are not where they left off — they have radically changed. Buoyancy in the US economy is now proving short-lived. The flood of initial spending following lockdowns has receded and different factors are now at play. Supply bottlenecks due to lack of components, transport, and labour are forcing up prices at a pace not reflected in official statistics. In effect, GDP is insufficiently deflated by price rises on the high street to give a reasonable estimate of real GDP. With prices probably rising at over 15% annualised (Shadowstats.com estimated 13.5% three months ago and pressures on rising prices have increased significantly since) the US economy is in a slump which is beginning to replicate that of ninety years ago. The difference is that in 1930-33 the dollar was on a gold coin standard increasing its purchasing power as bank credit was withdrawn, while today it is pure fiat and declining at an increasing pace. Rising prices across the board are another way of saying that the currency’s purchasing power is declining, which given the Fed’s monetary policies of recent years is not surprising. Figure 2 shows the impact of the Fed’s monetary policy on commodity prices, which reflects the dollar’s weakness as a medium of exchange. Given that it takes anything between a few weeks and six months for energy and commodity prices to work through to consumer prices, the recent spurt in commodity prices strongly suggests that consumer prices are going to continue to rise into next year. Yet, only now are the Fed and other central banks beginning to accept that rising prices are not going to be as temporary as they first hoped. This is because it is not prices rising, but the dollar’s purchasing power falling. When they fully realise it, foreign holders of dollars, totalling $33 trillion held in securities, short-term instruments, and bank deposits will require higher interest compensation to persuade them to continue holding dollars. And this is where a conflicting problem arises. A rise in interest rates sufficient to compensate foreign holders of dollars for the currency’s loss of purchasing power will undermine the values of their US stock holdings, totalling $14 trillion, of which $12 trillion is held by private sector foreign investors. Furthermore, a further $12.5 trillion of foreign private sector funds are invested in long-term bonds which will also decline in value. Higher interest rates will certainly trigger private sector selling of these assets across the board. The fate of $6.6 trillion of foreign official holdings of long-term securities will be partly political, demonstrated by the most recent Treasury TIC figures which showed China selling $21bn of US Treasuries, and Japan and the UK buying $39bn between them. This is strongly suggestive of swap lines being drawn down to support the US Treasury bond market, while presumably the US, either through the Treasury, the Exchange Stabilisation Fund, or the Fed itself has bought JGBs and gilts as the quid pro quo. It is worth noting this point because it shows how low bond yields are perpetuated by cooperation between major central banks – along with the attendant monetary inflation. That being the case, private sector holders are misled by price stability while bonds are being wildly overvalued. Another way of looking at it is that if John Williams at Shadowstats is right about inflation statistics, then US Treasuries should be yielding as much as 10% along the whole yield curve. Perhaps the recent rise in the 10-year US Treasury yield in Figure 2 is indicating the start of the process of this discovery for foreign and domestic investors alike. The chart shows that once the 1.75% level is overcome, there is considerable upside in the yield, with a golden cross forming under the spot value. If yields rise from here, it will not be long before equity markets take note and enter a full-blown bear market. The first reaction from the Fed to these events will almost certainly be to claim that falling equities are a leading economic indicator, suggesting the economy faces a post-covid recession. Interest rates cannot be eased further, but QE can be stepped up to cap bond yields and encourage pension funds and insurance corporations to increase their investments. This would be a U-turn from the projected policy of reducing QE due to inflation concerns. But at that point the neo-Keynesian argument can be expected to claim that the developing recession more than negates prospective inflation concerns. Facing the same dynamics, the other leading central banks are certain to fall in line with the Fed’s new policy. But as John Law found in a similar situation in France in 1720, rigging a failing stock market (in his case the Mississippi venture) by currency and credit expansion ultimately fails and undermines the currency. Law destroyed the French economy, contrasting with the British South Sea Bubble, where the Bank of England was not involved and did not deploy its currency to ramp markets. Today, it appears that Law’s experiment is about to be repeated on a grander scale by the issuer of the world’s reserve currency. The other major western central banks will follow suite. The whole fiat money system is at risk of being driven into a similar failure as that which faced the French livre. So, where would that leave China? China’s economic and monetary outlook As noted above, China has followed a different monetary path from that of the Fed for some time — most pointedly since March 2020. Consequently, the yuan has risen against the dollar since then, illustrated in Figure 4. After some initial uncertainty, the yuan began to rise against the dollar and is now about 10% up on the late-March 2020 level. This is not significant yet, because the dollar’s trade-weighted index has fallen by a similar amount. But with China’s monetary policy of clamping down on shadow banking and excessive bank credit creation, compared against the Fed’s more expansionary monetary policies, we can expect the trend for a stronger yuan relative to the dollar to continue. In neo-Keynesian language, China is in a period of deflation, leading to falling prices relative to those measured in dollars. But that misses the point: China has been careful not to encourage speculation in financial assets, reflected in relative stock market performances, shown in Figure 5. While the Fed has been inflating stock prices through interest rate and monetary policies, the Chinese have discouraged speculation. The result is that financial assets in China should be less vulnerable to a general market downturn. It has been a deliberate policy to protect the Chinese economy from 2014 onwards, after the PLA’s chief strategist, Major-General Qiao Liang convinced Beijing that permitting unfettered speculation would leave markets vulnerable to a pump-and-dump attack by America. To the Chinese, excessive financial speculation aided and abetted by the Fed must look like a cover for underlying economic failure. Every thread of their analysis must point to economic disintegration from which China must protect herself. Rates of credit expansion must be restricted, and the yuan be permitted to rise on the foreign exchanges. The change in policy emphasis from export markets towards increasing domestic consumption should be accelerated. In any event, China is the world’s dominant manufacturer, so she has a good degree of control over prices in international trade for consumer goods anyway. The prices of imported commodities and raw materials matter more today and rising dollar prices for commodities and energy can be countered by a higher exchange rate for the yuan. The state’s policy of least risk is to quietly divorce the Chinese economy from the dollar’s influence. In switching some of its trade into the yuan and other currencies, it has been doing this since the Lehman failure, which was another seminal moment in Chinese thinking. The cultural analysis is that America is now destroying its own currency towards a terminal event, an outcome forecast by economics professors in China’s Marxist universities over fifty years ago. The post-Mao ride, piggybacking on American capitalistic methods, is no longer tenable. The golden backstop Like the Marxist professors in the universities, China’s thinkers, such as Wang Huning and President Xi himself, always believed America to be politically and morally rudderless and would destroy itself. Presumably the election of an unpredictable Trump followed by a President Biden who appears to be in a geriatric decline is seen in Beijing as evidence that American society is indeed rudderless and imploding. It was against this likely event that in 1983 far-sighted Chinese strategists began to accumulate gold and to corner the word market for bullion. It would have been obvious to them that one day, dancing with the capitalist devils would become too dangerous and China’s future would have to be secured at the outset long before a capitalist collapse. Accordingly, the Regulations on the Control of Gold and Silver were promulgated on 15 June that year, appointing the People’s Bank (PBOC) with sole responsibility for managing China’s gold and silver while private ownership remained banned. The PBOC then began to acquire gold from foreign markets, a task made easier by the 1980-2002 bear market. Meanwhile, the government threw substantial resources into developing gold mining, and became the largest gold producer in the world by a substantial margin, overtaking South Africa, Russia, and the United States. State owned refineries took in doré from abroad, adding to the accumulation. It was only after the PBOC had accumulated sufficient bullion from imports and domestic production that she set up the Shanghai Gold Exchange in 2002 and permitted Chinese citizens to acquire gold. The government even ran advertising campaigns encouraging the purchase of gold, and since then, over 19,000 tonnes have been delivered into private sector ownership from the SGE’s vaults. Together with the total ban on exports of Chinese refined gold, the pre-2002 ban on private ownership while the state acquired sufficient bullion for its purposes, coupled with the subsequent encouragement to the public to do the same, China clearly regarded gold as her most important strategic asset. It has still not shown its hand, but given the likely amounts involved, to do so would risk destabilising the dollar-centric fiat currency world. Until it happens, we should assume that the 20,000-30,000 tonnes likely to have been accumulated in various state accounts since 1983 is an insurance policy against the failure of American capitalism and the world’s reserve currency. This brings us back to the Taiwan question. For China, the re-absorption of Taiwan may become a simpler matter when the capitalistic Americans are economically at their weakest and the dollar is collapsing. Taiwan itself might face up to this reality. A few steps to push America on its way may be tempting, such as selling down their holdings of US Treasuries (already in process) or disclosing a significantly higher level of gold reserves. The latter may wait until a dollar crisis really develops, which is now surely only a matter of a little time. Tyler Durden Sat, 10/23/2021 - 22:30.....»»

Category: personnelSource: nytOct 24th, 2021

Futures Drift Before Taper-Triggering Jobs Report

Futures Drift Before Taper-Triggering Jobs Report US equity-index drifted in a tight range overnight, in a tight range before key jobs data that could provide clues on the Federal Reserve’s policy. As noted in our preview, unless the jobs report is a disaster, it will virtually assure the Fed launches tapering in one month. Markets drifted higher on Thursday after the Senate averted the risk of an immediate default, pushing global stocks on course for their best week since early September, but a late day selloff wiped away most gains and closed spoos below the critical 4400 level. At 07:30 a.m. ET, Dow e-minis were up 35 points, or 0.10%, S&P 500 e-minis were up 5.00 points, or 0.1%, and Nasdaq 100 e-minis were up 10.75 points, or 0.07%. Treasury Yields were 1 point higher after earlier tagging 1.60%, the highest since June. The dollar was flat while Brent topped $83 before paring gains. Bitcoin traded above $55,000. Uncertainty over the debt ceiling negotiations and a run-up in U.S. Treasury yields over elevated inflation were major concerns among investors earlier this week, injecting volatility in equity markets this week. High-growth FAAMG stocks slipped in premarket trading following sharp gains in previous session. Energy firms including Chevron Corp and Exxon Mobil gained about 0.8% tracking crude prices, while major U.S. lenders also edged up as the benchmark 10-year yield hit its highest level since June 4. Here are some of the biggest movers and stocks to watch today: Tesla (TSLA US) shares in focus after Elon Musk says a global shortage of chips and ships is the only thing standing in the way of the company maintaining sales growth in excess of 50% Sundial Growers (SNDL US) shares rise as much as 19% in U.S. premarket after the Canadian cannabis producer said it will buy liquor and pot retailer Alcanna for $276m in stock Allogene Therapeutics (ALLO US) plunges 36% in U.S. premarket trading after an early-stage study of its cell therapy was put on hold by U.S. regulators Prelude Therapeutics (PRLD US) fell in U.S. premarket trading, adding to Thursday’s 40% plunge on early- stage data for the company’s experimental cancer treatments that Barclays says came in below expectations Vaxart (VXRT US) rises 8% in U.S. premarket trading after its oral tablet vaccine candidate cut transmission of Covid-19 in animals, according to data from a study led by Duke University Faraday Future (FFIE US) slides 4% in U.S. premarket trading after J Capital says it is short on the stock. The short-seller says they don’t think the company “will ever sell a car” Codiak Biosciences (CDAK US) shares fell 6% in Thursday postmarket trading after disclosing that Sarepta Therapeutics is terminating a research license and option agreement Agile Therapeutics (AGRX US) tumbled Thursday postmarket after the women’s health-care company said that it intends to offer and sell shares of its common stock, as well as warrants to purchase shares of its common stock, in an underwritten public offering Looking to today's main event, economists expect September hiring to have surged by 500,000 jobs as the summer wave of COVID-19 infections began to subside, and as millions of Americans no longer receive jobless benefits, positioning the Fed to start scaling back its monthly bond buying.  “All roads lead to non-farm payrolls data which will decide, in the market’s minds, whether the start of the Fed taper is a done deal for December,” said Jeffrey Halley, senior market analyst at OANDA. “I do not believe that markets have priced in the Fed taper and its implications to any large degree yet. Even a weak number probably only delays the inevitable for another month.” Even “reasonably soft” payrolls and unemployment figures wouldn’t be enough to change the minds of its officials, according to Ipek Ozkardeskaya, senior analyst at Swissquote. “Only a shockingly low figure could do that,” she said. “The persistent rise in oil prices can only continue boosting inflation fears and the central bank hawks, limiting the upside potential in case of a further recovery in stocks.” “As soon as you start thinking about tapering it’s really hard to not then think about what that means for the Fed funds rate and when that might start to increase,” Kim Mundy, currency strategist and international economist at Commonwealth Bank of Australia in Sydney, said on Bloomberg Television. “We do see scope that markets can start to price in a more aggressive Fed funds rate hike cycle.” In Europe, tech companies led the Stoxx Europe 600 Index down 0.2%, with energy stocks and carmakers being the only industry groups with meaningful gains. Chip stocks fell, especially Apple suppliers, following a profit warning from Asian peer and fellow supplier AAC Technologies. On the other end, European travel stocks rose after U.K. confirmed the travel “red list” will be cut to just seven countries; British Airways parent IAG and TUI led the advances. Here are some of the biggest European movers today: Daimler shares gains as much as 3.2%, outperforming peers, after UBS upgrades stock to buy from neutral, calling it an earnings momentum story that stands to gain from strong demand, electrification trends and its future focus on passenger cars. Adler shares rise as much as 13% after shareholder Aggregate sells a call option to Vonovia for a 13.3% stake in the German real estate investment firm at a strike price of EU14 per share. Cewe Stiftung shares jump as much as 4.2%, their best day in over three months, after the photography services firm gets a new buy rating at Hauck & Aufhaeuser. Weir shares fall as much as 6.3%, to the lowest since Nov. 13, after the U.K. machinery maker announced that a ransomware attack will affect full-year profitability; Jefferies says it’s unlikely that guidance beyond that will be revised. Zur Rose slumps as much as 9.2% after Berenberg downgrades the Swiss online pharmacy to hold from buy, citing the expected negative impact from a delay in the implementation of mandatory e-prescriptions in Germany. Czech digital-payments provider Eurowag shares slide as much as 10% as it starts trading in London, after pricing its IPO below an initial range and making its debut a day later than planned. Asian stocks rose for a second day as China’s market reopened higher and the U.S. Senate approved a short-term increase in the debt ceiling. The MSCI Asia Pacific Index advanced as much as 1% in a rally led by consumer discretionary shares. Alibaba and Tencent were among the biggest contributors to the gauge’s climb. Shares in mainland China surged more than 1% as investors returned from the Golden Week holiday. Chinese property shares fell after a report that more than 90% of China’s top 100 property developers’ sales declined in September by an average of 36% from the same period last year, while investor concerns about developers’ liquidity rose after Fantasia bonds were suspended from trading. In mainland: CSI 300 Real Estate Index drops as much as 2%, Seazen Holdings falls as much as 5%, Poly Developments -4%. Asia’s stock benchmark is slightly down for the week, as rising bond yields weighed on tech-heavy indexes in South Korea, Taiwan and Japan. The gauge is down more than 1% this month amid an energy shortage in China and India.  “Markets may not want to commit directionally” given that we have non-farm payrolls data on the docket, making a follow-through of today’s rally suspect, said Ilya Spivak, the head of Greater Asia at DailyFX. Traders are expecting today’s U.S. employment data to provide clues on the direction of the world’s largest economy. On Thursday, the U.S. averted what would have been its first default on a debt payment. Most major benchmarks in Asia climbed, led by Japan, Indonesia and Australia. India’s central bank kept its lending rates at a record low at a policy meeting today. In Australia, the S&P/ASX 200 index rose 0.9% to close at 7,320.10. All industry groups edged higher. The benchmark rose 1.9% for the week, the biggest weekly gain since early August. Miners led the charge, having the best week since July, banks the best since the start of March. EML Payments tumbled after an update on its Ireland subsidiary from the country’s central bank. Chalice Mining continued its rebound, finishing the session the strongest performer in the mining subgauge.  There is a risk of excessive borrowing due to low interest rates and rising house prices, Reserve Bank of Australia said in its semiannual Financial Stability Review released Friday. In New Zealand, the S&P/NZX 50 index fell 0.1% to 13,086.60 In rates, Treasury futures remained under pressure after paring declines that pushed 10-year yield as high as 1.5995% during European morning, highest since June 4; the 1.60% zone is thought to have potential to spur next wave of convexity hedging. U.K. 10-year is higher by 4bp, German by 2.3bp - gilts underperformed, weighing on Treasuries as money markets continue to bring forward BOE rate-hike expectations. During U.S. session, September jobs report may seal case for Fed taper announcement in November.  In FX, the greenback traded in a narrow range versus G10 peers while 10-year Treasury yields approached 1.6%, outperforming Bunds.  Gilt yields rose 5-6bps across the curve; demand for downside protection in the pound eases this week as the U.K. currency moves off cycle lows amid money markets repricing. U.K. wage growth rose at its strongest pace on record in a survey of job recruiters, indicating strains from a shortage of workers are persisting. Turkish lira initially weakens above 8.96/USD before recouping half of its losses In commodities, oil extended a rebound, on track for a seventh weekly gain. Crude futures pushed to the best levels for the week. WTI rises 1.5% near $79.50, Brent pops back on to a $83-handle. Spot gold trades a $5 range near $1,757/oz. Base metals are mostly positive, with LME nickel gaining over 3.5%. Looking at the day ahead, the highlight will be the aforementioned September jobs report. Central bank speakers include ECB President Lagarde and the ECB’s Panetta. Market Snapshot S&P 500 futures little changed at 4,389.50 STOXX Europe 600 down 0.3% to 457.18 MXAP up 0.4% to 194.72 MXAPJ up 0.2% to 636.80 Nikkei up 1.3% to 28,048.94 Topix up 1.1% to 1,961.85 Hang Seng Index up 0.6% to 24,837.85 Shanghai Composite up 0.7% to 3,592.17 Sensex up 0.7% to 60,070.61 Australia S&P/ASX 200 up 0.9% to 7,320.09 Kospi down 0.1% to 2,956.30 Brent Futures up 1.4% to $83.09/bbl Gold spot up 0.0% to $1,756.25 U.S. Dollar Index little changed at 94.29 German 10Y yield up +3.4 bps to -0.151% Euro little changed at $1.1549 Top Overnight News from Bloomberg Global talks to reshape the corporate tax landscape are set to resume on Friday after Ireland’s decision to adhere to the world consensus on a minimum rate removed one hurdle to an agreement that still hangs in the balance Germany’s Social Democrats hailed a positive start in their effort to form a government after their first meeting with the Greens and the pro-business Free Democrats A U.S. nuclear-powered attack submarine struck an object while submerged in international waters in the Indo- Pacific region last week, the Navy said, adding that no life- threatening injuries were reported China drained the most short- term liquidity from the banking system in a year on a net basis as it reduced support after a week-long holiday. Government bond futures slid by the most since August China’s central bank will continue to push for the reform of its benchmark loan rate and make deposit rates more market-based, according to a senior official India’s central bank surprised markets by suspending its version of quantitative easing, signaling the start of tapering pandemic-era stimulus measures as an economic recovery takes hold U.K. government bond yields have climbed to levels last seen before the Brexit referendum in 2016 relative to German peers, as traders brace for inflation in Britain over the next decade to far outpace the rate in Europe’s largest economy A detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly higher as the region conformed to the global upbeat mood after the agreement in Washington to raise the debt ceiling which the Senate approved, with the overnight bourses also invigorated by the return of China and strong Caixin PMI data. The ASX 200 (+0.9%) was led higher by strength in mining names with underlying commodity prices boosted as Chinese buyers flocked back to market which helped the ASX disregard a record increase in daily COVID-19 cases in Victoria state. Nikkei 225 (+1.3%) was the biggest gainer and reclaimed the 28k level as exporters benefitted from a softer currency, while attention turns to PM Kishida who will outline his policy program today and is reportedly planning to present an additional budget after the election. Furthermore, there were recent comments from an ally of the new PM who suggested that capital gains tax could be raised to 25% from the current 20% without affecting stock prices, although this failed to dent the mood in Tokyo and weaker than expected Household Spending was also brushed aside. The gains for the KOSPI (-0.1%) were later reversed alongside the tentative price action in index heavyweight Samsung Electronics after its Q3 prelim. results showed oper. profit likely rose to its highest in three years but missed analysts’ forecasts. Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were mixed with the latter jubilant on reopen from the Golden Week holiday after improved Caixin Services and Composite PMI data which both returned to expansionary territory. This helped mainland stocks overlook the recent developer default fears and largest daily liquidity drain by the PBoC since October last year, although Hong Kong initially lagged amid heavy Northbound Stock Connect trade. Finally, 10yr JGBs declined on spillover selling from T-notes and with havens shunned amid the gains across riskier assets, although downside in JGBs was limited given the BoJ’s presence in the market for nearly JPY 1.5tln of JGBs with up to 10yr maturities. Top Asian News Gold Steadies Ahead of Key U.S. Jobs Report as Yields Climb Investors Fear Tax Talk in Kishida’s ‘New Japanese Capitalism’ China Coal Prices Plunge as Producers Vow to Ease Shortages China Developer Stocks Fall After Report of Monthly Sales Drop An initially contained to marginally-firmer European cash open followed an upbeat APAC handover (ex-Hang Seng) was short-lived with bourses coming under moderate pressure; Euro Stoxx 600 -0.3%. As such, major indices are all in the red, except for of the UK FTSE 100 which is essentially unchanged and bolstered by strength in heavy-weight energy and mining names given broader price action the return of China. Sectors were initially mixed at the open, but in-fitting with the action in indices, has turned to a predominantly negative performance ex-energy. Crossing to the US, futures have directionally been following European peers, but the magnitude has been more contained, with the ES unchanged as we await the September labour market report for any read across to the Fed’s policy path; however, officials have already made it clear that it would have to be a very poor report to spark a deviation from its announced intentions, where it is expected to announce an asset purchase tapering in November. Returning to Europe, Daimler (+2.5%) stands out in the individual stocks space, firmer after a broker upgrade and notable price target lift at UBS; Marks & Spencer (+1.5%) is also supported on broker action. To the downside lies Weir Group (-3.0%) after reports of a ransomware attack. Top European News Adler’s Largest Shareholder Sells Option on Stake to Vonovia; A Controversial Tycoon Sits on Adler’s $9 Billion Pile of Debt Chip Stocks Drag Tech Gauge Lower as Asian Apple Supplier Warns European Gas Rises as Bumpy Ride Continues With Cold Air Coming Lira Weakens to Fresh Low as Rising U.S. Yields Add Pressure In FX, the Dollar is trying to regroup and firm up again after its latest downturn amidst a further rebound in US Treasury yields, more pronounced curve re-steepening, and perhaps some relief that the Senate finally passed the debt ceiling extension bill, albeit by a slender margin and only delaying the issue until early December. Looking at the DXY as a benchmark, a marginally higher low above 94.000 and lower high below 94.500 is keeping the index contained as the clock ticks down to September’s jobs report that is expected to show a recovery in hiring after the prior month’s shortfall, but anecdotal data has been rather mixed to offer little clear pointers for the bias around consensus - full preview of the latest BLS release is available via the Research Suite under the Ad-hoc Economic Analysis section. From a technical perspective, near term support for the DXY resides at 94.077 (vs the current 94.139 base) and resistance sits at 94.448 (compared to a 94.338 intraday high). TRY - A double whammy for the already beleaguered Lira as oil prices come back to the boil and ‘sources’ suggest that Turkish President Erdogan’s patience is wearing thin with the latest CBRT Governor as the Bank waited until September to cut rates. Recall, Erdogan has already ousted a CBRT chief for not loosening monetary policy in his belief that lowering the cost of borrowing will bring inflation down, and although the reports have been by a senior member of his administration there is a distinct feeling of no smoke without fire in the markets as Usd/Try remains bid having only held below 9.0000 by short distance between 8.9707-8.8670 parameters. CHF/JPY - No real surprise that the low yielders and funders are underperforming, even though broadly upbeat risk sentiment during APAC hours has not rolled over to the European session. The Franc has retreated to 0.9300 vs the Buck and Yen is trying to fend off pressure on the 112.00 handle after failing to sustain momentum through 111.50 before weaker than expected Japanese household spending data overnight. However, decent option expiry interest from 111.85-75 (1.4 bn) may weigh on Usd/Jpy pending the aforementioned US payrolls outcome. AUD - Some payback for the Aussie after Thursday’s outperformance, as Aud/Usd loses a bit more momentum following its rebound beyond 0.7300 and with hefty option expiries at 0.7335 (2.7 bn) capping the upside more than smaller size at the round number (1.1 bn) cushions the downside. In commodities, WTI and Brent remain on an upward trajectory after the mid-week pullback; as it stands, crude benchmarks are near fresh highs for the week, with WTI for November eyeing USD 80/bbl once again. Fresh news flow for the complex has been sparse, aside from substantial UK press focus on the domestic energy price cap potentially set to increase next year. More broadly, US officials have largely reiterated commentary from the Energy Department provided on Thursday around not currently intending act on energy costs with a reserve release. The session ahead has just the Baker Hughes rig count specifically for crude scheduled, though the complex may well get dragged into a broader risk move depending on the initial reaction to and analysis on NFP. For metals, spot gold and silver are contained around the unchanged mark and haven’t been affected by any significant amount by the firmer USD or elevated yield space thus far. Elsewhere, base metals are buoyed by China’s return and strong Caixin data from the region, although it is worth highlighting that the likes of LME copper are well off earlier highs. US Event Calendar 8:30am: Sept. Change in Nonfarm Payrolls, est. 500,000, prior 235,000 Change in Private Payrolls, est. 450,000, prior 243,000 Change in Manufact. Payrolls, est. 25,000, prior 37,000 Unemployment Rate, est. 5.1%, prior 5.2% Sept. Underemployment Rate, prior 8.8% Labor Force Participation Rate, est. 61.8%, prior 61.7% Average Weekly Hours All Emplo, est. 34.7, prior 34.7 Average Hourly Earnings MoM, est. 0.4%, prior 0.6% Average Hourly Earnings YoY, est. 4.6%, prior 4.3% 10am: Aug. Wholesale Trade Sales MoM, est. 0.9%, prior 2.0%; Wholesale Inventories MoM, est. 1.2%, prior 1.2% DB's Jim Reid concludes the overnight wrap I’ve never quite understood why you’d go to the cinema if you’ve got a nice telly at home but such has been the nature of life over the last 19 months that I was giddy with excitement last night at booking tickets for James Bond at the local cinema next week. We’ve booked it on the same night as our first ever physical parents evening where I’ll maybe have the first disappointing clues that my three children aren’t going to be child prodigies and that maybe they’ll even have to settle for a career in finance! Markets have been stirred but not completely shaken this week and yesterday they continued to rebound thanks to the near-term resolution on the US debt ceiling alongside subsiding gas prices, which took the sting out of two of the most prominent risks for investors over the last couple of weeks. That provided a significant boost to risk appetite, and by the close of trade, the S&P 500 had recovered +0.83% in its 3rd consecutive move higher, which put it back to just -3.0% beneath its all-time high in early September, whilst Europe’s STOXX 600 was also up +1.60% and closed before a later US sell-off. Attention will today focus squarely on the US jobs report at 13:30 London time, which is the last one before the Fed’s next decision in early November, where a potential tapering announcement is likely bar an extraordinarily poor number today, or an exogenous event in the next few weeks. Starting with the debt ceiling, yesterday saw Democratic and Republican Senators agree to pass legislation to raise the ceiling by enough to get to early December, meaning we won’t have to worry about it for another 8 whole weeks. The Senate voted 50-48 with no Republicans blocking the legislation to increase the debt limit by $480bn, with House Majority leader Hoyer saying that the House would convene on Tuesday to pass the measure as well. To raise it for a longer period, the chatter out of Washington made it clear that Democrats would need to need to raise the debt ceiling in a partisan manner as part of the reconciliation process. As we mentioned in yesterday’s edition, this extension means that a number of deadlines have now been punted into the year end, including the government funding and the debt ceiling (both now expiring the first Friday of December), just as the Democrats are also seeking to pass Biden’s economic agenda through a reconciliation bill containing much of their social proposals, alongside the $550bn bipartisan infrastructure package. And on top of that, we’ve also got the decision on whether Chair Powell will be re-nominated as Fed Chair, with the decision 4 years ago coming at the start of November. So a busy end to the year in DC. The other main story yesterday was the sizeable decline in European natural gas prices, with the benchmark future down -10.73% to post its biggest daily loss since August. Admittedly, they’re still up almost five-fold since the start of the year, but relative to their intraday peak on Wednesday they’ve now shed -37.5%. So nearly a double bear market all of a sudden! The moves follow Wednesday’s signal that Russia could supply more gas to Europe. However, even as energy prices were starting to fall back from their peak, the effects of inflation were being felt elsewhere, with the UN’s world food price index climbing to its highest level in a decade in September. Looking ahead, today’s main focus will be on the US jobs report for September later on. Last month the report significantly underwhelmed expectations, coming in at just +235k, which was well beneath the +733k consensus expectation and the slowest pace since January. That raised questions as to the state of the labour market recovery, and helped to complicate a potential decision on tapering, with nonfarm payrolls still standing over 5m beneath their pre-Covid peak. This month, our US economists are expecting a somewhat stronger +400k increase in nonfarm payrolls, which should see the unemployment rate tick down to a post-pandemic low of 5.1%. On the bright side at least, the ADP’s report of private payrolls for September on Wednesday came in at an above-forecast 568k (vs. 430k expected), while the weekly initial jobless claims out yesterday for the week through October 2 were beneath expectations at 326k (vs. 348k expected). Ahead of that, global equities posted a decent rebound across the board, with cyclicals leading the march higher on both sides of the Atlantic. As mentioned at the top, the S&P 500 advanced +0.83%, which was part of a broad-based advance that saw over 390 companies move higher on the day. That said the index was up as much as +1.5% in early US trading before slipping lower in the US afternoon. The pullback was partly due to new headlines that China’s central bank plans to continue addressing monopolistic actions in internet companies that operate in the payments sector. Nonetheless, Megacap tech stocks were among the big winners yesterday, with the FANG+ index up +2.08%, whilst the small-cap Russell 2000 index was also up +1.58%. In Europe, the STOXX 600 (+1.60%) posted its strongest daily gain since July, and the broader gains helped the STOXX Banks index (+1.61%) surpass its pre-pandemic high, taking it to levels not seen since April 2019, even as sovereign bond yields moved lower. Speaking of sovereign bonds, yesterday saw a divergent set of moves once again, with yields on 10yr Treasuries up +5.2bps to 1.573%, their highest level since June, whereas those across the European continent moved lower. The US increase came against the backdrop of that debt ceiling resolution, and there was a noticeable rise in yields for Treasury bills that mature in December, which is where the debt ceiling deadline has now been kicked to. Elsewhere in North America, the Bank of Canada’s Macklem joined the global central bank chorus and noted inflation pressures were likely to be temporary, even if they’ve been more persistent than previously expected. Meanwhile over in Europe, lower inflation expectations helped yields move lower, with those on 10yr bunds (-0.3bps), OATs (-1.1bps) and BTPs (-3.6bps) all moving back. Overnight in Asia, all markets are trading in the green with the Nikkei (+2.16%) leading the way, along with CSI (+1.34%), Shanghai Composite (+0.60%), KOSPI (+0.22%) and Hang Seng (+0.04%). Chinese markets reopened after a week-long holiday so the focus will again be back on property market debt, and today the PBOC injected just 10bn Yuan with its 7-day reverse repos, resulting in a net liquidity withdrawal of 330bn Yuan. That comes as the services and composite PMIs did see a pickup from August level, with the services PMI up to 53.4 (vs. 49.2 expected), moving back above the 50 mark that separates expansion from contraction. In Japan however, household spending was down -3.0% year-on-year in August (vs. -1.2% expected) which came amidst a surge in the virus there. There’s also some news on the ESG front, with finance minister Shunichi Suzuki saying that the country would introduce ESG factors when considering the finance ministry’s foreign reserves. Looking forward, S&P 500 futures (+0.06%) are pointing to a small move higher. In Germany, as talks got underway today on a potential traffic-light coalition, it was reported by DPA that CDU leader Armin Laschet had signalled his willingness to stand down, with the report citing unidentified participants from internal discussions. In televised remarks last night, Laschet said that his party needs fresh voices across the board and that new leadership will be in place soon. This moves comes as Germany’s Social Democratic Party held talks with the Greens and the Free Democratic Party to enact a new three-way ruling coalition, which would leave the CDU out of power entirely. There wasn’t a massive amount of data yesterday, though German industrial production fell by -4.0% in August (vs. -0.5% expected), which follows the much weaker than expected data on factory orders the previous day. Elsewhere, the Manheim used car index increased +5.3% in September, its first positive reading in 4 months. Our US economics team points out that there tends to be around a two month lag between wholesale prices and CPI prints, so we aren’t likely to see this impact next week’s CPI print but it will likely prevent a bigger fall towards the end of the year. To the day ahead now, and the highlight will be the aforementioned September jobs report from the US. Central bank speakers include ECB President Lagarde and the ECB’s Panetta. Tyler Durden Fri, 10/08/2021 - 07:50.....»»

