Elon Musk Called Tesla"s Berlin And Austin Factories "Gigantic Money Furnaces" In Late May

Elon Musk Called Tesla's Berlin And Austin Factories "Gigantic Money Furnaces" In Late May Tesla CEO Elon Musk looks like he's finally starting to level with the public about his company's cash burn - at least as it relates to Tesla's new factories. The company's new factories in both Austin and Berlin were described by Musk this week as "gigantic money furnaces". As if that wasn't enough to entice your investment capital, he further commented that the factories are losing "billions of dollars".  The losses are coming as the automaker looks to try and ramp up production in both locations.  Musk took part in a video interview with Tesla Owners of Silicon Valley in late May, where he made the comments, telling the online viewers: “Both Berlin and Austin factories are gigantic money furnaces right now.” The discussion was filmed on May 31, according to a Bloomberg wrap up of the news out Thursday. This means the comments came in the days leading up to Tesla announcing that it would be freezing hiring and eventually cutting jobs.  And that wasn't all the good news... Musk also said during the interview that "Tesla has struggled to quickly increase production in Austin of Model Y SUVs that use the company’s new 4680 cells and structurally integrated battery pack," according to Bloomberg.  Musk said of Austin: “This is all going to get fixed real fast, but it requires a lot of attention, and it will take more effort to get this factory to high volume production than it took to build it in the first place." He also claimed that the company's Berlin factory was in a "slightly better position".  Tyler Durden Thu, 06/23/2022 - 06:55.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

Shellenberger: Why $6 Billion Won"t Solve World Hunger

Shellenberger: Why $6 Billion Won't Solve World Hunger Authored by Michael Shellenberger via (emphasis ours), In late October, David Beasley, the Director of the United Nations’ World Food Programme (WFP) urged billionaires Jeff Bezos and Elon Musk to “step up now, on a one-time basis” to address hunger globally. “Six billion [dollars] to help 42 million people that are literally going to die if we don’t reach them. It’s not complicated.”  But would you be surprised to learn that saving those 42 million lives is, in fact, complicated?   Part of the problem is how the money is spent. Musk tweeted back, “If WFP can describe on this Twitter thread exactly how $6B will solve world hunger, I will sell Tesla stock right now and do it.” Musk added, “it must be open source accounting, so the public sees precisely how the money is spent.” Beasley responded, “I can assure you that we have the systems in place for transparency and open-source accounting.”  If WFP can describe on this Twitter thread exactly how $6B will solve world hunger, I will sell Tesla stock right now and do it. — Elon Musk (@elonmusk) October 31, 2021 There have been problems in the past with the financial accounting and transparency of WFP and other United Nations agencies, but the larger problem is with food aid itself. After WFP won the Nobel Peace Prize in 2020, it should have been a time of self-celebration. Instead, it enabled longtime critics of food aid to renew their criticisms of the WFP for dumping food on poor nations, driving down prices and bankrupting farmers, ultimately making it harder for poor nations to become self-sufficient.  This scenario has happened time and again around the world. In the 1950s and 1960s, surplus wheat from the US was sent to India, undermining local farmers. In 1976, the US sent wheat to Guatemala, in response to an earthquake, even though the country had just produced record yields. The decline of prices was so harmful to farmers that the government banned grain imports. Six years later, the Peruvian government asked the US government to stop dumping rice on the country, given its impact on poor farmers.   In 2002, Michael Maren, a former food aid monitor for the United States Agency for International Development (USAID) in Somalia published a book called “The Road to Hell,” documenting how food aid prolonged that nation’s civil war in three ways.  First, much of the food aid was stolen and sold to buy arms, furthering the conflict.  Second, the food aid helped destroy the centuries-old credit system that allowed pastoral farmers to borrow money during droughts to pay for food, which they repaid later during good times. By undermining the credit system, foreign food aid had helped undermine the social ties that had kept the nation together.  And third, the food aid undermined the very incentive to farm. The WFP says it has learned from the past by giving one-third of its support in the form of cash aid, which is viewed as both more efficient, and more likely to avoid bankrupting small farmers. But cash aid can also fuel corruption, as I discovered the hard way 30 years ago when attempting to support a small, worker-owned coffee cooperative in Nicaragua.  My friends and I raised a few thousand dollars and gave it to the coop’s leaders. One year later, we returned to see how the money was spent. We were told one night by the coop’s angry cook that the coop’s all-male leadership had spent the money on alcohol and partying. None had gone towards upgrading the coop’s infrastructure. Naturally, the coop’s leaders denied it all, and said the money wasn’t sufficient, and they needed more. The lesson? When there is poor governance, aid money makes the situation worse, not better. An even bigger problem is that what causes hunger in most cases is not the absence of food but the presence of war and political instability.  A few days after his Twitter exchange with Elon musk, the WFP’s Beasley released a list of recipient nations and how much they would each receive in food aid and cash aid if Musk, Bezos, or someone else ponied up the more than $6 billion WFP said was needed to save 42 million lives. The list included the Democratic Republic of the Congo, Afghanistan, Yemen, Ethiopia, Sudan, Venezuela, Haiti and Syria. Notice anything in common between them? They are all at war or in political turmoil, which is preventing farming and the transportation of food. Not all nations suffering from hunger and famine are at war. Some, like Madagascar, are suffering from drought. But we have known since economist Amartya Sen published his landmark 1981 book, “Poverty and Famines,” that most famines are deliberately caused as a weapon of war. They weren’t, for the most part, the result of food supplies in general or drought in particular, which farmers and societies have learned to deal with for millennia. Today, the world produces a 25 percent surplus of food, the most in recorded human history. To his credit, Beasley acknowledged that “$6 billion will not solve world hunger,” adding that that “it WILL prevent geopolitical instability [and] mass migration.”  If that were true, then that $6 billion would be the greatest philanthropic investment in human history. Unfortunately, it’s not.  Just look at Democratic Republic of the Congo, the eastern region of which is again at war. In the 1990s and again in the early 2000s, Congo was the epicenter of the Great African War, the deadliest conflict since World War II, which involved nine African countries and resulted in the deaths of three to five million people, mostly because of disease and starvation. Another two million people were displaced from their homes or sought asylum in neighboring countries. Hundreds of thousands of people, women and men, adults and children, were raped, sometimes more than once, by different armed groups.  When I was there in 2014, armed militias roaming the countryside had been killing villagers, including children, with machetes. Some blamed Al-Shabaab terrorists coming in from Uganda, but nobody took credit for the attacks. The violence appeared unconnected to any military or strategic objective. The national military, police and United Nations Peacekeeping Forces, about 6,000 soldiers, were either unable or unwilling to do anything about the terrorist attacks.  The sad truth is that wars are rarely settled from the outside and, when they are, it’s through long-term military occupation, not food aid. Even 20 years is not long enough, as the US failure to bring peace and stability to Afghanistan shows. We have known for more than two centuries that almost every nation escapes hunger and famine in the same way. First, there is sufficient stability to allow farmers to produce and transport their crops to the cities, and for businesses in the cities to operate without being bombed or shelled. The ugly truth is that such stability is often won the hard way, after years or decades of war and even genocide. Stability allows farmers to become more productive, and cities to develop new industries, such as manufacturing. Rising farm productivity means fewer people are required to work in farms, and many of them move to the city for work in factories and other industries. In the cities, the workers spend their money buying food, clothing and other consumer products and services, resulting in a workforce and society that is wealthier and engaged in a greater variety of jobs.  The use of modern energy and machinery means a declining number of workers required for food and energy production, which diversifies the workforce and grows the economy. During the last 200 years, poor nations found that they didn’t need to end corruption or educate everyone to develop. As long as factories were allowed to operate freely, and the politicians didn’t steal too much from their owners, manufacturing could drive economic development. And, over time, as nations became richer, many of them, including the US, became less corrupt.  While a few oil-rich nations like Saudi Arabia have achieved very high standards of living without ever having embraced manufacturing, almost every other developed country in the world, from Britain and the United States to Japan to South Korea and China, has transformed its economy with factories.  This remains the case today. Ethiopia had to end and recover from a bloody 17-year civil war, which resulted in at least 1.4 million deaths, including one million from famine, before its government could invest in infrastructure. Today, factory workers in the capital city of Addis Ababa continue to make clothing for Western labels including Calvin Klein, Tommy Hilfiger and H&M. Ethiopia has been competitive both because of its low wages compared to places like China and Indonesia, where they have risen in recent years, as well as its investments in hydroelectric dams, the electricity grid and roads. As a result, Ethiopia has seen more than 10 percent annual growth over the last decade. But all of that is now in jeopardy. There is a growing war in the northern Tigray region, and the Ethiopian government has blocked aid from being delivered, which has resulted in nearly a half million people suffering from famine. Now, the US and other nations are considering imposing trade sanctions in response, putting in jeopardy the livelihoods of factory workers in Addis Ababa. The reason for continuing famines in a world of plenty is not just complicated but also tragic. Over the last 20 years, economists and other experts have criticized development aid for being counterproductive, making nations dependent upon outsiders, and undermining efforts at internal development. Those complaints have mostly been ignored. Today, many developed nations continue to see charitable aid as an alternative to economic development. The latest guise to sell charity as development comes in the form of “climate adaptation.” The idea is that poor nations should forgo the use of fossil fuels, a necessary ingredient to industrialization and development, and instead rely on foreign hand-outs to adapt to higher temperatures. For poor nations to finally free themselves from the clutches of would-be rescuers from the rich world, they will need to defend their right to develop, including through the use of fossil fuels, and seek to trade with rich nations on equal terms. That may be starting to happen. In response to calls by rich world leaders that Africa not use fossil fuels, South Africa’s energy minister on Wednesday called for united resistance. “Our continent collectively is made to bear the brunt for polluters,” complained Gwede Mantashe. “We are being pressured, even compelled, to move away from all forms of fossil fuels… a key resource for industrialization.”  He’s right. From climate change to food aid, rich nations are demanding the poor nations develop in ways radically different from the way they developed centuries ago, without agricultural self-sufficiency, industrialization and fossil fuels. It can’t work. The harsh truth is that poor nations must go through the same, often painful steps toward development, including, often civil war, in order to achieve the political stability they need to develop. Rich nations can be partners to poor nations. But we should stop trying to be their saviors. Michael Shellenberger is author of Apocalypse Never (Harper Collins 2020), San Fransicko(HarperCollins 2021), and President of Environmental Progress. He lives in Berkeley, California. Tyler Durden Thu, 11/18/2021 - 21:00.....»»

Category: blogSource: zerohedgeNov 18th, 2021

Volkswagen boss says new factories will "take strength out of" Elon Musk

Elon Musk previously said Tesla's new factories in Texas and Germany have become "gigantic money furnaces" that are losing billions of dollars. Tesla CEO Elon Musk, left, and Volkswagen CEO Herbert Diess.Brendan Smialowski and Tobias Schwarz/AFP via Getty Images Volkswagen boss Herbert Diess said Tesla's new factories could "take strength out of" Elon Musk. In a prior interview, Musk said factories in Texas and Berlin have become "gigantic money furnaces." Tesla and Volkswagen are both vying for the title of largest EV company in the world. Volkswagen boss Herbert Diess said Tesla's new factories could cause growing pains for Elon Musk and his electric-car company."Elon has to ramp up two highly complex factories in Austin and Gruenheide at the same time — as well as expand production in Shanghai," Diess said on Tuesday, Reuters reported. "That's going to take strength out of him." The German CEO made the comment at a meeting that addressed the impact of supply-chain snags on Volkswagen production goals, according to Reuters. Diess said that Tesla's supply-chain struggles could pave the way for Volkswagen to overtake the car company in the EV market, per Reuters.A spokesperson for Tesla did not respond to a request for comment from Insider.Diess' concerns for Tesla echo Musk's. Last week, the Tesla CEO warned in an interview with Tesla Owners Silicon Valley that the carmaker's new factories in Texas and Berlin had become "gigantic money furnaces" that were losing billions of dollars.At the time, Musk said electric-car battery shortages and supply-chain snags caused by the Shanghai lockdown were making it difficult to ramp up production at the factories and that they had only managed to manufacture a "tiny" number of vehicles.Tesla opened both factories in Austin, Texas and Berlin, Germany in 2022. But, the company's largest manufacturing facility is in Fremont, California.Meanwhile, Reuters reported that Diess said in the meeting on Tuesday that Volkswagen is ramping up production in Germany and China because shortages of semiconductor chips have begun to ease.Volkswagen has pushed further into the electric-car industry in recent years. In April, Scott Keogh, CEO of Volkswagen's US branch, told Insider's Tim Levin that he sees electric cars as a way for the carmaker to capture more of the US market."It's sort of like an F1 race to me," Diess said. "This is your chance to be in the first two rows at the start of the race, as opposed to, if we do anything internal combustion engine, we're in the 12th row."While Tesla still owns 75% of the market share for electric cars in the US and 14% of the global share, Volkswagen is close on its tail. Last year, Volkswagen claimed about 11% of the global EV market and doubled its sales from 2020.Experts have warned that Tesla will likely lose its crown. In June, Bloomberg Intelligence predicted that the carmaker could lose the title of largest in the world by 2024. The report said that Volkswagen was likely to claim the title.Even Musk has acknowledged Volkswagen's success in the industry. In May, the billionaire said during an interview with Financial Times that Volkswagen has made the most progress in the electric-car market outside of Tesla.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 28th, 2022

Stockman: The Spasmodic Chaos Of The Post-Lockdown US Economy

Stockman: The Spasmodic Chaos Of The Post-Lockdown US Economy Authored by David Stockman via The Brownstone Institute, The Biden Administration’s utterly ridiculous plan to enact a three-month holiday from the 18.4 cents per gallon Federal gas tax should be a wake-up call with respect to a far broader and more destructive threat. To wit, the US economy has lost its market-based bearings and is now behaving like a spasmodic heap of discord, dislocation and caprice owing to repeated batterings via out-of-this-world government regulatory, fiscal and tax interventions. In combination, the Green Energy attacks, the Virus Patrol’s lockdowns and scare-mongering, the Fed’s insane money-pumping and Washington’s unprecedented $6 trillion fiscal bacchanalia of the last two years have deeply impaired normal economic function. Accordingly, the business sector is flying blind: It can’t forecast what’s coming down the pike in the normal manner based on tried and true rules of cause and effect. In many cases, the normal market signals have gone kerflooey as exemplified by the recent big box retailers’ warnings that they are loaded with the wrong inventory and will be taking painful discounts to clear the decks. Yet it is no wonder that they stocked up on apparel and durables, among others, after a period in which the Virus Patrol shutdown the normal social congregation venues such as movies, restaurants, bars, gyms, air travel and the like. And than Washington added fuel to the fire by pilling on trillions of spending power derived from unemployment benefits that reached to a $55,000 annual rate in some cases and the repeated stimmie checks that for larger families added up to $10,000 to $20,000. Employed workers didn’t need the multiple $2,000 stimmie checks because in its (dubious) “wisdom” the Virus Patrol forced them to save on social congregation based spending. Likewise, temporarily laid-off workers didn’t need the $600 per week Federal UI topper. For the most part they had access to regular UI benefits, and also suffered forced “savings” via the shutdown of restaurants, bars, movies etc. Even the so-called “uncovered” employees not eligible for regular state benefits didn’t need $600 per week of UI bennies. The targeted temporary coverages could have paid 65% of their prior wage for well less than $300 per week on average. So what happened is that the double whammy of forced services savings and the massive flow of free stuff from Washington created a tsunami of demand that sucked the inventory system and supply chains dry. For instance, here is the Y/Y change in inflation-adjusted PCE for apparel and footwear. The steady-state condition of the US economy for that sector oscillated right near the flat-line during 2012-2019. Then the Washington policy hurricanes hit. During the original Q2 2020 lockdowns, real spending  for apparel and footwear plunged by -27.0%, as Dr. Fauci and the Scarf Lady sent half of the American public scurrying for the fetal position in their bedrooms and man-caves. But it didn’t take the American public long to get the joke. They soon re-cycled their restaurant spending etc. and topped it up with a tsunami of Washington’s free stuff during the 18 months ending in September 2021. That literally turned spending patterns upside down. That is to say, the Amazon delivery boxes were declared “safe” once the CDC figured out that the virus didn’t pass on surfaces—so the public went nuts ordering apparel and footwear. By Q2 2021, especially after Biden idiotic $1.9 trillion American Rescue Act in March 2021, the Y/Y change had violently reversed to +57.1%. That’s whip-saw with malice aforethought. Left to their own devices consumers would never yo-yo their budgets in this manner, meaning, in turn, that retail, wholesale and manufacturing suppliers had no possible way to rationally cope with the Washington-fueled supply-chain upheavals. As is also evident from the chart, the inflation-adjusted Y/Y change in May plunged nearly back to normal—just +3.4%. Yet it will take years for supply chains and inventory levels and mixes to recover from the economic chaos generated by Washington. Y/Y Inflation-Adjusted Change PCE for Apparel And Footwear, 2012-2022 The same story holds for durable goods—with the yo-yo amplitude even more extreme. As shown by the chart below, the trend level of growth in real PCE for durables was 3.3% per annum during the 14 year period between the pre-crisis peak in October 2007 and the pre-Covid top in February 2020.  Other than during the 2008-2009 recessionary contraction, the numbers followed a stable pattern that businesses could cope with. And then came the Washington ordered whipsaws. During April 2020 real PCE plunged by -17.5%from prior year, only to violently erupt by +70.5% Y/Y in April 2021. Those stimmies and forced “savings” again! But now that’s over and done. During May 2022 the Y/Y change was -9.1%. Again, it is no wonder that businesses have the wrong inventories and supply chains have been monkey-hammered from one end of the planet to the other. Y/Y Change In Real PCE Durables, 2007-2022 In fact, that points to another dimension of the bull-whip story. To wit, the one time conversion of manufacturing to the global supply chain had a hidden vulnerability—-ultra JIT (Just-In-Time). That is to say, when shipping distances for goods went from 800 miles within the US to 16,000 miles (from factories in Shanghai to terminals in Chicago (or 68 days at sea), a prudent system would have built-in large amounts of redundant inventory to safeguard against the the sweeping disruptions of the past two years. But the carry-cost of in-depth inventory redundancy would have been extremely costly. That’s owing to working capital costs and the risk of stockpiling the wrong-mix of goods. That is, potential inventory costs and merchandise discounts and write-off would have eaten heavily into the labor arbitrage. But fueled by the Fed easy money and idiotic 2.00% inflation target, supply chains became ever more extended, brittle and vulnerable. That fact is now indisputable. As it happened, however, the push to ultra-JIT supply chains caused a massive one-time deflation of durable goods costs. In fact, the nearly 40% contraction of the PCE deflator for durables between 1995, when the China export factories first cranked-up, and the pre-Covid level of early 2020 is one of the great aberrations of economic history. We seriously doubt that the black line below actually happened, save for the BLS endless fiddling with hedonics and other adjustments to the CPI. Yes, toys, for instance plunged by upwards of 60% during this 25-year period, but then again did they make a whopping big negative hedonics adjustment to accounts for the China junk toy standard? Still, the deflationary free ride is over. Already, the durables deflator is up nearly 13% from the pre-Covid low and there is far, far more ground to recoup as global supply chains rework the busted JIT models that evolved prior to 2020. PCE Deflator for Durable Goods, 1995-2022 When it comes to Washington-induced whipsaws, however, there are few sectors that have been as battered as the air travel system. During April 2020, for instance, passenger boardings were down a staggering 96% from the corresponding pre-pandemic month, as in dead and gone. Moreover, this deep reduction pattern prevailed well into the spring of 2021. The airline shutdowns were not necessitated by public health considerations: Frequent cabin air exchanges probably made them safer than most indoor environments. But between the misbegotten guidelines of the CDC and the scare-mongering of the Virus Patrol, even as late as January 2022 loadings were still down 34% from pre-pandemic levels. The industry’s infrastructure got clobbered by these kinds of operating levels. Baggage handlers, flight attendants, pilots and every function in-between suffered huge disruptions in incomes and livelihoods—-even after Washington’s generous subsidies to the airlines and their employees. And then, insult was added to injury when pilots and other employees were threatened with termination owing to unwillingness to take the jab. The result was an industry to turmoil and sometimes even ruin. Then the traffic came flooding back. From 70% of pre-pandemic levels in mid-winter 2021-2022, boardings have subsequently rebounded to 90% in recent months. Alas, the air travel system is severely disorganized with labor shortages of every kind imaginable, leading to schedule gaps and cancellations like rarely before. And now the whipsaw is in the inflationary direction as desperate passengers pay previously unheard of prices to get scarce seats during the summer travel months. As CBS News recently reported, Airlines cancelled nearly 1,200 U.S. flights on Sunday and Monday, leaving passengers stranded and luggage piled up at airports across the the country. Thousands more trips were scrapped across the globe as the summer travel season kicks off. Now for the bad news: Airline analysts say delays and cancellations are likely to persist, and could even get worse. “We may not have seen the worst of this,” Kit Darby, founder of Kit Darby Aviation Consulting, told CBS MoneyWatch. Right now, when you have normal things like airplane maintenance or weather, delays are much more severely felt. There are no reserved extra pilots, planes, flight attendants — and the chain is only good as the weakest link,” Darby said. Many of these problems stem from airlines slashing staff early on in the pandemic, when air travel plummeted. Demand has since roared back faster than airlines have been able to ramp up hiring. “The biggest issue is they don’t have the capacity. They have not been able to bring back full capacity in terms of pilots, TSA checkpoints, vendors at the airport, baggage handlers, ground staff or flight attendants,” New York Times travel editor Amy Virshup told CBS News.  Right. But what is way up now is ticket prices. After plunging by -28% in May 2020 under Fauci’s benighted orders, May prices soared by +38% on a year-over-year basis. Again, what we have is an economy careening lower and then higher owing to massive and unnecessary government interventions. And in the case of energy, the mayhem is even more severe. For want of doubt, however, here is the inflation-adjusted level of airline personal consumption expenditures in recent years. In 2020, the proverbial trap-door literally opened up under the industry. Real output fell by $62.3 billion or 52%, then rebounded by 63% the following year. Real PCE for Air Transportation, 2002-2021 That’s surely some kind of destructive economic yo-yo. And it was all fueled by the Washington politicians and apparatchiks who have no clue that America’s grand $24 trillion economy is not some kind of glorified game of bumper cars. *  *  * This article is reprinted from David Stockman’s ContraCorner, which offers such analysis daily to subscribers. Pound-for-pound, Stockman’s daily analysis is the most comprehensive, salient, insightful, and data-rich of anything available today. Tyler Durden Thu, 06/23/2022 - 13:10.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

Tesla’s ‘Gigantic Money Furnace’ Factories Won’t Slow Down TSLA Stock

InvestorPlace - Stock Market News, Stock Advice & Trading Tips Elon Musk has called two Tesla factories "money furnaces." Here's why TSLA stock can still rise in the months ahead. The post Tesla’s ‘Gigantic Money Furnace’ Factories Won’t Slow Down TSLA Stock appeared first on InvestorPlace. More From InvestorPlace $200 Oil Sooner Than You Think – Buy This Now The Best $1 Investment You Can Make Today Early Bitcoin Millionaire Reveals His Next Big Crypto Trade “On Air” It doesn’t matter if you have $500 in savings or $5 million. Do this now......»»

Category: topSource: investorplaceJun 23rd, 2022

Elon Musk says Tesla"s new factories are "gigantic money furnaces" that are losing billions of dollars from EV-battery shortages and supply-chain snags

The richest man said that one of his biggest concerns was how to keep Tesla factories running without going bankrupt. Yasin Ozturk/Anadolu Agency via Getty Images Musk said Tesla was losing billions of dollars at its new factories because of supply-chain snags. The CEO has complained about supply-chain shortages in the past. Musk is one of many auto executives who have said shortages may further hurt the industry. Elon Musk said during a recent interview that electric-car-battery shortages and supply-chain snags were costing Tesla billions of dollars."Both Berlin and Austin factories are gigantic money furnaces right now," Musk said in an interview with Tesla Owners Silicon Valley, which was posted on YouTube Wednesday. "It's really like a giant roaring sound, which is the sound of money on fire."The richest man said during the interview that one of his biggest concerns was how to keep Tesla factories running without going bankrupt. Tesla recently opened factories in Texas and Berlin. The company's largest manufacturing facility is in Fremont, California.Last week, Musk said he's planning to cut salaried staff at Tesla by 10%. Insider's Isobel Asher Hamilton reported that several employees had been laid off as a result of the edict. The decision came after Musk said the US was probably in a recession that could last 18 months.In the interview with Tesla Owners Silicon Valley, which was released as the third part of a series of YouTube videos from a May 31 interview, the Tesla CEO said the company's Texas plant had been able to manufacture only a "tiny" number of vehicles. He cited challenges with production of the 4680 battery, as well as port delays in China that have affected shipments of key goods.Earlier this year, Shanghai went into a full COVID-19 shutdown because of China's zero-tolerance policy for coronavirus infections.Musk has complained about supply-chain snags in the past. Last year, the billionaire said Tesla faced "super crazy supply-chain shortages." Earlier this week, the CEO told Bloomberg that supply-chain issues had become Tesla's biggest hurdle."Our constraints are much more in raw materials and being able to scale up production," Musk said in an interview with Bloomberg at the Qatar Economic Forum. "As anyone knows who has tried to order a Tesla, the demand for our cars is extremely high and the wait list is long. This is not intentional, and we're increasing production capacity as fast as humanly possible."Tesla is one of many carmakers to express concern over supply-chain snags. In April, Rivian CEO RJ Scaringe said a shortage of electric-car batteries could soon wreak even more havoc on the automobile industry than the computer-chip shortage. Last year, Ford CEO Jim Farley said the chip shortage had caused the "greatest supply shock" he'd ever seen.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 22nd, 2022

The Wall Street Journal: Tesla’s new factories are ‘gigantic money furnaces,’ Elon Musk says

Tesla Inc.’s two newest car factories have been losing billions of dollars as supply-chain disruptions and battery-cell manufacturing challenges limit the company’s ability to increase production, Elon Musk said in a recent interview......»»

Category: topSource: marketwatchJun 22nd, 2022

Elon Musk says Tesla"s new factories are "gigantic money furnaces" that are losing billions of dollars from EV battery shortages and supply-chain snags

The richest man in the world said that one of his biggest concerns is how to keep Tesla factories running without going bankrupt. Yasin Ozturk/Anadolu Agency via Getty Images Elon Musk said Tesla is losing billions of dollars at its new factories due to supply-chain snags. The CEO has complained about supply-chain shortages in the past. Musk is one of many auto executives that have warned shortages could further hurt the industry. Elon Musk warned during a recent interview that electric-car battery shortages and supply-chain snags are costing Tesla billions of dollars."Both Berlin and Austin factories are gigantic money furnaces right now," Musk said in an interview with Tesla Owners Silicon Valley that was posted on Youtube on Wednesday. "It's really like a giant roaring sound, which is the sound of money on fire."The richest man in the world said during the interview that one of his biggest concerns has been how to keep Tesla factories running without going bankrupt. Tesla recently opened factories in Texas and Berlin, Germany. Though, the company's largest manufacturing facility is based in Fremont, California.Last week, Musk said he is planning to cut salaried staff at Tesla by 10%. Insider's Isobel Asher Hamilton reported that several employees have already been laid off as a result of the edict. The decision came after Musk said the US is probably in a recession that could last 18 months.In the recent interview with Tesla Owners Silicon Valley, which was released as the third part of a series of YouTube videos from a May 31 interview, the Tesla CEO said the company's Texas plant has only been able to manufacture a "tiny" number of vehicles. He cited challenges with production of the 4680 battery, as well as port delays in China that have impacted shipments of key goods. Earlier this year, Shanghai went into a full COVID shutdown due to the nation's zero-tolerance policy for coronavirus infections.Musk has complained about supply-chain snags in the past. Last year, the billionaire said Tesla faced "super crazy supply-chain shortages." Earlier this week, the CEO told Bloomberg that supply-chain issues have become Tesla's biggest hurdle."Our constraints are much more in raw materials and being able to scale up production," Musk said in an interview with Bloomberg at the Qatar Economic Forum. "As anyone knows who has tried to order a Tesla, the demand for our cars is extremely high and the wait list is long. This is not intentional and we're increasing production capacity as fast as humanly possible," he added. Tesla is one of many carmakers to express concern over supply-chain snags. In April, Rivian CEO RJ Scaringe warned that a shortage of electric-car batteries could soon wreak even more havoc on the automobile industry than the  computer chip shortage. Last year, Ford CEO Jim Farley said the chip shortage has caused the "greatest supply shock" he's ever seen.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 22nd, 2022

19 valuable pieces of advice from the best graduation speeches of all time

Taylor Swift's NYU speech called on graduates to embrace their mistakes and said, "a lot of the time, when we lose things, we gain things too." Taylor Swift delivers the commencement address to New York University graduates, in New York on May 18, 2022.Dia Dipasupil/Getty Images Most commencement speeches tend to follow a similar formula. However, some are so inspiring they are remembered long after graduation. Taylor Swift told the NYU class of 2022 that perfection is unattainable. "Ditch the dream and be a doer, not a dreamer." — Shonda Rhimes' 2014 speech at Dartmouth CollegeShonda Rhimes at Dartmouth College.Dartmouth/YouTubeThe world's most powerful showrunner told grads to stop dreaming and start doing.The world has plenty of dreamers, she said. "And while they are busy dreaming, the really happy people, the really successful people, the really interesting, engaged, powerful people, are busy doing." She pushed grads to be those people."Ditch the dream and be a doer, not a dreamer," she advised — whether or not you know what your "passion" might be. "The truth is, it doesn't matter. You don't have to know. You just have to keep moving forward. You just have to keep doing something, seizing the next opportunity, staying open to trying something new. It doesn't have to fit your vision of the perfect job or the perfect life. Perfect is boring and dreams are not real," she said.Read the transcript and watch the video."Empathy and kindness are the true signs of emotional intelligence." — Will Ferrell's 2017 speech at the University of Southern CaliforniaWill Ferrell at the University of Southern California.Jerritt Clark/Getty ImagesComedian Will Ferrell, best known for lead roles in films like "Anchorman," "Elf," and "Talledega Nights," delivered a thoughtful speech to USC's graduating class of 2018."No matter how cliché it may sound, you will never truly be successful until you learn to give beyond yourself," he said. "Empathy and kindness are the true signs of emotional intelligence, and that's what Viv and I try to teach our boys. Hey Matthias, get your hands of Axel right now! Stop it. I can see you. Okay? Dr. Ferrell's watching you."He also offered some words of encouragement: "For many of you who maybe don't have it all figured out, it's okay. That's the same chair that I sat in. Enjoy the process of your search without succumbing to the pressure of the result."He even finished off with a stirring rendition of the Whitney Houston classic, "I Will Always Love You." He was, of course, referring to the graduates.Read the transcript and watch the video."As you leave this room don't forget to ask yourself what you can offer to make the 'club of life' go up? How can you make this place better, in spite of your circumstances?" — Issa Rae's 2021 speech at Stanford UniversityIssa Rae in HBO's "Insecure."Merie W. Wallace/HBOIn the speech, Rae pulled lyrics from Boosie Badazz, Foxx, and Webbie's "Wipe Me Down," which she said she and her friends played on a boombox during the "Wacky Walk" portion of their own 2007 graduation ceremony at Stanford, to illustrate the importance of seeing "every opportunity as a VIP — as someone who belongs and deserves to be here." Rae particularly drew attention to one line from the song that reads, "I pull up at the club, VIP, gas tank on E, but all dranks on me. Wipe me down.""To honor the classic song that has guided my own life — as you leave this room, don't forget to ask yourself what you can offer to make the 'club of life' go up. How can you make this place better, in spite of your circumstances?" she said. "And as you figure those things out, don't forget to step back and wipe yourselves down, wipe each other down and go claim what's yours like the VIPs that you are."Read the transcript and watch the video."Not everything that happens to us happens because of us." — Sheryl Sandberg's 2016 speech at UC BerkeleySheryl Sandberg speaks during a forum in San Francisco.AP Photo/Eric RisbergDuring the Facebook COO's deeply personal commencement speech about resilience at UC Berkeley, she spoke on how understanding the three Ps that largely determine our ability to deal with setbacks helped her cope with the loss of her husband, Dave Goldberg.She outlined the three Ps as:· Personalization: Whether you believe an event is your fault.· Pervasiveness: Whether you believe an event will affect all areas of your life.· Permanence: How long you think the negative feelings will last."This is the lesson that not everything that happens to us happens because of us," Sandberg said about personalization. It took understanding this for Sandberg to accept that she couldn't have prevented her husband's death. "His doctors had not identified his coronary artery disease. I was an economics major; how could I have?"Read the transcript and watch the video."If you really learn how to pay attention, then you will know there are other options." — David Foster Wallace's 2005 speech at Kenyon CollegeDavid Foster Wallace at Kenyon College.Steve RhodesIn his now-legendary "This Is Water" speech, the author urged grads to be a little less arrogant and a little less certain about their beliefs."This is not a matter of virtue," Wallace said. "It's a matter of my choosing to do the work of somehow altering or getting free of my natural, hard-wired default setting, which is to be deeply and literally self-centered and to see and interpret everything through this lens of self."Doing that will be hard, he said. "It takes will and effort, and if you are like me, some days you won't be able to do it, or you just flat won't want to."But breaking free of that lens can allow you to truly experience life, to consider possibilities beyond your default reactions."If you're automatically sure that you know what reality is, and you are operating on your default setting, then you, like me, probably won't consider possibilities that aren't annoying and miserable," he said. "But if you really learn how to pay attention, then you will know there are other options. It will actually be within your power to experience a crowded, hot, slow, consumer-hell type situation as not only meaningful, but sacred, on fire with the same force that made the stars: love, fellowship, the mystical oneness of all things deep down."Read the transcript and watch the video."Be the heroine of your life, not the victim." — Nora Ephron's 1996 speech at Wellesley CollegeNora Ephron.Joe Corrigan/Stringer/Getty ImagesAddressing her fellow alums with trademark wit, Ephron reflected on all the things that had changed since her days at Wellesley — and all the things that hadn't."My class went to college in the era when you got a master's degrees in teaching because it was 'something to fall back on' in the worst case scenario, the worst case scenario being that no one married you and you actually had to go to work," she said. But while things had changed drastically by 1996, Ephron warned grads not to "delude yourself that the powerful cultural values that wrecked the lives of so many of my classmates have vanished from the earth." "Above all, be the heroine of your life, not the victim," she said. "Maybe young women don't wonder whether they can have it all any longer, but in case any of you are wondering, of course you can have it all. What are you going to do? Everything, is my guess. It will be a little messy, but embrace the mess. It will be complicated, but rejoice in the complications."Read the transcript and watch the video."Our problems are manmade — therefore, they can be solved by man." — John F. Kennedy's 1963 speech at American UniversityJohn F. Kennedy at American University.Ted Streshinsky Photographic Archive/Getty ImagesAgainst the tumult of the early '60s, Kennedy inspired graduates to strive for what may be the biggest goal of them all: world peace."Too many of us think it is impossible," he said. "Too many think it unreal. But that is a dangerous, defeatist belief. It leads to the conclusion that war is inevitable — that mankind is doomed — that we are gripped by forces we cannot control."Our job is not to accept that, he urged. "Our problems are manmade — therefore, they can be solved by man. And man can be as big as he wants." Read the transcript and watch the video."Err in the direction of kindness." — George Saunders' 2013 speech at Syracuse UniversityGeorge Saunders.Evan Agostini/Invision/AP ImagesSaunders stressed what turns out to be a deceptively simple idea: the importance of kindness. "What I regret most in my life are failures of kindness," he said. "Those moments when another human being was there, in front of me, suffering, and I responded ... sensibly. Reservedly. Mildly." But kindness is hard, the writer said. It's not necessarily our default. In part, he explained, kindness comes with age. "It might be a simple matter of attrition: as we get older, we come to see how useless it is to be selfish — how illogical, really." The challenge he laid out: Don't wait. "Speed it along," he urged. "Start right now.""There's a confusion in each of us, a sickness, really: selfishness," Saunders said. "But there's also a cure. So be a good and proactive and even somewhat desperate patient on your own behalf — seek out the most efficacious anti-selfishness medicines, energetically, for the rest of your life.""Do all the other things, the ambitious things — travel, get rich, get famous, innovate, lead, fall in love, make and lose fortunes, swim naked in wild jungle rivers (after first having it tested for monkey poop) – but as you do, to the extent that you can, err in the direction of kindness."Read the transcript and watch the video."Life is an improvisation. You have no idea what's going to happen next and you are mostly just making things up as you go along." — Stephen Colbert's 2011 speech at Northwestern UniversityStephen Colbert.Joshua Lott/AP ImagesThe comedian and host of the "Late Show" told grads they should never feel like they have it all figured out."Whatever your dream is right now, if you don't achieve it, you haven't failed, and you're not some loser. But just as importantly — and this is the part I may not get right and you may not listen to — if you do get your dream, you are not a winner," Colbert said.It's a lesson he learned from his improv days. When actors are working together properly, he explained, they're all serving each other, playing off each other on a common idea. "And life is an improvisation. You have no idea what's going to happen next and you are mostly just making things up as you go along. And like improv, you cannot win your life," he said.Red the transcript and watch the video."Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose." — Steve Jobs' 2005 speech at Stanford UniversitySteve Jobs at Stanford University.Linda A. Cicero/Stanford News ServiceIn a remarkably personal address, the Apple founder and CEO advised graduates to live each day as if it were their last."Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life," he said. He'd been diagnosed with pancreatic cancer a year earlier."Because almost everything — all external expectations, all pride, all fear of embarrassment or failure — these things just fall away in the face of death, leaving only what is truly important," he continued. "Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."Jobs said this mindset will make you understand the importance of your work. "And the only way to do great work is to love what you do," he said. "If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it."Settling means giving in to someone else's vision of your life — a temptation Jobs warned against. "Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition."Read the transcript and watch the video."We can learn to live without the sick excitement, without the kick of having scores to settle." — Kurt Vonnegut's 1999 speech at Agnes Scott CollegeKurt Vonnegut at Agnes Scott College.C-SPANThe famed author became one of the most sought-after commencement speakers in the United States for many years, thanks to his insights on morality and cooperation. At Agnes Scott, he asked graduates to make the world a better place by respecting humanity — and living without hate. Hammurabi lived 4,000 years ago, he pointed out. We can stop living by his code."We may never dissuade leaders of our nation or any other nation from responding vengefully, violently, to every insult or injury. In this, the Age of Television, they will continue to find irresistible the temptation to become entertainers, to compete with movies by blowing up bridges and police stations and factories and so on," he said."But in our personal lives, our inner lives, at least, we can learn to live without the sick excitement, without the kick of having scores to settle with this particular person, or that bunch of people, or that particular institution or race or nation. And we can then reasonably ask forgiveness for our trespasses, since we forgive those who trespass against us."The result, he said, would be a happier, more peaceful, and more complete existence.Read the partial transcript and watch the video."If it doesn't feel right, don't do it." — Oprah Winfrey's 2008 speech at Stanford UniversityOprah Winfrey at Stanford University.YouTube/Stanford UniversityThe media mogul told Stanford's class of 2008 that they can't sacrifice happiness for money. "When you're doing the work you're meant to do, it feels right and every day is a bonus, regardless of what you're getting paid," she said.She said you can feel when you're doing the right thing in your gut. "What I know now is that feelings are really your GPS system for life. When you're supposed to do something or not supposed to do something, your emotional guidance system lets you know," she said.She explained that doing what your instincts tells you to do will make you more successful because it will drive you to work harder and will save you from debilitating stress."If it doesn't feel right, don't do it. That's the lesson. And that lesson alone will save you, my friends, a lot of grief," Winfrey said. "Even doubt means don't. This is what I've learned. There are many times when you don't know what to do. When you don't know what to do, get still, get very still, until you do know what to do."Read the transcript and watch the video."The difference between triumph and defeat, you'll find, isn't about willingness to take risks — it's about mastery of rescue." — Atul Gawande's 2012 speech at Williams CollegeAtul Gawande.Neilson Barnard/Getty ImagesPushing beyond the tired "take risks!" commencement cliché, the surgeon, writer, and activist took a more nuanced approach: what matters isn't just that you take risks; it's how you take them.To explain, he turned to medicine."Scientists have given a new name to the deaths that occur in surgery after something goes wrong — whether it is an infection or some bizarre twist of the stomach," said Gawande. "They call them a 'Failure to Rescue.' More than anything, this is what distinguished the great from the mediocre. They didn't fail less. They rescued more."What matters, he said, isn't the failure — that's inevitable — but what happens next. "A failure often does not have to be a failure at all. However, you have to be ready for it. Will you admit when things go wrong? Will you take steps to set them right? — because the difference between triumph and defeat, you'll find, isn't about willingness to take risks. It's about mastery of rescue."Read the transcript and watch the video."Your job is to create a world that lasts forever." — Stephen Spielberg's 2016 speech at HarvardSteven Spielberg at Harvard.Harvard"This world is full of monsters," director Steven Spielberg told Harvard graduates, and it's the next generation's job to vanquish them."My job is to create a world that lasts two hours. Your job is to create a world that lasts forever," he said.These monsters manifest themselves as racism, homophobia, and ethnic, class, political, and religious hatred, he said, noting that there is no difference between them: "It is all one big hate."Spielberg said that hate is born of an "us versus them" mentality, and thinking instead about people as "we" requires replacing fear with curiosity."'Us' and 'them' will find the 'we' by connecting with each other, and by believing that we're members of the same tribe, and by feeling empathy for every soul," he said.Read the transcript and watch the video. "There are few things more liberating in this life than having your worst fear realized." — Conan O'Brien's 2011 speech at Dartmouth CollegeConan O'Brien at Dartmouth College.Dartmouth CollegeIn his hilarious 2011 address to Dartmouth College, the late-night host spoke about his brief run on "The Tonight Show" before being replaced by Jay Leno. O'Brien described the fallout as the lowest point in his life, feeling very publicly humiliated and defeated. But once he got back on his feet and went on a comedy tour across the country, he discovered something important."There are few things more liberating in this life than having your worst fear realized," he said.He explained that for decades the ultimate goal of every comedian was to host "The Tonight Show," and like many comedians, he thought achieving that goal would define his success. "But that is not true. No specific job or career goal defines me, and it should not define you," he said.He noted that disappointment is a part of life, and the beauty of it is that it can help you gain clarity and conviction."It is our failure to become our perceived ideal that ultimately defines us and makes us unique," O'Brien said. "It's not easy, but if you accept your misfortune and handle it right, your perceived failure can be a catalyst for profound re-invention." O'Brien said that dreams constantly evolve, and your ideal career path at 22 years old will not necessarily be the same at 32 or 42 years old. "I am here to tell you that whatever you think your dream is now, it will probably change. And that's okay," he said.Read the transcript and watch the video."You are your own stories." — Toni Morrison's 2004 speech at Wellesley CollegeToni Morrison at Wellesley College.Lisa Poole/AP ImagesInstead of the usual commencement platitudes — none of which, Morrison argued, are true anyway — the Nobel Prize-winning writer asked grads to create their own narratives. "What is now known is not all what you are capable of knowing," she said. "You are your own stories and therefore free to imagine and experience what it means to be human without wealth. What it feels like to be human without domination over others, without reckless arrogance, without fear of others unlike you, without rotating, rehearsing and reinventing the hatreds you learned in the sandbox."In your own story, you can't control all the characters, Morrison said. "The theme you choose may change or simply elude you. But being your own story means you can always choose the tone. It also means that you can invent the language to say who you are and what you mean." Being a storyteller reflects a deep optimism, she said — and as a storyteller herself, "I see your life as already artful, waiting, just waiting and ready for you to make it art."Read the transcript and watch the video."I wake up in a house that was built by slaves." — Michelle Obama's 2016 speech at the City College of New YorkMichelle Obama at the City College of New York.Spencer Platt/Getty ImagesIn her 23rd and final commencement speech as First Lady, Michelle Obama urged the Class of 2016 to pursue happiness and live out whatever version of the American Dream is right for them."It's the story that I witness every single day when I wake up in a house that was built by slaves," she said, "and I watch my daughters — two beautiful, black young women — head off to school waving goodbye to their father, the President of the United States, the son of a man from Kenya who came here to America for the same reasons as many of you: To get an education and improve his prospects in life.""So, graduates, while I think it's fair to say that our Founding Fathers never could have imagined this day," she continued, "all of you are very much the fruits of their vision. Their legacy is very much your legacy and your inheritance. And don't let anybody tell you differently. You are the living, breathing proof that the American Dream endures in our time. It's you."Read the transcript and watch the video."Call upon your grit. Try something." — Tim Cook's 2019 speech at Tulane UniversityTim Cook at Tulane University.Josh Brasted/Getty ImagesApple CEO Tim Cook delivered the 2019 commencement speech for the graduates of Tulane University, offering valuable advice on success."We forget sometimes that our preexisting beliefs have their own force of gravity," Cook said. "Today, certain algorithms pull toward you the things you already know, believe, or like, and they push away everything else. Push back.""You may succeed. You may fail. But make it your life's work to remake the world because there is nothing more beautiful or more worthwhile than working to leave something better for humanity."Read the transcript and watch the video."My experience has been that my mistakes led to the best things in my life." — Taylor Swift's 2022 speech at New York UniversityTaylor Swift delivers the commencement address to New York University graduates on May 18, 2022.Dia Dipasupil/Getty ImagesIn her first public appearance of 2022, Taylor Swift poked fun at her "cringe" fashion moments and her experience of growing up in the public eye, which led to receiving a lot of unsolicited career advice."I became a young adult while being fed the message that if I didn't make any mistakes, all the children of America would grow up to be perfect angels. However, if I did slip up, the entire Earth would fall off its axis and it would be entirely my fault and I would go to pop star jail forever and ever," Swift said in her speech. "It was all centered around the idea that mistakes equal failure and ultimately, the loss of any chance at a happy or rewarding life.""This has not been my experience," she continued. "My experience has been that my mistakes led to the best things in my life."She also alluded to her past feud with Kanye West, joking that "getting canceled on the internet and nearly losing my career gave me an excellent knowledge of all the types of wine."She elaborated, saying that losing things doesn't just mean losing."A lot of the time, when we lose things, we gain things too," she said. Read the transcript and watch the video.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 19th, 2022