Category: smallbizSource: nytOct 8th, 2021

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices The nausea-inducing rollercoaster in the stock market continued on Thursday, when US index futures continued their violent Wednesday reversal - the biggest since March - and surged with Nasdaq futures up more than 1%, hitting a session high, as Chinese technology stocks rebounded from a record low, investors embraced progress on the debt-ceiling impasse in Washington, a dip in oil prices eased worries of higher inflation and concerns eased about the European energy crisis fueled a risk-on mood. At 7:30am ET, S&P futures were up 44 points or 1.00% and Dow futures were up 267 points or 0.78%. Oil tumbled as much as $2, dragging breakevens and nominal yields lower, while the dollar dipped and bitcoin traded around $54,000. Wednesday's reversal started after Mitch McConnell on Wednesday floated a plan to support an extension of the federal debt ceiling into December, potentially heading off a historic default, a proposal which Democrats have reportedly agreed to after Senate Majority Leader Chuck Schumer suggested an agreement would be in place by this morning. While the deal is good news for markets worried about an imminent default, it only kicks the can to December when the drama and brinksmanship may run again. Markets have been rocked in the past month by worries about the global energy crisis, elevated inflation, reduced stimulus and slower growth. Meanwhile, the prospect of a deal to boost the U.S. debt limit into December is easing concern over political bickering, while Friday’s payrolls report may shed light on the the Federal Reserve’s timeline to cut bond purchases. “We have several things that we are watching right now -- certainly the debt ceiling is one of them and that’s been contributing to the recent volatility,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “But we look for these 5% corrections to add money to the equity markets.” Tech and FAAMG stocks including Apple (AAPL US +1%), Nvidia (NVDA +2%), Microsoft (MSFT US +0.9%), Tesla (TSLA US 0.8%) led the charge in premarket trading amid a dip in 10-year Treasury yields on Thursday, helped by a slide in energy prices on the back of Putin's Wednesday announcement that Russia could ramp up nat gas deliveries to Europe, something it still has clearly not done. Perhaps sensing that not all is at Putin said, after plunging on Wednesday UK nat gas futures (NBP) from 407p/therm to a low of 209, prices have ominously started to rise again. As oil fell, energy stocks including Chevron, Exxon Mobil and APA led declines with falls between 0.6% and 2.1%. Here are some of the other big movers today: Twitter (TWTR US) shares rise 2% in U.S. premarket trading after it agreed to sell MoPub to AppLovin for $1.05 billion in cash Levi Strauss (LEVI US) rises 4% in U.S. premarket trading after it boosted its adjusted earnings per share forecast for the full year; the guidance beat the average analyst estimate NRX Pharmaceuticals (NRXP US) drops in U.S. premarket trading after Relief Therapeutics sued the company, alleging breach of a collaboration pact Osmotica Pharmaceuticals (OSMT US) declined 28% in premarket trading after launching an offering of shares Rocket Lab USA (RKLB US) shares rose in Wednesday postmarket trading after the company announced it has been selected to launch NASA’s Advanced Composite Solar Sail System, or ACS3, on the Electron launch vehicle U.S. Silica Holdings (SLCA US) rose 7% Wednesday postmarket after it started a review of strategic alternatives for its Industrial & Specialty Products segment, including a potential sale or separation Global Blood Therapeutics (GBT US) climbed 2.6% in Wednesday after hours trading while Sage Therapeutics (SAGE US) dropped 3.9% after Jefferies analyst Akash Tewari kicked off his biotech sector coverage On the geopolitical front, a senior U.S. official said President Joe Biden’s plans to meet virtually with his Chinese counterpart before the end of the year. Tensions are escalating between the two countries, with U.S. Secretary of State Antony Blinken criticizing China’s recent military maneuvers around Taiwan. European equities rebounded, with the Stoxx 600 index surging as much as 1.3% boosted by news that the European Central Bank was said to be studying a new bond-buying program as emergency programs are phased out. Also boosting sentiment on Thursday, ECB Governing Council member Yannis Stournaras said that investors shouldn’t expect premature interest-rate increases from the central bank. Here are some of the biggest European movers today: Iberdrola shares rise as much as 6.8% after an upgrade at BofA, and as Spanish utilities climbed following a report that the Ministry for Ecological Transition may suspend or modify the mechanism that reduces the income received by hydroelectric, nuclear and some renewables in relation to gas prices. Hermes shares climb as much as 3.8%, the most since February, after HSBC says “there isn’t much to worry about” from a possible slowdown in mainland China or questions over trend sustainability in the U.S. Edenred shares gain as much as 5.2%, their best day since Nov. 9, after HSBC upgrades the voucher company to buy from hold, saying that Edenred, along with Experian, offers faster recurring revenue growth than the rest of the business services sector. Valeo shares gain as much as 4.9% and is Thursday’s best performer in the Stoxx 600 Automobiles & Parts index; Citi raised to neutral from sell as broker updated its model ahead of 3Q results. Sika shares rise as much as 4.2% after company confirms 2021 guidance, which Baader said was helpful amid market concerns of sequentially declining margins due to rising raw material prices. Centrica shares rise as much as 3.6% as Morgan Stanley upgrades Centrica to overweight from equalweight, saying the utility provider will add market share as smaller U.K. companies fail due to the spike in wholesale energy prices. Earlier in the session, Asian stocks rallied, boosted by a rebound in Hong Kong-listed technology shares and optimism over the progress made toward a U.S. debt-ceiling accord. The MSCI Asia Pacific Index climbed as much as 1.3%, on track for its biggest jump since Aug. 24. Alibaba, Tencent and Meituan were among the biggest contributors to the benchmark’s advance. Equity gauges in Hong Kong and Taiwan led a broad regional gain, while Japan’s Nikkei 225 also rebounded from its longest losing run since 2009. Thursday’s rally in Asia came after U.S. stocks closed higher overnight on a possible deal to boost the debt ceiling into December. Focus now shifts to the reopening of mainland China markets on Friday following the Golden Week holiday, and also the U.S. nonfarm payrolls report due that day. READ: China Tech Gauge Posts Best Day Since August After Touching Lows “Risk off sentiment has persisted due to a number of negative factors, but worry over some of these issues has been alleviated for the near term,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “One is that concern over stagflation has abated, with oil prices pulling back.” Sentiment toward risks assets was also supported as a senior U.S. official said President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year. Of note, holders of Evergrande-guaranteed Jumbo Fortune bonds have yet to receive payment; the holders next step would be to request payment from Evergrande. The maturity of the bond in question was Sunday October 3rd, with a Monday October 4th effective due data, though the bond does have a five-day grace period only in the event that payment failure is due to an administrative/technical error. Australia's S&P/ASX 200 index rose 0.7% to close at 7,256.70. All subgauges finished the day higher, with the exception of energy stocks as Asian peers tumbled with a retreat in crude oil prices.  Collins Foods was among the top performers after the company signed an agreement to become KFC’s corporate franchisee in the Netherlands. Whitehaven tumbled, dropping the most for a session since June 17.  In New Zealand, the S&P/NZX 50 index fell 0.5% to 13,104.61. Oil extended its decline from a seven-year high as U.S. stockpiles grew more than expected, and European natural gas prices tumbled on signals from Russia it may increase supplies to the continent. The yield on the U.S. 10-year Treasury was 1.526%, little changed on the day after erasing a 2.4bp increase; bunds outperformed by ~1.5bp, gilts by less than 1bp; long-end outperformance flattened 2s10s, 5s30s by ~0.5bp each. Treasuries pared losses during European morning as fuel prices ebbed and stocks gained. Bunds and gilts outperform while Treasuries curve flattens with long-end yields slightly richer on the day. WTI oil futures are lower after Russia’s offer to ease Europe’s energy crunch. Negotiations on a short-term increase to U.S. debt-ceiling continue.    In FX, the Bloomberg Dollar Spot Index was little changed and the greenback was weaker against most Group-of-10 peers, though moves were confined to relatively tight ranges. The U.S. jobs report Friday is the key risk for markets this week as a strong print could boost the dollar. Options traders see a strong chance that the euro manages to stay above a key technical support, at least on a closing basis. Risk sensitive currencies such as the Australian and New Zealand dollars as well as Sweden’s krona led G-10 gains, while Norway’s currency was the worst performer as European natural gas and power prices tumbled early Thursday after signals from Russia it may increase supplies to the continent. The pound gained against a broadly weaker dollar as concerns over the U.K. petrol crisis eased and focus turned to Bank of England policy. A warning shot buried deep in the BoE’s policy documents two weeks ago indicating that interest rates could rise as early as this year suddenly is becoming a more distinct possibility. Australia’s 10-year bonds rose for the first time in two weeks as sentiment was bolstered by a short-term deal involving the U.S. debt ceiling. The yen steadied amid a recovery in risk sentiment as stocks edged higher. Bond futures rose as a debt auction encouraged players to cautiously buy the dip. Looking ahead, investors will be looked forward to the release of weekly jobless claims data, likely showing 348,000 Americans filed claims for state unemployment benefits last week compared with 362,000 in the prior week. The ADP National Employment Report on Wednesday showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs. This comes ahead of the more comprehensive non-farm payrolls data due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases. We'll also get the latest August consumer credit print. From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Market Snapshot S&P 500 futures up 1% to 4,395.5 STOXX Europe 600 up 1.03% to 455.96 MXAP up 1.2% to 193.71 MXAPJ up 1.8% to 633.78 Nikkei up 0.5% to 27,678.21 Topix down 0.1% to 1,939.62 Hang Seng Index up 3.1% to 24,701.73 Shanghai Composite up 0.9% to 3,568.17 Sensex up 1.2% to 59,872.01 Australia S&P/ASX 200 up 0.7% to 7,256.66 Kospi up 1.8% to 2,959.46 Brent Futures down 1.8% to $79.64/bbl Gold spot up 0.0% to $1,762.96 U.S. Dollar Index little changed at 94.19 German 10Y yield fell 0.6 bps to -0.188% Euro little changed at $1.1563 Top Overnight News from Bloomberg Democrats signaled they would take up Senate Republican leader Mitch McConnell’s offer to raise the U.S. debt ceiling into December, alleviating the immediate risk of a default but raising the prospect of another bruising political fight near the end of the year The European Central Bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter Market expectations for interest-rate hikes “are not in accordance with our new forward guidance,” ECB Governing Council member Yannis Stournaras said in an interview with Bloomberg Television Creditors have yet to receive repayment of a dollar bond they say is guaranteed by China Evergrande Group and one of its units, in what could be the firm’s first major miss on maturing notes since regulators urged the developer to avoid a near-term default Boris Johnson’s plan to overhaul the U.K. economy is a 10-year project he wants to see out as prime minister, according to a senior official. The time frame, which has not been disclosed publicly, illustrates the scale of Johnson’s gamble that British voters will accept a long period of what he regards as shock therapy to redefine Britain The U.K.’s surge in inflation has boosted the cost of investment-grade borrowing in sterling to the most since June 2020. The average yield on the corporate notes climbed just past 2%, according to a Bloomberg index A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded positively as the region took impetus from the mostly positive close in the US where the major indices spent the prior session clawing back opening losses, with sentiment supported amid a potential Biden-Xi virtual meeting this year, and hopes of a compromise on the debt ceiling after Senate Republican Leader McConnell offered a short-term debt limit extension to December. The ASX 200 (+0.7%) was led higher by strength in the tech sector and with risk appetite also helped by the announcement to begin easing restrictions in New South Wales from next Monday. The Nikkei 225 (+0.5%) attempted to reclaim the 28k level with advances spearheaded by tech and amid reports Tokyo is to lower its virus warning from the current top level. The Hang Seng (+3.1%) was the biggest gainer owing to strength in tech and property stocks, with Evergrande shareholder Chinese Estates surging in Hong Kong after a proposal from Solar Bright to take it private. Reports also noted that the US and China reportedly reached an agreement in principle for a Biden-Xi virtual meeting before year-end and with yesterday’s talks in Zurich between senior officials said to be more meaningful and constructive than other recent exchanges. Finally, 10yr JGBs retraced some of the prior day’s after-hours rebound with haven demand hampered by the upside in stocks and after the recent choppy mood in T-notes, while the latest enhanced liquidity auction for longer-dated JGBs resulted in a weaker bid-to-cover. Top Asian News Vietnam Faces Worker Exodus From Factory Hub for Gap, Nike, Puma Japan’s New Finance Minister Stresses FX Stability Is Vital Korea Lures Haven Seekers With Bonds Sold at Lowest Spread Africa’s Free-Trade Area to Get $7 Billion in Support From AfDB Bourses in Europe hold onto the gains seen at the cash open (Euro Stoxx 50 +1.5%; Stoxx 600 +1.1%) following on from an upbeat APAC handover, albeit the upside momentum took a pause shortly after the cash open. US equity futures are also firmer across the board but to a slightly lesser extent, with the tech-laden NQ (+1.0%) getting a boost from a pullback in yields and outperforming its ES (+0.7%), RTY (+0.6%) and YM (+0.6%). The constructive tone comes amid some positive vibes out of the States, and on a geopolitical note, with US Senate Minority Leader McConnell offered a short-term debt ceiling extension to December whilst US and China reached an agreement in principle for a Biden-Xi virtual meeting before the end of the year. Euro-bourses portray broad-based gains whilst the UK's FTSE 100 (+1.0%) narrowly lags the Euro Stoxx benchmarks, weighed on by its heavyweight energy and healthcare sectors, which currently reside at the foot of the bunch. Further, BoE's Chief Economist Pill also hit the wires today and suggested that the balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated. Broader sectors initially opened with an anti-defensive bias (ex-energy), although the configuration since then has turned into more of a mixed picture, although Basic Resource and Autos still reside towards the top. Individual movers are somewhat scarce in what is seemingly a macro-driven day thus far. Miners top the charts on the last day of the Chinese Golden Week Holiday, with base metal prices also on the front foot in anticipation of demand from the nation – with Antofagasta (+5.1%), Anglo American (+4.2%) among the top gainers, whist Teamviewer (-8.2%) is again at the foot of the Stoxx 600 in a continuation of the losses seen after its guidance cut yesterday. Ubisoft (-5.1%) are also softer, potentially on a bad reception for its latest Ghost Recon game announcement. Top European News ECB’s Stournaras Reckons Investor Rate-Hike Bets Are Unwarranted Shell Flags Financial Impact of Gas Market Swings, Hurricane Johnson’s Plans for Economy Signal Ambitions for Decade in Power U.K. Grid Bids to Calm Market Saying Winter Gas Supply Is Enough In FX, the latest upturn in broad risk sentiment as the pendulum continues to swing one way then the other on alternate days, has given the Aussie a fillip along with news that COVID-19 restrictions in NSW remain on track for being eased by October 11, according to the state’s new Premier. Aud/Usd is eyeing 0.7300 in response to the above and a softer Greenback, while the Aud/Nzd cross is securing a firmer footing above 1.0500 in wake of a slender rise in AIG’s services index and ahead of the latest RBA FSR. Conversely, the Pound is relatively contained vs the Buck having probed 1.3600 when the DXY backed off further from Wednesday’s w-t-d peak to a 94.102 low and has retreated through 0.8500 against the Euro amidst unsubstantiated reports about less hawkish leaning remarks from a member of the BoE’s MPC. In short, the word is that Broadbent has downplayed the prospects of any fireworks in November via a rate hike, but on the flip-side new chief economist Pill delivered a hawkish assessment of the inflation situation in the UK when responding to a TSC questionnaire (see 10.18BST post on the Headline Feed for bullets and a link to his answers in full). Back to the Dollar index, challenger lay-offs are due and will provide another NFP guide before claims and commentary from Fed’s Mester, while from a technical perspective there is near term support just below 94.000 and resistance a fraction shy of 94.500, at 93.983 (yesterday’s low) and the aforementioned midweek session best (94.448 vs the 94.283 intraday high, so far). NZD - Notwithstanding the negative cross flows noted above, the Kiwi is also taking advantage of more constructive external and general factors to secure a firmer grip of the 0.6900 handle vs its US counterpart, but remains rather deflated post-RBNZ on cautious guidance in terms of further tightening. EUR/CHF/CAD/JPY - All narrowly mixed against their US peer and mostly well within recent ranges as the Euro reclaims 1.1500+ status in the run up to ECB minutes, the Franc consolidates off sub-0.9300 lows following dips in Swiss jobless rates, the Loonie weighs up WTI crude’s further loss of momentum against the Greenback’s retreat between 1.2600-1.2563 parameters awaiting Canada’s Ivey PMIs and a speech from BoC Governor Macklem, and the Yen retains an underlying recovery bid within 111.53-23 confines before a raft of Japanese data. Note, little reaction to comments from Japanese Finance Minister, when asked about recent Jpy weakening, as he simply said that currency stability is important, so is closely watching FX developments, but did not comment on current levels. In commodities, WTI and Brent front month futures are on the backfoot, in part amid the post-Putin losses across the Nat Gas space, with the UK ICE future dropping some 20% in early trade. This has also provided further headwinds to the crude complex, which itself tackles its own bearish omens. WTI underperforms Brent amid reports that the US was mulling a Strategic Petroleum Reserve (SPR) release and did not rule out an export ban. Desks have offered their thoughts on the development. Goldman Sachs says a US SPR release would likely be of up to 60mln barrels, only representing a USD 3/bbl downside to the year-end USD 90/bbl Brent forecast and stated that relief would only be transitory given structural deficits the market will face from 2023 onwards. GS notes that any larger price impact that further hampers US shale activity would lead to elevated US nat gas prices in 2022, and an export ban would lead to significant disruption within the US oil market, likely bullish retail fuel price impact. RBC, meanwhile, believes that these comments were to incentivise OPEC+ to further open the taps after the producers opted to maintain a plan to hike output 400k BPD/m. On that note, sources noted that the OPEC+ decision against a larger supply hike at Monday's meeting was partly driven by concern that demand and prices could weaken – this would be in-fitting with sources back in July, which suggested that demand could weaken early 2022. The downside for crude prices was exacerbated as Brent Dec fell under USD 80/bbl to a low of near 79.00/bbl (vs 81.14/bbl), whilst WTI Nov briefly lost USD 75/bbl (vs high 77.23/bbl). Prices have trimmed some losses since. Metals in comparison have been less interesting; spot gold is flat and only modestly widened its overnight range to the current 1,756-66 range, whilst spot silver remains north of USD 22.50/bbl. Elsewhere, the risk tone has aided copper prices, with LME copper still north of USD 9,000/t, whilst some also cite supply concerns as a key mining road in Peru (second-largest copper producer) was blocked, with the indigenous community planning to continue the blockade indefinitely, according to a local leader. It is also worth noting that Chinese markets will return tomorrow from their Golden Week holiday. US Event Calendar 7:30am: Sept. Challenger Job Cuts YoY, prior -86.4% 8:30am: Oct. Initial Jobless Claims, est. 348,000, prior 362,000; Continuing Claims, est. 2.76m, prior 2.8m 9:45am: Oct. Langer Consumer Comfort, prior 54.7 11:45am: Fed’s Mester Takes Part in Panel on Inflation Dynamics 3pm: Aug. Consumer Credit, est. $17.5b, prior $17b DB's Jim Reid concludes the overnight wrap On the survey, given how fascinating markets are at the moment I think the results of this month’s edition will be especially interesting. However the irony is that when things are busy less people tend to fill it in as they are more pressed for time. So if you can try to spare 3-4 minutes your help would be much appreciated. Many thanks. It was a wild session for markets yesterday, with multiple asset classes swinging between gains and losses as investors sought to grapple with the extent of inflationary pressures and potential shock to growth. However US equities closed out in positive territory and at the highs as the news on the debt ceiling became more positive after Europe went home. Before this equities had lost ground throughout the London afternoon, with the S&P 500 down nearly -1.3% at one point with Europe’s STOXX 600 closing -1.03% lower. Cyclical sectors led the European underperformance, although it was a fairly broad-based decline. However after Europe went home – or closed their laptops in many cases – the positive debt ceiling developments saw risk sentiment improve throughout the rest of New York session. The S&P rallied to finish +0.41% and is now slightly up on the week, as defensive sectors such as utilities (+1.53%) and consumer staples (+1.00%) led the index while US cyclicals fell back like their European counterparts. Small cap stocks didn’t enjoy as much of a boost as the Russell 2000 ended the day -0.60% lower, while the megacap tech NYFANG+ index gained +0.82%. Risk sentiment improved following reports that Senate Minority Leader Mitch McConnell was willing to negotiate with Democrats to resolve the debt ceiling impasse and allow Democrats to raise the ceiling until December. This means President Biden and Congressional Democrats would be able to finish their fiscal spending package – now estimated at around $1.9-2.2 trillion – and include a further debt ceiling raise into one large reconciliation package near year-end. Senate Majority Leader Schumer has not publicly addressed the deal yet, but Democrats have signaled that they’ll accept the deal, although they’ve also indicated they’d still like to pass the longer-term debt ceiling bill under regular order in a bipartisan manner when the time came near year-end. Interestingly, if we did see the ceiling extended until December, this would put another deadline that month, since the government funding extension only went through to December 3, so we could have yet another round of multiple congressional negotiations in just a few weeks’ time. The news of a Republican offer coincided with President Biden’s virtual meeting with industry leaders, where the President implored them to join him in pressuring legislators to raise the debt limit. Treasury Secretary Yellen also attended the meeting, and re-emphasised her estimate for the so-called “drop dead date” to be October 18. Potentially at risk Treasury bills maturing shortly thereafter rallied a few basis points, signaling investors took yesterday afternoon’s debt ceiling developments as positive and credible. This was a far cry from where markets opened the London session as turmoil again gripped the gas market. UK and European natural gas futures both surged around +40% to reach an intraday high shortly after the open. However, energy markets went into reverse following comments from Russian President Putin that the country was set to supply more gas to Europe and help stabilise energy markets, with European futures erasing those earlier gains to actually end the day down -6.75%, with their UK counterpart similarly reversing course to close -6.96% too. The U.K. future traded in a stunning 255 to 408 price range on the day. We shouldn’t get ahead of ourselves here though, since even with the latest reversal, prices are still up by more than five-fold since the start of the year, and this astonishing increase over recent weeks has attracted attention from policymakers across the world as governments look to step in and protect consumers and industry. In the EU, the Energy Commissioner, Kadri Simson, said that the price shock was “hurting our citizens, in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. … There is no question that we need to take policy measures”. However, the potential response appeared to differ across the continent. French President Macron said that more energy capacity was required, of which renewables and nuclear would be key elements, while Italian PM Draghi said that joint EU gas purchases had wide support. However, Hungarian PM Orban took the opportunity to blame the European Commission, saying that the Green Deal’s regulations were “indirect taxation”, which shows how these price spikes could create greater resistance to green measures moving forward. Elsewhere, blame was also cast on carbon speculators, with Spanish environment minister Rodriguez saying that “We don’t want to be hostages of external financial investors”, and outside the EU, Serbian President Vucic said that his country could ban power exports if there were further issues, which just shows how energy has the potential to become a big geopolitical issue this winter. Those declines in natural gas prices were echoed across the energy complex, with both Brent Crude (-1.79%) and WTI (-1.90%) oil prices subsiding from their multi-year highs the previous day, just as coal also fell -10.20%. In turn, that served to alleviate some of the concerns about building price pressures and helped measures of longer-term inflation expectations decline across the board. Indeed by the close, the 10yr breakeven in the US had come down -1.4bps, and the equivalent measures in Germany (-4.6bps), Italy (-6.1bps) and the UK (-4.2bps) had likewise seen declines of their own. In spite of those moves for inflation expectations, this proved little consolation for European sovereign bonds as higher real rates put them under continued pressure, even if yields had pared back some of their gains from the morning. Yields on 10yr bunds (+0.6bps), OATs (+0.9bps) and BTPs (+3.2bps) were all at their highest levels in 3 months, whilst those on Polish 10yr debt were up +13.7bps after the central bank there unexpectedly became the latest to raise rates, with the 40bps hike to 0.5% marking the first increase since 2012. However, for the US it was a different story, with yields on 10yr Treasuries down -0.5bps to 1.521%, having peaked at 1.57% earlier in the London morning. There was a late story in Europe that could bear watching in the coming weeks as Bloomberg reported that the ECB is studying a new bond-buying tool that could help ease market volatility if a “taper tantrum”-esque move were to happen when the PEPP purchases end in March. The plan would reportedly target purchases selectively if there were to be a larger selloff in more heavily indebted economies, which differs from the existing programs that buys debt in relation to the size of each member’s economy. Asian stocks overnight have performed strongly, with the Hang Seng (+2.28%), Nikkei (+1.68%) and KOSPI (+1.61%) all advancing after the positive news on the debt-ceiling, as well on news that US President Biden was set to meeting with Chinese President Xi by the end of the year. All the indices were lifted by the IT and consumer discretionary sectors, and the Hang Seng Tech index has rebounded by +3.29% this morning. Separately, Evergrande-related news has been subsiding in recent days, but China Estates, a company controlled by a backer of Evergrande, rose 30% after the company disclosed an offer to take it private for $245mn. Otherwise, US futures are pointing to a positive start later, with those on the S&P 500 (+0.50%) and DAX (+1.19%) both advancing. Turning to Germany, exploratory talks will be commencing today between the centre-left SPD, the Greens and the Liberal FDP, who together would make up a so-called “traffic-light” coalition. That marks a boost for the SPD, who beat the CDU/CSU bloc into first place in the September 26 election, although CDU leader Armin Laschet said that his party were “still ready to hold talks”. However, the CDU/CSU have faced internal tensions after they slumped to their worst-ever election result, whilst a Forsa poll out on Tuesday said that 53% of voters wanted a traffic-light coalition, versus just 22% who favoured the Jamaica option led by the CDU/CSU. So momentum seems clearly behind the traffic light option for now. Looking at yesterday’s data, in the US the ADP’s report at private payrolls came in at an unexpectedly strong +568k (vs. +430k expected), which is the highest in their series for 3 months and comes ahead of tomorrow’s US jobs report. However in Germany, factory orders in August fell by -7.7% (vs. -2.2% expected) amidst various supply issues. To the day ahead now, and data releases include German industrial production and Italian retail sales for August, whilst in the US we’ve got the weekly initial jobless claims and August’s consumer credit.From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Tyler Durden Thu, 10/07/2021 - 07:57.....»»

Category: blogSource: zerohedgeOct 7th, 2021

Cashing In On a Cleaner Future

Tremendous amounts of capital are moving into renewable energy projects, but investors can still get in near the "ground floor of green". Ben Rains will show you how to profit from the clean energy revolution. The clean energy movement has been slowly building for decades, and the U.S. appears to finally be on the cusp of a paradigm shift. A mixture of public and private investment is ramping up to accelerate the transition away from fossil fuels. Various bills floating around Washington plan to dedicate billions of dollars to the cause.Greener energy is, of course, far from black and white. Beltway partisanship could certainly slow or curb any serious government spending on clean energy initiatives.Luckily, decades of microscopic progress, coupled with a more recent global push to go greener, means clean energy doesn’t need a trillion-dollar package to thrive. In fact, the U.S. is already much further along the green road than many might assume.The Biden administration set an ambitious goal to “generate clean, American-made electricity to achieve a carbon pollution-free power sector by 2035.” Many analysts and experts understand the goal is somewhat symbolic and is likely an attempt to spur faster adoption of cleaner energy.But the fact that a U.S. president can even float this lofty clean energy goal highlights the major progress already made. It also gives us a peek into the vast amounts of money that could soon flow into the clean, green, and renewable economic ecosystem.And despite the progress, investors still have a chance to get in near the ground floor of green.Continued . . .------------------------------------------------------------------------------------------------------5 Infrastructure Stocks with Breakout Profit PotentialWith massive amounts of federal spending potentially on the way soon, a select number of infrastructure stocks are poised for a historic surge. Some stocks have doubled... tripled... even 6X’d the S&P – and the money hasn’t even started flowing yet.Zacks has just updated How to Profit from Trillions in Spending for Infrastructure, an urgent report to help investors take full advantage of this rare opportunity.Infrastructure stocks have recently soared as much as +81%... +150%... even +248%.¹ The 5 stocks in this report could rival those returns. Don't delay: this Special Report is only available until Sunday, September 26.See 5 Top Infrastructure Stocks Now >>------------------------------------------------------------------------------------------------------Rather Green Already Renewable energy is far from modern, with various forms of hydropower dating back thousands of years. The first U.S. alternating current hydropower plant began delivering power in Redlands, California in 1893.Wind then began to pop up in the early 1990s, though it remained largely insignificant until the mid-2000s. Solar is the latest bloomer in the current crop of clean energy sources and it did not really arrive until the mid-2010s.Overall, renewables accounted for 20% of the total U.S. electricity generation mix last year, to put it right on par with nuclear energy and just inching ahead of coal. This figure alone might be rather shocking to many. Meanwhile, natural gas led the charge at 40%.Renewables account for one-fifth of total U.S. electricity generation and the EIA projects renewable’s share of the electricity generation mix will double by 2050, from 20% last year to 42%. The report predicts renewables will surpass natural gas over this stretch.More broadly, the International Energy Agency expects renewables will provide 80% of the growth in global electricity demand through 2030. The IEA projected global coal demand won’t ever return to its 2014 peak, as wealthy nations turn to cleaner alternatives.The Solar StoryClean and green energy is poised to grow its share of power generation in the U.S. and beyond in both the near term and for decades to come. That said, many stocks within the broader green space already experienced rather hyperbolic runs. Many of these stocks and broad-industry tracking ETFs soared off the coronavirus lows and then skyrocketed after the November election, only to tumble somewhat quickly back to earth.The logic followed that the new Biden administration would quickly pass trillion-dollar green-focused legislation and kick clean energy into high gear. Clearly this didn’t happen, and the $1 trillion bipartisan infrastructure bill the Senate passed in August faces, as of this writing, some substantial hurdles.More importantly, not all companies are good investments. Many of the vogue ESG (Environmental, Social and Governance) funds’ top holdings are mega-cap tech stocks. There are, of course, some names who boast strong businesses within key aspects of the nascent market.The simple numbers point to growth potential in wind and solar, with solar remaining the least utilized green energy source. In 2020, solar accounted for only 2.3% of total U.S. electricity generation, while hydropower made up 7.3% and wind grabbed 8.4%. Solar’s runway offers the most potential, but the right technology is needed in order to harness and store the power, especially in places where it’s not always sunny.Solar energy’s total share of the electricity market was less than 1% above biomass in 2020 and Wall Street isn’t trying to discover ways to pour money into the oldest form of energy. Solar technology remains largely in its infancy, which is why it’s an attractive space.Last year, solar photovoltaic (PV) capacity additions in the U.S. jumped 25% overall, with utility-scale up nearly 29% and small-scale up 19%. About 90% of solar panel shipments were imported, mostly from countries in Asia.The EIA projects solar will pick up the slack and account for 80% of the increase in generation through 2050.Where’s the Money... Projections are rarely precise, especially when looking decades out, yet it seems rather safe to say the future of energy consumption will be a lot greener. Wall Street is currently honing in on the best ways to profit from the new era of energy.The most basic investment pockets for clean energy at the moment are solar, wind, and ancillary segments. Even though solar panels themselves are the catch-all phrase and growing in popularity with businesses, governments, and homeowners, they are highly competitive and rather low-margin.Instead, Wall Street has gravitated to a slightly higher-tech and higher-margin segment of solar that converts the DC power solar photovoltaic panels produced into the AC power used in our homes and businesses. Some of the inverter stocks have skyrocketed over the last five years and have held up in 2021 even as many other companies faded following the epic rise to start the year.Inverters are essential to the solar energy ecosystem and a few of the standout names hold numerous patents on their various technologies. These firms have ample runway as solar energy grows in popularity, with many envisioning a smart-home future where solar panels power homes, electric cars (EV), and even allow consumers to sell electricity back to the grid.Companies are also currently working to expand power storage, EV charging, batteries, grid services solutions, and more. Firms able to successfully master the energy storage capabilities and capacity needed to support a much greener future will be stars.A Possible Sleeping Giant  Next-generation nuclear power could be a hidden investment gem in the coming decades.The U.S. is currently the world’s largest producer of nuclear power and it surpassed coal in annual electricity generation in the U.S. for the first time ever last year. In fact, nuclear energy provided 52% of America’s carbon-free electricity in 2020, making it the largest domestic source of clean energy, according to the U.S. Department of Energy.Yet, nuclear’s share of U.S. electrical generation has remained remarkably stagnant during the last several decades, having supplied around 20% of the nation’s electricity every year since 1990.The U.S. could be ready to invest in next-generation reactors, as consistent forms of non-fossil fuel power are needed to go along with wind, solar, and hydro. The recent craziness with uranium prices might be an early comeback signal.Profiting from the Clean Energy Revolution The push to make our nation greener is set to pump tremendous amounts of capital into renewable energy projects.If the bipartisan infrastructure bill is approved, it will be a powerful tailwind pushing the space forward. As it currently stands, the deal includes the largest investment in clean energy transmission in American history.But this is just one industry preparing for a big shift. The country needs upgraded infrastructure virtually across the board. The infrastructure bill has highlighted the need, and private investment is beginning to ramp up in response.A handful of stocks could generate significant profits in the weeks and months ahead, and I've just updated a special report to help you capitalize on them.How to Profit from Trillions in Spending for Infrastructure provides my top 5 recommendations for targeting significant gains, including:• A fast-growing clean energy firm that’s made a string of acquisitions across several states and Canada...• A powerful transportation company whose stock price has climbed 2X faster than its industry...• An iconic brand with a new CEO, a new focus on technology, and earnings that are projected to skyrocket 300%...• Plus 2 more stocks that could hand you substantial gains as America upgrades its infrastructure from coast to coast. Infrastructure stocks have already climbed as high as +249% in the past year, and the stocks in this report could rival those gains over time.Don’t delay. This Special Report is only available until Sunday, September 26.Click here to claim your copy of How to Profit from Trillions in Spending for Infrastructure >>Good Investing,Ben RainsStock Strategist¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.  Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 22nd, 2021

Why Web3 Will Change Everything (In Plain English)

Why Web3 Will Change Everything (In Plain English) Authored by Deep Pulusani via 'Moment of Deep' substack, This post was inspired by the following tweet and most popular reply: Some notes before we start: the term web3 today is sometimes used synonymously to mean cryptocurrency, blockchain tech, virtual reality/augmented reality & the metaverse. I find that people already have a more intuitive understanding of how VR/AR may change the future. Therefore, I’ll only be writing about how crypto & blockchain tech in the context of web3 will transform the future, since it’s a bit more challenging to understand and abstract in its concepts. Often this subject is explained with technical specifications or more commonly with political terms, ideas about liberty, decentralization, censorship, and power. These are all important; but what ultimately determines if web3 powered by crypto is the future lies in the economic and productive value it brings, the increases in quality of life it can achieve. These are the aspects I hope to make clear. Where we’ve come from and where we are All of the iterations of the web are digital revolutions, i.e. not only do more of our analog (physical) lives move to the digital realm, but new digitally native (digital-first) experiences are invented as well. Web1 (1990s): a revolution in information availability. Information and content from the real world is put online. Information is no longer a local phenomena nor a physical one, but is available for anyone with an internet connection to access. Early web protocols also allow for file transfers, emails, and web pages. Examples: personal web pages, Encyclopedia Britannica & Encarta online, FTP, MapQuest Web2 (2000-): a revolution in creation, experience, and connection. The static becomes dynamic, and a convergence of hardware and software technologies enable us to experience rich interfaces and interactions on the web. Our lives start to become increasingly digital - compare what percent of your daily attention is focused online in 1999, then 2009, and then 2019. The ecosystem and interface of web2 is now rich enough where people can spend the majority of their lives online - from their careers, relationships, hobbies, investments, etc. - we now spend much of our lives in digital space. We also consume most of our content digitally, create much of our output digitally, and connect most frequently with others through messaging apps and social networks. Examples: YouTube, Google Docs, Twitter, Instagram, WhatsApp, Robinhood, smart home & smart health devices Web3 (2015-): a revolution in coordination, ownership, and value transfer. I’ll break down each of these web3 revolutions in the ‘Web3 Paradigm Shifts’ section further below. It’s important to note first, however, that much of what will happen in web3 has its roots in web2. What’s often lost in all the web3 talk is that the web2 era is not over and will continue to produce enormous value and new companies. Let’s see how web3 powered by crypto is the next logical step to some of the revolutions of web2. Web3 Extensions of Web2. New and more powerful networks. In web1 times, your networks might’ve included your local community, your job, your family, and friends you grow up with. Maybe you were part of a mailing list or a forum if you were savvy online. In web2, networks proliferated rapidly, and continue to explode. You might have networks on FB, telegram groups, IG niches, corners of Twitter, or varied family/friend WhatsApp groups. This network creation continues in web3 with the introduction of the value network. Examples include Ethereum, Solana, Polkadot, countless others - each currency representing its own individual network of users. In addition, you have the tokens built on top of these programmable currencies, tokens that any individual or business can issue. The result is a proliferation of value networks that are themselves nested into a larger, more powerful network that it can communicate with and transfer between. This is an extremely powerful new invention because a value network can be added to all of our existing networks in web2 - to our existing social networks, messaging networks, and content networks - or to brand new networks entirely. Essentially any network can be monetized, tokenized, or incentivized, creating supercharged versions of our already rich variety of networks. Explosion of creative activity, niches, and formats. Even if we just include web2 companies launched in the past few years alone - TikTok, Substack, Clubhouse, etc. - there’s so many creative and productive niches for individuals to occupy. Couple that with increasingly easier ways to distribute content among a proliferation of platforms (aka networks), it’s no wonder there has been an explosion of creative activity and individual power over the past 20 years. In the web1 world, we still mainly had movie stars and bestselling authors. In web2, we have stars and activists in every genre, category, and format you could ask for. What progresses in web3 is the further expansion of platforms, niches, and content types. Most notably, you will see more purely digital creation and digital reward (e.g. create an opera in a virtual world that’s monetized by a virtual currency that’s easily tradeable into other virtual currencies or goods). Furthermore, the platforms that creators and producers use will be less intrusive, less expensive, and more malleable than the monolithic platforms of today. Ease of global collaboration Cloud storage & editing, powerful front-end frameworks, and ever-increasing browser strength have made it possible to collaborate effectively with anyone, anywhere, and in practically any field. Figma and Airtable are just two examples of recent web2 companies that have accelerated the ease of collaboration with individuals halfway around the world. The pandemic has further accelerated this phenomena. With web3, we now have organizations that can be independently formed with no underlying platform dependence. These organizations, dubbed DAOs, can be both incentivized to work towards a common goal and govern themselves through tokenization. Anonymous, pseudonymous, or fully public individuals can have their work measured and verified through a publicly available blockchain. Disintermediation and distribution. Web3 will continue the trend of removing distance between producer and consumer. There is a continual disintermediation happening on the web. During web1, to release a successful music album you had to go artist → label → distributer → retailer → consumer. At each step there is profit loss and gatekeepers deciding whether you can continue onward to distribute. In web2 you got to go either 1-step closer (artist → label → platform → consumer) or 2-steps closer for those fully independent ( artist → platform → consumer). Web3 continues this disintermediation, as the platform merely becomes the underlying network or protocol the connection is made over (artist → consumer via protocol or network). There’s no longer gatekeepers or an expensive take-rate. There can still be curators to guide consumers (the difference being that a curator can make money independently of the artist’s margin). The end goal is that all service providers or product creators have the option to be connected directly with service seekers and product consumers. Disintermediation is only possible because of the increasing ability to self-distribute. In the past, middle men at each step were essential to ensure wide distribution. Web2 gave us powerful tools of self-distribution through platforms like Amazon, Shopify, Google Ads, Social Media, SoundCloud, etc. In web3, we can maintain all the tools of web2, but now we introduce tokenized systems. By creating tokens that somehow represent your business or art in your chosen way, early fans and early users become incentivized to spread your art by holding those tokens. Those fans will now distribute that art for you through their own individual networks and tools. Web3 Paradigm Shifts Users become owners. Employee stock options made many tech employees rich with the advent of web-first tech companies. However, for companies that rely on network effects - which is all social media, all sharing economy e.g. Uber, all marketplaces e.g. Amazon, all cloud tools, all games - the early users are equally as important. Without the early users, later users don’t join in, and a company never gains traction. Today, however, early users are not compensated for this essential contribution. In web3, through both fungible and non-fungible tokens, users & early evangelizers will win when a company wins too. In common press about web3, what’s often talked about is that we’ll now be compensated for our data. This is true - unlike our data being owned by the platforms (Twitter, FB, etc.) it will travel with us and be owned by us. However, the more valuable and scarce asset that users give over to apps is their attention, and this will be the far greater reward to users. Power users and heavy users of games, cloud tools, and content platforms, will eventually either be incentivized by the app or move on to companies that do incentivize their valuable attention. Any agreement becomes possible. At each era of the web, we can code increasingly powerful experiences (i.e. code becomes more abstracted from the binary 0s and 1s that the computer actually runs). When web2 rolled around, internet connections were fast enough and devices strong enough to have rich streaming & content experiences. In web3, the game-changing abstraction is smart contracts. Smart contracts essentially allow any agreement between individuals, groups, protocols, or mix of the bunch. Relying on the legal system to enforce billions of agreements small and large on the web is neither desirable nor realistic. A smart contract’s ability to allow for agreements between two untrusted individuals without burdening the legal system creates a major shift in a human’s ability to coordinate behavior and form agreements between groups. In web3, code enforces the agreements and the blockchain infrastructure protects against manipulation of this code. Smart contracts are natively digital, meaning they can be combined and stacked with other contracts to create powerful systems and infrastructures. The implications of this are not yet fully realized, but one hint to the power of smart contracts is the emergence of decentralized finance, which has disrupted a giant sector in a very short period of time. Smart contracts can now be embedded in all the software and hardware we use - any object can be embedded with operating rules, sharing terms, & financial agreements between parties. Combine this with the ability to interface with any other contract on the network, and the creative, collaborative, and productive uses of these contracts become limitless. Everything can be a financial instrument. People often ask why not just use fiat currency through PayPal or Stripe - what’s the functional point of an open-source digitally native currency like Ethereum? The answer is that you can program it, build on top of it, and integrate it with anything digital - whether a smart hardware device or a software application. Even everyday items like your chat groups, gifs, or your writing journal can be made into a financial instrument. That universe becomes bigger when imagine digitally native assets and services that have not even been invented yet. Any individual can perform this integration, not just institutions. Usually when people think of financial instruments, we think of ownership, of buying and selling. But these aren’t the only functions of financialization - we can integrate all financial functions including borrowing, lending, insurance, and merging. With financial functionality, also comes executive functionality, like governance and direction. Now imagine these functions available to any asset or network, both digital and physical. A new identity emerges. Tokens don’t necessarily have to represent money or value - we can use tokens to verify productive work done, or personal and career milestones reached. Because web3 transactions are stored on a publicly available network, our web3 wallet can not only represent transactions we’ve made and tokens we own, but organizations we’re apart of, events we’ve attended, people we know, content we’ve created, and work we’ve done. We can carry this history around to any app connected to the network that we grant access to. Those concerned with privacy never have to expose their physical identity, as wallets are simply avatars which maintain the right to hide or expose the physical identity behind it. Instead of our creative and productive output being spread out and siloed over various companies - LinkedIn, Twitter, IG - our web3 wallet can be carried with us wherever we go. Apps, games, and experiences can then interact with the specific identity the user brings to create tailored and one-of-a-kind experiences for the user’s history. Collaborators and employers can verify your expertise, your skill, your network, and things you’ve created or worked on through your wallet, without requiring a resume or contacting references. Postscript: Why did I write this? There’s something odd about writing articles that predict the future. If the writer is correct, the future is going to happen anyway, so what’s the point of writing an article about it now? What’s the point of another article hyping up a future that is certain? Because web3 is so widely misunderstood, the future is uncertain. The economic and productive value that web3 can bring is deeply threatened by governments and regulators around the world.  This is somewhat expected from authoritarian governments that will naturally crack down on web3 because of what it entails - shared equity and decision making, mass participation and organization - as retaining centralized power is essential to their literal survival. This has already become apparent in China. What’s essential is that major democracies, especially the world’s wealthiest USA and the world’s biggest India, foster the web3 experiment. It’s essential that we let things develop before overzealously legislating in the name of protection. Unfriendly governments could have firewalled the web1 internet and set progress back a decade because it was now easier for criminals to communicate and spread criminal information.  Undoing legislation and regulatory burdens is much harder than waiting to pass them in the first place. Web3 built on crypto has the possibility to be the major boon for wealth inequality (see paradigm shifts listed above), an issue all sides of the political spectrum claim to want to solve. Democratic governments: let’s let web3 grow, develop, and make mistakes. We’re still so early. *  *  * Follow me on twitter @momentofdeep for more content like this. Tyler Durden Fri, 12/03/2021 - 21:00.....»»

Category: blogSource: zerohedge17 hr. 4 min. ago

Shell (RDS.A) Ends Permian Asset Sale, Begins Stock Buyback

Shell (RDS.A) to use the cash proceeds from the Permian asset sale to buy back up to $1.5 billion of shares from Dec 2, 2021 through Jan 28, 2022. Royal Dutch Shell plc’s (RDS.A) subsidiaryShell Enterprises LLCrecently announced the completion of the sale of all its assets in the Permian, the most prolific basin in the United States, to competitor ConocoPhillips COP.The divesture worth $9.5 billion, announced in September 2021, involves Shell's 225,000 net Permian acres with current production of nearly 175,000 barrels of oil equivalent per day. The divested assets involve 600 miles of operated oil, natural gas, water pipelines and other energy infrastructure. The acquisition makes ConocoPhillips one of the leading producers in the Permian Basin.For Shell, the asset sale was a more attractive option for its shareholders instead of acquiring additional assets to boost its Permian footprint. RDS.A planned to use the cash proceeds from the transaction to fund $7 billion of additional shareholder distributions, most likely through share repurchases. The distributions were expected in addition to RDS.A's shareholder distributions of 20-30% of cash flow from operations. The remaining amount was intended to be used in strengthening RDS.A's balance sheet.Shell’s Stock Buyback CommencementWith the closure of the Permian asset divestment, management announced that it will buy back up to $1.5 billion of shares from Dec 2, 2021 to Jan 28, 2022. This will be the first instalment of the $7-billion dividends due to its shareholders following the sale of Shell's Permian operation to COP. In early 2022, the form and the date for releasing the remaining $5.5 billion will be disclosed.What Makes ConocoPhillips' Permian Acquisition So Special?The Permian assets acquisition will help COP generate massive cash in the coming days. It expects to generate $1.9 billion of free cash flow in 2022. Rising cash from operations owing to the deal will help COP provide higher returns to its shareholders, in line with its plan to return 30% cash from operations to its shareholders.ConocoPhillips' Permian footprint expanded significantly over the past year. Due to the changing perspectives on fossil fuels, oil and gas producers were often skeptical about focusing on hydrocarbons. The shifting approach among the industry's leading producers created opportunities for ConocoPhillips, which remains more aligned with regular oil and gas production.Why Did Shell Exit America’s Hottest Shale Play?Even last year, the Anglo-Dutch oil supermajor had named the Permian one of its key oil and gas-producing locations. However, it is under tremendous pressure to expedite its departure from fossil fuels.In May, the District Court in The Hague issued a major verdict on a climate dispute brought forth by environmentalists that might set a precedent for other oil firms. It ordered Shell to trim its carbon emissions by 45% within 2030 from its 2019 baseline.The Permian asset divestment underlines the growing divide between the European oil firms like Shell, BP and TotalEnergies, which are striving to shift toward renewable energy and low-carbon power, and their American counterparts, who continue to rely on oil and gas as a long-term investment.Shell belongs to a global group of energy and petrochemical companies. It is involved in all phases of the petroleum industry, right from exploration to final processing and delivery. RDS.A is scheduled to release fourth-quarter 2021 earnings results on Feb 3, 2022. The current Zacks Consensus Estimate for earnings is pegged at $1.59 per share for the December quarter.Zacks Rank & Key PicksShell currently has a Zack Rank #3 (Hold). Investors interested in the energy sector might look at the following stocks worth considering with a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Range Resources Corporation RRC, based in Fort Worth, TX, is an independent energy company that engages in exploring, developing and acquiring oil and gas properties, primarily in the Appalachian Basin and North Louisiana. RRC is among the top 10 natural gas producers in the United States. It is among the top NGL producers in the domestic market. As of 2020 end, RRC’s total proved reserves were 17.2 trillion cubic feet equivalent.In the past year, shares of Range Resources’ have increased 169.7% compared with the industry’s growth of 102.3%. In the past 60 days, the Zacks Consensus Estimate for RRC's 2021 earnings has been raised 24%. RRC’s 2021 earnings are expected to surge 2,511.1% from the year-ago reported figure. RRC has witnessed five upward estimate revisions in the past 30 days.Occidental Petroleum Corporation OXY is an integrated oil and gas company with significant exploration and production exposure. OXY is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals. As of 2020 end, Occidental Petroleum's preliminary worldwide proved reserves totaled 2.91 billion BOE compared with 3.9 billion BOE at the end of 2019.In the past year, shares of Occidental Petroleum have surged 99% compared with the industry's growth of 96.6%. OXY's 2021 earnings are expected to soar 151.4% from the year-ago reported figure. Occidental Petroleum has also witnessed eight northward estimate revisions in the past 60 days. In the third quarter, OXY achieved its planned divestiture target of $10 billion by inking a deal to sell its interest in two offshore Ghana assets for $750 million. Zacks' Top Picks to Cash in on Artificial Intelligence In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ConocoPhillips (COP): Free Stock Analysis Report Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report Occidental Petroleum Corporation (OXY): Free Stock Analysis Report Range Resources Corporation (RRC): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksDec 3rd, 2021

China"s navy buildup really is remarkable, but it may create a new set of headaches for Beijing

The Chinese navy's rapid growth in size and capability is striking, but history shows that operating a big, modern navy isn't easy. Lamar Salter The rise of China's navy has truly been remarkable by any benchmark anyone could reasonably set. It is now numerically the world's largest fleet, and while the US Navy outweighs it, US ships are older. Maintaining those ships will be expensive, and history shows that building big fleets doesn't always pay off. The rise of China's navy (PLAN) has truly been remarkable by any benchmark anyone could reasonably set. Since the dawn of ironclad navies, the world has seen at least four major, massive naval expansions from negligible foundations.In the years before World War I, both the US Navy and the Imperial German Navy expanded from nearly negligible foundations to build world-challenging fleets. At the end of World War II, the Soviet Navy experienced a similar rapid expansion, rising to meet Moscow's aspirations to global power.In each case the world's existing naval powers were forced to take note of the upstarts, conducting their own naval buildups in order to counter the new kids on the block.The rise of China's navy: a short historyA Chinese destroyer pulls into Pearl Harbor, Hawaii in 2006.US Navy Mass Communication Specialist 3rd Class Ben A. GonzalesSince 2000 the People's Liberation Army Navy has expanded at a similarly spectacular rate.Twenty years ago the PLAN was a modest force focused mostly on coastal defense. It possessed a few major units (SSNs, modern destroyers) but rarely deployed these ships for any length of time at any distance from China's coasts.Most of the fleet was obsolete by contemporary standards, with even the newer ships suffering from a technological deficit relative to other naval powers.Things have changed. According to the recent Department of Defense report on Chinese military power, the PLAN currently operates some 355 warships, including 145 major surface combatants. In the last decade, it has added four aircraft-carrying warships in excess of 40,000 tons, several modern nuclear ballistic-missile submarines, many large destroyers, and many smaller vessels.By and large, these warships carry weapon systems that are internationally competitive, if not state of the art. The PLAN has become numerically the world's largest fleet, although in tonnage it is still outweighed by the US Navy.Chinese subs and ships in an international fleet review for the 60th anniversary of the PLA Navy's founding, in Shandong province, April 23, 2009.ReutersWhat is more remarkable than the size of the fleet is the rapidity of the expansion. Only a handful of the warships currently in service were constructed prior to 2000. Thirty-six of China's 40 destroyers have entered served this century, along with 38 of its 43 frigates.Although Liaoning (China's first aircraft carrier) was laid down in the 1990s, she and her sister were both completed in the last decade. By next year, three brand-new 40,000-ton amphibious assault ships will have entered service; by 2024, the first domestically designed aircraft carrier will enter service.In a word, the expansion of China's navy has been incredible.By contrast, the US Navy operates a much older fleet. Twenty-seven of the US Navy's seventy destroyers entered service in the last century, as did eight of the 11 aircraft carriers, all 21 of the fleet's cruisers, all of the fleet's SSBNs, and 28 of the 50 nuclear attack submarines.Of course, this comparison both obscures and illuminates; the USS Nimitz at 46 years old is a radically more capable platform than the Type 03 aircraft carrier that will enter service in 2024. The US fleet has received multiple upgrades to keep its combat systems modern, and the personnel have decades of experience with long-range, long-term naval deployments. To say that the PLAN is newer than the US Navy is not to say that it is better than the US Navy.The rise of China's navy: goals and challengesChinese aircraft carrier Liaoning during a drill in the Western Pacific, April 18, 2018.Stringer via ReutersThe modern PLAN is most emphatically not being built as an anti-access/area-denial force. It certainly has the capacity to fight under the umbrella of China's land-based air and land-based missile systems, and some of its warships are optimized for fighting in or near China's littoral.Its most advanced vessels, however, are clearly expeditionary in nature, including its aircraft carriers, large destroyers, and amphibious assault ships.But as the examples above indicate, building a big new fleet does not always work out. The Imperial German Navy scuttled itself at Scapa Flow after spending a war hemmed in by the British Royal Navy. The Soviet Navy built many impressive-looking ships that rotted away dockside after the collapse of the USSR.China will find, for example, that progressive modernization of its massive new fleet will become incredibly expensive over time. Indeed, even maintaining the fleet in any kind of fighting trim, with equipment in good order and crews well-trained, will be a monumentally expensive endeavor.Few countries can maintain massive fleets for an extended period of time, in no small part because ships represent huge capital investments that require enormous maintenance budgets and which technological changes can rapidly render obsolete.The other problem is that the construction of such a fleet cannot escape notice. The US Navy has yet to fully reorient itself around competition with China; many of its priorities remain legacies of the Cold War and the Wars on Terror.But the Republic of Korea Navy and the Japanese Maritime Self-Defense Force each rival the PLAN in modernity, if not in size, and exceed it in technological capacity. Australia's response to the PLAN has been to fundamentally reorient its technological and maritime capabilities.The rise of China's navy is a world-historic fact, but China's neighbors are rapidly developing the tools they need to manage this fact.Now a 1945 contributing editor, Dr. Robert Farley is a senior lecturer at the Patterson School at the University of Kentucky. Dr. Farley is the author of "Grounded: The Case for Abolishing the United States Air Force" (University Press of Kentucky, 2014), the "Battleship Book" (Wildside, 2016), and "Patents for Power: Intellectual Property Law and the Diffusion of Military Technology" (University of Chicago, 2020).Read the original article on Business Insider.....»»