"The Biggest Asset Bubble In U.S. History": Mark Spiegel Eviscerates Fed Policy And Tesla

"The Biggest Asset Bubble In U.S. History": Mark Spiegel Eviscerates Fed Policy And Tesla Submitted by QTR's Fringe Finance Friend of Fringe Finance Mark B. Spiegel of Stanphyl Capital released his most recent investor letter yesterday with his updated take on the market’s valuation and Tesla. Mark is a recurring guest on my podcast (and will be coming back on again soon hopefully) and definitely one of Wall Street’s iconoclasts. I read every letter he publishes and only recently thought it would be a great idea to share them with my readers. Like many of my friends/guests, he’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely. Photo: Real Vision Mark was kind enough to allow me to share his thoughts from his March 2022 investor letter, which he published on March 31, 2022. Mark opened by calling the meme stock rally of the last few days “a fierce bear market rally of garbage stocks”. What follows is Mark’s take, from his letter, on the Fed and Tesla - and several chart annotations that I think help make his point. Mark’s Thoughts On The Market & The Fed The biggest asset bubble in U.S. history was blown with the Fed printing $120 billion a month and short term rates at zero while the government concurrently ran a record fiscal deficit and inflation was moderate. Now we have no Fed printing (in fact, its balance sheet may soon be reduced), almost the entire Treasury rate curve well over 2%, rapidly declining fiscal deficits, and the highest inflation rate in over 40  years, exacerbated (and not yet in the latest inflation numbers) by the tragic situation in Ukraine via further supply chain restrictions, while increased military spending for the entire western world (as well as Japan and South Korea) is about to erase the so-called “peace dividend.”  Thus, in addition to our Tesla short, late in the month (and for the first time in many years) I initiated a short position in the S&P 500 (via the SPY ETF) when it bounced back to within 5% of the all-time high it set in early January under far more favorable conditions than those in the present and foreseeable future.  In fact, the last time the 10-year Treasury yield was where it is now (approximately 2.3%) was May 2019 when the S&P 500 was approximately 35% lower than now, yet inflation was vastly lower and growth prospects were far better. And although corporate earnings are higher now than they were in 2019, I believe inflation expectations will soon substantially lower the PE multiples placed on those earnings, as occurred in the inflationary era between 1973 and 1975 when the S&P 500’s PE rapidly dropped from 18x to 8x. In other words, I think this stock market is going a lot lower, and I want to be positioned for that.  Meanwhile, even with the recent Fed Funds rate of 0.125% and the federal debt financed at an average of a bit over 1%, the interest on the $30 trillion of federal debt costs around $400 billion a year. That average interest cost is now on a path to double, yet even then would still be far below the anticipated rate of inflation. Does anyone seriously think this Fed has the stomach to face the political firestorm of Congress having to slash Medicare, the defense budget, etc. in order to pay the even higher interest cost that would be created by upping those rates to a level commensurate with even 4% inflation (not to mention today’s over 7%)? Powell doesn’t have the guts for that, nor does anyone else in Washington; thus, this Fed will likely be behind the inflation curve for at least a decade. And that’s why we remain long gold (via the GLD ETF). Meanwhile, we can see from that the U.S. stock market’s valuation as a  percentage of GDP (the so-called “Buffett Indicator”) is still astoundingly high, and thus valuations have a long way to go before reaching “normalcy”: [QTR’s editor’s note: This is exactly the indicator I have been using to make a similar case for a market plunge in two recent articles, here and here.] When stocks get meaningfully cheaper I’ll be an enthusiastic buyer, but until then we’re likely to remain net short. This post is 100% free, but if you want to support Fringe Finance and have the means, I would love to have you as a subscriber: Subscribe now Mark’s Thoughts On Tesla We remain short the biggest bubble in modern stock market history, Tesla Inc. (TSLA) which, despite a steadily sliding share of the world’s EV market and a share of the overall auto market that’s only around 1.5%, Trevor Scott points out has a market cap roughly equal to the next 20 largest automakers combined. So here’s why we remain short Tesla:  Tesla has no “moat” of any kind; i.e., nothing meaningfully proprietary in terms of its electric car technology (which has now been surpassed by numerous competitors), while  existing automakers—unlike Tesla—have a decades-long “experience moat” of knowing how to mass-produce, distribute and service high-quality cars consistently and profitably. Excluding working capital benefits and sunsetting emission credit sales Tesla generates negative free cash flow.  Growth in sequential unit demand for Tesla’s cars is at a crawl relative to expectations. Elon Musk is a pathological liar who under the terms of his SEC settlement cannot deny  having committed securities fraud.  Tesla’s Q1 2022 delivery number (to be reported in early April) will likely only be slightly better than Q4 2022’s 308,000, perhaps a 20,000 (or fewer) unit gain that would be a rounding error for an auto company trading at even one-tenth of Tesla’s valuation. If in any quarter GM or VW or Toyota sold 2.02 million vehicles instead of 2 million or 1.98 million, no one would pay the slightest bit of attention to the difference. Seeing as Tesla is still being valued at over seventeen GMs, it’s time to start looking at its  relatively tiny numerical sequential sales growth, rather than Wall Street’s sell-side hype of “percentage off a small base.” In other words, if you want to be valued at a giant multiple of “the big boys,” you should be treated as a big boy. And yes, Tesla is somewhat capacity constrained, but so are all its competitors. Let’s see how quickly “constraint” morphs into “excess capacity” when the German and Texas factories are fully online!  Meanwhile in January, Tesla reported results for Q4 2021 and once again proved that it’s a truly horrible business. Although the company claimed to have generated $2.8 billion in free cash flow for the quarter, that was almost entirely created by massively increased payables & accrued liabilities, and by stock-based compensation. After adjusting for those factors (and a tiny increase in receivables), Tesla’s free cash flow was just $119 million, and that undoubtedly included several hundred million dollars of previously earned & billed emission credit sales, a revenue stream which will almost entirely disappear next year as other automakers begin selling enough electric cars of their own. Thus, despite all the sell-side and media hype, on a sustainable basis Tesla’s free cash flow is still resoundingly negative.  And for those of you who think that Tesla is “really an energy company,” in Q4 “Tesla Energy” had revenue of $688 million (down 8.5% year-over-year and 8% sequentially) and cost of revenue of $739 million, meaning it had a negative gross margin. So if Tesla is “really an energy company,” it’s even more screwed than if it’s just a car company!  Meanwhile, perhaps the biggest reason Tesla has recently been able to post marginally increasing sequential quarterly deliveries is because competitors’ production is at the lowest level in decades due to the massive chip shortage, thereby eliminating a number of “Tesla alternatives.” Yet Tesla is enjoying record production because Musk (a notorious “corner-cutter”) is apparently willing to either substitute untested, non-auto-grade chips for the more durable chips he can’t get (please see my Twitter post about this) or simply eliminate entire crucial safety systems such as back-up steering and crash-avoidance radar.  Meanwhile, many Tesla bulls sincerely believe that ten years from now the company will be twice the size of Volkswagen or Toyota, thereby selling around 20 million cars a year (up from the current run-rate of  around 1.3 million); in fact in March Musk himself even raised this as a possibility. To illustrate how utterly absurd this is, going from 1.3 million cars a year today to 20 million in ten years means that in addition to one million cars a year of eventual production from the new German and Texas factories, Tesla would have to add 35 more brand new 500,000 car/year factories with sold out production; i.e., a new factory nearly every single quarter for ten years! And what then? Well, then you’d have a car company approximately twice the size of Toyota (current market cap: $249 billion) or Volkswagen (current market cap: $110 billion). If that would make Tesla worth, say, $500 billion in 10 years, discounting that back at 15%/year and allowing for enough share dilution to pay for all those factories, Tesla—in that absurdly  optimistic scenario—would be worth just $100/share today, down almost 93% from its current price.  Another favorite hype story from Tesla bulls has been “the China market.” But based on the Chinese domestic (non-export) sales numbers we have for January and February it appears that Q1 2022 sales there barely grew (or may have even contracted) from Q4 2021’s. And in Q4 Tesla had only around 1.5% of the overall Chinese passenger vehicle market and just 11% of the BEV market.  Meanwhile, as Tesla continues to sell its fraudulent & dangerous so-called “Full Self Driving” the head of  that program just took a four-month sabbatical; the last major Tesla executive who did that (Doug Field) never returned. In a sane regulatory environment Tesla, having sold this garbage software for over five years now… …would be prosecuted for “consumer fraud,” and indeed the regulatory tide may finally be turning, as two U.S. senators continue to question its safety and in October the NHTSA appointed a harsh critic of  this deadly product to advise on its regulation. (For all known Tesla deaths see here.) Are major write downs and refunds on the way, killing the company’s slight “claimed profitability”? Stay tuned!  Meanwhile, Guidehouse Insights continues to rate Tesla dead last among autonomous competitors: Another favorite Tesla hype story has been built around so-called “proprietary battery technology.” In fact  though, Tesla has nothing proprietary there — it doesn’t make them, it buys them from Panasonic, CATL and LG, and it’s the biggest liar in the industry regarding the real-world range of its cars. And if new-format 4680 cells enter the market some time in 2024 (as is now expected), even if Tesla makes some of its own, other manufacturers will gladly sell them to anyone.  Meanwhile, Tesla build quality remains awful (it ranks second-to-last in the latest Consumer Reports reliability survey) while the latest survey from British consumer organization Which? found it to be one of  the least reliable cars in existence. And Tesla’s worst-rated Model Y faces current (or imminent) competition from the much better built electric Audi Q4 e-tron, BMW iX3, Mercedes EQB, Volvo XC40 Recharge, Volkswagen ID.4, Ford Mustang Mach E, Nissan Ariya, Hyundai Ioniq 5 and Kia EV6. And Tesla’s Model 3 now has terrific direct “sedan competition” from Volvo’s beautiful Polestar 2, the great new BMW i4 and the premium version of Volkswagen’s ID.3 (in Europe), plus multiple local competitors in China.  And in the high-end electric car segment worldwide the Audi e-tron (substantially improved for 2022!)  and Porsche Taycan outsell the Models S & X (and the newly updated Tesla models with their dated exteriors and idiotic shifters & steering wheels won’t change this), while the spectacular new Mercedes EQS, Audi e-Tron GT and Lucid Air make the Tesla Model S look like a fast Yugo, while the extremely well reviewed new BMW iX does the same to the Model X.  And oh, the joke of a “pickup truck” Tesla previewed in 2019 (and still hasn’t shown in production-ready form) won’t be much of “growth engine” either, as it will enter a dogfight of a market; in fact, Ford’s terrific 2022 all-electric F-150 Lightning now has over 200,000 retail reservations (plus many more fleet reservations), GM has introduced its fantastic 2023 electric Silverado with over 110,000 reservations and  Rivian’s pick-up has gotten excellent early reviews.  Regarding safety, as noted earlier in this letter, Tesla continues to deceptively sell its hugely dangerous so-called “Autopilot” system, which Consumer Reports has completely eviscerated; God only knows how many more people this monstrosity unleashed on public roads will kill despite the NTSB condemning it. Elsewhere in safety, the Chinese government forced the recall of tens of thousands of Teslas for a dangerous suspension defect the company spent years trying to cover up, and now Tesla has been hit by  a class-action lawsuit in the U.S. for the same defect. Tesla also knowingly sold cars that it knew were a  fire hazard and did the same with solar systems, and after initially refusing to do so voluntarily, it was forced to recall a dangerously defective touchscreen. In other words, when it comes to the safety of  customers and innocent bystanders, Tesla is truly one of the most vile companies on Earth. Meanwhile the massive number of lawsuits of all types against the company continues to escalate. Now read: The Global Rush To Own Gold Has Only Just Begun Nothing Has Changed, Except For Everything Russia Will Backstop The Ruble With Gold About Mark Spiegel Mark manages Stanphyl Capital, established in 2011, a deep-value equity & macro long-short investing fund based in New York City. Mark can be reached at or at @StanphylCap on Twitter. This post is 100% free, but if you want to support Fringe Finance and have the means, I would love to have you as a subscriber: Subscribe now Thank you for reading QTR’s Fringe Finance . This post is public so feel free to share it. Share Disclaimer: This letter was not reproduced in full. I own Tesla call and put options, as well as ARKK call and put options. QTR is long various gold and silver miners and has both long and short exposure to the market through equities and derivatives. I have no position in Mark’s funds. Mark is a subscriber to Fringe Finance via a comped subscription I gave him and has been on my podcast. The excerpts from Mark’s letter, above, shall not be construed as an offer to sell, or the solicitation of an offer to sell, any securities or services. Any such offering may only be made at the time a qualified investor receives formal materials describing an offering plus related subscription documentation. There is no guarantee the Fund’s investment strategy will be successful. Investing involves risk, and an investment in the Fund could lose money. Tyler Durden Fri, 04/01/2022 - 12:45.....»»