Category: smallbizSource: nytDec 1st, 2021

Warmongers Would Let Ukraine Become World War III

Warmongers Would Let Ukraine Become World War III Authored by Bruce Wilds via Advancing Time blog, They just won't let it go. It seems many of the so-called "warmongers" are hellbent on turning Ukraine into a major war whether the countries involved want it or not. History shows what has become known as "proxy wars" create profits for companies manufacturing weapons. The cost, of course, is then pawned off on taxpayers and a public preoccupied with personal concerns. Such talk of war is probably viewed as a blessing by President Biden and a White House that has been battered with bad press. The proof that Ukraine is unlikely to go quietly into the night is reinforced by a slew of news stories over the last few days. It includes items such as the U.S. Embassy in Ukraine is warning of "unusual Russian military activity" near the nation's borders and in the annexed peninsula of Crimea or that Canada is now considering larger deployments to Ukraine. Nothing ramps up the hype like the headline, "Ukraine fears that Russia may be preparing to invade." Brig. Gen. Kyrylo Budanov, head of Ukraine's defense intelligence agency, said last weekend. He went on to say that Russia had more than 92,000 troops amassed at the border and could attack as early as the end of January. In reaction, not only is Canada looking at deploying hundreds of additional troops to support the Canadian soldiers already in Ukraine on a training mission, it is considering redeploying some of the CF-18 fighter jets currently based in Romania. NATO Has Slowly Expanded Towards Russia I stand with those arguing this has little to do with Russia taking over the world or Ukraine's national sovereignty. It is about money, energy, and power. Several years ago I wrote a piece that urged America to stay out of a war in Ukraine. It also warned of the major advantage Putin held by having a huge well-armed army just across the Ukrainian border and that any army cobbled together to face him would most likely be unenthusiastic and politically troubled. Another reason provoking Russia is a horrible idea is that it creates the potential the current "minor skirmish" could explode into World War III with nuclear bombs entering the mix. When President Obama was in office he pulled out all the stops to paint Putin with a brush dipped in all the bad colors. Every Sunday in interview after interview Washington experts were paraded across the screens of the talk shows denouncing Putin as a "thug and a bully." This description of the former KGB officer is so ingrained in their repertoire that they seldom describe him in any other terms unless it is to add the words "dangerous or menace" to highlight the fact we should all be afraid. Clearly, the U.S. establishment loathes Putin and constantly paints him as an aggressor, a tyrant, and a killer that invaded and occupied Crimea. The fact is, it is NATO that has slowly been expanding towards Russia since Putin took power in late 1999.  In 1999, Russia was defenseless, bankrupt, and being carved up by a group stealing its resources in collusion with America. Putin changed that and resurrected the crumbling empire once again into a nation-state with coherence and purpose. Putin is credited with halting the theft of his country’s wealth by the plutocracy and restoring Russia's military strength. Putin's biggest sin may be that with blunt rhetoric he refused to accept for Russia a subservient role in an American-run world under a system drawn up by foreign politicians and business leaders. The fact is many Russians credit him with saving Russia. Today, after two decades in power, Putin’s approval rating exceeds that of many Western leaders. Ukrainian Soldiers Killed In An Unwinnable War Reports from the front in Ukraine are often buried or hidden from public view but they appear to confirm that Ukrainian troops are being sent into a meat grinder.  Putting more weapons into the hands of those unmotivated to fight for their corrupt state is merely adding fuel to this fire and doing more harm than good. Again, remember Ukraine is a financially failed state and while we can point to its potential, its massive oil and gas reserves by all rights should belong to the Ukrainian people. The IMF, however, points out that Kiev needs billions in loans and grants just to stabilize its economy after more than twenty years of massive levels of corruption. This debt and the deep, deep hole Ukraine dug itself into after a series of bad governments ran the country after it became independent of the Soviet Union. The euro-zone currently faces a lot of problems without jumping into a proxy war against rebels in Ukraine. I use the term proxy because without the money and backing of outsiders things would most likely go quiet. The failed and bankrupt country of Ukraine would most likely break into two parts with the eastern half and its people who share strong ties with Russia aligning itself with that country and Kiev, and the western-oriented portion of the country drifting towards stronger ties to the euro-zone. What is the big problem with such a solution? A great deal if you ask those in Washington that are pushing for more intervention in Ukraine. As to what motivates their desire to turn the area into a giant killing field several possibilities exist but it is mostly money and profit. War In Ukraine Is About Money, Energy, And Power! Foreign policy has often been used as a tool to advance national interest which is often dictated by economics. When it comes to the economy, energy is often considered the blood from which all strength flows and in the case of Europe the Nord Stream 2 (NS2) pipeline designed to carry natural gas from Russia to Germany remains a bone of contention. Several European countries see the pipeline as being designed to increase their energy reliance on Moscow. Those opposed to the pipeline continue to argue that "Gazprom" is not only a gas company but a platform for Russian coercion and another tool for Russia to pressure European countries. Under a provision in the Countering America's Adversaries Through Sanctions Act (CAATSA), the U.S. State Department has even threatened European corporations with ties to the pipeline on the grounds that "the project undermines energy security in Europe". To confuse the issue and muddy the waters great efforts have been made at high levels by those advocating military action to paint Russia as an aggressor. These forces aided by the media continue to link Russia's move into the majority ethnic-Russian Crimea region as a violation of Ukraine's sovereign border. The whole argument of sovereign borders is a little gem promoted by those in power, these borders are a creation of man and not visible to the birds flying above. This is an argument of convenience that masks deeper issues and the difference between "terrorist" and "freedom fighters" often depends on a person's point of view. In this case, it is clearly the new American-backed government in Kiev that is pushing to bring the eastern part of Ukraine back into the fold. Adding Ukraine to NATO and the EU is a long-held dream of neocons like Victoria Nuland and neoliberals like Biden. This is also important to those supporting the World Economic Forum’s desire to expand the EU and encircle Russia.  Putin has long been a thorn in the side of the NWO gang. After entering office, Ukrainian President Volodymyr Zelensky signed Decree No. 117/2021 activating the Ukraine Army to recapture and re-unify with Ukraine, the autonomous region of Crimea, and the city of Sevastopol. This was in total conflict with his promise to end the now nearly seven-year-long war in eastern Ukraine that played a central role in his election in 2019. This indicates Zelensky has continued to subordinate his government’s policies to the US and NATO.   What this boils down to is that American companies want to sell and supply Europe with Liquid Natural Gas (LNG) and they seem willing to start a war to make it happen. Whether it is for profit or to minimize the threat of natural gas shipments to Europe being cut off and used as a key weapon in Russia’s political arsenal we cannot ignore the idea more is at play here than just doing the "right thing".  Many people in the "Tin Foil Hat" community have gone so far as to indicate they feel that America and elements of the CIA were involved or had a part in the overthrow of the former corrupt Ukraine government and its replacement with another corrupt but more pro Europe regime. At the time even America's Vice President, Joe Biden, saw his son join the board of a private Ukrainian oil and natural gas company. We should assume not only those involved in selling energy to Europe will profit from stopping the flow of energy from Russia but also the military-industrial complex stands to gain.Without a war, the odds of U.S. LNG significantly displacing Russian natural gas shipped by pipeline are slim. Piped gas sells at a large discount to LNG, which must be cooled to liquid form, shipped overseas, and turned back into its gaseous form. Poland recently received its first shipment of U.S. LNG last month from what is currently the only export facility in the lower 48 states. While LNG trade between the United States and Europe would help reduce the U.S. trade deficit it also stands to improve energy security among the European countries by giving them an alternative to Russian gas.  Still, it is not a cure-all, Russia can easily cut prices and adjust terms to maintain its dominant position in the European gas market and European countries are likely to continue buying most of their gas from the lowest-cost supplier. Bottom-line, Russia has traditionally been the major supplier of European gas. But it charges high prices, often in the form of long-term contracts linked to the price of oil. The overwhelming dependence on Russian gas leaves European countries from a national security standpoint vulnerable to a cutoff of crucial natural gas supplies.  This would be devastating to their economies at any time but even more so in the depths of winter. For these reasons, it makes sense for Europe to consider alternative supplies and open its doors to U.S. LNG. Regardless of the politics at play, danger lurks from flooding Ukraine with weapons, and using the people of Ukraine as pawns in this high-stakes game violates all standards of human decency. Americans should also be aware that our current policy drives Russia towards the East and into the open arms of China. This creates even more problems long-term than it solves short-term and borders on the edge of insanity. Upping tensions in the area is the fact the Kerch Strait Bridge, also known as the Crimean Bridge, is now a target that Russia will make every effort to protect. Comprised of a pair of Russian-constructed parallel bridges it spans the Strait of Kerch between the Taman Peninsula and the Kerch Peninsula of Crimea. The bridge complex provides for both road and rail traffic and has a length of 19 km. This makes it the longest bridge Russia has ever built. The war in Ukraine has not developed organically but appears to be the product of meddling. It could be argued that Biden is pushing for more military action to cover up the corruption and sins of his family that occurred in Ukraine. Mercenaries and money from America appear to be backing and propping up Kiev with America acting as the "champion" for this failed bankrupt country.  The best way for the West and Kiev to prove they are on the right path is by letting the eastern part of the country secede and then making Kiev a center of economic and democratic success.  Since the latest ceasefire agreement in the war in Donbas was implemented in July 2020, it appears the situation has not grown worse. This indicates rocking the boat is a bad idea. We can only hope those monitoring the recent events in Ukraine saying this will someday be looked back upon as the beginning of World War III are wrong. Some war game players have indicated that China could use a larger war in Ukraine to rapidly move on Taiwan. After our experiences in Iraq, Syria, and Afghanistan, I'm forced to wonder what these fools are getting us into? *  *  * Footnote; The following link takes you to a YouTube video of what is labeled "Insane Ukraine Fighting." It is roughly an hour of idiots firing in the air and wasting ammo, and that is the current war. Tyler Durden Wed, 12/01/2021 - 05:00.....»»

Category: blogSource: zerohedgeDec 1st, 2021

Equinor (EQNR) to Invest NOK 10B to develop Oseberg Gas Reserves

Equinor's (EQNR) amended development plan involves the conversion of Oseberg from an oil production complex into a gas producer. Equinor ASA EQNR and partners presented an amended plan to Norway's Minister of Petroleum and Energy to develop the Oseberg offshore field.The amended development plan involves the conversion of Oseberg from an oil production complex into a major gas producer. Per the plan, two new compressors will be installed to increase recoverable gas volumes. Equinor plans to invest NOK 10 billion to increase the Oseberg gas production.Beside this, the Oseberg field center and Oseberg South platform will be partly electrified to reduce the field's emissions by 320,000 metric tons per year. With the provision of shoreside electric power, the field's total power demand will be up to 105 megawatts.Notably, electrification is an effective measure against climate change as it involves a rapid and significant reduction in emissions. In 2020, emissions from the Oseberg field totaled one million tons of carbon dioxide. Since 2010, Oseberg emissions have been reduced by 15%, with an aim to further reduce it by 50-70% by 2030.Equinor operates with a 49.3% ownership interest in the Oseberg field, which is already a major gas-producing asset on the Norwegian Continental Shelf. When the field became operational, it was expected to produce one billion oil barrels. Equinor currently expects to produce 3.2 billion barrels of oil, making it one of the largest producing fields in Norway.Oseberg has the third-most unextracted gas behind Troll and Snohvit, with 60% of the gas resources yet to be recovered. The latest investment decision will enable Equinor to increase gas production, while significantly reducing emissions. Equinor expects Oseberg to produce more than 100 billion cubic meters of gas by 2040. EQNR will also prepare for any full electrification of the installations in the future.The development program is expected to take four years to complete, with the modified complex starting service in 2026.Company Profile & Price PerformanceHeadquartered in Stavanger, Norway, Equinor is one of the leading integrated energy companies in the world.Shares of EQNR have outperformed the industry in the past three months. The stock has gained 14.6% compared with the industry's 9.8% growth. Image Source: Zacks Investment Research Zacks Rank & Stocks to ConsiderEquinor currently carries a Zack Rank #3 (Hold).Investors interested in the energy sector might look at the following companies that presently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.Devon Energy Corporation DVN is an independent energy company engaged in the exploration, development and production of oil and natural gas. Devon's strong U.S. operations are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin, Williston Basin and Powder River Basin. At 2020-end, Devon Energy proved reserves of approximately 752 million barrels of oil equivalent.In the past year, the DVN stock has soared 220.1% compared with the industry's growth of 118.4%. In the past 60 days, the Zacks Consensus Estimate for Devon Energy's 2021 earnings has been raised by 20.6%. It is also projected to see a year-over-year earnings surge of 3877.8% in 2021. DVN's free cash flow at the end of third-quarter 2021 was $1.1 billion, up eight-fold from fourth-quarter 2020 levels. The company will continue to prioritize free cash flow generation in 2022 and deploy a major portion of the same to dividends and share buybacks.PDC Energy PDCE is an independent upstream operator that engages in the exploration, development and production of natural gas, crude oil and natural gas liquids. PDCE, which reached its present form following the January 2020 combination with SRC Energy, is currently the second-largest producer in the Denver-Julesburg Basin. As of 2020-end, PDC Energy's total estimated proved reserves were 731,073 thousand barrels of oil equivalent.In the past year, shares of PDC Energy have gained 217.4% compared with the industry's growth of 118.4%. PDCE's earnings for 2021 are expected to surge 273.4% year over year. In the past 60 days, the Zacks Consensus Estimate for PDC Energy's 2021 earnings has been raised by 26.8%. PDCEbeat the Zacks Consensus Estimate in the last four quarters, ending with an earnings surprise of 51.06%, on average.SM Energy Company SM is one of the most attractive players in the exploration and production space, which engages in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America. SM's operations focus on the Permian Basin, and the South Texas and Gulf Coast regions. SM has a total of 443,188 net acres under its possession, of which 33.5% is developed.In the past year, shares of SM Energy have gained 578.4% compared with the industry's growth of 118.4%. SM's earnings for 2021 are expected to surge 708.7% year over year. SM currently has a Zacks Style Score of A for both Growth and Momentum. The upstream energy player beat the Zacks Consensus Estimate thrice in the last four quarters and missed once. SM Energy has a trailing four-quarter earnings surprise of 126.3%, on average. Investor Alert: Legal Marijuana Looking for big gains? Now is the time to get in on a young industry primed to skyrocket from $13.5 billion in 2021 to an expected $70.6 billion by 2028. After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could kick start an even greater bonanza for investors. Zacks Investment Research has recently closed pot stocks that have shot up as high as +147.0% You’re invited to immediately check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.Today, Download Marijuana Moneymakers FREE >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Devon Energy Corporation (DVN): Free Stock Analysis Report SM Energy Company (SM): Free Stock Analysis Report PDC Energy, Inc. (PDCE): Free Stock Analysis Report Equinor ASA (EQNR): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 29th, 2021

The Euro"s Death Wish

The Euro's Death Wish Authored by Alasdair Macleod via GoldMoney.com, Last week’s Goldmoney article explained the Fed’s increasing commitment to dollar hyperinflation. This week’s article examines the additional issues facing the euro and the Eurozone. More nakedly than is evidenced by other major central banks, the ECB through its system of satellite national central banks is now almost solely committed to financing national government debts and smothering over the consequences. The result is a commercial banking system both highly leveraged and burdened with overvalued government debt secured only by an implied ECB guarantee. The failings of this statist control system have been covered up by a pass-the-parcel any collateral goes €10 trillion plus repo market, which with the TARGET2 settlement system has concealed the progressive accumulation of private sector bad debts ever since the first Eurozone crisis hit Spain in 2012. These distortions can only continue so long as interest rates are suppressed beneath the zero bound. But rising interest rates globally are now a certainty — only officially unrecognised by central bankers — so there can only be two major consequences. First, the inevitable Eurozone economic recession (now being given an extra push through renewed covid restrictions) will send debt-burdened government deficits which are already high soaring, requiring an accelerated pace of inflationary financing by the ECB. And second, the collapse of the bloated repo market, which is to be avoided at all costs, will almost certainly be triggered. This article attempts to clarify these issues. It is hardly surprising that for the ECB raising interest rates is not an option. Therefore, the recent weakness of the euro on the foreign exchanges marks only the start of a threat to the euro system, the outcome of which will be decided by the markets, not the ECB. Introduction The euro, as it is said of the camel, was designed by a committee. Unlike the ship of the desert the euro and its institutions will not survive — we can say that with increasing certainty considering current developments. Instead of evolving as demanded by its users, the euro has become even more of a state control mechanism than the other major currencies, with the exception, perhaps, of China’s renminbi. But for all its faults, the Chinese state at least pays attention to the economic demands of its citizens to guide it in its management of the currency. The commissars in Brussels along with national politicians seem to be blind to the social and economic consequences of drifting into totalitarianism, where people are forced into new lockdowns and in some cases are being forced into mandatory covid vaccinations. The ECB in Frankfurt has also ignored the economic consequences of its actions and has just two priorities intact from its inception: to finance member governments by inflationary means and to suppress or ignore all evidence of the consequences. The ECB’s founding was not auspicious. Before monetary union socialistic France relied on inflationary financing of government spending while Germany did not. The French state was interventionist while Germany fostered its mittelstand with sound money. The compromise was that the ECB would be in Frankfurt (the locational credibility argument won the day) while its first true president, after Wim Duisenberg oversaw its establishment and cut short his presidency, would be French: Jean-Claude Trichet. Membership qualifications for the Eurozone were set out in the Maastricht treaty, and then promptly ignored to let in Italy. They were ignored again to let in Greece, which in terms of ease of doing business ranked lower than both Jamaica and Columbia at the time. And now the Maastricht rules are ignored by everyone. Following the establishment of the ECB the EU made no attempt to tackle the divergence between fiscally responsible Germany with similarly conservative northern states, and the spendthrift southern PIGS. Indeed, many claimed a virtue in that Germany’s savings could be deployed for the benefit of investment in less advanced member nations, a belief insufficiently addressed by the Germans at the time. The ECB presided over the rapidly expanding balance sheets of the major banks which in the early days of the euro made them fortunes arbitraging between Germany’s and the PIGs’ converging bond yields. The ECB was seemingly oblivious to the rapid balance sheet expansion with which came risks spiralling out of control. To be fair, the ECB was not the only major central bank unaware of what was happening on the banking scene ahead of the great financial crisis, but that does not absolve it from responsibility. The ECB and its banking regulator (the European Banking Authority — EBA) has done nothing since the Lehman failure to reduce banking risk. Figure 1 shows current leverages for the Eurozone’s global systemically important banks, the G-SIBs. Doubtless, there are other lesser Eurozone banks with even higher balance sheet ratios, the failure of any of which threatens the Eurosystem itself. Even these numbers don’t tell the whole story. Most of the credit expansion has been into government debt aided and abetted by Basel regulations, which rank government debt as the least risky balance sheet asset, irrespective whether it is German or Italian. Throughout the PIGS, private sector bad debts have been rated as “performing” by national regulators so that they can be used as collateral against loans and repurchase agreements, depositing them into the amorphous TARGET2 settlement system and upon other unwary counterparties. Figure 2 shows the growth of M1 narrow money, which has admittedly not been as dramatic as in the US dollar’s M1. But the translation of bank lending into circulating currency in the Eurozone is by way of government borrowing without stimulation cheques. It is still progressing, Cantillon-like, through the monetary statistics. And they will almost certainly increase substantially further on the back of the ongoing covid pandemic, as state spending rises, tax revenues fall, and budget deficits soar. Bear in mind that the new covid lockdowns currently being implemented will knock the recent anaemic recovery firmly on the head and drive the Eurozone into a new slump. There can be no doubt that M1 for the euro area is set to increase significantly from here, particularly since the ECB is now nakedly a machine for inflationary financing. In the US’s case, rising interest rates, which the Fed is keen to avoid, will undermine the US stock market with knock-on economic effects. In the Eurozone, rising interest rates will undermine spendthrift governments and the entire commercial banking system. Government debt creation out of control The table below shows government spending for leading Eurozone states as a proportion of their GDP last year, ranked from highest government spending to GDP to lowest (column 1). The US is included for comparison. Some of the increase in government spending relative to their economies was due to significant falls in GDP, and some of it due to increased spending. The current year has seen a recovery in GDP, which will have not yet led to a general improvement in tax revenues, beyond sales taxes. And now, much of Europe faces new covid restrictions and lockdowns which are emasculating any hopes of stabilising government debt levels. The final column in the table adjusts government debt to show it relative to the tax base, which is the productive private sector upon which all government spending, including borrowing costs and much of inflationary financing, depends. This is a more important measure than the commonly quoted debt to GDP ratios in the second column. The sensitivity to and importance of maintaining tax income becomes readily apparent and informs us that government debt to private sector GDP is potentially catastrophic. As well as the private sectors’ own tax burden, through their taxes and currency debasement they are having to support far larger obligations than generally realised. Productive citizens who don’t feel they are on a treadmill going ever faster for no purpose are lacking awareness. These are the dynamics of national debt traps which only miss one element to trigger them: rising interest rates. Instead, they are being heavily suppressed by the ECB’s deposit rate of minus 0.5%. The market is so distorted that the nominal yield on France’s 5-year bond is minus 0.45%. In other words, a nation with a national debt that is so high as to be impossible to stabilise without the necessary political will to do so is being paid to borrow. Greece’s 5-year bond yields a paltry 0.48% and Italy’s 0.25%. Welcome to the mad, mad world of Eurozone government finances. The ECB’s policy failure It is therefore unsurprising that the ECB is resisting interest rate increases despite producer and consumer price inflation taking off. Consumer price inflation across the Eurozone is most recently recorded at 4.1%, making the real yield on Germany’s 5-year bond minus 4.67%. But Germany’s producer prices for October rose 18.4% compared with a year ago. There can be no doubt that producer prices will feed into consumer prices, and that rising consumer prices have much further to go, fuelled by the acceleration of currency debasement in recent years. Therefore, in real terms, not only are negative rates already increasing, but they will go even further into record territory due to rising producer and consumer prices. It is also the consequence of all major central banks’ accelerated expansion of their base currencies, particularly since March 2020. Unless it abandons the euro to its fate on the foreign exchanges altogether, the ECB will be forced to raise its deposit rate very soon, to offset the euro’s depreciation. And given the sheer scale of previous monetary expansion, which is driving its loss of purchasing power, euro interest rates will have to rise considerably to have any stabilising effect. But even if they increased only into modestly positive territory, the ECB would have to quicken the pace of its monetary creation just to keep Eurozone member governments afloat. The foreign exchanges will quickly recognise the situation, punishing the euro if the ECB fails to raise rates and punishing it if it does. But it won’t be limited to cross rates against other currencies, which to varying degrees face similar dilemmas, but measured against prices for commodities and essential products. Arguably, the euro’s rerating on the foreign exchanges has already commenced. The ECB is being forced into an impossible situation of its own making. Bond yields have started to rise or become less negative, threatening to bankrupt the whole Eurozone network as the trend continues, and inflicting mark-to-market losses on highly leveraged commercial banks invested in government bonds. Furthermore, the Euro system’s network of national central banks is like a basket of rotten apples. It is the consequence not just of a flawed system, but of policies first introduced to rescue Spain from soaring bond yields in 2012. That was when Mario Draghi, the ECB’s President at the time said he was ready to do whatever it takes to save the euro, adding, “Believe me, it will be enough”. It was then and its demise was deferred. The threat of intervention was enough to drive Spanish bond yields down (currently minus 0.24% on the 5-year bond!) and is probably behind the complacent thinking in the ECB to this day. But as the other bookend to Draghi’s promise to deploy bond purchasing programmes, Lagarde’s current intervention policy is of necessity far larger and more destabilising. And then there is the market problem: the ECB now acts as if it can ignore it for ever. It wasn’t always like this. The euro started with the promise of being a far more stable currency replacement for national currencies, particularly the Italian lira, the Spanish peseta, the French franc, and the Greek drachma. But the first president of the ECB, Wim Duisenberg, resigned halfway during his term to make way for Jean-Claude Trichet, who was a French statist from the École Nationale d’Administration and a career civil servant. His was a political appointment, promoted by the French on a mixture of nationalism and a determination to neutralise the sound money advocates in Germany. To be fair to Trichet, he resisted some of the more overt pressures for inflationism. But then things had not yet started to go wrong on his watch. Following Trichet, the ECB has pursued increasingly inflationist policies. Unlike the Bundesbank which closely monitored the money supply and paid attention to little else, the ECB adopted a wide range of economic indicators, allowing it to shift its focus from money to employment, confidence polls, long-term interest rates, output measures and others, allowing a fully flexible attitude to money. The ECB is now intensely political, masquerading as an independent monetary institution. But there is no question that it is subservient to Brussels and whose primary purpose is to ensure Eurozone governments’ profligate spending is always financed; “whatever it takes”. The private sector is now a distant irrelevance, only an alternative source of government revenue to inflation, the delegated responsibility of compliant national central banks, who take their orders from the economically remote ECB. It is an arrangement that will eventually collapse through currency debasement and economic breakdown. Prices rising to multiples of the official CPI target and the necessary abandonment by the ECB of the euro in the foreign exchanges in favour of interest rate suppression now threaten the ability of the ECB to finance in perpetuity increasing government deficits. The ECB, TARGET2 and the repo market Figure 3 shows how the Eurozone’s central bank balance sheets have grown since the great financial crisis. The growth has virtually matched that of the Fed, increasing to $9.7 trillion equivalent against the Fed’s $8.5 trillion, but from a base about $700bn higher. While they are reflected in central bank assets, TARGET2 imbalances are an additional complication, which are shown in the Osnabrück University chart reproduced in Figure 4. Points to note are that Germany is owed €1,067bn. The ECB collectively owes the national central banks (NCBs) €364bn. Italy owes €519bn, Spain €487bn and Portugal €82bn. The effect of the ECB deficit, which arises from bond purchases conducted on its behalf by the national central banks, is to artificially reduce the TARGET2 balances of debtors in the system to the extent the ECB has bought their government bonds and not paid the relevant national central bank for them. The combined debts of Italy and Spain to the other national central banks is about €1 trillion. In theory, these imbalances should not exist. The fact that they do and that from 2015 they have been increasing is due partly to accumulating bad debts, particularly in Portugal, Italy, Greece, and Spain. Local regulators are incentivised to declare non-performing bank loans as performing, so that they can be used as collateral for repurchase agreements with the local central bank and other counterparties. This has the effect of reducing non-performing loans at the national level, encouraging the view that there is no bad debt problem. But much of it has merely been removed from national banking systems and lost in both the euro system and the wider repo market. Demand for collateral against which to obtain liquidity has led to significant monetary expansion, with the repo market acting not as a marginal liquidity management tool as is the case in other banking systems, but as an accumulating supply of raw money. This is shown in Figure 4, which is the result of an ICMA survey of 58 leading institutions in the euro system. The total for this form of short-term financing grew to €8.31 trillion in outstanding contracts by December 2019. The collateral includes everything from government bonds and bills to pre-packaged commercial bank debt. According to the ICMA survey, double counting, whereby repos are offset by reverse repos, is minimal. This is important when one considers that a reverse repo is the other side of a repo, so that with repos being additional to the reverse repos recorded, the sum of the two is a valid measure of the size of the market outstanding. The value of repos transacted with central banks as part of official monetary policy operations were not included in the survey and continue to be “very substantial”. But repos with central banks in the ordinary course of financing are included. Today, even excluding central bank repos connected with monetary policy operations, this figure probably exceeds €10 trillion, allowing for the underlying growth in this market and when one includes participants beyond the 58 dealers in the survey. An interesting driver of this market is negative interest rates, which means that the repayment of the cash side of a repo (and of a reverse repo) can be less than its initial payment. By tapping into central bank cash through a repo it gives a commercial bank a guaranteed return. This must be one reason that the repo market in euros has grown to be considerably larger than it is in the US. This consideration raises the question as to the consequences of the ECB’s deposit rate being forced back into positive territory. It is likely to substantially reduce a source of balance sheet funding for commercial banks as repos from national central banks no longer offer negative rate funding. They would then be forced to sell balance sheet assets, which would drive all negative bond yields into positive territory, and higher. Furthermore, the contraction of bank credit implied by the withdrawal of repo finance will almost certainly have the knock-on effect of triggering a widespread banking liquidity crisis in a banking cohort with such high balance sheet gearing. There is a further issue over collateral quality. While the US Fed only accepts very high-quality securities as repo collateral, with the Eurozone’s national banks and the ECB almost anything is accepted — it had to be when Greece and other PIGS were bailed out. High quality debt represents most of the repo collateral and commercial banks can take it back onto their balance sheets. But the hidden bailouts of Italian banks by taking dodgy loans off their books could not continue to this day without them being posted as repo collateral rolled into the TARGET2 system and into the wider commercial repo network. The result is that the repos that will not be renewed by commercial counterparties are those whose collateral is bad or doubtful. We have no knowledge how much is involved. But given the incentive for national regulators to have deemed them creditworthy so that they could act as repo collateral, the amounts will be considerable. Having accepted this dodgy collateral, national central banks will be unable to reject them for fear of triggering a banking crisis in their own jurisdictions. Furthermore, they are likely to be forced to accept additional repo collateral rejected by commercial counterparties. In short, in the bloated repo market there are the makings of the next Eurozone banking crisis. The numbers are far larger than the central banking system’s capital. And the tide will rapidly ebb on them with rising interest rates. Inflation and interest rate outlook Starting with input prices, the commodity tracker in Figure 6 illustrates the rise in commodity and energy prices in euros, ever since the US Fed went “all in” in early 2020. To these inputs we can add soaring shipping costs, logistical disruption, and labour shortages — in effect all the problems seen in other jurisdictions. Additionally, this article demonstrates that not only is the ECB determined not to raise interest rates, but it simply cannot afford to. Being on the edge of a combined government funding crisis and with a possible collapse in the repo market taking out the banking system, the ECB is paralyzed with fear. That being so, we can expect further weakness in the euro exchange rate. And the commodity tracker in Figure 6 shows that when commodity prices break out above their current consolidation phase, they will likely push alarmingly higher in euros at least. The ECB’s dilemma over choosing inflationary financing or saving the currency is about to get considerably worse. And for probable confirmation of mounting fear over the situation in Frankfurt, look no further than the resignation of the President of the Bundesbank, who has asked the Federal President to dismiss him early for personal reasons. It was all very polite, but a high-flying, sound money man such as Jens Weidmann is unlikely to just want to spend more time with his family. That he can no longer act as a restraint on the ECB’s inflationism is clear, and more than any outsider he will be acutely aware of the coming crisis. Let us hope that Weidmann will be available to pick up the pieces and reintroduce a gold-backed mark.   Tyler Durden Sun, 11/28/2021 - 07:00.....»»

Category: blogSource: zerohedgeNov 28th, 2021

Royal Dutch Shell (RDS.A) Inks 15-Year Power Purchase Accord

The 15-year accord of Royal Dutch Shell (RDS.A) comprises the purchase of 240 megawatts from Dogger Bank C. Royal Dutch Shell plc (RDS.A) announced an agreement with Dogger Bank. The deal is related to a power purchase agreement for electricity for 15 years.The 15-year accord comprises the purchase of 240 megawatts (MW) from Dogger Bank C. Notably, Dogger Bank Wind Farm is located off the northeast coast of England and Dogger Bank C is the third and final phase of the 3.6-gigawatt farm. According to Dogger Bank Wind Farm, with the completion of three phases – Dogger Bank A, B and C -- likely by March 2026, it will be the world’s largest offshore wind farm.With the inclusion of the previous 480 MW of power purchase deal with Dogger Bank A and B, Royal Dutch Shell will be purchasing a combined of 720 MW of power. In Dogger Bank A and B, Equinor ASA EQNR has 40% stakes, while the remaining 40% and 20% interests are being shared by SSE Renewables and Eni SpA E. It has also been recently announced that in Dogger Bank C, Eni will be taking a 20% stake.The latest deal of Royal Dutch Shell justifies the integrated energy major’s inclination toward clean energy. Royal Dutch Shell is leading the energy transition with a bold target of becoming a net-zero-emission player by 2050 or earlier. Also, ownership interests in Dogger Bank reveal Equinor and Eni’s strong focus on renewable energy.Royal Dutch Shell PLC Price Royal Dutch Shell PLC price | Royal Dutch Shell PLC QuoteBoth Equinor and Eni are exploring alternatives to capitalize on the mounting clean energy demand since the world is emphasizing alternative energy mainly to protect the climate.Equinor is planning to increase its renewable energy capacity by 2026 drastically. By 2030, Equinor is planning to make its global operations carbon neutral. In its overall operations, Eni increasingly involves green energies. To accelerate the energy transition and promote renewable energy, Eni entered into a three-year partnership deal with International Renewable Energy Agency (IRENA) on Sep 30. Currently, Royal Dutch Shell and Equinor carry a Zacks Rank #3 (Hold), while Eni sports a Zacks Rank #1 (Strong Buy). One prospective player in the energy space is Whiting Petroleum Corporation WLL, with a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.Whiting Petroleum is a leading upstream energy company and is the top producer of crude oil in North Dakota. With oil price improving at a healthy pace, Whiting Petroleum expects to generate handsome cashflows while maintaining a healthy balance sheet.Headquartered in Denver, CO, Whiting Petroleum has witnessed upward earnings estimate revisions for 2021 in the past 30 days. Looking at the price chart, WLL has gained 180.8% year to date, outpacing the 110.3% improvement of the composite stocks belonging to the industry. Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report Eni SpA (E): Free Stock Analysis Report Whiting Petroleum Corporation (WLL): Free Stock Analysis Report Equinor ASA (EQNR): Free Stock Analysis Report To read this article on Zacks.com click here......»»