Category: dealsSource: nytApr 1st, 2022

Transcript: Michael Mauboussin

     The transcript from this week’s, MiB: Michael Mauboussin on Stocks, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ RITHOLTZ: This week on the podcast… Read More The post Transcript: Michael Mauboussin appeared first on The Big Picture.      The transcript from this week’s, MiB: Michael Mauboussin on Stocks, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ RITHOLTZ: This week on the podcast I have an extra special guest, the returning champion Michael Mauboussin. He is on the buy-side. People think when I say that Michael is at Counterpoint Global at Morgan Stanley Investment Management, it’s not Morgan Stanley, the big sell-side broker-dealer. It’s a totally different division. They’re asset management division. We really spent a lot of time talking about the new edition of his book, “Expectations Investing.” What I love about Michael is how thoughtful he is, how interesting his approach to investing, thinking about markets, individual companies’ value, and basically, the approach he brings to research, to the investment community. He’s been writing and publishing about markets for literally decades not just as many books, which I’ll include in my notes, but the research papers he puts out and shares with the public. They’re always interesting and thoughtful, and I frequently find myself looking at these, reading these and going, huh, cocking my head, I — I hadn’t thought about that. That’s a really interesting take on a — a very fundamental idea. And I’m — I’m glad I had the opportunity to — to give this a thought. I found this to be a master class in valuation and how to think about what a company’s proper potential value is, what your expectation for investing in that company should be. It’s no surprise he’s been teaching at Columbia for, I don’t know, 20 years as an adjunct professor in the business school. I’m going to stop babbling and say with no further ado, my conversation with Morgan Stanley’s Michael Mauboussin. ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My very extra special guest this week is Michael Mauboussin. He is the head of Consilient Research at Counterpoint Global, which is part of Morgan Stanley’s Investment Management Group. It’s the buy-side part, not the sell-side part of Morgan Stanley. Previously, he was Head of Global Financial Strategies at Credit Suisse, and before that, Chief Investment Strategist at Legg Mason Capital Management, working with the famed investor Bill Miller during his incredible streak. He is also a Professor of Finance at Columbia Business School and Chairman of the Board of Trustees at the Santa Fe Institute. Michael Mauboussin, welcome back to Bloomberg. MAUBOUSSIN: Awesome to be with you, Barry, always a blast. And it’s so good to be with you in person, by the way. RITHOLTZ: I know. You know, I don’t do this. I don’t throw my arms up when I’m doing it at home remote using a Comrex machine to jack into the Bloomberg machinery. It’s nice to be in the studio and — and look at you eye-to-eye. I have four hours’ worth of questions for you, so we’ll — we’ll — we’ll see if we can get through some of them. But let’s start talking about your most recent book, which I — I hold in my hand, “Expectations Investing: Reading Stock Prices for Better Returns.” So, you first wrote this 20 years ago with — your co-author is Alfred Rappaport. What made you decide to revisit this and reissue this 20 something years later? MAUBOUSSIN: Yeah. Well, I should first tell you a little bit about the background of the first book. And — and I was a — you know, I was a — someone who had no business experience coming on to Wall Street and read a copy of Al’s book “Creating Shareholder Value” in the late 1980s, and it was, for me, a professional epiphany. And I say that because it really — everything I’ve done professionally has come and ripped off of this, so it’s really standing on the shoulder of giants. And so, Al Rappaport has been an incredible mentor and collaborator for me. So that book, by the way, was aimed at corporate executives about building value, and there were three lessons in there that I — that I always have taken with me. One is it’s about cash flows and not accounting numbers, you know. And it’s funny, Barry, that we seem to relearn this lesson from time to time. RITHOLTZ: Over and over again, yeah. MAUBOUSSIN: But we’ll probably get into it in some degree, but I think today we’re in a particularly interesting time in markets where, because of the way the accounting works and because of the way the economy is moving, you have to really follow the cash trail more than ever. The second thing is he said, you know, to do intelligent valuation work, you have to understand both finance and strategy. And I think this is something else people feel very free-throwing multiples around, and so on and so forth without really doing the proper strategy analysis. And I think that was the second lesson. And then the third thing — this is my buildup to your — an answer to your question. The third thing was the recent (inaudible) was called Stock Market Signals to Managers. And the argument was, hey, executive, if you want understand how to allocate capital judiciously or even set-up incentives, you need to understand what the market’s pricing into your stock. So that, obviously, has direct implications for investors and that ended up — you know, we ended up collaborating on the original version aimed at investors’ call expectations, especially now, I’m glad you’re sitting down because the original version came out September 10, 2001. RITHOLTZ: Like literally 20 years ago. MAUBOUSSIN: The day before the greatest … RITHOLTZ: 9/11. MAUBOUSSIN: … the greatest National Treasury and, by the way, much less significantly in the midst of a three bear — three-year bear market, right? RITHOLTZ: Right. MAUBOUSSIN: So — and, by the way, you know, many of the ideas and books stood up over time, but I have been teaching from this — these principles for a long time. And so, you know, and part of it was COVID-induced, but I was — you know, I’m in constant conversation with — with Al and I said to him, “You know, there’s enough that’s going on in the world that I think we — it’s time for us to take another swing at this, which is bring in what is new, freshen up our case studies, and like let’s focus on what works still and what still is good, but let’s bring it in and make it more contemporary. So just thought it was — and — and — and — and — and in teaching it, what lessons have I learned on how to communicate some of the ideas effectively, what matters and what don’t. So, we ended up only getting rid of one chapter, replacing one chapter all together, but there’s so much about it. So, the bones are basically the same, but there’s so much about it that’s brand new in terms of the case studies, and — and again reflecting how the world has changed in the last 20 years. RITHOLTZ: And for people who may not be familiar with Alfred Rappaport, he’s a professor — professor at Kellogg, and — and he has done a ton of work on how to create long-term value and overcome short-termism amongst investors and corporate managers. Tell us a little bit about his background. MAUBOUSSIN: Well, that — yeah, I mean, I’d say — I mean, look I think that he is going to — he — he — he is one of the great sort of academics in this whole area in the last half century. His Ph.D. is in accounting, by the way, I should mention. RITHOLTZ: Oh, really? MAUBOUSSIN: But he has made very important contributions in accounting and finance and, as I mentioned, was one of the great synthesizers of bringing together strategy in finance. He, by the way, did a lot of the executive programs to Kellogg and had a — literally a world-famous program called Merger Week. And if you were anybody in the mergers and acquisitions world, in the corporate world in the 80s and 90s, you — the mecca was to go to Kellogg to do Merger Week and learn about this. And so, yeah, I mean, he — he’s just a tremendous — tremendous resource. Now he’s in — he’s in his late 80s now. He, by the way, could not be better. I mean, I talk to him almost every single day and — and sharpen and, you know, just intellectually so curious, a very avid reader, I mean, so really going — still going really, really strong. But — and it’s, by the way, total delight — it’s always a total delight working with him, in part, for — for — for the joint learning that goes on, but also to have someone to be a reality check … RITHOLTZ: Right. MAUBOUSSIN: … when you’re sort of going off a little bit and — and need a little course correction. He’s the old professor that sort of brings you back into line, which is powerful. RITHOLTZ: That — that’s great. Everybody needs a Jiminy Cricket on their shoulder to make sure they’re not — you know, they’re not going off to never-never land. So, there are a bunch of quotes from the book I want to get into, but I have to start with one that that’s so macro and all-encompassing. It really talks to the theme of the book, which is when investors talk about expectations, they’re usually talking about the wrong expectations. Explain. MAUBOUSSIN: Well, I think that it’s interesting that when people talk about what a stock is worth, and you should — you should correct me if you hear something differently. It’s almost always some multiple of some sort of earnings metric … RITHOLTZ: Right. MAUBOUSSIN: … of some sort. RITHOLTZ: P.E. to say the very least and then a million variations. MAUBOUSSIN: Right, P.E. or … RITHOLTZ: Price-to-sales ratio. MAUBOUSSIN: … EV/EBITDA or something like that, right? And so, the basic argument is that multiples are shorthand for what is a broader valuation process. And multiples embed in them lots of assumptions about how the world works, including assumptions about returns on capital, and growth, and so forth. And then as we’ll talk about in probably more detail, measures like earnings or even EBITDA themselves can be very unreliable measures or metrics of value creation. So — so when they say, oh, at — at X multiple, the — it looks like low expectations or it’s “cheap” in quotation marks or it’s “expensive” in quotation marks. They — they really don’t know exactly. They haven’t unpacked exactly what the story is. Whereas I think we’d all agree, at least in theory, that the value of a business is the present value of the cash flows. The argument I always like to make is let’s — let’s lay the — lay — lay bare on the table what those assumptions are, what the underlying economic assumptions are and then debate them, right? We may not agree or come down to the same place on these things, but at least we know what we’re dealing with versus these — these — these — using — putting together a multiple — these two things that are neither which, on — on their own, are very helpful. RITHOLTZ: So — so let me take a swing at this and you tell me if I’m on the money or — or off. So, when we look at earnings, a lot of different things go into making earnings high or low, cheap or expensive. And if you’re just looking at that net number, you’re blind to all the moving parts that might be temporary one-offs or potentially reflect fast future growth. Just looking at the number itself relative to price doesn’t give you a complete picture. Is that a fair assessment? MAUBOUSSIN: Well, that — that — that for sure is true, and then there’s another component of it that’s probably even more compelling, which is growing earnings is not synonymous with growing value. So, saying it differently, if you invest in your business and you’re earning exactly your cost of capital, growth doesn’t make any — doesn’t add any value whatsoever. And so, — so — so — so earnings growth can be good, it can be bad, it can be indifferent, and so you just don’t know that. So same as differently, company A and company B same earnings growth rates, but very different value creation prospects. You can’t tell — you know, the multiples are going to be different and they should be different, but the earning — the earning number in and of itself doesn’t tell you the answer. RITHOLTZ: And — and then the other question that comes out of this that I thought was really fascinating, what sort of expectations should investors have from reading stock prices? And how can the ordinary investor read stock prices? MAUBOUSSIN: Yeah. So, this — I mean, this gets to the heart of it. And, you know, Barry, I was trying to do a little — even — and — and — and working on this book, I was trying to get a little bit of the psychology of this because it seems fascinating to me that people love to think that they can figure out the value, and then they’re going to compare the value to the price, right? So, the they’re — they feel like their job is to figure out what some of the (inaudible) … RITHOLTZ: Identify intrinsic value … MAUBOUSSIN: Yeah. RITHOLTZ: … buy at a discount, sell at premium. MAUBOUSSIN: Right. And what this — the — the — the premise of this book is obviously just to reverse the whole process and just say like there’s only one thing we know for sure, and that’s the stock price, right? You — and again, you may not — may like it or not like it doesn’t matter, it is something we know for sure. RITHOLTZ: It’s an objective number versus what’s essentially … MAUBOUSSIN: Correct. RITHOLTZ: … an opinion. MAUBOUSSIN: So, then we say we’re going to reverse engineer what has to happen for that thing to make sense and then try to judge whether that is — is sensible. Now, to me, the most powerful and vivid metaphor is the handicappers. So, you go off to the horse races to figure out — and — and presumably you like to make money. There are two things that are really important, right? One is the odds on the tote board, which is telling you which horse or horses are likely to win. The second is how fast the horse is going to run, right? And so, it’s the combination of these two things that it’s important, but often starting with a tote board is a very sensible thing as you say, “All right. Well, you know, is this a favor or is this a long shot?” Whatever — whatever it is. So, this is basically saying let’s do these things backwards. And — and, by the way, there’s a — there’s a fascinating guy who’d you, by the way, you should get him on some time — he’s really interesting — a guy named of Steven Crist (ph). Do you know Steven Crist? RITHOLTZ: Make – make an introduction. No, I don’t. MAUBOUSSIN: Do you know Steven Crist? RITHOLTZ: No, I do not. MAUBOUSSIN: Anyway, he’s a – he’s an interesting guy, and he – and he’s written a lot. By the way, he wrote a chapter in a book called – it’s called “Crist on Value.” It’s a 13-page chapter, which is one of the best chapters about investing I’ve ever read … RITHOLTZ: Really? MAUBOUSSIN: … even though it’s about handicapping. And Crist sort of talks about, you know, it’s — it’s about this mispricing between odds and — and — and — and performance and so forth. But one of the — one of the lines in there he loves — he says that I love, he says, you know, “Everybody thinks that they’re doing this thing, but very few people actually do.” And I think that’s the same thing for — for investing. So when — when you explain “Expectations Investing,” the basic principle, people go, yeah, boy, it’s kind of what I’m doing, and isn’t it? And — and — and the answer is no, not really what you’re doing, right? So — so there are really three steps in the process, which we’ll probably get to. But one is to say what has to happen for today’s stock price to make sense, right? So that’s just basically where is the bar set. And then step two is introducing, you know, sort of more highfalutin strategic and financial analysis to determine whether a company is going to outperform that expectations, underperform or gee, it’s going to be I have no strong opinion one way or another. And then step three is to make buy, sell and hold decisions as a consequence. (COMMERCIAL BREAK) RITHOLTZ: So, in the book you — we’re going to talk about earnings now, but I have to bring up the broad changes you identify in the market, and — and we’re going to circle back to these, but I want to reference these relative to earnings: the shift from active to passive, the rise of intangibles, the move from public investing to private investing, and then the major changes in accounting rules. All four of those things have changed since the first version of this book. How significant are they to how earnings are accounted for and valued by investors? MAUBOUSSIN: So, I mean, maybe we can parse these a little bit because I think the active to passive thing would affect — you know, if it affects anything would be things like are markets, more or less, efficient and things like that. So, I — I — I don’t know that that’s a big thing … RITHOLTZ: Right. MAUBOUSSIN: … for what we’re talking about in terms of earnings. And the other one is public to private and, you know, even since we wrote this book that I think there are third fewer public companies than there were 20 years ago … RITHOLTZ: But on that point, keep in mind, someone — there’s been some studies done and a huge swath of those were penny stocks that got kicked off the Nasdaq and onto the pink sheets … MAUBOUSSIN: That’s correct. RITHOLTZ: … and — and nobody really cares about them. MAUBOUSSIN: Yeah, that’s — that is absolutely correct. And so — but the nature of these companies change … RITHOLTZ: Sure. MAUBOUSSIN: … (inaudible) the market caps, and so forth. But again, that — I’m not sure that’s a big story for earning. I think the one that — I mean, accounting changes, but I think the really big one is this rise of intangibles that you pointed out. And just to give — well, first of all, let’s go back a little bit even further in history. Back in the 1970s, tangible investments, so tangible, physical things … RITHOLTZ: Think factories. MAUBOUSSIN: … big factories and (inaudible) … RITHOLTZ: (Inaudible). MAUBOUSSIN: … machines … RITHOLTZ: Right. MAUBOUSSIN: … drills, all that, right? Those were twice the level of intangible investments, and intangible, by definition, nonphysical. So, think now branding or … RITHOLTZ: Patents, copyrights, software. MAUBOUSSIN: … yeah, software code, all this kind of – OK, right. So, two to one, tangible to intangible. At the time we wrote the book, so-called 2001, 20 years ago, they were – the first version of the book, they were at parity. And our — our estimate is, for 2021, that intangibles will be more than two times tangible. So, in the last 20 years alone, they – you could sort of say they started the race basically neck and neck, and now it’s much, much more intangible. So why — why is that important, like why do we care about that? That’s important because tangible assets, the way the accounts record them, is they’re capitalized on the balance sheet, right? It’s a — it’s property, plant and equipment, which we then depreciate over time. So, it does show up in the income statement, but primarily in the form of depreciation. By contrast, intangible investments are fully expensed. Now the most famous of these is research and development, and we’ve known that. And since the 1970s, the FASB decided that — that R&D should be expensed. And there’s debate about — there’s been debate about that for a very long time. But now, R&D is only a quarter of total intangible investment, so there’s lots of other stuff that’s going on that’s all expense. So, what does that mean all things being equal? The answer is earnings are a lot lower than they would otherwise be. I always like to point out that, you know, great companies like Wal-Mart, great companies like Home Depot, for the first 10 or 15 years they are public, had negative free cash flow, right, which their investments were bigger than their earnings, so they had positive earnings. Was that a problem? No, it’s fantastic, right, because their investments had very high returns on — on capital. And so, — and, by the way, Walmart, for example, its first 15 years, tripled the performance at the stock market, right? It crushed it. And when you do the — that’s a substantial compounding advantage, right? But the problem is now, we’re — we’re — we’re conflating investments and expenses on the income statement, and we don’t see that we can’t unpack those things. RITHOLTZ: And just to — just to jump in. Places like Wal-Mart and — and Home Depot, and those — they’re buying land, they’re putting up new stores, they’re expanding, so that sort of tangibles does show up on the balance sheet. MAUBOUSSIN: That’s right, that’s the whole point. So, they’re — they’re — and, by the way, even Wal-Mart — Wal-Mart, for sure, was an early user of technology, right? If you read Sam Walton’s book, which by — everybody should. It’s fantastic. I reread that memoir just last year. It’s just awesome. You know, they were early users of technology, so they were early intangible users. So, well, but you’re exactly right, the vast majority of their investments were physical. You can — you can kick it, and so on and so forth, whereas other — other companies, that is not the case. So yes, so that, to me, is a — that’s a watershed change, and that’s why earnings. Again, if you’re focusing on cash flow, these things become much less important because we’re getting to the ultimate rude answer. But if you’re simply using multiples or some sort of shorthand, you’re going to dismiss this very significant development. RITHOLTZ: So — so people love to point out how expensive the stock market is and how pricey, that we used to call them FANG, but now with Facebook, I don’t know what that look anymore. But if we look at the top 10 or 20 technology companies or — or the top 25 percent of the S&P 500 by market cap, those appear to be pricey, but these are all companies that have massive investments in intangibles. So, it’s Google, it’s Apple, it’s Netflix, it’s Microsoft, it’s Facebook. Go down the list. It’s Nvidia. All these companies are – they own software, they own patents, they own processes. Does this imply that these pricey technology companies — I left out Tesla from the list — are — these so-called pricey tech companies that have so much sunk into intangibles, are these perhaps less pricey than the average stock analyst believes? MAUBOUSSIN: If you’re using traditional multiples, you get a very different picture. And, you know, we recently wrote a report called — it’s called Classifying for Clarity where we talked about — argue — we argue that certain things should be restated in the statement of cash flows. And we use our case study,, right, so one of these companies. And Amazon backed our calculation or our estimate. Is it Amazon’s intangible investments in 2020 were $44 billion? RITHOLTZ: Astonishing. MAUBOUSSIN: And you — their — if you amortize, if you’ll be able to schedule and amortize it, it still comes out to $19 billion of net profit increase. Now, Amazon’s profits last year were about $20 billion. So — so just if you accept this adjustment … RITHOLTZ: Double the profit. MAUBOUSSIN: Right? Now, if — you know, you — we could quibble about the details of it … RITHOLTZ: Right. MAUBOUSSIN: … and so on and so forth, but basically, that is it. You know, that’s exactly right. And the EBITDA numbers don’t quite double, but they close to double. And so, now the flipside of all that, that’s, you know, the earnings are better, but let’s also recognize the investments are a lot higher than what is reported to. And so, I always say the job of an investor is to understand the magnitude of investment and the return on investments to understand future profits. And so, for a company like Amazon, they’re earning a lot more than people at least what they would seem to report, but they’re also investing a lot more. And so, you know, there’s still lots of judgment as to whether those investments will pay off, and so on so forth, but you’re exactly right. It’s a very distorted picture, you know, without commentary. So, this is the whole thing about, you know, the market used to trade at this multiple … RITHOLTZ: Right. MAUBOUSSIN: … you know, it’s just the underlying nature of our markets, our businesses, our enterprises are so different today that I think that those sort of comparison seemed to be very simplistic and then just throw in the whole interest rate thing as another curve ball to complicate … RITHOLTZ: Right, how do you calculate cost of capital so cheap. Does that artificially — does that artificially enhance earnings or are companies taking advantage of that? It’s — it’s not a one-off, oh, look, capital is cheap, therefore, earnings are higher. It’s our — money is free, our company is opportunistically taking advantage of that window when it presents itself. MAUBOUSSIN: Right, I don’t know if that — is that a comment or a question? RITHOLTZ: I don’t know. By — by the way, on a — on a related note to the intangibles, it just popped into my head. Joe Davis, who’s the Chief Economist at Vanguard, did a research paper, I don’t know, a year or two ago discussing the rise of intangibles as a predictor of which regions around the world, which countries around the world are prime for growth. When you start to see patents, and software processes, and copyrights expand in a given nation, you should expect their GDP and their stock market to subsequently respond to that usually in a positive correlation. MAUBOUSSIN: I mean, I love to see that. It makes sense — it makes complete sense to me, and again, it’s just another indication of how things have changed, right? Whereas we may have said a generation or two before, if those factories are popping up and those good blue-collar jobs, right now you’re saying … RITHOLTZ: Right. MAUBOUSSIN: … something different and sort of a leading indicator of future wealth creation. RITHOLTZ: That’s right. If you have a bunch of coders showing up in a particular area, that might mean something positive for — for the economy and for that stock market. So — so let’s bring this back to trying to figure out value, what do earnings actually tell us about a company’s value? MAUBOUSSIN: Well, I mean, earnings are just part of the equation, right? And so, we argue verily on the book that earnings tell you very little. In fact, the appendix to Chapter 1 shows again that earnings, by themselves, do not even tell you about value or value creation. So, the — what we focus on is a very standard finance way to think about this, which is free cash flow. And free cash flow is the pool available — a pool of capital available to all capital providers. You know, Barry, besides doing all the stuff you do, you’re a business owner, so you know exactly how this — you have money coming in and money going out, and you sort of know how — you have to think about this kind of stuff. RITHOLTZ: We just roll our cash in to, you know, Shebu Emu (sic) and — and … MAUBOUSSIN: Exactly. RITHOLTZ: … — and Dogecoins … MAUBOUSSIN: That’s … RITHOLTZ: … and we just let it roll, so we’re — that’s our approach. It’s been — it’s been speculative, but it’s been working out. MAUBOUSSIN: But it’s been working out great, exactly. RITHOLTZ: Right. Let’s do a deep value analysis on that one. MAUBOUSSIN: And so, yeah, so the — so free cash flow is basically net operating profit after taxes, which is a rough measure of earnings, right? It’s a little bit more formal, but rough measure of earnings. RITHOLTZ: Net operating profit … MAUBOUSSIN: Profit after taxes. RITHOLTZ: … after taxes. MAUBOUSSIN: And — and the key to that — and — and the acronym is NOPAT. The key to NOPAT is that it’s the unlevered cash earnings of a business. So unlevered means there’s no reckoning for financial leverage at this point, and it’s cash earnings, right? So, you’re taking up all the cash accounts away. And that’s a beautiful number to know. And then investment is all the investments of the company needs to make, including working capital changes, and CapEx, and so on and so forth. So — so free cash flow sort of the bottom line number. And, by the way, even when we — we make adjustments to intangibles, what we’re doing is essentially making earnings higher — NOPAT higher. We’re making investments higher. Free cash flow is sort of the bottom line that doesn’t change, and that’s the number we try to keep our eye on. So, remember your high school basketball coach said keep your eye on the hips, right, because everything is going to fall off the hips … RITHOLTZ: Right. MAUBOUSSIN: … that is the hips of finance, right, which is free cash flow. That’s the number you want to keep your eye on. RITHOLTZ: So, Howard Marks is fond of discussing second level thinking. And so, what I’m hearing from you is that just looking at earnings or P.E. multiples is first level thinking, and second level thinking is putting this into the broader context of earnings relative to free cash flow, relative to intangibles and growth. Is that like a wild overstatement or … MAUBOUSSIN: No, not at all. I mean, I think that the answer is — the — the — the way I might say this differently is that free cash flow is the ultimate thing that we care about. All the other stuff you just mentioned in terms of earnings and multiples, those are all proxies that try to get to the same thing, so they’re short of shorthand, right? And, by the way, I mean, you’ve had — you’ve had the great Danny Kahneman with you, right? What’s good about shorthands, what’s good about heuristics is they save you time, right? So that’s why they’re useful, that’s why we use them. Wwhat’s limiting about heuristics or shorthand is they have biases, right? And so, the key is not to – the key is not to never use them, the key is to understand where their lie. And I think that’s where people get a little bit – can be a little bit lazy around the edges and just sort of say like it’s — those things always traded at 20 times this, and so it should be 20 times this. That’s not really — you — you want to go back to the core — the core ideas. RITHOLTZ: So — so here’s the pushback that I think we would get from a Robinhood trader today who is looking in their portfolio over the past couple of years. They would say something like, hey, this sophisticated analysis is interesting, but I haven’t been using second level thinking. I’ve been picking the fastest horse the past couple of years without looking at the odds, without looking at anything else, and that’s been working out. And I joke about Dogecoins and things like that. But if you bought the fastest SPAC, the fastest tech — E.V. company, the fastest crypto coin, it didn’t matter. Momentum seems to be driving those fast horses the highest. How do you respond to that sort of — of pushback? MAUBOUSSIN: Well, there — there are sort of two levels of comments. One is I think it’s important — I’m going to sound like an old — an old fogey here, but I think it’s important to make a distinction between speculating and investing. RITHOLTZ: Okay. MAUBOUSSIN: And, by the way, and — and this is without any sort of moral judgment, so this is just, you know, I just want to make this demarcation without judgment, right? A speculator is someone who buys something in the hope that it goes up. An investor is someone who buys a partial stake in the business, right? It’s a very different mindset. And so, if the market shut — shut down for three — three years or whatever, you wouldn’t care because you own part of a business, right? So, this is almost again, Barry — Barry is the investor versus, Barry as the proprietor of a business, right. You think about the value of the business. RITHOLTZ: Right. MAUBOUSSIN: It’s a very different — as you know, it’s a very different mindset. Now when I peer out of the world today, I — I guess I would actually think that — I sort of think of the world in sort of three different buckets. The first bucket is sort of the normal bucket where I think that notwithstanding we have some, obviously, little bit of zany stuff. Most of the stuff out there is pretty — is pretty solid, right, like pretty normal. And then the second bucket might be, you know, where I put things like the meme stocks and so forth. These would be sort of the momentum and, you know, in — in our language, we call these sort of diversity breakdowns, people correlate their behaviors in certain ways. And, by the way, there’s — there’s some language in the book that helps talk about these things like reflexivity and so forth. You know, so this would be the GameStops of the world and AMCs, and so forth. And, by the way, many of these companies have actually done very sensible things, which is they’ve — they’ve sold … RITHOLTZ: Raised capital. MAUBOUSSIN: … they’ve sold — raised capital which, by the way, increases the intrinsic value of the per share owners for ongoing holders. And then the third area is cryptos, decentralized finance, part of what I think is going on with the electric — electric vehicle market and so forth. And there’s a very — there, I think, what we’re seeing is a very, very old and very well-known pattern, which is, as new industries develop, the very common pattern is you see a huge upswing in the number of participants and really experiments. So, it’s lots of new entrants, lots of money flows in, lots of people trying out weird and wacky stuff. By the way, it wasn’t that long ago, Barry, you remember this in the dot com … RITHOLTZ: Sure. MAUBOUSSIN: … you know, same kind of thing, right? And, you know, people go, “This is all crazy and wasteful. Why?” OK, what happens is then eventually the market sorts this out, almost think of it as a Darwinian process. And then you have the — you come down the backend, so there’s a lot of exit through companies going bankrupt or consolidation, and so on and so forth. The market determines what is legitimate, what is not, and lots of things go to zero, but at the end of it, what — what distills out is something new and something important. So, until — and this is sort of standard setting as well, so I think that’s a good example. What’s going on with crypto? I mean, to me, that whole complex is something that’s very real. It’s going to be — it’s going to be with us. Much of what’s going on out there is not going to survive, but there will be things that survive and will be making important contributions to our economy, yeah, but … (COMMERCIAL BREAK) MAUBOUSSIN: Say something. RITHOLTZ: Well, I was going to — I just wanted to put into context because you — you bias the audience, like calling yourself an (inaudible) and referencing the dot Commission. But if you look at the history of bubbles and — and I don’t mean that in a negative way. In fact, Dan Gross had a great book, “Pop!: Why Bubbles are Great for the Economy.” You can look at telegraphs, and railroads … MAUBOUSSIN: OK. RITHOLTZ: … and automobiles, and televisions, and computers, and fiber optic, and go through every one of these technological innovations, and they all follow that exact path. MAUBOUSSIN: That’s right. RITHOLTZ: There’s this Cambrian explosion of … MAUBOUSSIN: That’s right. RITHOLTZ: … experimentation, lots of companies, most of which don’t survive … MAUBOUSSIN: That’s right. RITHOLTZ: … but the ones that come out of it are — are game changers, really move the needle. MAUBOUSSIN: Right. And we — and — and the point being, we don’t know a priority, which ones are going to succeed or fail, right? It gets sorted out. It’s a sort of a big messy sorting out process. So — so I think that’s a little bit — that’s a big part of what’s going on. So, if things like — I mean, electric vehicles, this is — this is like the canonical example of how this works … RITHOLTZ: Right. MAUBOUSSIN: … right? And — and, you know, the main academic on this, I know Dan’s book is actually a really good book and an interesting one but, you know, sort of the canonical — the — the — the main — the main academic on this is a guy named Steven Klepper who is a professor at Carnegie Mellon. And Klepper has wrote very seriously about this and document it, as you pointed out, all these — these basic. So, it’s the flow of — of talent, it’s the flow of money, it’s the flow of entrepreneurs to try to solve problems with some new tools at their disposal not knowing in advance what’s going to work. By the way, I mean, I — this is now will nerd out for just one second. I — first time I ever wrote about this, it wasn’t actually action in the context of neural development of children. And it turns out that like the number of neurons in your brain actually don’t change that much through your life, what changes radically is the number of synaptic connections between the … RITHOLTZ: Right. MAUBOUSSIN: … the neurons. And so, from the time you’re born to the time you’re about two or three years old, there’s this huge upswing in synaptic connections. So, a three-year-old, if you’ve ever met them, you know, they’re not super-efficient machines, but they’re — they’re really open to the world, so learning languages, lot — they’re very curious about the world, and so on and so forth, but they’re inefficient. And so, what happens then is this — it’s called the Hebbian process. You — you use it or lose it. If the connection works, you use it, and if it doesn’t, it gets pruned away. And you have this massive reduction number in a synaptic connections. So, scientists were interested in this certainly, so they documented this whole process. They’re like, well, this is kind of weird though, right, because the brain is a very costly mechanism. You know, it’s 20 percent of your energy usage, and this big thing on top of your head, and then you’re vulnerable and so on and so forth. And it turns out that they sort of simulated this, and it turns out this idea of trying things out and then winnowing is one of the best ways to learn about an environment. Isn’t that cool? Right? So, in a sense, what we’re doing is these are — these — these Cambrian explosions you described are methods — financial, and technological, and entrepreneurial methods to learn about the world and figure out what works. RITHOLTZ: So — so two comments on your nerding out, which I’m — I’m totally loving. First, if you haven’t seen American Utopia, David Byrne’s play, it actually starts out with that exact discussion of the — the — the childhood, the infant brain making all these synaptic connections, and then just letting atrophy that, which doesn’t work. And so, what you’re left with is a very efficient set of things that the brain knows actually are successful connections. But second, there’s a fascinating book, which you and I may have spoken about previously called “Last Ape Standing.” And it talks about how homo sapiens came very close to not surviving the last Ice Age because of how energy-intensive the brain is and what works really well in most environments doesn’t work in a — in a resource poor environment. And the Ice Age turned out to be a very research poor. So, the — the book kind of says, hey, we were not — we were down to about 10,000 homo sapiens a couple more years of — of bad climate and, you know, this might be a … MAUBOUSSIN: Whites out. RITHOLTZ: Right, this might be a Neanderthal world, not — not a human world, which is kind of — kind of interesting. So, we could — we could walk out about a bunch of other stuff, but I want to bring it back to — to earnings in value. One of things in the book you talk about is investors believe price earnings multiple determine value, but you argue that sort of backwards, price earnings multiples are a function of value. Am I — am I getting that, right? MAUBOUSSIN: Yeah, I mean, you are if you think about it. I mean, the formulation is that E times P.E. equals P, right? RITHOLTZ: Right. MAUBOUSSIN: And so, what you’re saying is in order to forecast price, you need to know the price of that, which is the numerator of the P.E., right? So, in a sense, there’s a little bit of a circular argument. RITHOLTZ: Right. MAUBOUSSIN: So, I mean, I don’t want to dwell too much on that, like we had beaten up a little — enough on multiples, but the point being again, multiples are a — are not valuation, they’re shorthand for the evaluation process. And with that shorthand are all the good things about saving time and with that shorthand are all the bad things about limitations, and biases, and blind spots. And so, if you do not — if you are not aware of those limitations and blind spots, you’re going to be, I think, ill-served by using simplistic measures. RITHOLTZ: Quite interesting. Let’s talk a little bit about modeling, and you use a number of examples in the book, companies like Shopify and Domino’s couldn’t be more different, but they each presents a challenge to traditional analysts’ ability to understand the business and forecast using old approaches. Both companies have been incredible performers. People don’t realize, Domino’s is one of the best performers of the past 20 years, if not the best. It depends on where everything closes by the time people hear this, but right? Domino is top five, maybe even the highest performer in the past 20 years, is that right? MAUBOUSSIN: I actually don’t know that, but yeah, that sounds right. It’s a great — it’s an amazing business, yeah. RITHOLTZ: So — so let’s talk about how do you model these in a way that gives you a better insight into their future prospects, and what’s the difference between expectations investing and the traditional way analysts have been modeling these companies? MAUBOUSSIN: Right. So maybe we should take those, we’ll take those in turn because they’re slightly … RITHOLTZ: Sure. MAUBOUSSIN: … different flavors of what we’re trying to do. So, Domino’s Pizza was the case study, so the key is that when we go through the expectations investing process, understanding price-implied expectations, step one. Step two is doing strategic and financial analysis. Step three is making buy and sell decisions. It’s really nice to have a case study to make it concrete. Now, the case study for the original book was Gateway 2000 … RITHOLTZ: Wow. MAUBOUSSIN: … which lasted for … RITHOLTZ: Right. MAUBOUSSIN: … like three years after the … RITHOLTZ: Out of their boxes that were direct to consumer. MAUBOUSSIN: … seemed like a good idea at the time. RITHOLTZ: Yeah, it was, it was called Dell. MAUBOUSSIN: So anyway, so we … RITHOLTZ: But that’s execution risk. Gateway and Dell had similar models. Dell just ex.....»»