Category: topSource: zacksNov 25th, 2021

Global Steel October Production Tumbles on China Output Curbs

World steel production dropped 10.6% in October, dragged down by a sharp decline in output in China on Beijing's aggressive measures to cut production to reduce carbon emissions. Global crude steel production fell for the third straight month in October, dragged down by a slump in output from top producer China on government’s actions to cut production to clean up the environment and a slowdown in domestic steel demand. Production rose across India, the United States and Japan for the reported month with the United States racking up the biggest gain.According to the latest World Steel Association (“WSA”) report, crude steel production for 64 reporting nations dropped 10.6% year over year to 145.7 million tons (Mt) in October. A decline in output across Asia and Oceania, CIS and the Middle East more than offset higher production across other regions in the reported month.China Output Plummets on Environmental Push, Soft DemandCrude steel production from China fell for the fourth consecutive month in October on Beijing’s aggressive measures to curb production in a bid to reach its carbon neutrality goal by 2060. Weak demand, a slump in domestic steel prices and power shortages also contributed to the decline.Per the WSA, production in China, which accounts for nearly half of the global steel output, slumped 23.3% year over year to 71.6 Mt in October. Output is also down from 73.8 Mt in September. Production edged down 0.7% year over year to 877.1 Mt in the first ten months of 2021. China’s monthly steel output has been declining since July after hitting a record high of 99.5 Mt in May 2021.China is aiming to keep 2021 steel output within last year’s record levels. Beijing has been pushing steel mills in the country since early July to implement output and capacity curbs to comply with the norms to cut carbon emissions. The steel sector is among the biggest sources of carbon emissions in China, accounting for roughly 15% of national carbon emissions. China has set a national goal to achieve peak carbon emissions for the steel sector by 2025.Production cuts are expected to keep China’s steel output levels under check through the end of this year. Output is also likely to be capped by softer steel demand in the country, partly resulting from a slowdown in demand in the construction sector amid cold winter weather, and weaker profit margins at steel mills in China. Margins at steel mills have been hit by a sharp decline in steel prices amid falling demand.Steel demand in China has softened since the second half of 2021 due to a slowdown in the country’s economy. China's GDP expanded 4.9% year over year in the third quarter of 2021, slowing from a 7.9% growth in the second quarter, per China's National Bureau of Statistics.A slowdown in construction and manufacturing activities has led to the contraction of demand for steel in China. Manufacturing is being hurt by semiconductor shortages, supply-chain disruptions and power outages. Beijing’s move to take the heat out of its property market partly through credit tightening measures bodes ill for construction steel demand. The debt crisis at one of China top property developers, Evergrande, also increases the risk of a financial contagion in the country’s property sector.How Other Major Producers Fared in October?Among the other major Asian producers, India — the second-largest producer — saw a 2.4% rise in production to 9.8 Mt in October. Steel demand is picking up in India on a revival in economic activities with the lifting of lockdowns and restrictions imposed by state governments to blunt the rapid spread of the virus amid the deadly second wave. Government’s infrastructure push and focus on accelerating the rural economy bode well for steel demand in the country.Production in Japan climbed 14.3% to 8.2 Mt in the reported month. Output rose for the eighth straight month as steel makers in the country are seeing a solid demand in the manufacturing sector. Crude steel output in South Korea slipped 1% to 5.8 Mt. Consolidated output went down 16.6% to 100.7 Mt in Asia and Oceania reflecting the sharp decline in China.In North America, crude steel production jumped 20.5% to 7.5 Mt in the United States in October. Steel demand has rebounded in the Unites States with the resumption of operations, leading to an uptick in capacity utilization and domestic steel production. U.S. capacity utilization rate broke above the important 80% level in May 2021 for the first time since the start of the pandemic last year, and remains close to the 85% level amid strong domestic demand. Overall production in North America went up 16.9% to roughly 10.2 Mt.  In the Europe Union (EU), production from Germany, the biggest producer in the region, rose 7% to 3.7 Mt. Total output was up 6.4% in the EU to around 13.4 Mt. Steel prices in the region have gained some ground of late after coming under pressure since August 2021 as the semiconductor shortage hurt demand from car manufacturers. However, the spike in electricity costs is hurting steel producers in Europe, especially electric arc furnace producers, due to an increase in steelmaking costs.  Production in the Middle East dropped 12.7% to 3.2 Mt in October. Iran, the top producer in the region, saw an 15.3% decline to 2.2 Mt. Africa logged a 24.1% surge to 1.4 Mt.Among other notable producers, output from Turkey went up 8% to 3.5 Mt. Production from Brazil, the largest producer in South America, rose 10.4% to 3.2 Mt in October.Steel Industry on Solid FootingThe steel industry has staged an impressive comeback after being hobbled by the fallout from the coronavirus pandemic last year, thanks to a strong revival in end-market demand and an upswing in steel prices.The pandemic hurt demand for steel across major end-use markets for much of the first half of last year. However, the industry has rebounded strongly on solid pent-up demand and a rally in steel prices. The resumption of operations across major steel-consuming sectors following the easing of lockdowns and restrictions globally has led to an uptick in steel demand.Steel prices have also witnessed an unprecedented surge this year on the back of an upturn in demand across key markets, tight supply conditions and low steel inventory throughout the supply chain. In particular, U.S. steel prices have hit record levels after cratering to the pandemic-induced multi-year lows in August last year. The imbalance between supply and demand has largely contributed to the strong run-up in U.S. steel prices.The benchmark hot-rolled coil (“HRC”) prices plunged to a pandemic-led low of roughly $440 per short ton in August 2020. HRC prices started to recover from September 2020 and shot up more than four-fold from the August 2020 low to above $1,900 per short ton, eventually peaking in September 2021. However, prices have come under pressure since October, weighed down by weaker demand in automotive resulting from production cuts by carmakers in the wake of the ongoing semiconductor shortage. Prices fell below the $1,900 per short ton level earlier this month largely due to the automotive slowdown. Demand weakness in automotive is likely to continue as the chip shortages are unlikely to abate anytime soon.  Despite the softness in automotive, steel demand in other sectors including construction remains healthy. HRC prices also remain elevated notwithstanding the recent declines, currently hovering near $1,800 per short ton. Solid overall demand coupled with supply constraints due to a number of mill outages and scheduled maintenance are likely to lend support to HRC prices through the remainder of this year, driving profit margins of steel companies in the final quarter of 2021.Steel Stocks Worth A LookA few stocks currently worth considering in the steel space are TimkenSteel Corporation TMST, Commercial Metals Company CMC, Nucor Corporation NUE and Schnitzer Steel Industries, Inc. SCHN.TimkenSteel sports a Zacks Rank #1 (Strong Buy) and has a projected earnings growth rate of 425.8% for the current year. The Zacks Consensus Estimate for TMST’s current year has been revised 22.7% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.TimkenSteel beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 59.2%. TMST shares have surged around 228% in a year.Commercial Metals carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 3.7% for the current fiscal year. The consensus estimate for CMC's current-year earnings has been revised 9.6% upward over the last 60 days.Commercial Metals beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. It has a trailing four-quarter earnings surprise of roughly 7.4%, on average. CMC has rallied around 68% over the past year.Nucor, carrying a Zacks Rank #2, has a projected earnings growth rate of 583.5% for the current year. NUE's consensus estimate for the current year has been revised 7.7% upward over the last 60 days.Nucor has a trailing four-quarter earnings surprise of roughly 2.7%, on average. NUE has rallied around 118% in a year.Schnitzer Steel carries a Zacks Rank #2. The Zacks Consensus Estimate for SCHN’s current year has been revised 12.8% upward over the last 60 days.Schnitzer Steel beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. It has a trailing four-quarter earnings surprise of roughly 25.6%, on average. SCHN shares have surged around 111% over the past year. Zacks’ Top Picks to Cash in on Artificial Intelligence This world-changing technology is projected to generate $100s of billions by 2025. From self-driving cars to consumer data analysis, people are relying on machines more than we ever have before. Now is the time to capitalize on the 4th Industrial Revolution. Zacks’ urgent special report reveals 6 AI picks investors need to know about today.See 6 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Nucor Corporation (NUE): Free Stock Analysis Report Commercial Metals Company (CMC): Free Stock Analysis Report Schnitzer Steel Industries, Inc. (SCHN): Free Stock Analysis Report Timken Steel Corporation (TMST): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 24th, 2021

Nuclear Fusion Finally Finds Its Place in the Sun

One of my favorite bar signs is the one that promises “Free beer tomorrow.” That’s how I’ve always thought of nuclear fusion—a (theoretically) cheap, pollution-free and inexhaustible energy source, the promise of which has pretty much been a decade away ever since the technology was first tested 70 years ago. When “nuclear energy” is discussed,… One of my favorite bar signs is the one that promises “Free beer tomorrow.” That’s how I’ve always thought of nuclear fusion—a (theoretically) cheap, pollution-free and inexhaustible energy source, the promise of which has pretty much been a decade away ever since the technology was first tested 70 years ago. When “nuclear energy” is discussed, it’s almost always in reference to nuclear fission, which generates energy by splitting atoms—and is the source of power for nuclear weapons and all of the nuclear generators in operation today. Nuclear fusion, on the other hand, occurs when two positively charged nuclei merge. It’s the same kind of reaction that powers our sun—sparked by the star’s massive size, heat and gravitational fields. To recreate that reaction on earth requires heating gasses to more than 100 million degrees Celsius and holding them in place with lasers or powerful magnets. That heat and compression overcomes the forces that would otherwise keep the positively-charged nuclei apart, and they fuse together. That fusion releases energy, and if maintained, the ongoing reaction creates more energy than it consumes. [time-brightcove not-tgx=”true”] A version of this story first appeared in the Climate Is Everything newsletter. To sign up, click here. Electricity generated through fusion has no emissions, minimal waste, and there is no risk of out-of-control meltdowns like Chernobyl. The fuel, derived from helium or hydrogen, is cheap and plentiful. That’s the theory. In practice, no one really knows. Forcing two nuclei to merge takes enormous amounts of heat and energy, and in the rare instances where it has worked, the energy produced has more often than not been less than the amount required to launch, and maintain, the fusion action in the first place. In order to generate power, the reaction would need to be self-perpetuating. For the scientists pursuing the atomic equivalent of tomorrow’s free beer, launching a self-sustaining fusion reaction is still tantalizingly out of reach. But it is getting closer. New advances in 3D printing (necessary for manufacturing equipment with hollow cavities), supercomputing (to calculate mass and energy), and material sciences (super thin, super-powerful magnetic tape) have led to a number of essential breakthroughs in recent months. In August, scientists at California’s Lawrence Livermore National Laboratory set a record for nuclear fusion energy production, even if the blast lasted a fraction of a second. Meanwhile, the mounting urgency of the climate crisis, which is caused by fossil fuel emissions, has sparked investor interest in green alternatives. On Nov. 5, fusion start-up Helion Energy announced that it had raised $500 million in its most recent fundraising round, the largest ever for a private fusion firm. The company expects to achieve net positive electrical generation by 2024. “Modern advancements in electronics enable us to do fusion decades sooner than previously imagined,” David Kirtley, the CEO and founder of Helion Energy said in an email. Read More: A New Generation of Nuclear Reactors Could Hold the Key to a Green Future All told, some 35 fusion-focused start-ups have raised nearly $2 billion in private investments, according to the 2021 Global Fusion Industry Survey, published jointly by the U.K. Atomic Energy Agency and the Fusion Industry Association. “Fusion was always 10 years to forever away. It was about science; it was about research,” says Jane Hotchkiss, a 30-year veteran of the renewable energy industry, who now heads up Energy for the Common Good, an NGO that advocates for the development and use of fusion technology as a clean energy solution. “Now that we have a new generation of commercially focused physicists and engineers racing to put it into practical use, there is hope for the future.” Unlike solar or wind power, which require both battery backup and electrical grid adaptations to account for variations in energy supply (think cloudy/windless days), fusion power plants could be easily swapped in for existing coal- or gas-burning plants with little adjustment to the larger grid, because they can run continuously. The immense power generated could also be used to produce green hydrogen, an emissions-free, energy-dense fuel that could help decarbonize shipping, aviation and transport. Read More: Planes, Trains and Automobiles Are Cutting Emissions. Will Big Ships Do It Too? The problem is the distance between what it could do, and what it is currently doing— which is mostly making promises about what will happen tomorrow. The technological challenges of creating what is essentially a sun in a bottle still requires major investment, beyond even what venture capitalists are willing to commit, says Hotchkiss. “Fusion is the planet’s moon shot to climate change solutions. We have to stop treating it like a scientific research project and treat it like a future commercial product.” That means government buy-in as well. That is starting to happen: The U.K. government has already invested $250 million in a fusion reactor that it hopes will start generating power by 2040. And ITER, a $25 billion multinational fusion project in France, is due to begin operations in 2025. Meanwhile, the U.N. climate conference in Glasgow earlier this month served as a kind of coming out party for fusion: for the first time, the technology was granted center stage at a roundtable discussion held on the last day, and a fusion exhibit at the Glasgow Science Center invited non-delegates to learn more. Attention couldn’t be coming soon enough, says Hotchkiss. According to the International Energy Agency, the projected energy produced by renewables in 2022 is only enough to meet half of global demand. The rest will have to be met by traditional fossil fuel sources. “It’s time to take fusion seriously. It offers too many solutions for what is wrong with energy today.” That free beer is meeting its due date......»»

Category: topSource: timeNov 24th, 2021

Transcript: Edwin Conway

   The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS:… Read More The post Transcript: Edwin Conway appeared first on The Big Picture.    The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, man, I have an extra special guest. Edwin Conway runs all of alternatives for BlackRocks. His title is Global Head of Alternative Investors and he covers everything from structured credit to real estate hedge funds to you name it. The group runs over $300 billion and he has been a driving force into making this a substantial portion of Blackrock’s $9 trillion in total assets. The opportunity set that exists for alternatives even for a firm like Blackrock that specializes in public markets is potentially huge and Blackrock wants a big piece of it. I found this conversation to be absolutely fascinating and I think you will also. So with no further ado, my conversation with Blackrock’s Head of Alternatives, Edwin Conway. MALE VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is Edwin Conway. He is the Global Head of Blackrock’s Alternative Investors which runs about $300 billion in assets. He is a team of over 1,100 professionals to help him manage those assets. Blackrock’s Global alternatives include businesses that cover real estate infrastructure, hedge funds private equity, and credit. He is a senior managing director for BlackRock. Edwin Conway, welcome to Bloomberg. EDWIN CONWAY, GLOBAL HEAD OF ALTERNATIVE INVESTORS, BLACKROCK: Barry, thank you for having me. RITHOLTZ: So, you’ve been in the financial services industry for a long time. You were at Credit Suisse and Blackstone and now you’re at BlackRock. Tell us what the process was like breaking into the industry? CONWAY: It’s an interesting on, Barry. I grew up in a very small town in the middle of Ireland. And the breakthrough to the industry was one of more coincident as opposed to purpose. I enjoyed the game of rugby for many years and through an introduction while at the University, in University College Dublin in Ireland, had a chance to play rugby at a quite a – quite a decent level and get to know people that were across the industry. It was really through and internship and the suggestion, I’ve given my focus on business and financing things that the financial services sector may be a great place to traverse and get to know. And literally through rugby connections, been part of a good school, I had an opportunity to really understand what the service sector, in many respects, could provide to clients and became absolutely intrigued with it. And what – was it my primary ambition in life to be in the financial services sector? I can definitively say no, but through the circumstance of a game that I love to play and be part of, I was introduced to, through an internship, and actually fell in love with it. RITHOLTZ: Quite interesting. And alternative investments at Blackrock almost seems like a contradiction in terms. Most of us tend to think of Blackrock as the giant $9 trillion public markets firm best known for ETFs and indices. Alternatives seems to be one of the fastest-growing groups within the firm. This was $50 billion just a few years ago, it’s now over 300 billion. How has this become such a fast-growing part of BlackRock? CONWAY: When you look at the various facets which you introduced at the start, Barry, we’ve actually been an alternatives – will be of 30 years now. Now, the scale, as you know, which you can operate on the beta side of business, far surpasses that on the alpha side. For us, throughout the years, this was very much about how can we deliver investment excellence to our clients and performance? Therefore, going an opportunity somewhere else to explore an alpha opportunity in alternatives. And I think being so connected to our clients understanding, that this pivots was absolutely taking place at only 30 years ago but in a very pronounced way today, you know, we continue to invest in this business to support those ambitions. They’re clearly seeing this as the world of going through a tremendous amount of transformation and with some of the challenges, quite frankly, in the traditional asset classes, being able to leverage at BlackRock, the Blackrock muscle to really explore these alpha opportunities across the various alternative asset classes that in our mind wasn’t imperative. And the imperative, really, is from the firm’s perspective and if you look at our purpose, it’s to serve the client. So the need was coming from them. The necessity to have alternatives and their whole portfolio was very – was very much growing in prominence. And it’s taken us 30 years to build this journey and I think, Barry, quite frankly, we’re far from being done. As you look at the industry, the demand is going to continue to grow. So, I think you could expect to see from us a continued investment in the space because we don’t believe you can live without alternatives in today’s world. RITHOLTZ: That’s really – that’s really interesting. So let’s dive a little deeper into the product strategy for alternatives which you are responsible for at BlackRock. Our audiences is filled with potential investors. Tell them a little bit about what that strategy is. CONWAY: So we’re – I think as you mentioned, we’re in excess of 300 billion today and when we started this business, it was less about building a moat around private equity or real estate. I think Larry Fink’s and Rob Kapito’s vision was how do we build a platform to allow us to be relevant to our clients across the various alternative asset classes but also within the – within the confines of what they are permitted to do on a year-by-year basis. So, to always be relevant irrespective of where they are in their journey from respect of liabilities, demand for liquidity, demand for returns, so we took a different approach. I think, Barry, to most, it was around how do we scale into the business across, like you said, real estate equity and debt, infrastructure equity and debt. I mean, we think of that as the real assets platform of our business. Then you take our private equity capabilities both in primary investing, secondary et cetera, and then you have private credits and a very significant hedge fund platforms. So we think all of these have a real role and depending on clients liquidities and risk appetite, our goal was, to over the years, really build in to this to allow ourselves for this challenging needs that our clients have. I think as an industry, right, and over the many years alternatives have been in existence, this is been about return enhancement initially. I think, fundamentally, the changes around the receptivity to the role of alternatives in a client’s portfolio has really changed. So, we’ve watched it, Barry, from this is we’re in the pursuit of a very total return or absolute return type of an objective to now resilience in our portfolio, yield an income. And so things that probably weren’t perceived as valuable in the past because the traditional asset classes were playing a more profound role, alternatives have stepped up in – in many respects in the need to provide more than just total return. So, we’re taking the approach of how do you have a more holistic approach to this? How do we really build a global multi-alternatives capability and try to partner and I think that’s the important work for us. Try to partner with our clients in a way that we can deliver that outperformance but delivered in a way that probably our clients haven’t been used to in this industry before. Because unfortunately, as we know, it has had its challenges with regard to secrecy, transparency, and so many other aspects. We need to help the industry mature. And really that was our ambition. Put our client’s needs first, build around that and really be relevant in all aspects of what we’re doing or trying to accomplish on behalf of the people that they support and represent. RITHOLTZ: So, we’ll talk a little bit about transparency and secrecy and those sorts of things later. But right now, I have to ask what I guess is kind of an obvious question. This growth that you’ve achieved within Blackrock for nonpublic asset allocation within a portfolio, what is this coming at expense of? Are these dollars that are being moved from public assets into private assets or you just competing with other private investors? CONWAY: It’s really both. What – what you are seeing from our clients – if I take a step back, today, the institutional client community and you think about the – the retirement conundrum we’re all facing around the world. It’s such an awful challenge when you think how ill-prepared people are for that eventual stepping back from the workplace and then you know longevity is your friend, but can also be a very, very difficult thing to obviously live with if you’re not prepared for retirement. The typical pension plan today are allocating about 25 percent to 28 percent in alternatives. Predominantly private market. What they’re telling us is that’s increasing quite substantially going forward. But you know, the funding for that alpha pursue for that diversification and that yield is coming from fixed-income assets. It’s coming from equity assets. So there’s a real rebalancing that’s been taking place over the past number of years. And quite frankly, the evolution, and I think the innovation that’s taken place particularly in the past 10 years, alternatives has been really profound. So the days where you just invest in any global funds still exist. But now you can concentrate your efforts on sector exposure, industry exposures, geographic exposures, and I think the – the menu of things our clients can now have access to has just been so greatly enhanced at and the benefit is that but I think in some – in some respects, Barry, the next question is with all of those choices, how do you build the right portfolio for our client’s needs knowing that each one of our client’s needs are different? So, I would say it absolutely coming from the public side. We’re very thankful. Those that had a multiyear journey with us in the public side are now allocating capital to is now the private side to because I do think the – the industry given that change, given that it evolution and given the complexity of these private assets, our clients are looking to, quite frankly, do more with fewer managers because of the complexion of the industry and complexity that comes with it. RITHOLTZ: Quite – quite interesting. (UNKNOWN): And attention RIA’s. Are your clients asking for crypto? At interactive brokers, advisers can now offer crypto to their clients and you could trade stocks, options, futures currencies, bonds and more from the same platform. Commissions on crypto are just 12-18 basis points with no hidden spreads or markups and there are no ticket charges, custody fees, minimums platform or reporting fees. Learn more at IBKR.com/RIA crypto. RITHOLTZ: And I – it’s pretty easy to see why large institutions might be rotating away from things like treasuries or tips because there’s just no yield there. Are you seeing inflows coming in from the public equity side also? The markets put together a pretty good string of years. CONWAY: Yes. It absolutely has. And many respects, I think, we’ve had a multiyear where there was big questions around the alpha that can be generated, for example, from active equities? The question was active or passive? I think what we’ve all realized is that at times when volatility introduces itself which is frequent even independent of what’s been done from a fiscal and monetary standpoint, that these Alpha speaking strategies on the traditional side still make a lot of sense. And so, as we think about what – what’s happening here, the transition of assets from both passive and active strategies to alternative, it – it’s really to create better balance. It’s not that there’s – there’s a lack of relevance anymore in the public side. It’s just quite frankly the growth of the private asset base has grown so substantially. I moved, Barry, to the U.S. in 1998. And it’s interesting, when you look back at 1998 to today, you start to recognize the equity markets and what was available to invest in. The number of investable opportunities has shrunk by 40 plus percent which that compression is extraordinarily high. But yet you’ve seen, obviously, the equity markets grow in stature and significance and prominence but you’re having more concentration risk with some of the big public entities. The converse is true, though on the – on the private side. There’s this explosion of enterprise and innovation, employment creation, and then I believe opportunities has been real. So, I look at the public side, the investable universe is measured in the thousands and the private side is measured in the millions. RITHOLTZ: Wow. CONWAY: And I think part of the – part of the part of the thing our clients are not struggling with but what we’re really recognizing with – with enterprises staying private for longer, if not forever, and with his growth of the opportunities that open debt and equity in the private market side, you really can’t forgo this opportunity. It has to be part of your going forward concerns and asset allocation. And I think this is why we’re seeing that transformation. And it’s not because equities on fixed income just aren’t relevant anymore. They’re very relevant but they’re relevant now in a total portfolio or a whole portfolio context beside alternatives. RITHOLTZ: So, let’s discuss this opportunity set of alternatives where you guys at Blackrock scene demand what sectors and from what sorts of clients? Is this demand increasing? CONWAY: We’re very fortunate, Barry. Today, there isn’t a single piece of our business within – within Blackrock alternatives that isn’t growing. And quite frankly too, it’s really up to us to deliver on the investment objectives that are set forth for those clients. I think in the back of strong absolute and relative performance, thankfully, our clients look to us to – to help them as – as they think about what they’re doing and as they’re exploring more in the alternatives areas. So, as you know, certainly, the private equity and real estate allocations are quite mature in many of our client’s portfolios but they’ve been around for many decades. I think that the areas where we’re seeing – that’s called an outside demand and opportunity set, just but virtue of the small allocations on a relative basis that exist today is really around infrastructure, Barry, and its around private credits. So, to caveat that, I think all of the areas are certainly growing, and thankfully, for us that’s true. We’re looking at clients who we believe are underinvested, we believe they’re underinvested in those asset classes infrastructure both debt and equity and in private credit. And as you think about why that is, the attributes that they bring to our client is really important and in a world where your correlation and understanding those correlations is important that these are definitely diversifying assets. In a world where you’re seeing trillions of dollars, quite frankly, you’re providing little to no or even there’s negative yield. Those short falls are real and people need yield than need income. These assets tend to provide that. So the diversification, it comes from these assets. The yield can come from these assets and because of the immaturity of the asset classes, independence of the capital is flowing in, we still consider them relatively white space. You’re not crowded out. There’s much room for development in the market and with our client’s portfolios. And to us, that’s exciting because it presents opportunities. So, at the highest level, they’re the areas where I believe are most underdeveloped in our clients. RITHOLTZ: So let’s talk about both of those areas. We’ll talk about structured credit in a few minutes. I think everybody kind of understands what – what that is. What – when you see infrastructure as a sector, how does that show up as an investment are – and obviously, I have infrastructure on the brink because we’re recording this not too long after the giant infrastructure bill has been passed, tell us a little bit about what alternative investments in infrastructure looks like? CONWAY: Yes. It’s really in its infancy and what the underlying investments look like. I think traditionally, you would consider it as – and part of the bill that has just been announced, roads, bridges, airports. Some of these hard assets, some of the core infrastructure investments that have been around for actually some time. The interesting thing is the industry has evolved so much and put the need for infrastructure. It’s so great across both developed and emerging economies. It’s become something that if done the right way, the attributes we just spoke of can really have a very strong effect on our client’s portfolios. So, beyond the core that we just mentioned, well, we’ve seen a tremendous demand as a result of this energy transition. You’re really seeing a spike in activity and the necessity transition industry to cleaner technologies, a movement, not away completely from fossil fuel but integrating new types of clean energy. And as a result, you’ve seen a lot of demand on a global basis for wind and solar. And quite frankly, that’s why even us at BlackRock, albeit, 10-12 years ago, we really established a capability there to help with that transition to think about how do we use these technologies, solar panels, wind farms, to generate clean forms of energy for utilities where in some cases they’re mandated to procure this type of this type of – this type of power. And when you think about pre-contracting with utilities for long duration, that to me spells, Barry, good risk mitigation and management and ability to get access to clean forms of energy that throw off yield that can be very complementary to your traditional asset classes but for very long periods of time. And so, the benefits for us of these – these assets is that they are long in duration, they are yield enhancing, they’re definitely diversifying. And so, for us, where – we’ve got about, let’s call this 280 assets around the world that we’re managing that literally generate this – this clean electricity. I think to give the relevance of how much, I believe today, it’s enough to power the country of Spain. RITHOLTZ: Wow. CONWAY: And that’s really that’s really changing. So you’re seeing governments – so from a policy standpoint, you’re seeing governments really embracing new forms of energy, transitioning out of bunker fuels, for example, you know, burning diesels which really spew omissions into the – into the into the environment. But it’s really around modernizing for the future. So, developed and emerging economies alike, want to retain capital. They want to attract new capital and by having the proper infrastructure to support industry, it’s a really, really important thing. Now, on the back of that too, one things we’ve learned from COVID is that the necessity to really bring e-commerce into how you conduct your business is so important and I think from the theme of digitalization within infrastructure to is a huge part. So, it’s not just the energy transition that you’re seeing, it’s not just roads and bridges, but by allowing businesses to connect to a global consumer, allowing children be educated from home, allowing experiences that expand geographies and boundaries in a digital form is so important not just for commerce but in so many other aspects. And so, you think about cable, fiber optics, if you think about all the other things even outside of power, that enable us to conduct commerce to educate, there are many examples where, Barry, you can build resilience into your portfolio because that need is not measured in years. Actually, the shortfall of capital is measured in the trillions so which means this is – this is a multi-decade opportunity set from our vantage point and one of which our clients should really avail of. RITHOLTZ: Quite interesting. And I mentioned in passing, structured credit, tell us a little bit about what that opportunity looks like. I think of this as a space that is too big for local banks but too small for Wall Street to finance. Is that an oversimplification? What is going on in that space. CONWAY: I probably couldn’t have set it better, Barry. It’s – if we go back to just the even the investable universe, in the tens of thousands of companies, just if we take North America that are private, that have great leadership that really have strategic vision under – at the – in some cases, at the start of their growth lifecycles are even if they maintain, they have a very credible and viable business for the future they still need capital. And you’re absolutely right. With the retreat of the banks from the space to various regulations that have come after the global financial crisis, you’re seeing the asset managers in many respects working behalf of our clients both wealth and institutional becoming the new lenders of choice. And – and when we – when we think about that opportunity set, that is really understanding the client’s desire for risk or something maybe in a lower risk side from middle-market lending or midmarket enterprises where you can support that organization through its growth cycle all the way to some higher-yielding, obviously, with more risk assets on the opportunistic or even the special situations side. But it – it expands many things. And going back of the commentary around the evolution of the space, private credit today and what you can do has changed so profoundly, it expands the liquidity spectrum, it expands the risk spectrum. And the great news is, with the number of companies both here and abroad, the opportunities that is – it’s being enriched every single day. And were certainly seeing, particularly going back to the question are some of these assets coming from the traditional side, the public side. When we think of private credit, you are seeing private credit now been incorporated in fixed-income allocations. This is a – it’s a yelling asset. This is – these are debt instruments, these are structures that we’re creating. We’re trying to flexible and dynamic with these clients. But it really is an area where we think – it really is still at its – at its infancy relevant to where it can potentially be. RITHOLTZ: That’s really quite – quite interesting. (UNKNOWN): It’s Rob Riggle. I’m hosting Season 2 of the iHeart radio podcast, Veterans You Should Know. You may know me as the comedic actor from my work in the Hangover, Stepbrothers or 21 Jump Street. But before Hollywood, I was a United States Marine Corps officer for 23 years. For this Veterans Day, I’ll be sitting down with those who proudly served in the Armed Forces to hear about the lessons they’ve learned, the obstacles they’ve overcome, and the life-changing impact of their service. Through this four-part series, we’ll hear the inspiring journeys of these veterans and how they took those values during their time of service and apply them to transition out of the military and into civilian life. Listen to Veterans You Should Know on the iHeart radio app, Apple Podcast or wherever you get your podcast. RITHOLTZ: Let’s stick with that concept of money rotating away from fixed income. I have to imagine clients are starved for yields. So what are the popular substitutes for this? Is it primarily structured credit? Is it real estate? How do you respond to an institution that says, hey, I’m not getting any sort of realistic coupon on my bonds, I need a substitute? CONWAY: Yes. It’s all of those in many respects. And I think to the role, even around now a time where people have questions around inflation, how do substitute this yield efficiency or certainly make up for that shortfall, how do you think about a world where increasingly seeing inflation, not of the transitory thing it feels certainly quasi-permanent. These are a lot of questions we’re getting. And certainly, real estate is an is important part of how they think about inflation protection, how client think about yield, but quite frankly too, we’ve – we’ve gone through something none of us really had thought about a global pandemic. And as I think about real estate, just how you allocate to the sector, what was very heavily influenced with retail assets, high street, our shopping behaviors and habits have changed. We all occupied offices for obviously many, many years pre the pandemic. The shape of how we operate and how we do that has changed. So, I think some of the underlying investment – investments have changed where you’ve seen heavily weighted towards office space to leisure, travel in the past. Actually, now using a rotation in some respects out of those, just given some of the uncertainties around what the future holds as we come – come through a really difficult time. But the great thing about this sector is between senior living, between student housing, between logistics and so many other parts, there are ways in real estate to capture where there’s – where there’s demand. So still a robust opportunity set and it – and we do think it can absolutely be yield enhancing. We mentioned infrastructure. Even if you think about – and we mention OECD and non-OECD, emerging and developed, when I think about Asia, in particular, just as a subset of the world in which we’re living in, that is a $2.6 trillion alternative market today growing at a 15 percent CAGR. And quite frankly, the old-growth is driven by the large economic growth in the region. So, even from a regional perspective, if we pivot, it houses 57 percent of the world’s population and yet delivers 47 percent of the world’s economic growth. So, think of that and then with regard to infrastructure and goes back to that, this is truly a global phenomenon. So if we just even take that sector, Barry, you’ll realize that the way to maintain that type of growth, to attract capital, to keep capital, it really requires an investment of significant amount of money to be able to sustain that. And when you have 42 million people in a APAC migrating to cities in the year going back to digitalization, that’s an important thing. So, when I say we’re so much at the infancy in infrastructure, I really mean it. It can be water, it can be sewer systems, it can be digital, it can be roads, there’s so much to this. And then even down to the regional perspective, it’s a – it’s a need that doesn’t just exist in the U.S. So, for these assets, this tend to be long in duration. There’s both equity and debt. And on the debt side, quite frankly, very few outside of our insurance clients and their general account are taking advantage of the debt opportunity. And – and as we both know, to finance these projects that are becoming more plentiful every single day, across the world, including like, I said, in APAC in scale, there’s an opportunity in both sides. And I think that’s where the acid mix change happen. It’s recognizing that the attributes of these assets can have a role, the attributes of these assets can potentially replace some of these traditional assets and I think you’re going to see it grow. So, infrastructure to us, it’s really equity and debt. And then on the credit side, like I mentioned, again, too, it’s a very, very big and growing market. And certainly, the biggest area today from our vantage point is middle-market lending from a scale opportunity standpoint. So, we think much more to come in all of those spaces. RITHOLTZ: Really interesting. And let’s just stay with the concept of public versus private. That line is kind of getting blurred and the secondary markets is liquidity coming to, for lack of a better phrase, pre-public equities, tells little bit about that space. Is that an area that is ripe for growth for BlackRock? CONWAY: Yes. We absolutely think it is and you’re absolutely correct. The secondary market is – has grown quite substantial. If you even look at just the private equity secondary market and what will transact this year, I think it will be potentially in excess of 100 billion. And that’s what were clear, not to mention what will be visible and what will be analyzed. And that speaks to me what’s really happening and the innovation that we mentioned earlier. It’s no longer about just primary exposure. It’s secondary exposure. When we see all sort of interest and co-investment opportunities as well, I think the available sources of alpha and the flexibility you can now have, albeit if directed and advised, I believe the right way, Barry, can be very helpful and in the portfolio. So, your pre-IPO, it is a big part of actually what we do and we think about growth equity. There is – it’s a significant amount of capital following that space. Now, from our vantage point, as one of the largest investors in the public equity market and now obviously one of the largest investors and they in the private side, the bridge between – between private to public – there’s a real need. IPOs are not going away. And I think smart, informed capital to help with this journey, this journey is really – is really a necessity and a need. RITHOLTZ: So let’s talk a little bit about this recent restructuring. You are first named Global Head of Blackrock Alternative Investors in April 2019, the entire alternatives business was restructured, tell us a little bit about how that restructuring is going? CONWAY: Continues to go really well, Barry. When you look at the flow of acid from our clients, I think, hopefully, that’s speaks to the performance we’ve been generating. I joined the firm, as you know, albeit, 11 years ago and being very close to the alternative franchise as a critical thing for me and running the institutional platform. To me, when you watched this migration of asset towards alternatives, it was obviously very evident for decades now that this is a critical leg of the stool as our clients are thinking about their portfolios. We’re continuing to innovate. We’re continuing to invest, and thankfully, we’re continuing to deliver strong performance. We’re growing at about high double digits on an annual basis but we’re trying to purposeful too around where that growth is coming from. I think the reality is when you look at the competitive universe, I think the last number I saw, it was about 38,000 alternative asset managers out there today, obviously, coming from hedge funds all the way to private credits and private equity. So, competition is real and I do think the outcomes for our clients are starting to really grow. Unfortunately, some – in some cases, obviously, very good, and in some cases, actually not great. So our focus, Barry, is really much on how can we deliver performance, how can we be a partner? And I think we been rewarded with a trust and the faith our clients have in us because they’re seeing something different, I think, from us. Now, the scale of the business that you mentioned earlier really gives us tentacles into the market that I believe allows us to access what I think is the new alpha which is in many respects, given the heft of competition sourcing and originating new investments is certainly harder but for us, sitting in or having alternative team, sitting in 50 offices around the world, really investing in the markets because that – the market they grew up with and have relationships within, I think this network value that we have is something that’s quite special. And I think in the world that’s becoming increasingly competitive, we’re going to continue to use and harness that network value to pursue opportunities. And thankfully, as a result of the partnership we’ve been pursuing with her clients, like, we’ve – we’re certainly looking for opportunities and investments in our funds. But because of the brand, I think because of the successes, opportunities seeks us as much as we seek opportunity and that has been something that we look at an ongoing basis and feel very privileged to actually have that inbound flow as well. RITHOLTZ: Really quite interesting. There was a quote of yours I found while doing some prep for this conversation that I have to have you expand on. Quote, “The relationship between Blackrock’s alternative capabilities and wealth firms marked a large opportunity for growth in the coming years.” This was back in 2019. So, the first part of the question is, was your expectations correct? Did you – did you see the sort of growth you were hoping for? And more broadly, how large of an opportunity is alternatives, not just for BlackRock but for the entire investment industry? CONWAY: Yes. It’s been very much an institutional opportunity set up until now. And there’s so much to be done, still, to really democratize alternatives and we certainly joke around making alternatives less alternative. Actually, even the nomenclature we use and how we describe it doesn’t kind of make sense anymore. It’s such a core – an important allocation to our clients, Barry, that just calling it alternative seems wrong. Just about the institutional clients. It ranges, I think, as I mentioned on our – some of our more conservative clients which would be pension plans which really have liquidity needs on a monthly basis because of the liabilities they have to think about. At about 25 plus percent in private markets, to endowments, foundations, family offices, going to 50 percent plus. So, it’s a really important part and has been for now many years the institutional client ph communities outcomes. I think the thing that we, as an industry, have to change is alternatives has to be for the many, not for the few. And quite frankly, it’s been for the few. And as we talked about some of the attributes and the important attributes of these asset classes to think that those who have been less fortunate in their careers can’t access, things they can enrich their future retirement outcomes, to me, is a failing. And we have to address that. That comes from regulation changes, it comes from structuring of new products, it comes from education and it comes from this knowledge transmission where clients in the wealth segment can understand the role of alternatives and the context of what can do as they invest in equities and fixed income too. And we think that’s a big shortfall. So, the journey today, just to give you a sense, as we look at her clients in Europe on the wealth side, on average, as you look from what we would call the credited investors all the way through to more ultra-high-net worth individuals, their allocation to alternatives, we believe, stands at around two to three percent of their total portfolio. In the U.S., we believe it stands at three to five. So, most of those intermediaries, we speak to our partners who were more supporting and serving the wealth channel. They have certainly an ambition to help their clients grow that to 20 percent and potentially beyond that. So, when I look at that gap of let’s call it two to three to 20 percent in a market that just given the explosion in wealth around the world, I think the last numbers I saw, this is a $65 trillion market. RITHOLTZ: Wow. CONWAY: That speaks to the shortfall relative to the ambition. And how’s it been going? We have a number of things and capabilities we’ve set up to allow for this market to experience, hopefully, private equity, hedge funds, credit, and an infrastructure in ways they haven’t in the past. We’ve done this in the U.S., we’re doing it now in Europe, but I will say, Barry, this is still very much at the start of the journey. Wealth is a really important part of our future given our business, quite, frankly is 90 plus percent institutional today, but we’re looking to change that by, hopefully, democratizing these asset classes and making it so much more accessible in that of the past. RITHOLTZ: So, we hinted at this before but I’m going to ask the question outright, how significant is interest rates to client’s risk appetites, how much of the current low rate environment are driving people to move chunks of their assets from fixed income to alternatives? CONWAY: It’s really significant, Barry. I think the transition of these portfolios is quite profound, So you – and I think the unfortunate thing in some respects as this transition happens that you’re introducing new variables and new risks. The reason I say it’s unfortunate and that I think as an industry, this goes back to the education around the assets you own, understanding the role, understanding the various outcomes. I think it’s so incredibly important and that this the time where complete transparency is needed. And quite frankly, we’re investing capital that’s not ours. As an industry, we’re investing our client’s assets and they need to know exactly the underlying investments. And in good and bad times, how would those assets behave? So certainly, interest rates are driving a flow of capital away from these traditional assets, fixed-income, and absolutely in towards real estate, infrastructure, private creditors, et cetera, in the pursuit of this – this yield. But I do – I do think one of the things that’s critically important for the institutional channel, not just the wealth which are newer entrants is this transmission of education, of data because that’s how I think you build a better balanced portfolio and that’s a – that’s a real conundrum, I think, that the industry is facing and certainly your clients too. RITHOLTZ: Quite interesting. So let’s talk a little bit about the differences between investing in the private side versus the public markets, the most obvious one has to be the illiquidity. When you buy stocks or bonds, you get a print every microsecond, every tick, but most of these investments are only marked quarterly or annually, what does this illiquidity do when you’re interacting with clients? How do you – how do you discuss this with them in and how do perceive some of the challenges of illiquid investments? CONWAY: Over the – over the past number of decades, I think our clients have largely held too much liquidity in their portfolios. Like, so what we are finding is the ability to take on illiquidity risk. And obviously, in pursuit of that premium above, the traditional markets, I mean, I think the sentiment they are is it an absolute right one. That transition towards private market exposure, we think is an important one just given the return objectives, the majority of our clients’ need but then also again, most importantly now, with geo policy, with uncertainty, with interest rate uncertainty, inflation uncertainty, I mean, the – going back to the resilience point, the characteristics now by introducing these assets into the mix is important. And I think that’s – that point is maybe what I’ll expand on. As were talking to clients, using the Aladdin systems, and as you know, we bought eFront technologies, albeit a couple of years ago, by allowing, I think, great data and technology to help our clients understand these assets and the context of how they should own them relative to other liquidity needs, their risk tolerances, and the return expectations are really trying to use tech and data to provide a better understanding and comprehension of the outcomes. And as we continue to introduce these concepts and these approaches, by the way, that there is, as you know, so used to in the traditional side, it – it gives them more comfort around what they should and can expect. And that, to me, is a really important part of what we’re doing. So, we’ve released recently new technology to the wealth sector because, quite frankly, we mentioned it before, the 60-40 portfolio is a thing of the past. And that introduction of about 20 percent into alternatives, we applaud our partners who are – who are suggesting that to their clients. We think it’s something they have to do. What we’re doing to support that is really bringing thought leadership, education, but also portfolio construction techniques and data to bear in that conversation. And this goes back to – it’s no longer an alternative, right? This is a core allocation so the comprehension of what it is you own, the behavior of the asset in good and bad times is so necessary. And that’s become a very big thing with regard to our activities, Barry, because your clients are looking to understand better when you’re talking about assets that are very complex in their nature. RITHOLTZ: So, 60-40 is now 50-30-20, something along those lines? CONWAY: Yes. RITHOLTZ: Really, really intriguing. So, what are clients really looking for these days? We talked about yield. Are they also looking for downside protection on the equity side or inflation hedges you hinted at? How broad are the demands of clients in the alternative space? CONWAY: Yes. It ranges the gamut. And even – we didn’t speak to even hedge funds, we’ve had differing levels of interest in the hedge fund world for years and I, quite frankly, think some degree of disappointment too, Barry, with regard to the alpha, the returns that were produced relevant to the cost. RITHOLTZ: It’s a tough space to say the very least exactly. CONWAY: Exactly right. But when you start to see volatility introducing itself, you can really see where skill plays a critical factor. So, we are absolutely seeing, in the hedge fund, a resurgence of interest and demand by virtue of those who really have honed in on their scale, who have demonstrated an up-and-down markets and ability to protect and preserve capital, but importantly, in a low uncorrelated way build attractive risk-adjusted returns. We’re starting to see more activity there again too. I think with an alternatives, you’ve really seen a predominant demand coming from privates. These private markets, like a set of growths so extraordinarily fast and the opportunities that is rich, the reality too on the public side which is where our hedge funds operate, they continue to, in large part, do a really good job. The issue with our industry now with these 38,000 managers is how do you distill all the information? How do you think about your needs as a client and pick a manager who can deliver the outcomes? And just to give you a sense, the difference now between a top-performing private equity manager, a top quartile versus the bottom quartile, the difference can be measured in tens of percent. RITHOLTZ: Wow. CONWAY: Whereas if you look at the public equity side, for example, a large cap manager, top quartile versus bottom quartile is measured in hundreds of basis points. So, there is definitely a world that has started where the outcomes our clients will experience can be great as they pursue yield, as they pursue diversification, inflation protection, et cetera. I think the caveat that I would say is outcomes can vary greatly. So manager underwriting and the importance of it now, I think, really is this something to pay attention to because if you do have that bottom performing at the bottom quartile manager, it will affect your outcomes, obviously. And that’s what we collectively have to face. RITHOLTZ: So, let’s talk a little bit about real estate. There are a couple of different areas of investment on the private side. Rent to own was a very large one and we’ve seen some lesser by the flip algo-driven approaches. Tell us what Blackrock is doing in the real estate space and how many different approaches are you bringing to bear on this? CONWAY: Yes, we think it’s both equity and debt. Again, no different to the infrastructure side, these projects need to be financed. But on the – as you think about the sectors in which you can avail of the opportunity, you’ve no doubt heard a lot and I mentioned earlier this demand for logistics facilities. The explosion of shopping online and having, until we obviously have the supply chain disruption, an ability to have nearly immediate satisfaction because the delivery of the good to your home has become so readily available. It’s a very different consumer experience. So the explosion and the need for logistics facilities to support this type of behavior of the consumer is really an area that will continue to be of great interest too. And then you think about the transformation of business and you think about the aging world. Unfortunately, you can look at various economies where our populations are decreasing. And quite frankly, we’re getting older. And so, were you’re thinking of the context of that senior living facilities, it becomes a really important part, not just as part of the healthcare solution that come with it, but also from living as well. So, single-family, multifamily, opportunities continue to be something that the world looks at because there is really the shortfall of available properties for people to live in. And as the communities evolve to support the growing age of the population, tremendous opportunity there too. But we won’t give up on office space. It really isn’t going away. Now, if you even think about our younger generation here in BlackRock, they love being in New York, they love being in London, they love being in Hong Kong. So, the shape and the footprint may change slightly. But the necessity to be in the major financial centers, it still exists. But how we weighed the risks has definitely changed, certainly, for the – for the short-term and medium-term future. But real estate continues to be, Barry, a critical part of how we express our thought around the investment opportunity set. But clients largely do this themselves too. The direct investing from the clients is quite significant because they too see this as still as a rich investment ground, albeit, one that has changed quite a bit as a result of COVID. RITHOLTZ: Well, I’m fascinated by the real estate issue especially having seen some massive construction take place in cities pre-pandemic, look over in Manhattan at Hudson Yards and look at what’s taking place in London, not just the center of London but all – but all around it and I’m forced to admit the future is going to look somewhat different than the past with some hybrid combination of collaborative work in the office and remote work from home when it’s convenient, that sort of suggests that we now have an excess of capacity in office space. Do you see it that way or is this just something that we’re going to grow into and just the nature of working in offices is changing but offices are not going away? CONWAY: Yes. I do think there’s – it’s a very valid point and that in certain cities, you will see access, in others we just don’t, Barry. And quite frankly, as a firm, too, as you know, we have adopted flexibility with our teams that were very fortunate. The technologies in which we created at BlackRock has just become such an amazing enabler, not just to help us as we mention manage the portfolios, help us a better portfolio construction, understand risks, but also to communicate with our clients. I think we’ve all witnessed and experienced a way to have connectivity that allows them to believe that commerce can exist beyond the boundaries of one building. However, I do look at our property portfolios and even the things that we’re doing. Rent collections still being extraordinarily high, occupancy now getting back up to pre-pandemic levels, not in all cities, but in many of the major ones that have reopened. And certainly, the demand for people to just socialize, that the demand for human connectivity is really high. It’s palpable, right? We see it here too. The smiles on people’s faces, they’re back in the office, conversing together, innovating together. When people were feeling unsafe, unquestionably, I think the question marks around the role of office space was really brought to bear. But as were coming through this, as you’ve seen vaccine rates change, as you’ve seen the infection rates fall, as you’ve seen confidence grow, the return to work is really happening and return to work to office work is really happening, albeit, now with degrees of flexibility. So, going back to the – I do believe in certain areas. You’re seeing a surplus. But in many areas you’re absolutely seeing a deficit and the reason I say that, Barry, is we are seeing occupancy in certain building at such a high level. And frankly, the demand for more space being so high, it’s uneven and this goes back to then where do you invest our client’s capital, making sense of those trends, predicting where you will see resilience versus stress and building that into the portfolio of consequences as you – as you better risk manage and mitigate. RITHOLTZ: Very interesting. And so, we are seeing this transition across a lot of different segments of investing, are you seeing any products that were or – or investing styles that was once thought of as primarily institutional that are sort of working their way towards the retail side of things? Meaning going from institutional to accredited to mom-and-pop investors? CONWAY: Well, certainly, in the past, private equity was really an asset class for institutional investors. And I think that’s – that has changed in a very profound way. I mentioned earlier are the regulation has become a more adaptive, but we also have heard, in many respects, in providing this access. And I think the perception of owning and be part of this illiquid investment opportunity set was hard to stomach because many didn’t understand the attributes and what it could bring and I think we’ve been trying to solve for that and what you’re seeing now with – with regulators, understanding that the difference between if we take it quite simply as DD versus DC, the differences between the options you as a participant in a retirement plan are so vastly different that – and I think there’s a broad recognition now that there needs to be more equity with regard to what happens there. And private equity been a really established part of the alternatives marketplace was once, I think, really believed to be an institutional asset class, but albeit now has become much more accessible to wealth. We’ve seen it by structuring activities in Europe working with the regulators. Now, we’re able to provide private equity exposure to clients across the continent and really getting access to what was historically very much an institutional asset class. And I do think the receptivity is extraordinarily high just throughout people’s careers, they have seen wealth been created as a result of engineering a great outcome with great management teams integrate business. And I do believe the receptivity towards private equity is high as an example. In the U.S., too, working with the various intermediaries and being able to wrap now private equity in a ’40 Act fund, for example, is possible. And by being able to deliver that to the many as opposed to the few, we think has been a very good success story. And I think, obviously, appreciated by our clients as well. So, I would look at that were seeing across private equity as well as private credit and quite frankly infrastructure accuracy. You’re seeing now regulation that’s becoming more appreciative of these asset classes, you’re seeing a more – a greater level of openness and willingness to allow for these assets to be part of many people’s experiences across their investment portfolio. And now, with innovation around structures, as an industry, were able to wrap these investments in a way that our clients can really access them. So, think across the board, it probably speaks the innovation that’s happening but I do think that accessibility has changed in a very significant way. But you’ve really seen it happen in private equity first and now that’s expanding across these various other asset classes. RITHOLTZ: Quite intriguing. I know I only have you for a relatively limited period of time, so let’s jump to our favorite questions that we ask all of our guests. Starting with tell us what you’ve been streaming these days. Give us your favorite Netflix or Amazon Prime shows. CONWAY: That is an interesting question, Barry. I don’t a hell of a lot of TV, I got to tell you. I am – I keep busy with three wonderful children and a beautiful wife and between the sports activities. When I do watch TV, I have to tell you I’m addicted to sports and having – I may have mentioned earlier, growing up playing rugby which is not the most common sport in the U.S., I stream nonstop the Six Nations that happens in Europe where Ireland is one of those six nations that compete against each other on an annual basis. Right now, they’re playing a lot of sites that are touring for the southern hemisphere. And to me, the free times I have is either enjoying golf or really enjoying rugby because I think it’s an extraordinary sport. Obviously, very physical, but very enjoyable to watch. And that, that truly is my passion outside of family. RITHOLTZ: Interesting stuff. Tell us a bit about your mentors, who helped to shape your early career? CONWAY: Well, it even goes back to some of the aspects of sports. Playing on a team and being on a field where you’re working together, there’s a strategy involved with that. Now, I used to really appreciate how we approach playing in the All-Ireland League. How we thought about our opponents, how we thought about the structure, how we thought about each individual with on the rugby field and the team having a role. They’re all different but your role. And actually, even starting from an early age, Barry, thinking about, I don’t know, it’s sports but how to build a great team with those various skills, perspective, that can be a really, really powerful combination when done well. And certainly, from an early age, that allowed me to appreciate that – actually, in the work environment, it’s not too different. You surround yourself with just really great people that have high integrity that are empathetic and have a degree of humility that when working together, good things can happen. And I will say, it really started at sports. But I think of today and even in BlackRock, how Larry Fink thinks about the world and I think Larry, truly, is a visionary. And then Rob Kapito who really helps lead the charge across our various businesses. Speaking and conversing with them on a daily basis, getting their perspectives, trying to get inside your head and thinking about the world from their vantage point. To me, it’s a huge thing about my ongoing personal career and development and I really enjoy those moments because I think what you recognize is independent of how much you think you know, there’s so much more to know. And this journey is an ever evolving one where you have to appreciate that you’ll never know everything and you need to be a student every single day. So, I’d probably cite those, Barry, as certainly the two most important mentors in my life today, professionally and personally quite frankly. RITHOLTZ: Really. Very interesting. Let’s talk about what you’re reading these days. Tell us about some of your favorite books and what you’re reading currently? CONWAY: Barry, what I love to read, I love to read history, believe it or not. From a very small country that seems to have exported many, many people, love to understand the history of Ireland. So, there’s so many books. And having three children that have been born in the U.S. and my wife is a New Yorker, trying to help them understand some of their history and what made them what they are. I love delving into Irish history and how the country had moments of greatness and moments of tremendous struggle. Outside of that, I really don’t enjoy science fiction or any of these books. I love reading, you name any paper and any magazine on a daily basis. Unfortunately, I wake at about 4:30, 5 o’clock every day. I spent my first two hours of the day just consuming as much information as possible. I enjoy it. But it’s all – it’s really investment-related magazines, not books. It’s every paper that you could possibly imagine, Barry, and I just – I have a great appreciation for certainly trying to be a student of the world because that’s what we’re operating in an I find it just a very interesting avenue to get an appreciation to for the, not just the opportunities, but the challenges we’re collectively facing as a society but also as a business. RITHOLTZ: I’m with you on that mass consumption of investing-related news. It sounds like you and I have the same a morning routine. Let’s talk about of what sort of advice you would give to a recent college graduate who was interested in a career of alternative investments? CONWAY: Well, the industry has – it’s just gone through such extraordinary growth and the difference, when I’ve started versus today, the career opportunity set has changed so much. And I think I try to remind anyone of our analysts who come into each one of our annual classes, right, as we bring in the new recruits. I think about how talented they are for us, Barry, and how privileged we all are to be in this industry and work for the clients that we do. It’s just such an honor to do that. But I kind of – I try to remind them of that. At the end of the day, whether you’re supporting an institution, that institution is the face of many people in the background and alternatives has really now become such an important part of their experience and we talked about earlier just this challenge of retirement, if we do a good job, these institutions that support the many, they can have, hopefully, a retirement that involves dignity and they can have an ability to do things they so wanted to do as they work so hard over their lives. Getting that that personal connection and allowing for those newbies to understand that that’s the effect that you can have, an alternatives whether it’s private equity, real estate, infrastructure, private credit, hedge funds, all of these now, with the scale at which they’re operating at can allow for a great career. But my advice to them is always don’t forget your career is supporting other people. And that comes directly to how we intersect with wealth channel, it comes indirectly as a result of the institutions. And it’s such a privilege to do that. I didn’t envision when I grew up, as I mentioned, my first job, milking cows and back in a small town in the middle of Ireland that I would be one day leading an alternatives business within BlackRock. I see that as a great privilege. So, for those who are joining afresh, hopefully, try to remind them that it is for all of us and show up with empathy, dignity, compassion, and do the best you can, and hopefully, these people be sure will serve them well. RITHOLTZ: And our final question, what you know about the world of alternative investing today you wish you knew 25 years or so ago when you were first getting started? CONWAY: I think if we had invested much more heavily as an industry in technology, we would not be in the position we are today. And I say that, Barry, from a number of aspects. I mentioned in this shortfall of information our clients are dealing with today. They’re making choices to divest from one asset class to invest in another. To do that and do that effectively, they need great transparency, they needed real-time in many respects, it can’t be just a quarterly line basis. And if we had been better prepared as an industry to provide the technology and the data to help our clients really appreciate what it is they own, how we’re managing the assets on their behalf, I think they would be so much better served. I think we’re very fortunate at this firm to have built a business on the back of technology for albeit 30 plus years and were investing over $1 billion a year in technology as I’m sure you know. But we need to see more of that in the industry. So, the client experience is so important, stop, let’s demystify alternatives. It’s not that alternative. Let’s provide education and data and it’s become so large relative to other asset classes, the need to support, to educate, and transmit information, not data, information, so our client understand it, is at a paramount now. And I think it certainly as an industry, things have to change there. If I knew how big the growth would have been and how prominent these asset classes were becoming, I would oppose so much harder on that front 30 years ago. RITHOLTZ: Thank you, Edwin, for being so generous with your time. We’ve been speaking with Edwin Conway. He is the head of Blackrock Investor Alternatives Group. If you enjoy this conversation, please check out all of our prior discussions. You can find those at iTunes, Spotify, wherever you get your podcast at. We love your comments, feedback and suggestions. Write to us at MIB podcast@Bloomberg.net. You can sign up for my daily reads at ritholtz.com. Check out my weekly column at Bloomberg.com/opinion. Follow me on Twitter, @ritholtz. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohammed ph is my audio engineer. Paris Wald is my producer, Michael Batnick is my head of research, Atika Valbrun is our project manager. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: Edwin Conway appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureNov 22nd, 2021

Rabobank: Some Very Rich People Are Going To Be *Very* Wrong On Some Of Their Recent Calls

Rabobank: Some Very Rich People Are Going To Be *Very* Wrong On Some Of Their Recent Calls By Michael Every of Rabobank Help!...It's the Blair Bear Bunch As a kid, I vaguely recall watching Saturday re-runs of a second-tier cartoon called ‘Help!…It’s the Hair Bear Bunch’. Wikipedia reminds me it was about bear cousins in Wonderland Zoo, run by Mr. Peevly and zookeeper Botch, who would escape on "invisible motorcycles" to "improve their living conditions" and "embark on get-rich-quick schemes", and who would activate a hidden switch to reveal a cage filled with luxurious surroundings. Last Saturday, I watched ‘The Blair Bear Bunch’, as re-run second-tier ex-politicians Tony Blair and Hillary Clinton, usually associated with the kind of wacky antics described above, also gave a very bearish set of answers on the key topic of US-China relations on a giant Bloomberg stage in Singapore. Don’t take my word for it: watch it yourself and see. To my eyes, the key take-aways were: Blair saying the Western perspective of China has changed fundamentally, and from now on policy would be to only engage with it from a “position of strength”; Clinton stressing her views on trade had changed, and while she believed some US tariffs would be removed, was in favor of trade ‘resiliency’; and Blair adding trade should be done more between politically sympathetic nations. (Or, as I have put it in the past when predicting people like Blair would eventually be saying this, that “Trade is about values, not prices”.) This all matters given these bears presumably still have some influence/reflect the thinking of the Peevlys and Botches running our ‘Wonderland’ – and were cleared to say so in public; that, as the future global supply chain layout is still unclear, with huge implications for labor costs at a time of rising inflation; and because financial markets are operating in an entirely different headspace. After all, if we do bifurcate economically, some very rich people are going to be *very* wrong on some of their recent calls. On which note, just after the Biden-Xi summit, a US Congressional panel advised the States should restrict outward investment to China due to security concerns. Meanwhile, there are plenty of China bears out there on strictly economic grounds: A PBOC advisor stated China could enter “quasi-stagflation” with relatively slow growth and excessively high producer-price inflation. Indeed, that scenario is “very likely” if existing risks in the economy are “released too quickly”: he called for a go-slow approach on structural problems such as local government debt and indebted property developers. We already see potential signs of PBOC easing given tweaks in the wording of Friday’s quarterly policy report to suggest room for a policy shift, if needed. However, Leland Miller of the China Beige Book, in an interview with Bloomberg’ Sherry Anh also worth a watch, underlined China is going to grow far more slowly – because Beijing is OK with that. And, leading from the back as usual, the IMF are calling downside risks to their China GDP forecast, prompting professor Michael Pettis to state their methodology is wrong if they think excess debt- and property-related growth for so many years does not imply a compensating GDP undershoot ahead. (Amen, says I.) China is worried enough that SAFE is urging banks to limit speculative FX trading to prevent one-way CNY bets. The key messages: threats to the economy are real; a stronger CNY --one of the best ways to rebalance the global economy and boost Chinse consumption-- is not going to happen; and to presume CNY is freely-traded, one would need to be smoking enough to ride one’s own “invisible motorcycle”. There are stagflation bears in the US too. Yet the St. Louis Fed, rather than addressing the ‘ag-flation’ making food more expensive, stresses: “A Thanksgiving dinner serving of poultry costs $1.42. A soybean-based dinner serving with the same amount of calories costs 66 cents and provides almost twice as much protein.” I don’t eat meat, but I am not sure Americans will enjoy central bankers telling them what they should ingest if they can’t afford poultry – as well as tipping us off about how the BLS may “hedonically-adjust” food prices to keep headline CPI lower. Then we get to the bears of geopolitics. Russia may be preparing for a major attack on Ukraine by end-January, with Russian social media is again sharing pictures of a rump Ukraine sandwiched between the pincers of Belarus and ‘New Russia’ stretching all along the key grain ports of the Sea of Azov and the Black Sea as far Moldova. We can only wait and see while stressing what this would mean for food and energy prices, and for the international order, if so. With EU gas supply coming from Russia, Bloomberg meanwhile bewails in a Merkel-esque voice, “When energy pipelines become political, everyone suffers”. Energy pipelines are ALWAYS political! (And “trade is about values, not prices.”) More broadly, one would suspect risk would be off for all of 24 hours in Russia moves before markets rally on the presumption war means less Fed tapering: which says all we need to know about our Soviet, or at least Pavlovian, markets.   And geopolitical tensions are going global. The Saudi coalition fighting the Iranian backed Houthis in Yemen is also flagging an imminent danger to navigation and global trade south of the Red Sea, Saudi state media also reported it had detected hostile movements and activity by the Yemeni Houthi forces using explosive laden boats, adding that measures are being taken to neutralize the threat and ensure freedom of navigation. As our ‘In Deep Ship’ report argued, this is how you take existing supply-chain and supply-side shocks and amplify them. Given this is another massive global energy production centre, keep an eye on it. Can markets Pavlov this away too? However, they would probably be less sanguine if anything happened in the South China Sea too. Relatedly, and to the Blair Bear Bunch, the US Indo-Pacific National Security Council chief just stressed that Vietnam and India --not China-- “will define the future of Asia,” adding, “I believe whoever is in power in Washington, Democrat or Republican, will do what is necessary to build relationships with these countries.” Moreover, the Financial Times front page is again about Chinese military tech advances. Apparently the Chinese hypersonic missile test-fired recently fired its own missile over the South China Sea in flight, and the FT says “Pentagon struggles to understand how Beijing mastered technology that tests constraints of physics.” Allow me to rehash what I said when we last got such “Sputnik” headlines: this is a placed/leaked story no doubt related to US defense lobbying; if there is a real military advance or not remains to be seen, but the US is clearly going to be spending more on defense regardless; and if there is a Chinese advance, how much do cynics want to bet that if one dug deep enough, the source would be at least partly US tech and/or capital? Or even friends and relatives of US politicians, including those who enjoy “riding invisible motorcycles" to "improve their living conditions" and "embarking on get-rich-quick schemes". Tyler Durden Mon, 11/22/2021 - 10:15.....»»