Category: blogSource: TheBigPictureDec 20th, 2021

John Malone: Equity Markets Are In A ‘Land Rush’ Similar To ’90s Bubble

Following is the unofficial transcript of a CNBC exclusive interview with Liberty Media Chairman John Malone on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, November 18th for Liberty Media Day in NYC. Following are links to video on Q3 2021 hedge fund letters, conferences and more John Malone: Equity Markets Are […] Following is the unofficial transcript of a CNBC exclusive interview with Liberty Media Chairman John Malone on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, November 18th for Liberty Media Day in NYC. Following are links to video on if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more John Malone: Equity Markets Are In A 'Land Rush' Similar To ’90s Bubble Liberty Media Chair John Malone: I Would Like To See CNN Evolve Back To The Journalism It Started With Part I DAVID FABER: Well, you know it’s funny you mention that because of course I did have my annual sit down with Malone. He is not here at the conference. But we were able to speak as we did last year as well remotely in an interview that we did the other day, and we did talk about the markets love of growth, guys. Now we did it in the context of a conversation that began about how do you go about valuing all the direct-to-consumer platforms that are out there, in particular Netflix, and will the market ultimately move perhaps from sub metrics to actual profitability? Take a listen. We talked about the results from Netflix, or any number of the other companies, Viacom even. We look at the sub numbers that's all we look at right now. We're not really looking at, to your point, profitability. I don't know when that's going to start to change. I mean with Netflix, it's more so but to your point, when do we sort of make that pivot or when do investors make that pivot and say, well, you know what, the overall number may not be nearly as important as to what the margin looks like and to your point, the stickiness, and the value of that customer over time. JOHN MALONE: Every investor has a different time horizon, a different perspective. To me, I've always been a long-term investor and so I'm much more interested in, in building this business brick by brick, making it solid and sticky, and how can you grow and how can you grow pricing power and how can you defend the franchises that you're building. It's that kind of, that kind of a thing. It's too early. I really think it's too early to assess. The market is obviously putting huge market valuations on Netflix and frankly, Netflix relative to Disney. And, you know, I mean, hell there's a car company that I guess is just going public that has $130 billion market cap— FABER: There is. MALONE: And hasn't built a car yet. FABER: That’s true. Rivian. MALONE: So really, there's no question that the equity markets right now are so interested in growth above all other criteria, and this is like the bubble in the late 90s, up through 2000. It's all about growth. This is a land rush. Part II FABER: Alright, let’s talk a little bit more about my sit down with John Malone. Of course, we do spend a lot of time here talking about direct-to-consumer, all the different platforms that are out there that are emerging and their importance to so many of these companies, whether it be what will be the combination of Warner Brothers and Discovery and Discovery Plus and HBO Max, whether it is Netflix, whether it's Disney Plus, Paramount Plus, our parent company Comcast, Peacock, we can go on and on right? Apple, Amazon. I asked Malone what he thinks will ultimately be the arbiter here in terms of success. MALONE: I think the real issue, David, that that you'd have to start thinking through is, is what is going to be the profitability profile of these businesses, you know, as, as they increasingly go global, as they achieve various levels of scale and, and, and various levels of stickiness or content cost and to me, it's almost looking back at the history of our business, the cable business, where we learned how to deal with bundling and pricing and end up with a hybrid service offering that was ad supported but also had something presumably for everybody in the household. So, I think that those, those are the lessons that these direct-to-consumer companies are going to be learning and competing over and that will ultimately determine things like profitability, growth in economic value of the enterprise, the appropriate mix of ad and, and, and direct-to-consumer and the level of bundling. FABER: So, John, what, what do you need to see from your opinion? What still needs to sort of develop for you to be able to begin to answer the question you originally posed which is, you know, what is the profitability? MALONE: Yeah, well, I think it's early in the game still and I think what you're going to find is that there will be a broad set of services provided to the consumer, some of which will be entirely ad supported, some of which will be hybrid, and some of which will be subscriber funded only. FABER: I'm curious what you think about Disney because of course they also seem to establish themselves as the number two player if we can call it that. They still have a goal of what some 230 million worldwide subs at some point, but there are some wonder whether they've hit a bit of a wall. MALONE: Disney at some point has to decide to choose between profitability and scale. And though it may well be that that they could have a much more profitable business by focusing on the people who have young families and really want their intellectual property, I mean, or do they put it all in a bucket and say you buy the whole, the whole bucket at a higher price point but your satisfaction may not be as high because you're buying a lot of things that that you don't necessarily value. So, you know, Disney has a lot of, has a lot to work with in that space. But they also have a lot of legacy commitments, and how they morph from a very profitable linear sports world into a hybrid world of direct consumer with some advertising. These are the, the evolutionary things that I think will determine the ultimate outcome. FABER: To your point to how this evolves, do you have a sense when you talk to David what and how it should be thought about in terms of what the direct-to-consumer offering from Warner Brothers, Discovery will look like? MALONE: Yes, we've had many discussions and, you know, I don't know that I would say there's a conclusion at this point. I'm a believer that there will be many offerings, not just one gigantic offering. FABER: John, you seem to be of the belief that one size doesn't necessarily fit all for these kinds of offerings. MALONE: Totally. I'm totally on that page because I think trying to satisfy every taste and every interest in one omnibus offering is going to turn out to be unprofitable. I don't think that, that going 100% consumer or subscriber paid as a model is going to leave an awful lot of people on the sidelines who would be content with something that was less expensive or free, but much more ad supported. Part III FABER: Yeah, of course, a lot of talk here as you might imagine about well, all of liberties businesses, including Liberty Broadband, you know, they own that large stake in Charter Communications, which has been a great performer over a longer period of time, in fact, the best of the Liberty sort of entities over the last five years. But when you take a look at Comcast and Charter stock over the last couple of months, well, our viewers know of course, there's been continued or increased concern perhaps about what it's going to mean in terms of competition from these so called overbuilders, you know, a recent downgrade from Deutsche Bank saying it's a new environment one that in our view has to be characterized by lower returns because the business is transitioning to a more competitive environment. I asked John Malone about that environment. MALONE: If you have capital that's willing to settle for, for very low returns, okay, it's a big threat. I mean, the biggest threat has always been the guy, the stupid guy with a lot of money coming into your business because they may not end up with much profitability, but they sure as hell can damage the profitability of the incumbent and I believe the vulnerability of incumbents varies very much from market to market depending on specifics, depending on just how cheap it is to overbuild and just how cheap it is for the incumbent to upgrade. So, you could well be in a situation where the incumbent is forced to expend capital that it otherwise wouldn't or does it early in order to repel a competitive overbuilder. The whole, the long experience of overbuilders in our cable industry was quite negative. The ultimate returns were very poor. Part IV FABER: Well, we're here at the Liberty Investor Day, of course, and even though Discovery is not one of the participants here because of course it was owned personally by John Malone, it's certainly on the minds of many of the attendees here. The deal in which Discovery will combined with, with Warner is still moving along, in fact, many expected perhaps it will close sooner than perhaps had been anticipated, which is still said to be the first half of next year. I think we're going to get a proxy on the deal very soon as well. But Discovery shares and AT&T shares have not been good performers since the deal was announced. And that's where I began a conversation with John Malone who was so key to helping this deal along by giving up his super voting shares for no premium, started on asking him about the deal itself and investor concerns. There's a lot of investors though concerned when it comes to Warner Brothers, Discovery about being five times levered and still having a lot of cash flow come from the good old linear TV business. How do you reassure them? MALONE: Well, my, my understanding is first of all that that it has been indicated that right out of the box. Well, first of all, the deal may happen sooner than people think. Number two is right out of the box, the leverage, the initial leverage is going to be lower than people think. Number three is the free cash flow characteristics of this combined business and then enhanced by synergies, operating synergies generated fairly quickly will take that leverage down quite fast. And number four, this is investment grade debt. Long-term, cheaper interest rates, right? Higher cash flow through synergy and a rapid pay down of anything that is regarded as excess leverage, I think it's, it's, that shouldn't really be the focus. I think the focus should be the creativity whether or not these engines of creativity can make stuff that's unique that the public really wants to see. FABER: You know, they've stated cost synergies that around 3 billion, You, we talked a little bit about this previously, but you certainly seem to think there are going to be some significant revenue synergies there and I wonder why that is and where you see those coming from? MALONE: Well, I think just the ability to bolster service offerings with library that exists, you know, in the, deep in the Time Warner vaults is going to be an interesting revenue, synergy opportunity. So, I would guess that you put the two together and you start launching these direct-to-consumer offerings outside the US, where you already have Discovery, in place, in language, and on TV screens. You've got a major benefit there in terms of lower marketing cost and higher probability of consumer acceptance. FABER: How about news John? Is there any place for news in a streaming world? You know, I obviously see it as part of this company but I don't know how to view that. I would assume there's any number of potential suitors for that property. Should Mr. Zaslav and the board decide that it really doesn't fit. MALONE: I would like to see CNN evolve back to the kind of journalism that it started with and, you know, actually have journalists which would be unique and refreshing. I think a coward's way out would be to sell it or spin it off and then sell it, do it in some tax efficient way. There's, there isn't a lot of tax basis, David, in CNN so a straight sale would probably be a little bit leaky, let's call it but doable. I do believe that good journalism could have a role in this future portfolio that Discovery, Time Warner is going to represent but, you know, I'm just one, one voice here. FABER: You know, I get this question sometimes and obviously, you know, I’m very personally fond of David Zaslav. I know you have great respect for him. You pay them a lot of money and over a 10-year period Discovery stock has not really done that much other than the crazy Archegos move. How do you answer those critics who say well, he's done really well, but we haven't? MALONE: I mean, he's the kind of guy that can deliver a Scripps merger or a Time Warner deal. Without the Scripps deal, Discovery would really be in the third tier today. Okay. You know, what if you hadn't had David Zaslav there delivering the Scripps deal. Okay. What would Discovery be worth today if you hadn't had that? So, I always look at the glass as at least half full. FABER: I do want to take a minute to just ask you about the performance. You know, you mentioned earlier you’re a long-term investor. You have a certainly in your history shows that. The five-year performance of a lot of the Liberty entities other than Liberty Broadband, which obviously has been charter. Over the last five years, I don't think any of the others have outperformed the S&P and I wonder, are you disappointed by some of that performance at this point? Or you know— MALONE: You got to look at, look at the pieces though, David, look at Formula One. Look at Live Nation. Look at look at Sirius. Liberty, Sirius with this recent transaction with, with Berkshire Hathaway. FABER: Berkshire, yup. Take it above 80%, yup. MALONE: Some of these, yeah, some of these structural discounts are, are starting to go away which we knew they would with time, but patience in order to be able to structure things properly, you know, some of these things have taken, have taken a period of time. If you took the Big Techs out of the, out of the indexes, I don't think you would see the indexes have performed all that well. So, you should be asking me, John, why didn't you invest more heavily in Google or Facebook or Amazon? Why did you stay with the old, these old businesses you were in? You know, and I plead guilty to that, you know, I tried to buy Netflix when from Robert Reed Hastings when the stock was eight bucks, but he wouldn't sell it to me. You know, damn that bad luck. The other thing you really have to ask when you're looking at the indexes is how did you miss those massive oligopolistic tech companies? I mean, there, there is the challenge. They are big, they are highly profitable, they're getting bigger, their market powers are growing, not shrinking and if you compare anything to that, it's not, it's not going to look good. FABER: But my old libertarian friend here, you know, what do you want? You want them to get regulated somehow? MALONE: I think they are natural monopolies, and they need to be regulated in some way. I'm not sure, I'm not sure that I understand the right way that they should be regulated. But they shouldn't use their market power to, to prevent competition. But there's no look, Jeff Bezos is a genius with what he's created. You know, Steve Jobs and Tim Cook have been masterful at what, these have been brilliant business create, Reed Hastings, these are brilliant businessmen who have seized an opportunity, seeing the power of global scale and have exploited it. Updated on Nov 18, 2021, 12:35 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkNov 18th, 2021

A New Era Of Stagflation?

A New Era Of Stagflation? Authored by David Goldman via The American Institute for Economic Research, The US inflation rate as measured by the Consumer Price Index reached its highest level in forty years during October 2021. Consumers face widespread shortages of items whose availability Americans used to take for granted, from autos to smartphones. The cost of housing is rising at the fastest rate on record. Wages are rising fast but unable to keep up with the cost of living, and service businesses can’t find workers. What is happening to the US economy, and what caused it? The reality is, the United States is midway through a massive social experiment that has no historical precedent. Since the start of the COVID-19 pandemic, the federal government has injected $5.8 trillion of spending power into the US economy. That’s about two-fifths of the consumption component of GDP. That has produced a burst of consumer spending, but also the highest inflation in forty years, along with chronic shortages of key commodities, supply chain disruptions, and a bulge in the trade deficit. Despite the gigantic stimulus, the economy is slowing, although under these extraordinary circumstances, the usual tools of forecasting are ineffective. Rarely have economic forecasts diverged as widely as they do now, at the beginning of the fourth quarter of 2021. The chart below compares the St. Louis Federal Reserve’s “Nowcast” for third quarter GDP growth to the Atlanta Fed’s “Nowcast” estimate. Both are based on models that translate current economic data releases into a GDP forecast, yet they show strikingly divergent results. The Atlanta Fed model shows third-quarter GDP growth at just 1.2 percent. A similar model at the St. Louis Federal Reserve Bank puts growth at 6.3 percent, close to the consensus forecast. “Nowcast” for Third Quarter 2021 GDP Growth, Atlanta vs. St. Louis Federal Reserve We do not know whether the stimulus will produce continued economic growth with high inflation—perhaps very high inflation—or lead to stagflation, that is, cutbacks in production as well as consumption caused by inflation. The short-term behavior of GDP is determined by consumer saving and spending, according to the standard models. The volatility of the personal savings rate, though, exploded during the past year as consumers pondered whether to save or to spend. Volatility as in the chart below is calculated as the two-year standard deviation of the monthly personal savings rate (personal savings as a percentage of income) divided by the two-year average. The extreme instability of the savings rate of the past two years has no precedent during the past sixty years. This instability turns forecasting short-term economic behavior into a mystical exercise. Personal Savings Rate vs. Volatility of Personal Savings Rate The stimulus had the double effect of boosting consumption and discouraging employment. The highest proportion in history of the National Federation of Independent Business survey reports that workers are hard to find (left-hand scale and blue line in the chart below), while the percentage of the noninstitutional adult population in the workforce dropped sharply and has not recovered (right-hand scale and orange line in the graph). Firms Can’t Find Workers as Labor Force Participation Drops American households and businesses face a degree of uncertainty unlike anything they have seen since the oil shock of the 1970s. The Federal Reserve set the overnight interest rate at zero, which implies a short-term real rate of negative 5 percent to 6 percent after inflation. The intent of negative real rates is to force investment out of savings and into risk assets, including stocks as well as houses. That has happened, with a vengeance, with the fastest home price increases in US history. Housing prices have risen 20 percent in the past year, the most on record, and rents have risen between 7 percent (Zillow) and 15 percent ( according to private surveys. Because current market prices for houses and rentals work their way into the Consumer Price Index with a lag, the housing inflation of the past year portends another 5 percent-6 percent increase in the Consumer Price Index, by my back-of-the-envelope calculation. Housing Price Inflation How will consumers respond? In the very short term, inflation prompts consumers to spend money faster in order to acquire goods today at lower prices than they expected to pay tomorrow. But real wages are falling (by 1.9 percent year-on-year according to the Bureau of Labor Statistics), and inflation typically prompts consumers to increase savings to compensate for lost wealth. Businesses cannot raise prices fast enough to keep up with rising input costs. The widely-followed Philadelphia Federal Reserve survey of manufacturers shows that more respondents report higher input costs than higher prices received. Prices Paid vs. Price Received for Manufactures: Philadelphia Fed Survey A widening gap between prices paid and prices received often precedes recessions, as in 1973, 1979, 2000, and 2008. This gap does not always predict recessions (it did not in 1993 and 1987, for example). But it strongly suggests that corporate profit margins are under pressure. In some cases, including the US automotive industry, manufacturers have been able to increase profit margins substantially, because a scarcity of cars allowed dealers to eliminate incentives. Overall, the present inflation is likely to constrain production. A remarkable development in response to the massive demand stimulus is the jump in American imports from China. The US in September 2021 imported more than $50 billion worth of goods from China, or an annual rate of $600 billion—nearly 30 percent of America’s total manufacturing GDP. That represents an increase of 31 percent from the level of January 2018, when President Trump first imposed tariffs on Chinese imports. Chinese Exports to the United States America’s supply chains could not meet the surge in demand created by the stimulus, so American consumers bought more from the world’s largest manufacturer, namely China. The problem lies in chronic underinvestment in US manufacturing. A rough gauge of the state of US manufacturing investment is the level of orders at US companies for industrial machinery. After inflation, this measure stands at the same level as 1992, or half the 1999 peak. Industrial Machinery Orders to US Manufacturers In theory, China could continue exporting to the United States, and continue to lend the United States the money to pay for its goods, for an indefinite period. But China’s supply chains are under pressure, and rising raw materials costs as well as energy prices constrain its ability to produce as well. Prices for China’s manufactured imports are rising, apart from the tariff effect, and that portends more inflation in the United States. The most likely outcome in my view is that the biggest US consumer stimulus in history will produce sustained inflation in excess of 5 percent a year. Falling real wages and shrinking profit margins will continue to depress output, and the US economy will enter a period of stagflation something like the late 1970s. At some point, the United States Treasury will find itself unable to borrow the equivalent of 10 percent of GDP per year, at least not at negative real interest rates. As long as investors are willing to pay the Treasury to hold their money for them, the US government can sustain arbitrarily large deficits. That is the brunt of so-called Modern Monetary Theory. But the Herb Stein principle applies: Whatever can’t go on forever, won’t. The creditors of the United States will not accept negative returns on an ever-expanding mountain of US debt indefinitely. At some point, perhaps not long from now, the US will face sharply higher interest rates and the type of budgetary constraints that were typical of profligate Third World borrowers. Tyler Durden Thu, 11/11/2021 - 13:30.....»»

Category: blogSource: zerohedgeNov 11th, 2021

The True Feasibility Of Moving Away From Fossil Fuels

The True Feasibility Of Moving Away From Fossil Fuels Authored by Gail Tverberg via Our Finite World blog, One of the great misconceptions of our time is the belief that we can move away from fossil fuels if we make suitable choices on fuels. In one view, we can make the transition to a low-energy economy powered by wind, water, and solar. In other versions, we might include some other energy sources, such as biofuels or nuclear, but the story is not very different. The problem is the same regardless of what lower bound a person chooses: our economy is way too dependent on consuming an amount of energy that grows with each added human participant in the economy. This added energy is necessary because each person needs food, transportation, housing, and clothing, all of which are dependent upon energy consumption. The economy operates under the laws of physics, and history shows disturbing outcomes if energy consumption per capita declines. There are a number of issues: The impact of alternative energy sources is smaller than commonly believed. When countries have reduced their energy consumption per capita by significant amounts, the results have been very unsatisfactory. Energy consumption plays a bigger role in our lives than most of us imagine. It seems likely that fossil fuels will leave us before we can leave them. The timing of when fossil fuels will leave us seems to depend on when central banks lose their ability to stimulate the economy through lower interest rates. If fossil fuels leave us, the result could be the collapse of financial systems and governments. [1] Wind, water and solar provide only a small share of energy consumption today; any transition to the use of renewables alone would have huge repercussions. According to BP 2018 Statistical Review of World Energy data, wind, water and solar only accounted for 9.4% 0f total energy consumption in 2017. Figure 1. Wind, Water and Solar as a percentage of total energy consumption, based on BP 2018 Statistical Review of World Energy. Even if we make the assumption that these types of energy consumption will continue to achieve the same percentage increases as they have achieved in the last 10 years, it will still take 20 more years for wind, water, and solar to reach 20% of total energy consumption. Thus, even in 20 years, the world would need to reduce energy consumption by 80% in order to operate the economy on wind, water and solar alone. To get down to today’s level of energy production provided by wind, water and solar, we would need to reduce energy consumption by 90%. [2] Venezuela’s example (Figure 1, above) illustrates that even if a country has an above average contribution of renewables, plus significant oil reserves, it can still have major problems. One point people miss is that having a large share of renewables doesn’t necessarily mean that the lights will stay on. A major issue is the need for long distance transmission lines to transport the renewable electricity from where it is generated to where it is to be used. These lines must constantly be maintained. Maintenance of electrical transmission lines has been an issue in both Venezuela’s electrical outages and in California’s recent fires attributed to the utility PG&E. There is also the issue of variability of wind, water and solar energy. (Note the year-to-year variability indicated in the Venezuela line in Figure 1.) A country cannot really depend on its full amount of wind, water, and solar unless it has a truly huge amount of electrical storage: enough to last from season-to-season and year-to-year. Alternatively, an extraordinarily large quantity of long-distance transmission lines, plus the ability to maintain these lines for the long term, would seem to be required. [3] When individual countries have experienced cutbacks in their energy consumption per capita, the effects have generally been extremely disruptive, even with cutbacks far more modest than the target level of 80% to 90% that we would need to get off fossil fuels.  Notice that in these analyses, we are looking at “energy consumption per capita.” This calculation takes the total consumption of all kinds of energy (including oil, coal, natural gas, biofuels, nuclear, hydroelectric, and renewables) and divides it by the population. Energy consumption per capita depends to a significant extent on what citizens within a given economy can afford. It also depends on the extent of industrialization of an economy. If a major portion of industrial jobs are sent to China and India and only service jobs are retained, energy consumption per capita can be expected to fall. This happens partly because local companies no longer need to use as many energy products. Additionally, workers find mostly service jobs available; these jobs pay enough less that workers must cut back on buying goods such as homes and cars, reducing their energy consumption. Example 1. Spain and Greece Between 2007-2014 Figure 2. Greece and Spain energy consumption per capita. Energy data is from BP 2018 Statistical Review of World Energy; population estimates are UN 2017 population estimates. The period between 2007 and 2014 was a period when oil prices tended to be very high. Both Greece and Spain are very dependent on oil because of their sizable tourist industries. Higher oil prices made the tourism services these countries sold more expensive for their consumers. In both countries, energy consumption per capita started falling in 2008 and continued to fall until 2014, when oil prices began falling. Spain’s energy consumption per capita fell by 18% between 2007 and 2014; Greece’s fell by 24% over the same period. Both Greece and Spain experienced high unemployment rates, and both have needed debt bailouts to keep their financial systems operating. Austerity measures were forced on Greece. The effects on the economies of these countries were severe. Regarding Spain, Wikipedia has a section called, “2008 to 2014 Spanish financial crisis,” suggesting that the loss of energy consumption per capita was highly correlated with the country’s financial crisis. Example 2: France and the UK, 2004 – 2017 Both France and the UK have experienced falling energy consumption per capita since 2004, as oil production dropped (UK) and as industrialization was shifted to countries with a cheaper total cost of labor and fuel. Immigrant labor was added, as well, to better compete with the cost structures of the countries that France and the UK were competing against. With the new mix of workers and jobs, the quantity of goods and services that these workers could afford (per capita) has been falling. Figure 3. France and UK energy consumption per capita. Energy data is from BP 2018 Statistical Review of World Energy; population estimates are UN 2017 population estimates. Comparing 2017 to 2004, energy consumption per capita is down 16% for France and 25% in the UK. Many UK citizens have been very unhappy, wanting to leave the European Union. France recently has been experiencing “Yellow Vest” protests, at least partly related to an increase in carbon taxes. Higher carbon taxes would make energy-based goods and services less affordable. This would likely reduce France’s energy consumption per capita even further. French citizens with their protests are clearly not happy about how they are being affected by these changes. Example 3: Syria (2006-2016) and Yemen (2009-2016) Both Syria and Yemen are examples of formerly oil-exporting countries that are far past their peak production. Declining energy consumption per capita has been forced on both countries because, with their oil exports falling, the countries can no longer afford to use as much energy as they did in the past for previous uses, such as irrigation. If less irrigation is used, food production and jobs are lost. (Syria and Yemen) Figure 4. Syria and Yemen energy consumption per capita. Energy consumption data from US Energy Information Administration; population estimates are UN 2017 estimates. Between Yemen’s peak year in energy consumption per capita (2009) and the last year shown (2016), its energy consumption per capita dropped by 66%. Yemen has been named by the United Nations as the country with the “world’s worst humanitarian crisis.” Yemen cannot provide adequate food and water for its citizens. Yemen is involved in a civil war that others have entered into as well. I would describe the war as being at least partly a resource war. The situation with Syria is similar. Syria’s energy consumption per capita declined 55% between its peak year (2006) and the last year available (2016). Syria is also involved in a civil war that has been entered into by others. Here again, the issue seems to be inadequate resources per capita; war participants are to some extent fighting over the limited resources that are available. Example 4: Venezuela (2008-2017) Figure 5. Energy consumption per capita for Venezuela, based on BP 2018 Statistical Review of World Energy data and UN 2017 population estimates. Between 2008 and 2017, energy consumption per capita in Venezuela declined by 23%. This is a little less than the decreases experienced by the UK and Greece during their periods of decline. Even with this level of decline, Venezuela has been having difficulty providing adequate services to its citizens. There have been reports of empty supermarket shelves. Venezuela has not been able to maintain its electrical system properly, leading to many outages. [4] Most people are surprised to learn that energy is required for every part of the economy. When adequate energy is not available, an economy is likely to first shrink back in recession; eventually, it may collapse entirely. Physics tells us that energy consumption in a thermodynamically open system enables all kinds of “complexity.” Energy consumption enables specialization and hierarchical organizations. For example, growing energy consumption enables the organizations and supply lines needed to manufacture computers and other high-tech goods. Of course, energy consumption also enables what we think of as typical energy uses: the transportation of goods, the smelting of metals, the heating and air-conditioning of buildings, and the construction of roads. Energy is even required to allow pixels to appear on a computer screen. Pre-humans learned to control fire over one million years ago. The burning of biomass was a tool that could be used for many purposes, including keeping warm in colder climates, frightening away predators, and creating better tools. Perhaps its most important use was to permit food to be cooked, because cooking increases food’s nutritional availability. Cooked food seems to have been important in allowing the brains of humans to grow bigger at the same time that teeth, jaws and guts could shrink compared to those of ancestors. Humans today need to be able to continue to cook part of their food to have a reasonable chance of survival. Any kind of governmental organization requires energy. Having a single leader takes the least energy, especially if the leader can continue to perform his non-leadership duties. Any kind of added governmental service (such as roads or schools) requires energy. Having elected leaders who vote on decisions takes more energy than having a king with a few high-level aides. Having multiple layers of government takes energy. Each new intergovernmental organization requires energy to fly its officials around and implement its programs. International trade clearly requires energy consumption. In fact, pretty much every activity of businesses requires energy consumption. Needless to say, the study of science or of medicine requires energy consumption, because without significant energy consumption to leverage human energy, nearly every person must be a subsistence level farmer, with little time to study or to take time off from farming to write (or even read) books. Of course, manufacturing medicines and test tubes requires energy, as does creating sterile environments. We think of the many parts of the economy as requiring money, but it is really the physical goods and services that money can buy, and the energy that makes these goods and services possible, that are important. These goods and services depend to a very large extent on the supply of energy being consumed at a given point in time–for example, the amount of electricity being delivered to customers and the amount of gasoline and diesel being sold. Supply chains are very dependent on each part of the system being available when needed. If one part is missing, long delays and eventually collapse can occur. [5] If the supply of energy to an economy is reduced for any reason, the result tends to be very disruptive, as shown in the examples given in Section [3], above. When an economy doesn’t have enough energy, its self-organizing feature starts eliminating pieces of the economic system that it cannot support. The financial system tends to be very vulnerable because without adequate economic growth, it becomes very difficult for borrowers to repay debt with interest. This was part of the problem that Greece and Spain had in the period when their energy consumption per capita declined. A person wonders what would have happened to these countries without bailouts from the European Union and others. Another part that is very vulnerable is governmental organizations, especially the higher layers of government that were added last. In 1991, the Soviet Union’s central government was lost, leaving the governments of the 15 republics that were part of the Soviet Union. As energy consumption per capita declines, the European Union would seem to be very vulnerable. Other international organizations, such as the World Trade Organization and the International Monetary Fund, would seem to be vulnerable, as well. The electrical system is very complex. It seems to be easily disrupted if there is a material decrease in energy consumption per capita because maintenance of the system becomes difficult. If energy consumption per capita falls dramatically, many changes that don’t seem directly energy-related can be expected. For example, the roles of men and women are likely to change. Without modern medical care, women will likely need to become the mothers of several children in order that an average of two can survive long enough to raise their own children. Men will be valued for the heavy manual labor that they can perform. Today’s view of the equality of the sexes is likely to disappear because sex differences will become much more important in a low-energy world. Needless to say, other aspects of a low-energy economy might be very different as well. For example, one very low-energy type of economic system is a “gift economy.” In such an economy, the status of each individual is determined by the amount that that person can give away. Anything a person obtains must automatically be shared with the local group or the individual will be expelled from the group. In an economy with very low complexity, this kind of economy seems to work. A gift economy doesn’t require money or debt! [6] Most people assume that moving away from fossil fuels is something we can choose to do with whatever timing we would like. I would argue that we are not in charge of the process. Instead, fossil fuels will leave us when we lose the ability to reduce interest rates sufficiently to keep oil and other fossil fuel prices high enough for energy producers. Something that may seem strange to those who do not follow the issue is the fact that oil (and other energy prices) seem to be very much influenced by interest rates and the level of debt. In general, the lower the interest rate, the more affordable high-priced goods such as factories, homes, and automobiles become, and the higher commodity prices of all kinds can be. “Demand” increases with falling interest rates, causing energy prices of all types to rise.   Figure 6.   The cost of extracting oil is less important in determining oil prices than a person might expect. Instead, prices seem to be determined by what end products consumers (in the aggregate) can afford. In general, the more debt that individual citizens, businesses and governments can obtain, the higher that oil and other energy prices can rise. Of course, if interest rates start rising (instead of falling), there is a significant chance of a debt bubble popping, as defaults rise and asset prices decline. Interest rates have been generally falling since 1981 (Figure 7). This is the direction needed to support ever-higher energy prices. Figure 7. Chart of 3-month and 10-year interest rates, prepared by the FRED, using data through March 27, 2019. The danger now is that interest rates are approaching the lowest level that they can possibly reach. We need lower interest rates to support the higher prices that oil producers require, as their costs rise because of depletion. In fact, if we compare Figures 7 and 8, the Federal Reserve has been supporting higher oil and other energy prices with falling interest rates practically the whole time since oil prices rose above the inflation adjusted level of $20 per barrel! Figure 8. Historical inflation adjusted prices oil, based on data from 2018 BP Statistical Review of World Energy, with the low price period for oil highlighted. Once the Federal Reserve and other central banks lose their ability to cut interest rates further to support the need for ever-rising oil prices, the danger is that oil and other commodity prices will fall too low for producers. The situation is likely to look like the second half of 2008 in Figure 6. The difference, as we reach limits on how low interest rates can fall, is that it will no longer be possible to stimulate the economy to get energy and other commodity prices back up to an acceptable level for producers. [7] Once we hit the “no more stimulus impasse,” fossil fuels will begin leaving us because prices will fall too low for companies extracting these fuels. They will be forced to leave because they cannot make an adequate profit. One example of an oil producer whose production was affected by an extended period of low prices is the Soviet Union (or USSR). Figure 9. Oil production of the former Soviet Union together with oil prices in 2017 US$. All amounts from 2018 BP Statistical Review of World Energy. The US substantially raised interest rates in 1980-1981 (Figure 7). This led to a sharp reduction in oil prices, as the higher interest rates cut back investment of many kinds, around the world. Given the low price of oil, the Soviet Union reduced new investment in new fields. This slowdown in investment first reduced the rate of growth in oil production, and eventually led to a decline in production in 1988 (Figure 9). When oil prices rose again, production did also. Figure 10. Energy consumption per capita for the former Soviet Union, based on BP 2018 Statistical Review of World Energy data and UN 2017 population estimates. The Soviet Union’s energy consumption per capita reached its highest level in 1988 and began declining in 1989. The central government of the Soviet Union did not collapse until late 1991, as the economy was increasingly affected by falling oil export revenue. Some of the changes that occurred as the economy simplified itself were the loss of the central government, the loss of a large share of industry, and a great deal of job loss. Energy consumption per capita dropped by 36% between 1988 and 1998. It has never regained its former level. Venezuela is another example of an oil exporter that, in theory, could export more oil, if oil prices were higher. It is interesting to note that Venezuela’s highest energy consumption per capita occurred in 2008, when oil prices were high. We are now getting a chance to observe what the collapse in Venezuela looks like on a day- by-day basis. Figure 5, above, shows Venezuela’s energy consumption per capita pattern through 2017. Low oil prices since 2014 have particularly adversely affected the country. [8] Conclusion: We can’t know exactly what is ahead, but it is clear that moving away from fossil fuels will be far more destructive of our current economy than nearly everyone expects.  It is very easy to make optimistic forecasts about the future if a person doesn’t carefully examine what the data and the science seem to be telling us. Most researchers come from narrow academic backgrounds that do not seek out insights from other fields, so they tend not to understand the background story. A second issue is the desire for a “happy ever after” ending to our current energy predicament. If a researcher is creating an economic model without understanding the underlying principles, why not offer an outcome that citizens will like? Such a solution can help politicians get re-elected and can help researchers get grants for more research. We should be examining the situation more closely than most people have considered. The fact that interest rates cannot drop much further is particularly concerning. Tyler Durden Tue, 10/26/2021 - 22:10.....»»