Category: blogSource: zerohedgeNov 22nd, 2021

3 ways to cut $1 trillion in defense spending over the next decade

The CBO came up with three approaches to cutting about $1 trillion from the Pentagon budget over the next decade — a decrease of just 14%. An F-35A Combat Power Exercise at Hill Air Force Base in Utah, January 6, 2020.US Air Force/R. Nial Bradshaw Congress is moving to increase the Pentagon budget above the already astronomical level proposed by the Biden administration. But a new Congressional Budget Office report shows three ways to cut $1 trillion in defense spending over the next decade. Whether US leaders meet the challenges of today or continue to succumb to the power of the arms lobby is an open question. Even as Congress moves to increase the Pentagon budget well beyond the astronomical levels proposed by the Biden administration, a new report from the Congressional Budget Office (CBO) has outlined three different ways to cut $1 trillion in Department of Defense spending over the next decade.A rational defense policy could yield far more in the way of reductions, but resistance from the Pentagon, weapons contractors, and their many allies in Congress would be fierce.After all, in its consideration of the bill that authorizes such budget levels for next year, the Democratic-controlled House of Representatives recently voted to add $25 billion to the already staggering $750 billion the Biden administration requested for the Pentagon and related work on nuclear weapons at the Department of Energy.By any measure, that's an astonishing figure, given that the request itself was already far higher than spending at the peaks of the Korean and Vietnam wars or President Ronald Reagan's military buildup of the 1980s.In any reasonable world, such a military budget should be considered both unaffordable and deeply unsuitable when it comes to addressing the true threats to this country's "defense," including cyberattacks, pandemics, and the devastation already being wrought by climate change.Worst of all, providing a blank check to the military-industrial-congressional complex ensures the continued production of troubled weapon systems like Lockheed Martin's exorbitantly expensive F-35 Joint Strike Fighter, which is typically behind schedule, far above projected costs, and still not considered effective in combat.Changing course would mean real reform and genuine accountability, starting with serious cuts to a budget for which "bloated" is far too kind an adjective.Three options for reductionsUS Navy aircraft carriers USS Ronald Reagan, USS Theodore Roosevelt, and USS Nimitz in the western Pacific, November 12, 2017.ReutersAt the request of Senate Budget Committee Chair Bernie Sanders (I-VT), the CBO devised three different approaches to cutting approximately $1 trillion (a decrease of a mere 14%) from the Pentagon budget over the next decade.Historically, it could hardly be a more modest proposal. After all, without any such plan, the Pentagon budget actually did decrease by 30% between 1988 and 1997.Such a CBO-style reduction would still leave the department with about $6.3 trillion to spend over that 10-year period, 80% more than the cost of President Joe Biden's original $3.5 trillion Build Back Better proposal for domestic investments.Of course, that figure, unlike the Pentagon budget, has already been dramatically whittled down to half its original size, thanks to laughable claims by "moderate" Democrats like Senator Joe Manchin (D-WV) that it would break the bank in Washington. Yet such critics of expanded social and economic programs rarely offer similar thoughts when it comes to the Pentagon's far larger bite of the budgetary pie.The options in the budget watchdog's new report are anything but radical:Option one would preserve the "current post-Cold War strategy of deterring aggression through [the] threat of immediate U.S. military response with the objectives of denying an adversary's gains and recapturing lost territory." The proposed cuts would hit each military service equally, with some new weapons programs slowed down and a few, as in the case of the B-21 bomber, cancelled.Option two "adopts a Cold War-like strategy for large nuclear powers of making aggression very costly and recognizing that the size of conventional conflict would be limited by the threat of a nuclear response." That leaves nearly $2 trillion for the Pentagon's planned "modernization" of the US nuclear arsenal untouched, while relying more heavily on working with allies in conventional war situations than current strategy allows for. It would mean that the military might take longer to deploy in large numbers to a conflict.Option three "de-emphasizes use of U.S. military force in regional conflicts in favor of preserving U.S. control of the global commons (sea, air, space, and the Arctic), ensuring open access to the commons for allies and unimpeded global commerce." In other words, Afghan- or Iraq-style boots-on-the-ground US interventions would largely be avoided in favor of the use of long-range and "over-the-horizon" weapons like drones, naval blockades, the enforcement of no-fly zones, and the further arming and training of allies.But looking more broadly at the question of what will make the world a safer place in an era of pandemics, climate change, racial injustice, and economic inequality, reductions well beyond the $1 trillion figure embedded in the CBO's recommendations would be both necessary and possible in a more reasonable American world.The CBO's scenarios remain focused on military methods for solving security problems, assuring an all-too-narrow view of what might be saved by a new approach to security.Nuclear excessFour B-61 nuclear gravity bombs at Barksdale Air Force Base.United States Department of Defense SSGT Phil SchmittenThe CBO, for instance, chose not to look at possible savings from simply scaling back (not even ending) the Pentagon's $2-trillion, three-decades-long plan to build a new generation of nuclear-armed missiles, bombers, and submarines, complete with accompanying new warheads.Scaling back such a buildup, which will only further imperil this planet, could easily save in excess of $100 billion over the next decade.One significant step toward nuclear sanity would be to adopt the alternative nuclear posture proposed by the organization Global Zero. That would involve the elimination of all land-based nuclear missiles and rely instead on a smaller force of ballistic missile submarines and bombers as part of a "deterrence-only" strategy.Land-based, intercontinental ballistic missiles were accurately described by former Secretary of Defense William Perry as "some of the most dangerous weapons in the world."The reason: a president would have only a matter of minutes to decide whether to launch them upon being warned of an oncoming nuclear attack by an enemy power. That would, of course, greatly increase the risk of an accidental nuclear war and the potential destruction of the planet prompted by a false alarm (of which there have been several in the past).Eliminating such missiles would make the world a far safer place, while saving tens of billions of dollars in the process.Capping contractorsIsaac Brekken/Getty ImagesWhile most people think about the Pentagon budget in terms of what it spends on new guns, ships, planes, and missiles, services are about half of what it buys every year.These are the contracts that go to various corporate "Beltway bandits" to consult with the military or perform jobs that could often be done more cheaply by federal employees. Both the Defense Business Board and the Pentagon's own cost estimating office have identified service contracting as an area where there are significant opportunities for large-scale savings.Last year, the Pentagon spent nearly $204 billion on various service contracts. That's more than the budgets for the Departments of Health and Human Services, State, or Homeland Security. Reducing spending on contractors by even 15% would instantly save tens of billions of dollars annually.In the past, Congress and the Pentagon have shown that just such savings could easily be realized. For example, a provision in a 2011 defense law simply capped such spending at 2010 levels. Government spending data shows that, in the end, it was reduced by $42 billion over four years.Closing unneeded basesAn aircraft hangar damaged by Hurricane Michael at Tyndall Air Force Base in Florida, October 11, 2018.ReutersWhile the Biden administration seeks to expand domestic infrastructure spending, the Pentagon has been desperate to shed costly and unnecessary military facilities.Both the Obama and Trump administrations asked Congress to authorize another round of what's called base realignment and closure to help the Defense Department get rid of its excess capacity. The Pentagon estimates that it could save $2 billion annually that way.The CBO report cited above explicitly excludes any consideration of such cost savings as politically unfeasible, given the present Congress. But considering the ways in which climate change is going to threaten current military basing arrangements domestically and globally, that would be an obvious way to go.Another CBO report warns that the future effects of climate change — from rising sea levels (and flooding coastlines) to ever more powerful storms — will both reduce the government's revenue and increase its mandatory spending, if its base situation remains as it is now.After all, ever fiercer tropical storms and hurricanes, as well as rising levels of flooding, are already resulting in billions of dollars in damage to military bases. Meanwhile, it's estimated that, in the decades to come, more than 1,700 US military installations worldwide may be impacted by sea-level rise.Future rounds of base closings, both domestic and global, should be planned now with the impact of climate change in mind.Turning around Congress, fighting off lobbyistsThe House Armed Services Committee at the start of a hearing on the National Defense Authorization Act, September 1, 2021.Bill Clark/CQ-Roll Call, Inc via Getty ImagesSo far, boosting Pentagon spending has been one of the only things a bipartisan majority of this Congress can agree on, as indicated by that House decision to add $25 billion to the Pentagon budget request for Fiscal Year 2022. A similar measure is included in the Senate version, which it will debate soon.There are, however, glimmers of hope on the horizon as the number of members of Congress willing to oppose the longstanding practice of shoveling ever more funds at the Pentagon, no questions asked, is indeed growing.For example, a majority of Democrats and members of the leadership in the House of Representatives supported an ultimately unsuccessful provision to strip some excess funds from the Pentagon this year. A smaller group voted to cut the department's budget across the board by 10%. Still, it was a number that would have been unthinkable just a few years ago.That core group is only likely to grow in the years to come as the costs of non-military challenges like pandemics, climate change, and the financial impact of racial and economic injustice supplant traditional military risks as the most urgent threats to American lives and livelihoods.Opposition to increased Pentagon spending is growing outside of Washington as well. An ever wider range of not just progressive but conservative organizations now support substantial reductions in the Pentagon budget.President Donald Trump at the signing of the 2019 NDAA, authorizing $716 billion in defense spending.Carolyn Kaster/APThe challenge, however, is to translate such sentiments into a concerted, multifaceted campaign of public pressure that will move a majority of the members of Congress to stop giving the Pentagon a yearly blank check. A new poll from the Eurasia Group Foundation found that twice as many Americans now support cutting the Pentagon budget as support increasing it.Any attempt to curb Pentagon spending will run up against a strikingly powerful arms industry that deploys campaign contributions, lobbyists, and promises of defense-related employment to keep budgets high. In this century alone, the Pentagon has spent more than $14 trillion, up to one half of which has gone to contractors.During those same years, the arms industry has spent $285 million on campaign contributions and $2.5 billion on lobbying, most of it focused on members of the armed services and defense appropriations committees that take the lead in deciding how much the country spends for military purposes.The arms industry's lobbying efforts are especially insidious. In an average year, it employs around 700 lobbyists, more than one for every member of Congress. The top five corporate weapons makers got a return of $1,909 in taxpayer funds for every dollar they spent on lobbying. Most of their lobbyists once worked in the Pentagon or Congress and arrived in the world of arms contractors via the infamous "revolving door."Of course, they then used their relationships with their former colleagues in government to curry favor for their corporate employers. A 2018 investigation by the Project On Government Oversight found that, in the prior decade, 380 high-ranking Pentagon officials and military officers had become lobbyists, board members, executives, or consultants for weapons contractors within two years of leaving their government jobs.Lloyd Austin at a ceremonial swearing-in at the White House, January 25, 2021. Austin joined the board of Raytheon after retiring from the military.Doug Mills-Pool/Getty ImagesA September 2021 study by the Government Accountability Office found that, as of 2019, the top 14 arms contractors employed more than 1,700 former military or Pentagon civilian employees, including many who had previously been involved in making or enforcing the rules for buying major weapons systems.The revolving door spins both ways, with executives and board members of the major weapons makers moving into powerful senior positions in government where they're well situated to help their former (and, more than likely, future) employers.The process starts at the top. Four of the past five secretaries of defense have also been executives, lobbyists, or board members of Raytheon, Boeing, or General Dynamics, three of the top five weapons makers that split tens of billions of dollars in Pentagon contracts annually.Both the House and Senate versions of the 2022 National Defense Authorization Act extend the periods of time in which those entering the government from such industries have to recuse themselves from decisions involving their former companies. Still, as long as the Pentagon continues to pluck officials from the very outfits driving those exploding budgets, we should all know more or less what to expect.So far, the system is working — if you happen to be an arms contractor. The top five weapons companies alone split $166 billion in Pentagon contracts in Fiscal Year 2020, well over one-third of those issued by the Department of Defense that year.To give you some sense of the scale of all this — and our government's twisted priorities — Lockheed Martin alone received $75 billion in Pentagon contracts in Fiscal Year 2020, nearly one and one-half times the $52.5 billion allocated for the State Department and the Agency for International Development combined.Which way forward?More than 1,000 pieces of US Army equipment and vehicles at the port in Gdansk, Poland, September 14, 2017.US Army/Sgt. 1st Class Jacob A. McDonaldThe Congressional Budget Office's new report charts a path toward a more rational approach to Pentagon spending, but the $1 trillion in savings it proposes should only be a starting point.Hundreds of billions more could be saved over the next decade by reassessing our national security strategy, cutting back the Pentagon's nuclear buildup, capping its use of private contractors, and scaling back the colossal sums of waste, fraud, and abuse baked into its budget.All of this could be done while making this country and the world a significantly safer place by shifting such funds to addressing the non-military risks that threaten the future of humanity.Whether our leaders meet the challenges of today or continue to succumb to the power of the arms lobby is an open question.Mandy Smithberger, a TomDispatch regular, is the director of the Center for Defense Information at the Project On Government Oversight (POGO).William D. Hartung, a TomDispatch regular, is the director of the Arms and Security Program at the Center for International Policy and the author of "Profits of War: Corporate Beneficiaries of the Post-9/11 Surge in Pentagon Spending" (Brown University's the Costs of War Project and the Center for International Policy, September 2021).Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 19th, 2021

How The "Grand Chessboard" Led To US Checkmate In Afghanistan

How The "Grand Chessboard" Led To US Checkmate In Afghanistan Authored by Max Parry via Off-Guardian.org, Nearly as suspenseful as the Taliban’s meteoric return to power after the final withdrawal of American armed forces from Afghanistan is the uncertainty over what will come next amid the fallout... Many have predicted that Russia and China will step in to fill the power vacuum and convince the facelift Taliban to negotiate a power-sharing agreement in exchange for political and economic support, while others fear a descent into civil war is inevitable. Although Moscow and Beijing potentially stand to gain from the humiliating US retreat by pushing for an inclusive government in Kabul, the rebranded Pashtun-based group must first be removed as a designated terrorist organization. Neither wants to see Afghanistan worsen as a hotbed of jihad, as Islamist separatism already previously plagued Russia in the Caucasus and China is still in the midst of an ongoing ethnic conflict in Xinjiang with Uyghur Muslim secessionists and the Al Qaeda-linked Turkestan Islamic Party. At this point everyone recognizes the more serious extremist threat lies not with the Taliban but the emergence of ISIS Khorasan or ISIS-K, the Islamic State affiliate blamed for several recent terror attacks including the August 26th bombings at Hamid Karzai International Airport in the Afghan capital which killed 13 American service members and more than a 100 Afghans during the US drawdown. Three days later, American commanders ordered a retaliatory drone strike targeting a vehicle which they claimed was en route to detonate a suicide bomb at the same Kabul airport. For several days, the Pentagon falsely maintained that the aerial assault successfully took out two ISIS-K militants and a servile corporate media parroted these assertions unquestioningly, including concocting a totally fictitious report that the blast consisted of “secondary explosions” from devices already inside the car intended for use in an act of terror. Two weeks later, US Central Command (CENTCOM) was forced to apologize and admit the strike was indeed a “tragic mistake” which errantly killed ten innocent civilians — all of whom were members of a single family including seven children — while no Daesh members were among the dead. This distortion circulated in collusion between the endless war machine and the media is perhaps only eclipsed by the alleged Russian-Taliban bounty program story in its deceitfulness. If any Americans were aware of ISIS-K prior to the botched Kabul airstrike, they likely recall when former US President Donald Trump authorized the unprecedented use of a Massive Ordnance Air Blast bomb, informally referred to as the “Mother Of All Bombs”, on Islamic State militants in Nangarhar Province back in 2017. Reportedly, Biden’s predecessor had to be shown photos from the 1970s of Afghan girls wearing miniskirts by his National Security Advisor, HR McMaster, to renege on his campaign pledge of ending the longest war in US history. As it happens, the ISIS Khorasan fighters extinguished by the MOAB were sheltered at an underground tunnel complex near the Pakistani border that was built by the CIA back in the 1980s during the Afghan-Soviet war. Alas, the irony of this detail was completely lost on mainstream media whose proclivity to treat Pentagon newspeak as gospel has been characteristic of not only the last twenty years of US occupation but four decades of American involvement in Afghanistan since Operation Cyclone, the covert Central Intelligence Agency plan to arm and fund the mujahideen, was launched in 1979. Frank Wisner, the CIA official who established Operation Mockingbird, the agency’s extensive clandestine program to infiltrate the news media for propaganda purposes during the the Cold War, referred to the press as it’s “Mighty Wurlitzer”, or a musical instrument played to manipulate public opinion. Langley’s recruitment of assets within the fourth estate was one of many illicit activities by the national security apparatus divulged in the limited hangout of the Church Committee during the 1970s, along with CIA complicity in coups, assassinations, illegal surveillance, and drug-induced brainwashing of unwitting citizens. At bottom, it wasn’t just the minds of human guinea pigs that ‘The Company’ sought to control but the news coverage consumed by Americans as well. In his testimony before a congressional select committee, Director of Central Intelligence William Colby openly acknowledged the use of spooks in journalism, as seen in the award-winning documentary Inside the CIA: On Company Business (1980). Unfortunately, the breadth of the secret project and its vetting of journalists wasn’t fully revealed until an article by Carl Bernstein of Watergate fame appeared in Rolling Stone magazine, whereas the series of official investigations only ended up salvaging the deep state by presenting such wrongdoings as rogue “abuses” rather than an intrinsic part of espionage in carrying out US foreign policy. The corrupt institution of Western media also punishes anyone within its ranks who dares to swim against the current. The husband and wife duo of Paul Fitzgerald and Elizabeth Gould, authors of a new memoir which illuminates the real story of Afghanistan, were two such journalists who learned just how the sausage is made in the nation’s capital with the connivance of the yellow press. Both veterans of the peace movement, Paul and Liz were initially among those who naively believed that America’s humiliation in Vietnam and the well-publicized hearings which discredited the intelligence community might lead to a sea change in Washington with the election of Jimmy Carter in 1976. In hindsight, there was actually good reason for optimism regarding the prospect for world peace in light of the arms reduction treaties and talks between the US and Moscow during the Nixon and Ford administrations, a silver lining to Henry Kissinger’s ‘realist’ doctrine of statecraft. However, any glimmer of hope in easing strained relations between the West and the Soviet Union was short-lived, as the few voices of reason inside the Beltway presuming good faith on the part of Moscow toward détente and nuclear proliferation were soon challenged by a new bellicose faction of DC think tank ghouls who argued that diplomacy jeopardized America’s strategic position and that the USSR sought global dominion. Since intelligence assessments inconveniently contradicted the claims of Soviet aspirations for strategic superiority, CIA Director George H.W. Bush consulted the purported expertise of a competitive group of intellectual warmongers known as ‘Team B’ which featured many of the same names later synonymous with the neoconservative movement, including Richard Pipes, Paul Wolfowitz and Richard Perle. Bush, Sr. had replaced the aforementioned Bill Colby following the notorious “Halloween Massacre” firings in the Gerald Ford White House, a political shakeup which also included Kissinger’s ouster as National Security Advisor and the promotion of a young Donald Rumsfeld to Secretary of Defense with his pupil, one Richard B. Cheney, named Chief of Staff. This proto-neocon soft coup allowed Team B and its manipulated estimates of the Soviet nuclear arsenal to undermine the ongoing Strategic Arms Limitation Talks (SALT) between Washington and the Kremlin until Jimmy Carter and Leonid Brezhnev finally signed a second comprehensive non-proliferation treaty in June 1979. The behind-the-scenes split within the foreign policy establishment over which dogma would set external policymaking continued wrestling for power before the unipolarity of Team B prevailed thanks to the machinations of Carter’s National Security Advisor, Zbigniew Brzezinski. If intel appraisals of Moscow’s intentions and military capabilities didn’t match the Team B thesis, the Polish-American strategist devised a scheme to lure the USSR into a trap in Afghanistan to give the appearance of Soviet expansionism in order to convince Carter to withdraw from SALT II the following year and sabotage rapprochement. By the time it surfaced that the CIA was supplying weapons to Islamist insurgents in the Central Asian country, the official narrative dispensed by Washington was that it was aiding the Afghan people fight back against an “invasion” by the Red Army. Ironically, this was the justification for a proxy conflict which resulted in the deaths of at least 2 million civilians and eventually collapsed the socialist government in Kabul, setting off a bloody civil war and the emergence of the Taliban. Even so, it was the media which helped manage the perception that the CIA’s covert war began only after the Soviets had intervened. Meanwhile, the few honest reporters who tried to unveil the truth about what was happening were silenced and relegated to the periphery. Paul Fitzgerald and Elizabeth Gould were the first two American journalists permitted entry into the Democratic Republic of Afghanistan in 1981 by the Moscow-friendly government since Western correspondents had been barred from the country. What they witnessed firsthand on the ground could not have contrasted more sharply from the accepted tale of freedom fighters resisting a communist “occupation” disseminated by propaganda rags. Instead, what they discovered was an army of feudal tribesman and fanatical jihadists who blew up schools and doused women with acid as they waged a holy war against an autonomous, albeit flawed, progressive government in Kabul enacting land reforms and providing education for girls. In addition, they learned the Soviet military presence was being deliberately exaggerated by major outlets who either outright censored or selectively edited their exclusive accounts, beginning with CBS Evening News and later ABC’s Nightline. Not long after the Taliban established an Islamic emirate for the first time in the late 1990s, Brzezinski himself would shamelessly boast that Operation Cyclone had actually started in mid-1979 nearly six months prior to the deployment of Soviet troops later that year. Fresh off the publication of his book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, the Russophobic Warsaw-native told the French newspaper Le Nouvel Observateur in 1998: Question: The former director of the CIA, Robert Gates, stated in his memoirs that the American intelligence services began to aid the Mujaheddin in Afghanistan six months before the Soviet intervention. Is this period, you were the National Security Advisor to President Carter. You therefore played a key role in this affair. Is this correct? Brzezinski: Yes. According to the official version of history, CIA aid to the Mujaheddin began during 1980, that is to say, after the Soviet army invaded Afghanistan on December 24, 1979. But the reality, closely guarded until now, is completely otherwise: Indeed, it was July 3, 1979 that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul. And that very day, I wrote a note to the president in which I explained to him that in my opinion this aid was going to induce a Soviet military intervention. Q: Despite this risk, you were an advocate of this covert action. But perhaps you yourself desired this Soviet entry into the war and looked for a way to provoke it? B: It wasn’t quite like that. We didn’t push the Russians to intervene, but we knowingly increased the probability that they would. Q: When the Soviets justified their intervention by asserting that they intended to fight against secret US involvement in Afghanistan , nobody believed them. However, there was an element of truth in this. You don’t regret any of this today? B: Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter, essentially: “We now have the opportunity of giving to the USSR its Vietnam war.” Indeed, for almost 10 years, Moscow had to carry on a war that was unsustainable for the regime , a conflict that bought about the demoralization and finally the breakup of the Soviet empire. Q: And neither do you regret having supported Islamic fundamentalism, which has given arms and advice to future terrorists? B: What is more important in world history? The Taliban or the collapse of the Soviet empire? Some agitated Muslims or the liberation of Central Europe and the end of the Cold War? If this stunning admission straight from the horse’s mouth is too candid to believe, Fitzgerald and Gould obtain confirmation of Brzezinski’s Machiavellian confession from one of their own skeptics. Never mind that Moscow’s help had been requested by the legitimate Afghan government to defend itself against the US dirty war, a harbinger of the Syrian conflict more than three decades later when Damascus appealed to Russia in 2015 for military aid to combat Western-backed “rebel” groups. Paul and Liz also uncover CIA fingerprints all over the suspicious February 1979 assassination of Adolph Dubs, the American Ambassador to Afghanistan, whose negotiation attempts may have inadvertently thrown a wrench into Brzezinski’s ploy to draw the USSR into a quagmire. Spurring Carter to give his foreign policy tutor the green light to finance the Islamist proxies, the timely kidnapping and murder of the US diplomat at a Kabul hotel would be pinned on the KGB and the rest was history. The journo couple even go as far as to imply the branch of Western intelligence likely responsible for his murder was an agent from the Safari Club, an unofficial network between the security services of a select group of European and Middle Eastern countries which carried out covert operations during the Cold War across several continents with ties to the worldwide drug trade and Brzezinski. Although he was considered to be of the ‘realist’ school of international relations like Kissinger, Brzezinski’s plot to engineer a Russian equivalent of Vietnam in Afghanistan increased the clout of neoconservatism in Washington, a persuasion that would later reach its peak of influence in the George W. Bush administration. In retrospect, the need for a massive military buildup to achieve Pax Americana promoted by the war hawks in Team B was a precursor to the influential “Rebuilding America’s Defenses” manifesto by the Project for the New American Century cabal preceding 9/11 and the ensuing US invasion of Afghanistan. Fitzgerald and Gould also historically trace the ideological roots of neoconservatism to its intellectual foundations in the American Trotskyist movement during the 1930s. If a deviated branch of Marxism seems like an unlikely origin source for the right-wing interventionist foreign policy of the Bush administration, its basis is not as unexpected as it may appear. In fact, one of the main reasons behind the division between the Fourth International and the Comintern was over the national question, since Trotsky’s theory of “permanent revolution” called for expansion to impose global revolution unlike Stalin’s “socialism in one country” position which respected the sovereignty and self-determination of nation states while still giving support to national liberation movements. The authors conclude by highlighting how the military overhaul successfully championed by the neoconservatives marked the beginning of the end for US infrastructure maintenance as well. With public attention currently focused on the pending Infrastructure Investment and Jobs Act to repair decaying industry at home just as the disastrous Afghan pullout has put President Joe Biden’s favorability at an all-time low, Fitzgerald and Gould truly connect all the dots between the decline of America as a superpower with Brzezinski and Team B. Even recent statements by Jimmy Carter himself were tantamount when he spoke with Trump about China’s economic success which he attributed to Beijing’s lack of wasteful spending on military adventures, an incredible irony given the groundwork for the defense budget escalation begun under Ronald Reagan was laid by Carter’s own foreign policy. Looking back, the spousal team note that the ex-Georgia governor did not need much coaxing after all to betray his promises as a candidate, considering his rise to the presidency was facilitated by his membership alongside Brzezinski in the Trilateral Commission, an elite Rockefeller-funded think tank. What is certain is that Paul and Liz have written an indispensable book that gives a level of insight into the Afghan story only attainable from their four decades of scholarly work on the subject. The Valediction: Three Nights of Desmond is now available from Trine Day Press and the timing of its release could not offer better context to recent world events. Tyler Durden Thu, 11/18/2021 - 23:40.....»»