Category: smallbizSource: nytOct 26th, 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

Futures Slide On Stagflation Fears As 10Y Yields Spike

Futures Slide On Stagflation Fears As 10Y Yields Spike US index futures dropped after IBM and Tesla fell after their quarterly results, with investors turned cautious awaiting more reports to see the see the adverse impact of supply chain disruption and labor shortages on companies even as jitters remained over elevated inflation and the outlook for China’s property sector. The dollar reversed an overnight drop, while Treasuries fell pushing the 10Y yield to a 5-month high of 1.68%. At 745 a.m. ET, Dow e-minis were down 98 points, or 0.3%, S&P 500 e-minis were down 14 points, or 0.31%, and Nasdaq 100 e-minis were down 49.25 points, or 0.32%. In the premarket, Tesla fell 1% in premarket trading as it said on Wednesday its upcoming factories and supply-chain headwinds would put pressure on its margins after it beat Wall Street expectations for third-quarter revenue. AT&T rose 1% in pre-market trading after exceeding Wall Street’s expectations for profit and wireless subscriber growth. PayPal Holdings also climbed as it explores a $45 billion acquisition of social media company Pinterest Inc., in what could be the biggest technology deal of the year. Dow gained 1.1% after it posted a more than a five-fold jump in third-quarter profit as economic recovery boosted prices for chemicals. IBM plunged 4.7% after it missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders. Some other notable premarket movers: Digital World Acquisition (DWAC US) surges 30% after the blank-check company agreed to merge with Trump Media & Technology. Former U.S. President Donald Trump says the new company plans to start a social media firm called Truth Social. Denny’s (DENN US) rises 1.4% as the restaurant chain is upgraded to buy from hold at Truist Securities, which sees upside to 3Q estimates, partly due to expanding operating hours. ESS Tech (GWH US) adds 4.6% as Piper Sandler says the stock offers a compelling entry point for investors seeking exposure to energy storage, initiating coverage at overweight. As Bloomberg notes, corporate results have tempered but not dissipated worries that cost pressures could slow the pandemic recovery. Among S&P 500 companies that have disclosed results, 84% have posted earnings that topped expectations, a hair away from the best showing ever. Yet, the firms that surpassed profit forecasts got almost nothing to show for it in the market. And misses got punisheddearly, by the widest margin since Bloomberg started tracking the data in 2017. European equities faded early losses but remain in small negative territory. Euro Stoxx 50 is 0.4% lower having dropped ~0.8% at the open. IBEX lags peers. Miners led a retreat in Europe’s Stocks 600 index, while industrial commodities including copper and iron ore reversed earlier gains; retail and banks were also among the weakest sectors. Concerns about the inflationary impact of higher prices have risen in recent days, with everyone from Federal Reserve officials to Tesla weighing in on cost pressures. Unilever Plc pushed rising raw material costs onto consumers, increasing prices by the most in almost a decade. Meanwhile, Hermes International said sales surged last quarter, showing resilience compared to rival luxury-goods makers. European autos dropped after Volvo Group warned that the global semiconductor shortage and supply-chain challenges will continue to cap truckmaking. Here are some of the biggest European movers today: Soitec shares gain as much as 7.3% in Paris, the stock’s best day since June, after reporting 2Q results and raising its full- year sales forecast. BioMerieux shares rise as much as 5.9%. Sales in 3Q were well ahead of expectations on strong U.S. demand for BioFire respiratory panels, Jefferies (hold) writes in a note. Randstad shares rise as much as 4.7%, the most intraday since Dec. 2020, with RBC (sector perform) saying the staffing firm’s 3Q earnings topped estimates. Sodexo shares rise as much as 4.8% after activist investor Sachem Head took a stake in the French catering co., saying the investment is passive and that Sodexo is going “activist on itself.” Zur Rose shares fall as much as 8.1% after the Swiss online pharmacy cut its growth guidance and posted 3Q sales that Jefferies says missed consensus expectations. Nordic Semi shares drop as much as 7% before recovering some losses, after results; Mirabaud Securities says any weakness in the stock is a “great buying opportunity.” Eurofins shares drop as much as 7.5%, the most in nearly a year, after the laboratory-testing company left its 2021 Ebitda and free cash flow guidance unchanged, which Morgan Stanley says implies a lower Ebitda margin versus previous guidance. Bankinter shares fell as much as 6.6%, most intraday since December. Jefferies highlighted the weaker trend for the Spanish lender’s 3Q net interest income. Earlier in the session, Asian equities fell in late-afternoon trading as investors sold Japanese and Hong Kong-listed tech shares, which helped trigger broader risk aversion among investors. Ailing China Evergrande Group sank on a worsening cash squeeze, while other developers rallied after regulators said their funding needs are being met. The MSCI Asia Pacific Index slid as much as 0.8%, with Japanese equities slumping by the most in over two weeks as the yen -- typically seen as a safe haven -- strengthened against the dollar, likely boosted by technical factors. Toyota Motor and Alibaba were the biggest drags on the regional benchmark as higher bond yields weighed on sentiment toward the tech sector. The story “shapes up to be worries about higher inflation and the follow-on policy response,” said Ilya Spivak, head of Greater Asia at DailyFX. Bucking the downtrend were Chinese developers, which shrugged off China Evergrande Group’s scrapping of a divestment plan and climbed after regulators said risks in the real estate market are controllable and reasonable funding needs are being met. China was one of the region’s top-performing equity markets.  Still, Asian stocks continue to feel pressure from higher U.S. bond yields as the 10-year rate surpassed 1.6%. In addition, earlier optimism about earnings is being muted by the outlook for inflation and supply-chain bottlenecks. Chinese growth, global supply constraints and inflation are “acting as a bit of a brake on markets,” said Shane Oliver, head of investment strategy & chief economist at AMP Capital. However, with U.S. equities trading near a record high, investors are “a bit confused,” he said. Japanese equities fell by the most in over two weeks, extending losses in afternoon trading as the yen strengthened against the dollar. Electronics and auto makers were the biggest drags on the Topix, which fell 1.3%, with all 33 industry groups in the red. Tokyo Electron and Fast Retailing were the largest contributors to a 1.9% loss in the Nikkei 225. S&P 500 futures and the MSCI Asia Pacific Index similarly extended drops. “There has been a general turn in equity market sentiment evident by the afternoon decline in U.S. equity futures and main regional equity indexes,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank Ltd. “The reversal in risk-sensitive FX pairs like the AUD is reflecting this u-turn.” The Japanese currency gained 0.2% to 114.05 per U.S. dollar, while the Australian dollar weakened. The yen is still down 9.5% against the greenback this year, the worst among major currencies. Yen Faces Year-End Slump as U.S. Yield Premium Spikes With Oil The gain in the yen on Thursday probably followed technical indicators suggesting the currency was oversold and positioning seen as skewed, said Shusuke Yamada, head of Japan foreign exchange and rates strategy at Bank of America in Tokyo. The rally may be short-lived, as rising oil prices are expected to worsen Japan’s terms of trade, and monetary policies between Japan and overseas are likely to diverge further In FX, the Bloomberg Dollar Spot Index reversed an earlier loss to rise as much as 0.2% as the greenback advanced versus all its Group- of-10 peers apart from the yen; risk-sensitive currencies, led by the New Zealand dollar, were the worst performers. The pound weakened against the dollar and was little changed versus the euro into the European session. U.K. government borrowing came in significantly lower than official forecasts, but a surge in debt costs sent a warning to the government ahead of the budget next week. The U.K.’s green gilt may price today, subject to market conditions, after being delayed earlier this week. The Australian and New Zealand dollars reversed intraday gains on sales against the yen following losses in regional stock indexes. A kiwi bond auction attracted strong demand. The yen headed for a second session of gains as a selloff in Japanese equities fuels haven bids. Government bonds consolidated. In rates, the Treasury curve flattened modestly as yields on shorter-dated notes inched up, while those on longer ones fell; the bund curve shifted as yields rose about 1bp across the curve. Yields were richer by less than 1bp across long-end of the curve, flattening 2s10s, 5s30s spreads by ~1bp each; 10-year yields rose to a 5 month high of 1.68%, outperforming bunds by 2bp and gilts by 4bp on the day. Long end USTs outperform, richening ~2bps versus both bunds and gilts. Peripheral spreads tighten slightly. U.S. breakevens are elevated ahead of $19b 5Y TIPS new issue auction at 1pm ET. In commodities, oil slipped from 7 year highs, falling amid a broad-based retreat in industrial commodities, though trader focus was glued to a surging market structure as inventories decline in the U.S.; Oil’s refining renaissance is under threat from the natural gas crisis; American drivers will continue to face historically high fuel prices. WTI was lower by 0.5% to trade near $83 while Brent declined 0.8% before finding support near $85. Spot gold is range-bound near $1,785/oz. Base metals are mixed. LME nickel and copper are deep in the red while zinc gains 1.5%.  Bitcoin was volatile and dropped sharply after hitting an all time high just above $66,500. Looking at the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific. Market Snapshot S&P 500 futures down 0.3% to 4,515.25 STOXX Europe 600 down 0.2% to 469.02 MXAP down 0.7% to 199.61 MXAPJ down 0.4% to 659.34 Nikkei down 1.9% to 28,708.58 Topix down 1.3% to 2,000.81 Hang Seng Index down 0.5% to 26,017.53 Shanghai Composite up 0.2% to 3,594.78 Sensex down 1.1% to 60,560.47 Australia S&P/ASX 200 little changed at 7,415.37 Kospi down 0.2% to 3,007.33 Brent Futures down 1.0% to $84.98/bbl Gold spot up 0.2% to $1,785.09 U.S. Dollar Index up 0.11% to 93.67 German 10Y yield up 0.7 bps to -0.119% Euro down 0.1% to $1.1639 Top Overnight News from Bloomberg China Evergrande Group scrapped talks to offload a stake in its property-management arm and said real estate sales plunged about 97% during peak home-buying season, worsening its liquidity crisis on the eve of a dollar-bond deadline that could tip the company into default. Its shares plunged as much as 14% on Thursday. China’s goods imports from the U.S. have only reached about 53% of the $200 billion worth of additional products and services it promised to buy under the trade deal signed last year, far behind its purchasing target. Signs that policy makers are accelerating toward an interest-rate hike have traders fumbling around to figure out what that means for sterling. Money managers at Jupiter Asset Management and Aberdeen Asset Management turned neutral in recent days, following similar moves by Amundi SA and William Blair Investment Management. The price on eight out of 10 bonds sold in the first three quarters of this year by European investment-grade borrowers fell after issuance, wiping almost 23.5 billion euros ($27.3 billion) from portfolios. The Turkish lira is looking vulnerable as speculation grows that policy makers will cut interest rates again despite the deteriorating inflation outlook. Option traders see a more than 60% chance that the currency will weaken to an all-time-low of 9.50 per U.S. dollar over the next month, according to Bloomberg pricing. That’s the next key psychological threshold for a market trading largely in uncharted territory ahead of Thursday’s decision. A more detailed look at global markets courtesy of Newsquawk Asia-Pac indices traded somewhat mixed after the similar performance stateside where the broader market extended on gains in which the DJIA touched a fresh record high and the S&P 500 also briefly approached within 5 points of its all-time peak as attention remained on earnings, although the Nasdaq lagged with tech and duration-sensitive stocks pressured by higher longer-term yields. ASX 200 (+0.1%) was positive as Victoria state approaches the end of the lockdown at midnight and with the index led by outperformance in mining stocks and real estate. However, gains were capped amid weakness in energy as shares in Woodside Petroleum and Santos were pressured following their quarterly production results in which both posted a decline in output from a year ago, albeit with a jump in revenue due to the rampant energy prices, while Woodside also flagged a 27% drop in Wheatstone gas reserves. Nikkei 225 (-1.9%) felt the pressure from the pullback in USD/JPY and with focus shifting to upcoming elections whereby election consulting firm J.A.G Japan sees the LDP losing 40 seats but win enough to maintain a majority with a projected 236 seats at the 465-strong Lower House. Hang Seng (-0.5%) and Shanghai Comp. (+0.2%) were varied despite another respectable PBoC liquidity effort with the mood slightly clouded as Evergrande concerns persisted with Co. shares suffering double-digit percentage losses after it resumed trade for the first time in three weeks and after its deal to sell a stake in Evergrande Property Services fell through, while reports that Modern Land China cancelled its USD 250mln bond repayment plan on liquidity issues added to the ongoing default concerns although it was later reported that Evergrande secured a three-month extension on USD 260mln Jumbo Fortune bond which matured on October 3rd. Finally, 10yr JGBs traded flat with the underperformance in Japanese stocks helping government bonds overlook the pressure in global counterparts and continued losses in T-note futures following the weak 20yr auction stateside, although demand for JGBs was limited by the absence of BoJ purchases. Top Asian News China Vows to Keep Property Curbs, Evergrande Risk Seen Limited Abu Dhabi Funds Hunt for Asian Unicorns Ahead of IPOs: ECM Watch Biden’s Pick for China Envoy Draws Sharp Lines With Beijing Carlyle, KKR Among Firms Said to Mull $2 Billion Tricor Bid Bourses in Europe have held onto the downside bias seen since the cash open, but with losses less pronounced (Euro Stoxx 50 -0.4%; Stoxx 600 -0.2%) despite a distinct lack of news flow in the EU morning, and as Chinese property woes weighed on APAC markets, but with earnings seasons picking up globally. US equity futures are also softer with modest and broad-based losses ranging from 0.2-0.3%. Back to Europe, the Netherland’s AEX (+0.3%) outperforms as Unilever (+3.3%) also lifts the Personal & Household Goods sector (current outperformer) following its earnings, whereby underlying sales growth of +2.5%, as +4.1% price growth offset a -1.5% decline in volumes, whilst the group noted: "Cost inflation remains at strongly elevated levels, and this will continue into next year". The AEX is also lifted by Randstad (+4.5%) post earnings after underlying EBITDA topped forecasts. Sectors in Europe are mixed with a slight defensive bias. On the downside, there is clear underperformance in Basic Resources as base metals pull back, whilst Oil & Gas names similarly make their way down the ranks. In terms of individual movers. ABB (-5%) resides at the foot of the SMI (+0.2%) as the group sees revenue growth hampered by supply constraints. Nonetheless, flows into Food & Beverages supports heavy-weight Nestle (+1.0%) which in turn supports the Swiss index. Other earnings-related movers include Barclays (-0.4%), SAP (+1.5%), Carrefour (+1.5%), Nordea (-1.8%), and Swedbank (+2.7%). Top European News Volvo Warns More Chip Woes Ahead Will Curtail Truck Production Hermes Advances After Dispelling Worries on China Demand Stagflation Risk Still Means Quick Rate Hikes for Czech Banker Weidmann Exit Could Pave Way for Bundesbank’s First Female Chief In FX, the Dollar has regained some composure across the board amidst a downturn in broad risk sentiment, but also further retracement in US Treasuries from bull-flattening to bear-steepening in wake of an abject 20 year auction that hardly bodes well for the announcement of next week’s 2, 5 and 7 year issuance, or Usd 19 bn 5 year TIPS supply due later today. In index terms, a firmer base and platform around 94.500 appears to be forming between 93.494-701 parameters ahead of initial claims, the Philly Fed and more housing data as the focus switches to existing home sales, while latest Fed speak comes via Daly and Waller. However, the DXY and Greenback in general may encounter technical resistance as the former eyes upside chart levels at 93.884 (23.6% Fib of September’s move) and 93.917 (21 DMA), while a major basket component is also looking in better shape than it has been of late as the Yen reclaims more lost ground from Wednesday’s near 4 year lows to retest 114.00 in the run up to Japanese CPI tomorrow. NZD/AUD/NOK - No real surprise to see the high beta Antipodeans bear the brunt of their US rival’s revival and the Kiwi unwind some of its post-NZ CPI outperformance irrespective of the nation’s FTA accord in principle with the UK, while the Aussie has also taken a deterioration in NAB quarterly business business confidence into consideration. Nzd/Usd is back below 0.7200 and Aud/Usd has retreated through 0.7500 after stalling just shy of 0.7550 before comments from RBA Governor Lowe and the flash PMIs. Elsewhere, the Norwegian Crown has largely shrugged off the latest Norges Bank lending survey showing steady demand for credit from households and non-financial institutions, but seems somewhat aggrieved by the pullback in Brent from just above Usd 86/brl to under Usd 85 at one stage given that Eur/Nok is hovering closer to the top of a 9.7325-9.6625 range. EUR/CHF/GBP/CAD - All softer against their US counterpart, albeit to varying degrees as the Euro retains a relatively secure grip around 1.1650, the Franc straddles 0.9200, Pound pivots 1.3800 and Loonie tries to contain declines into 1.2350 having reversed from yesterday’s post-Canadian CPI peaks alongside WTI, with the spotlight turning towards retail sales on Friday after a passing glance at new housing prices. SEK/EM - Some traction for the Swedish Krona in a tight band mostly sub-10.0000 vs the Euro from a fall in the nsa jobless rate, but the Turkish Lira seems jittery following a drop in consumer confidence and pre-CBRT as another 100 bp rate cut is widely expected, and the SA Rand is on a weaker footing ahead of a speech by the Energy Minister along with Eskom’s CEO. Meanwhile, the Cnh and Cnh have lost a bit more momentum against the backdrop of ongoing stress in China’s property market, and regardless of calls from the Commerce Ministry for the US and China to work together to create conditions for the implementation of the Phase One trade deal, or fees on interbank transactions relating to derivatives for SMEs being halved. In commodities, WTI and Brent Dec futures have gradually drifted from the overnight session peaks of USD 83.96/bbl and USD 86.10/bbl respectively. The downturn in prices seems to have initially been a function of risk sentiment, with APAC markets posting losses and Europe also opening on the back foot. At the time of writing, the benchmark resides around under USD 83/bbl for the former and sub-USD 85/bbl for the latter. Participants at this point are on the lookout for state interventions in a bid to keep prices from running. Over in China, it’s worth keeping an eye on the COVID situation – with China's Beijing Daily stating "citizens and friends are not required to leave the country, do not gather, do not travel or travel to overseas and domestic medium- and high-risk areas", thus translating to lower activity. That being said, yesterday’s commentary from the Saudi Energy Minister indicated how adamant OPEC is to further open the taps. UBS sees Brent at USD 90/bbl in December and March, before levelling off to USD 85/bbl for the remainder of 2022 vs prev. USD 80/bbl across all timelines. Elsewhere, spot gold and silver are relatively flat around USD 1,785 and USD 22.25 with nothing new nor interesting to report thus far, and with the precious metals moving in tandem with the Buck. Base metals meanwhile are softer across the board as global market risk remains cautious, with LME copper trading on either side of USD 10k/t. US Event Calendar 8:30am: Oct. Continuing Claims, est. 2.55m, prior 2.59m 8:30am: Oct. Initial Jobless Claims, est. 297,000, prior 293,000 8:30am: Oct. Philadelphia Fed Business Outl, est. 25.0, prior 30.7 9:45am: Oct. Langer Consumer Comfort, prior 51.2 10am: Sept. Existing Home Sales MoM, est. 3.6%, prior -2.0% 10am: Sept. Leading Index, est. 0.4%, prior 0.9% 10am: Sept. Home Resales with Condos, est. 6.09m, prior 5.88m DB's Jim Reid concludes the overnight wrap I watched the first of the new series of Succession last night. I like this program as it makes me think I’ve got a totally normal and non-dysfunctional family. It’s a good benchmark to have. There are few dysfunctional worries in equities at the moment as even with the pandemic moving back onto investors’ radars, the resurgence in risk appetite showed no sign of diminishing yesterday, with the S&P 500 (+0.37%) closing just a whisker below early September’s record high. It’s an impressive turnaround from where the narrative was just a few weeks ago, when the index had fallen by over -5% from its peak as concerns from Evergrande to a debt ceiling crunch set the agenda. But the removal of both risks from the immediate horizon along with another round of positive earnings reports have swept away those anxieties. And this has come even as investors have become increasingly sceptical about the transitory inflation narrative, as well as fresh signs that Covid-19 might be a serious issue once again this winter. Starting with the good news, US equities led the way yesterday as a number of global indices closed in on their all-time highs. As mentioned the S&P 500 rallied to close just -0.02% beneath its record, which came as part of a broad-based advance that saw over 75% of the index move higher. Elsewhere, the Dow Jones (+0.43%) also closed just below its all-time high back in August. After the close, Tesla fell short of revenue estimates but beat on earnings, despite materials shortages and port backlogs that have prevented production from reaching full capacity, a common refrain by now. Overall 17 out of 23 S&P 500 companies beat expectations yesterday, meaning that the US Q3 season beat tally is now 67 out of 80. Meanwhile in Europe, equities similarly saw advances across the board, with the STOXX 600 (+0.32%) hitting its highest level in over a month, as it moved to just 1.2% beneath its record back in August. For sovereign bonds it was a more mixed picture, with 10yr Treasury yields moving higher again as concerns about inflation continued to mount. By the close of trade, the 10yr yield had risen +2.0bps to 1.57%, which was driven by a +4.6bps increase in inflation breakevens to 2.60%, their highest level since 2012. That came as oil prices hit fresh multi-year highs after the US EIA reported that crude oil inventories were down -431k barrels, and gasoline inventories were down -5.37m barrels, which puts the level of gasoline inventories at their lowest since November 2019. That saw both WTI (+1.10%) and Brent crude (+0.87%) reverse their earlier losses, with WTI closing at a post-2014 high of $83.87/bbl, whilst Brent hit a post-2018 high of $85.82/bbl. Yields on 2yr Treasuries fell -1.0bps however, after Fed Vice Chair Quarles and President Mester joined Governor Waller in pushing back against the more aggressive path of Fed rate hikes that has recently been priced in. Even so however, money markets are still implying around 1.75 hikes in 2022, about one more hike than was priced a month ago. Separately in Europe, sovereign bonds posted a much stronger performance, with yields on 10yr bunds (-2.0bps), OATs (-2.6bps) and BTPs (-3.4bps) all moving lower. Overnight in Asia stocks are trading higher this morning with the Shanghai Composite (+0.46%), CSI (+0.35%) and KOSPI (+0.23%) all advancing, whilst the Hang Seng (-0.20%) and the Nikkei (-0.45%) have been dragged lower by healthcare and IT respectively. Meanwhile Evergrande Group (-12.60%) fell sharply in Hong Kong after news that it ended talks on the sale of a majority stake in its property services division to Hopson Development. And we’ve also seen a second day of sharp moves lower in Chinese coal futures (-11.0%) as the government is mulling measures to curb speculation. And there have also been a number of fresh Covid cases in China, with 21 new cases reported yesterday, as the city of Lanzhou moved to shut down schools in response. Elsewhere in Asia, with just 10 days now until Japan’s general election, a poll by Kyodo News found that the ruling Liberal Democratic Party would likely maintain its parliamentary majority. Futures markets are indicating a slow start for markets in the US and Europe, with those on the S&P 500 (-0.09%) and the DAX (-0.05%) both pointing lower. As we’ve been mentioning this week, the Covid-19 pandemic is increasingly returning onto the market radar, with the number of global cases having begun to tick up again. This has been reflected in a number of countries tightening up restrictions, and yesterday saw Russian President Putin approve a government proposal that October 31 to November 7 would be “non-working days”. In the Czech Republic, it was announced that mask-wearing would be compulsory in all indoor spaces from next week, and New York City moved to mandate all municipal workers to get vaccinated, with no alternative negative test result option now available. In Singapore, it was announced that virus restrictions would be extended for another month, which includes a limit on outdoor gatherings to 2 people and a default to work from home. Finally in the UK, the weekly average of cases has risen above 45k per day, up from just under 30k in mid-September. There is lots of talk about the need to put in place some additional restrictions but it feels we’re a fair way from that in terms of government-mandated ones. From central banks, it was announced yesterday that Bundesbank president Weidmann would be stepping down on December 31, leaving his position after just over a decade. He said that he was leaving for personal reasons, and in his letter to the Bundesbank staff, said that “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.” It’ll be up to the next government to decide on the new appointment. Staying on Europe, our economists have just released an update to their GDP forecasts, with downgrades to their near-term expectations as supply shortages for goods and energy have created headwinds for the recovery. They now see 2021 growth at +4.9% (down -0.1pp from their previous forecast), whilst 2022 has been downgraded to 4.0% (-0.5pp). Alongside that, they’ve also included the latest oil and gas price movements into their inflation forecasts, and now project Euro Area 2022 HICP at 2.3%, although they don’t see this above-target inflation persisting, with their 2023 HICP forecast remaining unchanged at 1.5%. You can read the full note here. Speaking of inflation, we had a couple of inflation releases yesterday, including the UK’s CPI data for September, which came in slightly beneath expectations at 3.1% (vs. 3.2% expected), whilst core CPI also fell to 2.9% vs. 3.0% expected). As we discussed earlier this week though, there was some downward pressure from base effects, since in September 2020 we had a recovery in restaurant and cafe prices after the government’s Eat Out to Help Out scheme in August ended, and that bounce back has now dropped out of the annual comparisons. UK inflation will rise a fair amount in the months ahead. Otherwise, we also had the CPI release from Canada for September, which rose to 4.4% (vs. 4.3% expected), which is its highest reading since February 2003. Finally, bitcoin hit an all-time high, with the cryptocurrency up +2.92% to close at a record $65,996, which was slightly down from its intraday peak of $66,976. Bitcoin has surged over recent weeks, and as it stands it’s up +49.3% so far this month at time of writing, which would mark its strongest monthly performance so far this year. This latest move has occurred along with the first trading of options on Bitcoin-linked ETFs, which the US first listed the day prior. To the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific. Tyler Durden Thu, 10/21/2021 - 08:20.....»»