Category: blogSource: zerohedgeNov 19th, 2021

Goldman: A Biden SPR Release Is Now Fully Priced In And Will Send Oil Price Even Higher In 2022

Goldman: A Biden SPR Release Is Now Fully Priced In And Will Send Oil Price Even Higher In 2022 Bloomberg is out with a surprisingly objective article ("surprising" because it goes against the very "green" ideology espoused by both the media company's billionaire owner and the Biden administration) titled "Biden’s Remedy for High Gasoline Prices: Blame Oil Companies" which echoes what we said yesterday, yet which does not address the elephant in the room, namely that while Biden is (of course) scapegoating someone for his own failures, the solution remains just one: some form of SPR release or "volume exchange" (as JPM explained yesterday). There is just one problem: at this point an SPR release - which has been fully priced in - would send oil prices higher. As Goldman's commodity strategist Damien Courvalin explains, while such a release would provide a short-term fix to a structural deficit, "it is now fully priced-in" following the $6/bbl move lower in recent weeks, which are pricing in a release of more than 100 mb into OECD stocks, and - worst of all - would not help the slow global supply response that only higher oil prices can overcome. In fact, according to Courvalin, "if such a release is confirmed and manages to keep oil prices depressed in the context of low trading activity into year-end, it would create clear upside risks to our 2022 price forecast." Below we excerpt from Courvalin's note which we urge all those who write Biden's daily agenda and speeches to read before they commit another inflationary disaster. The White House consideration of an SPR release had already pushed Brent down by $4/bbl in recent weeks, with the potential participation of China likely behind the latest additional $2/bbl sell-off that occurred yesterday (November 17). On Goldman's pricing model, the $6/bbl move lower since late October is already pricing a release of well over 100 mb into DM stocks (assuming in fact that rising COVID cases have further exacerbated the recent move lower). Ironically, this is well beyond what is likely to be announced with reports suggesting a 30 mb US release and a similar aggregate amount from other countries. As a result, "such a potential announcement is already fully priced in" according to Courvalin, with low trading liquidity into year-end the likely only reason for any additional price downside from here. As Goldman has argued since August 2020, higher oil prices are justified by a strong demand recovery in the face of a slow supply response. This slow supply response has itself three roots, that only higher oil prices can overcome: the damage to investors caused by oil producers’ capital destruction over the last seven years, now compounded by ESG allocation inefficiencies, and the demand uncertainties of COVID, China and energy transition. In the case of OPEC, the slow production increase is the rational response to a steeper global oil cost curve, with oil finally returning to levels that balance their fiscal budgets. Net, actions to lower oil prices in the short-term would further delay the required global supply response. As Goldman explains, "from a central bank perspective, this would be akin to not raising rates in the face of inflation (Fed in 1965) or, conversely, hiking rates in the face of a recession (Fed in 1928, ECB in 2008)." As a result, if such a release is confirmed and keeps oil prices below the bank's 4Q 2021 $85/bbl Brent forecast, it would introduce clear upside risks to the bank's 2022 price forecast. This in fact suggests that OPEC could consider halting its production hikes to offset the detrimental SPR impact of lower oil prices on the needed recovery in global oil capex, an unlikely event admittedly given China’s potential participation in a strategic release. In any case, one thing is clear: the three structural roots of the slow supply response requires higher oil prices, even if it means a rout for the Dems in the miderms. Here's why: First, an investor payback for poor returns. The oil upstream sector, especially shale, over-invested from 2014 through 2019, destroying significant equity and debt values. This has left investors wary of the sector, requiring producers to focus on returning cash to shareholders through debt buybacks and dividend payouts. Despite these efforts, the recent profitability has been too brief to overcome such damage to investors, leaving the sector trading at a large discount to both the broader market (S&P500) and long-dated oil prices. This is still a long ways away from maximizing shareholder returns, providing little mandate to raise capex, and with the forces of ESG now an additional headwind. Specifically, by cannibalizing investor’s capital away from oil and gas, ESG principles are further raising the cost of capital of producers, increasing the marginal cost of production that needs to be cleared by higher oil prices. This is the main reason why the producer response has been slow, with the return on capital employed of the two largest US producers - pointed out by the White House in a letter to the FTC yesterday - only now back to their cost of capital. Second, demand uncertainty. In the short-run, this uncertainty is due to the still present COVID risk, with measures to contain successive waves systematically weighing on mobility. The increasingly more important source of uncertainty is, however, that of the path to decarbonization. The focus on shifting away from hydrocarbons, while necessary, creates an uncertain return proposition for long-cycle oil and gas projects, which still represent the bulk of global supplies. The rational response to such uncertainty is to either delay investment or focus on short-cycle solutions. Beyond the volumetric uncertainty of where oil demand will be in ten years time, this uncertainty is increasingly regulatory, with still unclear rules in the US in terms of drilling, emissions and taxation. While action is indeed required in these areas to lower emissions, the lack of clarity is rationally delaying investment. We observed the same outcome in 2014 when a potential lift of the US crude export ban was still unclear, delaying any major investment in US refining capacity. Third, OPEC. The group still has spare capacity and is only ramping up gradually. While it could do more, there are two reasons for such a slow response. First, half of its members can’t meet their quotas given their own under-investment. This complicates changing quotas as such a decision needs to be unanimous. Second, the slow supply response of shale producers has brought the group its pricing power back, leaving a slow ramp-up in output fiscally more beneficial than higher volumes. As we argued in 2014, this is the rational response to a steepening global cost curve, with prices finally back to near core-OPEC’s fiscal breakevens. The nature of the current SPR release - presented in part as targeted at OPEC - raises the question of what the group does next. The rational decision would be to halt production hikes to offset it - since the positive price impact always exceeds the volumetric hit. Conceptually, such a decision could be argued to help support prices to the level needed to stimulate the (slow) recovery in drilling activity globally. A global shortage in coming years is indeed not in OPEC’s interest as it would lead inevitably lead to a global recession - and much lower oil revenues - or accelerate  the energy transition away from oil. Ultimately, Goldman is correct that the decision to release oil from strategic reserves remains mostly political, precipitated by rising inflationary pressures across the economy. Yet, while oil prices are indeed up significantly, they are ultimately not historically elevated, especially when factoring in wealth effects. In the US for example, current spending on gasoline represents 4.3% of total US consumer expenditures, well below the 6% average level of the 2010-14 period, when the last emergency coordinated SPR release occurred. On a global scale, Goldman's estimate of oil consumer spending per GDP (based on retail prices covering 98% of global demand) shows that current prices are only in their 65th percentile since 2000. The political nature of this release may lessen the sustainability of its bearish price impact. For example, structured as a loan, barrels would need to be returned at a later date, creating buying demand for deferred contracts as a hedge (an especially appealing strategy given the backwardated forward curves). The EIA’s forecast for lower oil prices next year as well as the historical pattern of US SPR volumes ending up exported would also point to the use of exchanges of barrels rather than a sale, just as JPM predicted yesterday. With India, Korea and China having all already conducted swaps this year to be repaid in 2022, similar government loans would actually become an additional bullish catalyst next year when these barrels will have to be returned from commercial inventories. Meanwhile, the lack of bearish impact of past Chinese SPR releases is ultimately indicative of the scope of the current deficit. So given Goldman's expectation that an SPR release - which is already more than fully priced in - will not lower oil prices in 2022, withrisks to the bank's forecast skewed to the upside if a deal with Iran does not occur, Courvalin believes the White House will be pushed to consider additional actions to try to lower US gasoline prices. This is consistent with yesterday's news that the White House urged the FTC once again yesterday to investigate US retail gasoline prices, which have indeed outperformed crude oil prices in recent months. Of course, this outperformance reflects refining, regulatory and distribution dynamics, as pump prices need to reflect: the historical pattern of a lagged pass through of crude prices into gasoline prices, the tight level of gasoline and diesel inventories, leading both to compete and outperform crude in order to defend refiners’ yield incentives, regional closures in US refining capacity, the impact of government biofuel mandates and elevated RINs values, and retail and distribution margins supported by rising input and labor costs Of these, the Biden admin can only directly impact RIN values - pointing to weaker RFS blending requirements in 2021-22. Marketing margins have also remained elevated, making up 20% of current retail prices (at the high end of the historical range), with the FTC asked for a second time to investigate this sector. This may however still reflect the inflationary effects of the COVID shock, with costs per gallon sold increasing due to a still above-average number of employees as well as wage inflation. Tyler Durden Thu, 11/18/2021 - 16:40.....»»

Category: smallbizSource: nytNov 18th, 2021

Futures Rise To 4,700 "Max Gamma" As Oil Slide Accelerates

Futures Rise To 4,700 "Max Gamma" As Oil Slide Accelerates U.S. index futures rose again, trading on top of the massive 4700 "max gamma" level despite downbeat data out of Chinese tech names, as investors awaited the latest batch of unemployment data and taking comfort from signals that central banks will stay far behind the curve and keep pledges to overlook faster inflation rather than rush into rate hikes. European stocks were steady and Asian equities fell as Chinese tech stocks tumbled after poor results from Baidu and Bilibili. Treasury yields edged higher, the dollar was little changed and gold declined. Bitcoin retreated for a fifth straight day. Oil prices skidded to a six-week low on concern about a supply overhang and the prospect of China, Japan and the United States dipping in to their fuel reserves, with Brent futures last at $79.77, more than 8% off last month's three-year high. Nasdaq futures rose 86.25 points or 0.53% outperforming S&P 500 futs which were up 11.50 points or 0.25% to 4697.75, after chip giant Nvidia jumped 7% after a sales forecast by the world’s largest chipmaker. Elsewhere in premarket trading, Cisco dropped 6.6% after the computer networking equipment group’s growth and earnings forecast fell short of expectations while Alibaba slid after reporting sales that missed analyst estimates for a second straight quarter. Some other notable premarket movers: EV makers are mixed in U.S. premarket trading, with Rivian Automotive (RIVN US), Lucid (LCID US) and Canoo (GOEV US) all declining and newly-listed Sono (SEV US) extending its bounce Nvidia (NVDA US) shares gain 7% in U.S. premarket trading, with analysts saying the chipmaker delivered a strong enough quarter to justify its punchy valuation Amtech (ASYS US) fell 22% in post-market trading after reporting fourth quarter revenue that missed estimates from two analysts. The semiconductor stock has risen 139% this year through Wednesday’s trading. Kraft Heinz (KHC US) fell 1.6% in postmarket trading on Wednesday after announcing one of its top holders was selling a portion of its stake. Victoria’s Secret (VSCO US) shares gain 13% in U.S. premarket trading as analysts highlight “better-than- feared” 3Q results for the lingerie retailer. JD.com (JD US) shares advanced 2.2% premarket after it reported net revenue for the third quarter that beat the average analyst estimate. “While companies are managing to report solid third-quarter numbers, the ability to do so is being tempered by concerns about slimmer margins,” said Michael Hewson, chief market analyst at CMC Markets in London. “One positive thing, aside from the concern over rising inflation, has been the resilience of labor markets, on both sides of the Atlantic.” The Stoxx Europe 600 Index was little changed with most cash indexes giving back early gains or losses to trade flat as travel and consumer companies gained while the energy and minings industries retreated. FTSE 100 underperformed slightly. Oil & gas was the weakest sector followed by mining stocks. European metals and mining stocks fall 0.8%, the second worst performing sub-index on the benchmark Stoxx 600, amid sinking iron ore futures and copper prices. Iron ore retreated as investors weighed a top producer’s forecasts of a balanced market next year and the impact on miners amid a price collapse in recent months. Diversified miners drop, Glencore -0.8%, Anglo American -1%, BHP -0.7%, Rio Tinto -1.1%; the four stocks account for more than 60% of the SXPP. Earlier in the session, Asian stocks fell, on track for a second day of losses, as Baidu helped lead a slump in Chinese technology giants.  The MSCI Asia Pacific Index dropped as much as 0.4%, extending its two-day slide to about 0.9%. The Hang Seng Tech Index lost about 3%, as search engine giant Baidu tumbled on worries over the advertising outlook and video-streaming firm Bilibili dropped after posting a larger-than-expected loss. Hong Kong’s Hang Seng Index and China’s CSI 300 benchmark were the worst performing national benchmarks Thursday, while Taiwan’s Taiex managed a small gain. Alibaba also fell, ahead of its highly awaited earnings report later today that may show the impact of Beijing’s regulatory curbs. Japan's Nikkei was down 0.6% in early trade. "We do seem to have stalled somewhat as we head into the year end," said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners in Sydney. "Investors perhaps are just taking a bit of pause," she said, in the wake of a strong U.S. results season, but as inflation and China's slowdown loom as macroeconomic headwinds. “With a bout of earnings having been released and put behind the market, we’re in an environment where investors are inclined to take profits,” said Takashi Ito, an equity market strategist at Nomura Securities in Tokyo. “Investors are likely to cherry pick stocks that have high earnings and ROE and have strong momentum for growth.”  The region’s equities are now poised for a weekly drop after wiping out gains from earlier this week. Anxiety over global inflation has weighed on sentiment as investors search for clues on when central banks will start raising interest rates. Indonesia and the Philippines kept borrowing costs unchanged, as expected, to aid two economies that bore the brunt of Covid-19 outbreaks in Southeast Asia this year. In rates, treasuries were slightly cheaper across long-end of the curve after S&P 500 and Nasdaq 100 futures breached Wednesday’s highs. Yields are higher by ~1bp in 30-year sector, with 2s10s steeper by ~1bp, 5s30s by ~0.5bp; 10-year is ~1.60%, trailing bunds by ~2bp as traders push back on ECB rate-hike pricing. Focal points Thursday include several Fed speakers and a potentially historic 10-year TIPS auction at 1pm ET - at $14BN, the 10Y TIPS reopening is poised to draw a record low yield near -1.14%; breakeven inflation rate at ~2.71% is within 7bp of Monday’s YTD high. Elsewhere, Gilts outperformed richening ~2.5bps across the curve. Peripheral spreads tighten, semi-core widens marginally. In FX, the U.S. dollar erased an earlier modest loss and was flat, with majors mostly range-bound. Treasury yields stabilized from overnight declines; the greenback traded mixed versus its Group-of-10 peers, though most were confined to tight ranges, New Zealand’s dollar led G-10 gains after two-year ahead inflation expectations rose to 2.96% in the fourth quarter from 2.27% in the third, according to survey of businesses published by the Reserve Bank of New Zealand. Support in euro- Swiss franc at 1.0500 holds for now and consolidation for risk reversals this week suggests that a breach of the key level may not see a big follow through. The pound inched up and is on its longest winning streak in nearly seven months after this week’s jobs and inflation data fueled confidence that the Bank of England will hike rates. The Turkish lira plunged to a new all time low, with the USDTRY rising to 10.93 after the central bank cut rates by 100bps. Currency traders are also assessing a sharp downdraft in the Aussie/yen cross, often a barometer of market sentiment. It fell through its 200-day moving average on Tuesday and has lost almost 4% in a dozen sessions . "You've got the perfect storm there for bears," said Matt Simpson, senior analyst at brokerage City Index. "Fundamentally and technically Aussie/yen looks pretty good with lower oil prices." In commodities, crude futures remained in the red but bounce off worst levels as the potential for SPR releases remains center stage. WTI finds support near $77, recovering toward $78; Brent regains a $80-handle. Spot gold gives back Asia’s small gains, dropping ~$7 to trade near $1,860/oz. Base metals trade poorly, LME zinc and lead underperform. Looking at the day ahead now, and data releases from the US include the weekly initial jobless claims, the Philadelphia Fed’s business outlook for November, the Kansas City Fed’s manufacturing index for November, and the Conference Board’s leading index for October. Central bank speakers include PBoC Governor Yi Gang, the ECB’s Centeno, Panetta and Lane, and the Fed’s Bostic, Williams, Evans and Daly. There’ll also be a number of decisions from EM central banks, including Bank Indonesia, the Central Bank of Turkey and the South African Reserve Bank. Finally, earnings releases include Intuit, Applied Materials and TJX. Market Snapshot S&P 500 futures up 0.4% to 4,703.25 STOXX Europe 600 up 0.1% to 490.50 MXAP down 0.3% to 199.31 MXAPJ down 0.6% to 650.79 Nikkei down 0.3% to 29,598.66 Topix down 0.1% to 2,035.52 Hang Seng Index down 1.3% to 25,319.72 Shanghai Composite down 0.5% to 3,520.71 Sensex down 0.4% to 59,755.91 Australia S&P/ASX 200 up 0.1% to 7,379.20 Kospi down 0.5% to 2,947.38 Brent Futures down 0.1% to $80.18/bbl Gold spot down 0.2% to $1,863.45 U.S. Dollar Index little changed at 95.75 German 10Y yield little changed at -0.26% Euro little changed at $1.1327 Top Overnight News from Bloomberg More Wall Street banks are wagering that the Federal Reserve will hike rates at a faster-than-expected pace, with Citigroup Inc. joining Morgan Stanley in backing trades that will profit if the central bank does just that China is releasing some oil from its strategic reserves days after the U.S. invited it to participate in a joint sale, suggesting the world’s two biggest oil consumers are willing to work together to keep a lid on energy costs European countries are increasingly forcing reluctant companies to let employees work from home in an effort to break the rapidly spreading fourth wave of the coronavirus pandemic A more in depth look at global markets courtesy of Newsqauwk Asia-Pac stocks traded mostly negative with sentiment in the region subdued amid a lack of significant macro drivers and following the uninspired lead from the US - where the major indices finished a choppy session in the red and the DJIA gave up the 36k status. Nonetheless, the ASX 200 (+0.1%) remained afloat with notable strength in gold miners, as well as some consumer stocks, although advances in the index were limited by losses in the financial and energy sectors after similar underperformance stateside amid a decline in yields and oil prices. The Nikkei 225 (-0.3%) was initially dragged lower by unfavourable currency inflows which overshadowed reports that Japan wants to enhance tax breaks for corporations that raise wages, while shares in Eisai were hit after EU regulators placed doubts regarding the approval of Co. and Biogen’s co-developed Alzheimer’s drug and SoftBank also declined after the US regulator raised concerns regarding Nvidia’s acquisition of Arm. However, the index then briefly returned flat in late trade on reports that the Japanese stimulus package is to require JPY 55.7tln of fiscal spending which is higher than the previously speculated of around JPY 40tln. The Hang Seng (-1.3%) and Shanghai Comp. (-0.5%) weakened after another liquidity drain by the PBoC and with the declines in Hong Kong exacerbated by tech selling, while the losses in the mainland were to a lesser extent with China said to be mulling additional industrial policies aimed to support growth and SGH Macro sources suggested the US and China agreed there would be some substantial progress on trade such as the removal of some punitive tariffs by the US and increased purchases of US products by China, although the report highlighted that it was unclear if this would be from a high-profile announcement or a discrete relaxing of tariffs. Finally, 10yr JGBs were initially flat as prices failed to benefit from the subdued risk appetite in Japan and rebound in global peers, while firmer metrics at the 20yr JGB bond auction provided a mild tailwind in late trade although the support was only brief and prices were then pressured on news of the potentially larger than anticipated fiscal spending in PM Kishida's stimulus package. Top Asian News China Property Stocks Sink, $4.2 Billion Rush: Evergrande Update Japan’s Kishida Eyes Record Fiscal Firepower to Boost Recovery China Property Firm Shinsun’s Shares and Bonds Slump JD.com Sales Beat Estimates as Investments Start to Pay Off Major bourses in Europe are choppy, although sentiment picked up following a subdued APAC session but despite a distinct lack of fresh catalysts. US equity futures have also been grinding higher in early European hours, with the NQ (+0.6%) outpacing the ES (+0.3%), RTY (+0.2%) and YM (+0.2%). Back to European cash – broad-based gains are seen across the Euro bourses – which lifted the CAC, DAX and SMI to notch record intraday highs, whilst upside in the UK's FTSE 100 (-0.2%) has been hampered by hefty losses in today's lagging sectors– the Energy and Basic Resources - amid price action in the respective markets. Tech names also see a strong performance thus far as chip names cheer NVIDIA (+6% pre-market) earnings yesterday. Overall, sectors have maintained a similarly mixed picture vs the cash open, with no overarching theme. In terms of individual movers, Swatch (+2.8%) and Richemont (+0.6) piggyback on the increase in Swiss Watch Exports vs 2020 and 2019. Metro Bank (-20%) plumbed the depths after terminating takeover talks with Carlyle. Top European News Royal Mail Hands Investors $540 Million Amid Parcel Surge German Coalition Plans Stricter Rent Increase Regulation: Bild HSBC Sees ECB Sticking With Easy Stance Despite Record Inflation Astra Covid Antibody Data Shows Long-Lasting Protection In FX, the Kiwi has extended its recovery on heightened RBNZ tightening expectations prompted by significant increases in Q4 inflation projections, with some pundits now assigning a greater probability to the OCR rising 50 bp compared to the 25 bp more generally forecast and factored in. Nzd/Usd is eyeing 0.7050 and the 50 DMA just above (at 0.7054 today) having breached the 100 DMA (0.7026), while the Aud/Nzd cross is probing further below 1.0350 even though the Aussie has found some support into 0.7250 against its US rival and will be encouraged by news that COVID-19 restrictions in the state of Victoria are on the verge of being completely lifted. GBP/EUR/DXY - Notwithstanding Kiwi outperformance, the Dollar has lost a bit more of its bullish momentum to the benefit of most rivals, and several of those that compose the basket. Indeed, Cable has popped above 1.3500, while the Euro is looking more comfortable on the 1.1300 handle as the index retreats further from Wednesday’s new y-t-d peak and away from the psychological 96.000 level into a 95.840-642 range. Ahead, IJC and Philly Fed are due amidst another decent slate of Fed speakers, while Eur/Usd will also be eyeing the latest ECB orators for some direction and Eur/Gbp is back around 0.8400 where decent option expiry interest resides (1.1 bn), but perhaps more focused on latest talks between the UK and EU on the NI dispute. CHF/CAD/JPY - The Franc has pared more declines vs the Buck from sub-0.9300 and remains firm against the Euro near 1.0500 in wake of Swiss trade data showing a wider surplus and pick-up in key watch exports, but the Loonie looks a bit hampered by a more pronounced fall in the price of oil as the US calls on other countries for a concerted SPR tap and China is said to be working on the release of some crude stocks. Usd/Cad is tethered to 1.2600 and highly unlikely to threaten 1.1 bn option expiries at the 1.2500 strike in contrast to the Yen that stalled above 114.00 and could be restrained by 1.4 bn between 113.90 and the round number or 1.3 bn from 114.20-25, if not reports that Japan’s stimulus package may require Jpy 55.7 tn of fiscal spending compared to Jpy 40 tn previously speculated. In commodities, WTI and Brent front-month futures are off worst levels but still under pressure amid the prospect of looming crude reserves releases, with reports suggesting China is gearing up for its own release. There were also prior source reports that the US was said to have asked other countries to coordinate a release of strategic oil reserves and raised the oil reserve release request with Japan and China. Furthermore, the US tapping of the SPR could be either in the form of a sale and/or loan from the reserve, and the release from the reserve needs to be more than 20mln-30mln bbls to get the message to OPEC, while a source added that the US asked India, South Korea and large oil-consuming countries, but not European countries, to consider oil reserve releases after pleas to OPEC failed. This concoction of headlines guided Brent and WTI futures under USD 80/bbl and USD 78/bbl respectively with early selling also experienced as European players entered the fray. On the geopolitical front, US National security adviser Jake Sullivan raised with his Israeli counterpart the idea of an interim agreement with Iran to buy more time for nuclear negotiations, according to sources. However, two American sources familiar with the call said the officials were just "brainstorming" and that Sullivan passed along an idea put forward by a European ally. Next, participants should continue to expect jawboning from the larger economies that advocated OPEC+ to release more oil. OPEC+ is unlikely to react to prices ahead of next month's meeting (barring any shocks). Elsewhere, spot gold and silver have been choppy within a tight range. Spot gold trades under USD 1,875/oz - with technicians flagging a Fib around USD 1,876/oz. Spot silver trades on either side of USD 25/oz. Base metals are on a softer footing amid the broader performance across industrial commodities – LME copper remains subdued under the USD 9,500/t level, whilst some reports suggest companies are attempting to arbitrage the copper spread between Shanghai and London. US Event Calendar 8:30am: Nov. Initial Jobless Claims, est. 260,000, prior 267,000; Continuing Claims, est. 2.12m, prior 2.16m 8:30am: Nov. Philadelphia Fed Business Outl, est. 24.0, prior 23.8 9:45am: Nov. Langer Consumer Comfort, prior 50.3, revised 50.3 10am: Oct. Leading Index, est. 0.8%, prior 0.2% 11am: Nov. Kansas City Fed Manf. Activity, est. 28, prior 31 Central banks 8am: Fed’s Bostic Discusses Regional Outlook 9:30am: Fed’s Williams speaks on Transatlantic responses to pandemic 2pm: Fed’s Evans Takes Part in Moderated Q&A 3:30pm: Fed’s Daly takes part in Fed Listens event DB's Jim Reid concludes the overnight wrap After 9 weeks since surgery, yesterday I got the green light to play golf again from my consultant. Yippee. However he said that he’ll likely see me in 3-5 years to do a procedure called distal femoral osteotomy where he’ll break my femur and realign the leg over the good part of the knee. Basically I have a knee that is very good on the inside half and very bad on the outer lateral side. He’s patched the bad side up but it’s unlikely to last more than a few years before the arthritis becomes too painful. This operation would be aimed at delaying knee replacement for as long as possible! Sounds painful and a bit crazy! Meanwhile I also have a painful slipped disc in my back at the moment that I’m going to have an injection for to hopefully avoid surgery after years of managing it. As you might imagine from reading my posts last week I don’t get much sympathy at home at the moment for my various ailments. In terms of operations and golf I’m turning into a very very poor man’s Tiger Woods! Markets have been limping a bit over the last 24 hours too as the inflation realities seemed to be a bit more in focus. Those worries were given additional fuel from the UK CPI release for October, which followed the US and the Euro Area in delivering another upside surprise, just as a number of key agricultural prices continued to show significant strength. Oil was down notably though as we’ll discuss below. To add to the mix, the latest global Covid-19 wave has shown no sign of abating yet, even if some countries are better equipped for it than others. Starting with inflation, one of the main pieces of news arrived yesterday morning, when the UK reported that CPI came in at +4.2% year-on-year in October. That was above every economist’s estimate on Bloomberg, surpassing the +3.9% consensus expectation that was also the BoE’s staff projection in their November Monetary Policy Report. That’s the fastest UK inflation since 2011, and core inflation also surprised on the upside with a +3.4% reading (vs. +3.1% expected). In response to this, our UK economist (link here) is now expecting that CPI will peak at +5.4% in April, with the 2022 annual average CPI still at +4.2%, which is more than double the BoE’s 2% target. The release was also seen as strengthening the case for a December rate hike by the BoE, and sterling was the second best performing G10 currency after being top the day before in response, strengthening +0.45% against the US dollar. Even as inflation risks mounted however, the major equity indices demonstrated an impressive resilience, with the STOXX 600 (+0.14%) rising for the 17th time in the last 19 sessions. This is the best such streak since June this year, when the index managed to increase 18 of 20 days. We’ll see if that mark is matched today That was a better performance than the S&P 500 (-0.26%). 342 stocks were in the red today, the most in three weeks. Energy (-1.74%) and financials (-1.11%) each declined more than a percent, on lower oil prices and yields, respectively. Real estate (+0.65%) and consumer discretionary (+0.59%) led the way, driven by a +3.25% increase in Tesla. In line with the broad-based retreat, small-caps continued to put in a much weaker performance, with the Russell 2000 shedding -1.16% as it underperformed the S&P for a 4th consecutive session. Sovereign bonds also managed to advance yesterday, with yields on 10yr Treasuries (-4.5bps) posting their biggest decline in over a week, taking them to 1.59%. Declining inflation expectations drove that move, with the 10yr breakeven down -3.2bps to 2.71%, which was its biggest decline in over two weeks. For Europe it was a different story however, with yields on 10yr bunds only down -0.3bps, just as those on 10yr OATs (+0.1bps) and BTPs (+0.5bps) both moved higher. Most of the Treasury rally was after Europe closed though. Those moves came against the backdrop of a fairly divergent performance among commodities. On the one hand oil prices fell back, with WTI (-2.97%) closing beneath $80/bbl for only the second time in the last month as speculation continued that the US would tap its strategic reserves. On the other hand, there was no sign of any relenting in European natural gas prices, which rose a further +0.79% yesterday to bring their gains over the last 7 days to +31.57%. That follows the German regulator’s decision to temporarily suspend certification for Nord Stream 2, which has added to fears that Europe will face major supply issues over the winter. And while we’re discussing the factors fuelling inflation, there were some fresh moves higher in agricultural prices as well yesterday, with wheat futures (+1.48%) hitting an 8-year high, and coffee futures (+4.75%) climbing to their highest level in almost a decade. Central banks will be watching these trends closely. There’s still no word on who’s going to lead the Fed over the next 4 years, but yesterday’s news was that President Biden will make his pick by Thanksgiving. For those keeping track at home, on Tuesday the guidance was within the next four days. So, while it appears momentum toward an announcement is growing, take signaling of any particular day with a grain of salt. On the topic of the Fed, our US economists released their updated Fed outlook yesterday (link here) in which they brought forward their view of the expected liftoff to July 2022, with another rate increase following in Q4 2022. And although it’s not their base case, they acknowledge that incoming data could even push the Fed to speed up their taper and raise rates before June. They don’t see the choice of the next Fed Chair as having much impact on the broad policy trajectory, since inflation next year is likely to still be at high levels that makes most officials uncomfortable, plus the annual rotation of regional Fed presidents with an FOMC vote leans more hawkish next year. So that will constrain the extent to which a new chair could shift matters in a dovish direction, even if they wanted to. Overnight in Asia stocks are trading mostly in the red outside of a flat KOSPI (+0.01%). The Shanghai Composite (-0.13%), CSI (-0.64%), Nikkei (-0.77%) and Hang Seng (-1.35%) are being dragged down by tech after a bout of Chinese IT companies missed earnings continuing a theme of this earnings season. Elsewhere in Japan, the Nikkei reported that the new economic stimulus package could be around YEN 78.9 tn ($691 bn). Prime Minister Fumio Kishida will announce the package on Friday. Elsewhere S&P 500 (+0.08%) and DAX futures (+0.01%) both fairly flat. The House of Representatives is slated to begin debate on the Biden social and climate spending ‘build back better’ bill. Word from Congress suggested it could be tabled for a vote as soon as today, though the House has been as profligate missing self-imposed deadlines to vote on the bill as President Biden has been with the announcement of Fed Chair. In addition to the Build Back Better package, there’ll still be plenty of action in Congress over the next month, with another government shutdown looming on December 3, and then a debt ceiling deadline estimated on December 15. The House Budget Chair echoed Treasury Secretary Yellen’s exhortation, and urged Congress to raise the debt ceiling to avoid a government default. Treasury bills are pricing increasing debt ceiling uncertainty during December; yields on bills maturing from mid- to late-December are around double the yields of bills maturing in November and January. Turning to the pandemic, cases have continued to rise at the global level over recent days, as alarm grows in a number of countries about the potential extent of the winter wave. In Germany, Chancellor Merkel and Vice Chancellor Scholz are taking part in a video conference with state leaders today on the pandemic amidst a major surge in cases. And Sweden’s government said that they planned to bring in a requirement for vaccine passports at indoor events with more than 100 people. In better news however, the UK’s 7-day average of reported cases moved lower for the first time in a week yesterday. Moderna also joined Pfizer in seeking emergency use authorization from the FDA for booster jabs of its Covid vaccines for all adults. Looking at yesterday’s other data, US housing starts fell in October to an annualised rate of 1.520m (vs. 1.579m expected), whilst the previous months’ reading was also revised lower. Building permits rose by more than expected however, up to an annualised rate of 1.650m (vs. 1.630m expected). Finally, Canada’s CPI inflation reading rose to +4.7% in October as expected, marking the largest annual rise since February 2003. To the day ahead now, and data releases from the US include the weekly initial jobless claims, the Philadelphia Fed’s business outlook for November, the Kansas City Fed’s manufacturing index for November, and the Conference Board’s leading index for October. Central bank speakers include PBoC Governor Yi Gang, the ECB’s Centeno, Panetta and Lane, and the Fed’s Bostic, Williams, Evans and Daly. There’ll also be a number of decisions from EM central banks, including Bank Indonesia, the Central Bank of Turkey and the South African Reserve Bank. Finally, earnings releases include Intuit, Applied Materials and TJX. Tyler Durden Thu, 11/18/2021 - 08:05.....»»

Category: blogSource: zerohedgeNov 18th, 2021