Category: blogSource: zerohedgeOct 21st, 2021

Economic Theory & Long-Wave Cycles

Economic Theory & Long-Wave Cycles Authored by Alasdair Macleod via, Investors and others are confused by the early stages of accelerating price inflation. One misleading belief is in cycles of industrial production, such as Kondratieff’s waves. The Kondratieff cycle began to emerge in financial commentaries during the inflationary 1970s, along with other wacky theories. We should reject them as an explanation for rising prices today. This article explains why the only cycle that matters is of bank credit, from which all other cyclical observations should be made. But that is not enough, because on their own cycles of bank credit do not destroy currencies - that is the consequence of central bank policies and the expansion of base money. The relationship between base money and changes in a currency’s purchasing power is not mechanical. It merely sets the scene. What matters is widespread public perceptions of how much spending liquidity is personally needed. It is by altering the ratio of currency-to-hand to anticipated needs that purchasing power is radically altered, and in the earliest stages of a hyperinflation of prices it leads to imbalances between supply and demand, resulting in the panic buying for essentials becoming evident today. Panics over energy and other necessities are only the start of it. Unless it is checked by halting the expansion of currency and credit, current dislocations will slide rapidly into a wider flight from currency into real goods - a crack-up boom. Introduction For eighteen months, the world has seen a boom in commodity prices, which has inevitably led to speculation about a new Kondratieff, or K-wave. Google it, and we see it described as a long cycle of economic activity in capitalist economies lasting 40—60 years. It marks periods of evolution and correction driven by technological innovation. Today’s adherents to the theory describe it in terms of the seasons. Spring is recovery, leading into a boom. Summer is an increase in wealth and affluence and a deceleration of growth. Autumn is stagnating economic conditions. And winter is a debilitating depression. But these descriptions did not feature in Kondratieff’s work. Van Duijan construed it differently around life cycles: introduction, growth, maturity, and decline. We must discard the word growth, substituting for it progress. Growth as measured by GDP is no more than an increase in the amount of currency and bank credit in circulation and therefore meaningless. Most people who refer to growth believe they are describing progress, or a general improvement in quality of life. Instead, they are sanctioning inflationism. There is little doubt that economic progress is uneven, but that is down to innovation. Kondratieff’s followers argue that innovation is a cyclical phenomenon, otherwise as a cyclical theory it cannot hold water. An economic historian would argue that the root of innovation is the application of technological discoveries which by their nature must be random, as opposed to cyclical, events. Furthermore, a decision must be made about how to measure the K-wave. Is it of fluctuations in the price level and of what, or of output volumes? Bear in mind that GDP and GNP were not invented until the 1930s, and all prior GDP figures are guesswork. Is it driven by Walt Rostow’s contention that the K-wave is pushed by variations in the relative scarcity of food and raw materials? Or is it a monetary phenomenon, which appeared to cease after the Second World War, when currency expansion was not hampered by a gold standard? It was an argument consistent with that put forward by Edward Bernstein, who was a key adviser to the US delegation at Bretton Woods, when he concluded that the war need not be followed by the deep post-war depression which based on historical precedent was widely expected at the time. Kondratieff’s wave theories were buried by the lack of a post-war slump, until price inflation began to increase in the 1970s and Kondratieff became fashionable again. Kondratieff maintained that his wave theory is a global capitalist phenomenon, applicable to and detected in major economies, such as those of Britain, America, and Germany. But there is no statistical evidence of a long wave in Britain’s industrial production in the first half of the nineteenth century, when Britannia ruled the economic waves. And while there were financial crises from time to time, the downward phase to complete Kondratieff’s cycle never materialised. Today, with K-waves being fundamental to so much analysis of cyclical factors and their extrapolation, the lack of evidence and rigour in Kondratieff theory should be concerning to those who believe in it. That there are variations in the pace of human progress is unarguable, and that there is a discernible cycle of them beyond mundane seasonal influences cannot be denied. But that is a cycle of credit, a factor which was at least partially understood by Bernstein, when he correctly surmised that the way to bury a post-war depression was by expanding the quantity of money. Bank credit cycles and inflation When the inflation of money supply is mostly that of bank credit, it is cyclical in nature. Its consequences for the purchasing power of the currency conforms with the cycle, but with a time lag. Furthermore, the effect is weaker in a population which tends to save than with one which tends to spend more of its income on immediate consumption. No further comment is required on this effect, other than to state that over the whole cycle of bank credit prices are likely to be relatively stable. This was the situation in Britain, which dominated the global economy for most of the period between the introduction of the gold sovereign following the 1816 Coinage Act until the First World War. Figure 1 confirms that despite fluctuating levels of bank credit, from 1822—1914 the general level of prices was broadly unchanged. The price effect of the expansion of coin-backed currency between the two dates and the increase in population offset the reduction of costs in production through a combination of improvements in production methods, technological developments, and increased volumes. What cannot be reflected in the graph is the remarkable progress made in improving the standards of living for everyone over the nineteenth century. The gold standard was abandoned at the start of the First World War, and the general level of prices more than doubled. Having seen prices rise during the war, in December 1919 the Cunliffe Committee recommended a return to the gold standard and the supply of currency was restricted from 1920 with this objective in mind. A gold bullion standard instead of a coin standard was introduced in 1925, tying sterling at the pre-war rate of $4.8665, which remained in place until 1931.[iv] From thereon, the purchasing power of the currency began its long decline as central bank money supply expanded. There is no long-term cyclicality in these changes. Following the abandonment of the gold standard, and in line with other currencies which abandoned gold convertibility in the 1930s sterling simply sank. The key to this devaluation is not fluctuations in bank credit, but the expansion of base currency. And there is no evidence of a Kondratieff, or any other long-term cycle of production. It can only be a monetary effect. The role of money in long waves It is worth bearing in mind that the so-called evidence discovered by Kondratieff was in the mind of a Marxist convinced that capitalism would fail. The downturn of a capitalist winter, or decline in growth — whatever definition is used, was baked in the anti-capitalist cake. The Marxists and other socialists were and still are all too ready to claim supposed failings of capitalism, evidenced in their eyes by periodic recessions, slumps, and depressions. Kondratieff’s economic bias may or may not have coloured his analysis — only by digging deeply into his own soul could he have answered that. But in the absence of firm evidence supporting his wave theory we should discard it. After all, there is a rich history of the religious zeal with which spurious theories in the fields of economics and money arise. The consequences of sunspot cycles and the supposed importance of anniversary dates are typical of this ouija board theme. Non-monetary cycle themes such as that devised by Kondratieff have socialism at their core. It is assumed that capitalists, bourgeois businessmen seeking through the division of labour to manufacture and supply consumer goods for profit, in their greed are reckless about commercial risks from overinvestment. This is nonsense. Fools are quickly discovered in free markets, and they are also quickly dismissed. Successful entrepreneurs and businessmen are very much aware of risk and do not embark on projects in the expectation they will be unprofitable, and it is therefore untrue to suggest that the capitalist system fails for this reason. To the contrary, markets that are truly free have been entirely responsible for the rapid improvement in the human condition, while it is government intervention that leads to periodic crises by interfering in the relationships between producers and consumers and setting in motion a cycle of interest rate suppression and currency expansion. Markets which are truly free deliver economic progress by anticipating consumer demands and deploying capital efficiently to meet them. It is no accident that economies with minimal government intervention deliver far higher standards of living than those micro-managed by governments. Hong Kong under hands-off British administration, with no natural resources and enduring floods of impoverished refugees from Mainland China stood in sharp contrast with China under Mao. Post-war East and West Germany, populated by the same ethnic people, the former communist and the latter capitalist, provides further unarguable proof that capitalism succeeds where socialism fails. Marxist socialism kills cycles by the most brutal method. It cannot entertain the economic calculations necessary to link production with anticipated demand. There is no mechanism for the redistribution of capital for its more efficient use. Consumption is never satisfied, and consumers must wait interminably for inferior products to be supplied. Any pretence at a cycle is simply suppressed out of existence. Almost all long-wave literature assumes that prices change due to supply and demand for commodities and goods alone, and never from variations in the quantity of money and credit. But even under a gold standard, the quantities of money and credit varied all the time. In Britain, and therefore in the rest of the financially developed world which adopted its banking practices, gold was merely partial backing for currency and bank deposits, which since the days of London’s goldsmiths also lubricated the creation of debt outside the banking system. While originally gold was used as coin money, since 1914 when Britain went off the gold coin standard even this role in transactions ceased. Having explained the random nature of free market capitalism, the difference from capitalistic banking must be explained. It owes its origin to London’s goldsmiths, who took in deposits to use for their own benefit, paying six per cent out of the profits they made by dealing in money. This evolved into fractional reserve banking which became the banking model for the British Empire and the rest of the world. As well as renewing the Bank of England’s charter, the Bank Charter Act of 1844 further legitimised fractional reserve banking by giving in to the Banking School’s argument that the amount of credit in circulation is adequately controlled by the ordinary processes of competitive banking. If banks acted independently from one another competing for customers and business, we might reasonably conclude that there would be from time-to-time random bank failures without cyclicality, as the Banking School argued. In capitalistic commerce, it is this process of creative destruction that ensures consumers are best served and an economy progresses to their advantage. But with banks, it is different. Each bank creates deposits which are interchanged between other banks, and imbalances are centrally cleared. Therefore, every bank has financial relations with its competitors and is exposed to its competitors’ counterparty risks, which if acted upon creates losses for themselves and other banks, risking in extremis a system-wide crisis. Banking is therefore a cartel whose members acting in their own interests tend to act in unison. In the nineteenth century his led to systemic crises, the most infamous of which were the Overend Gurney and Baring failures. It was to address this systemic risk that central banking took upon itself the role of lender of last resort, so that in future these failures would be contained. But this mitigation of risk merely strengthened the banking cartel even further, leading to the possibility of a complete banking and currency failure. And since bankers have limited liability and personally risk little more than their salary in the knowledge that a central bank will always backstop them, reckless balance sheet expansion is richly rewarded — until it fails. Fred “the shred” Goodwin, who grew a staid Royal Bank of Scotland to become the largest bank in Europe before it collapsed into government ownership was a recent example of the genre. It is these differences between banking and other commercial activities that drive a cycle of bank credit expansion and contraction while non-financial business activities cannot originate cycles. The state-sponsored structure of the banking system attempts to control it. Governments through their central banks also trigger a boom in business activity by suppressing interest rates as the principal means of encouraging the growth of currency and credit. The distortions created by these interventions and their continuence inevitably lead to a terminating crisis. As Ludwig von Mises put it: “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." A long period of credit expansion with relatively minor hiccups ending in such a crisis could easily be confused with a Kondratieff 40—60-year cycle. But the error is to mistake its origins. Kondratieff tried to persuade us that the boom and bust was a feature of capitalist business failings when it is a currency and credit problem. The irony is that Stalin refused to admit even to an expansionary phase in capitalism, condemning Kondratieff to the gulags, and then a firing squad in 1938. He lived as a Marxist-Leninist and was executed by the system he venerated. Having identified the source of cycles as being a combination of state action and fluctuations in currency and credit in a state-sponsored banking system and not capitalistic production for profit, we can admit that there are further cyclical consequences. Whether they exist or not is usually a matter of conjecture. Purely financial cycles, such as Elliott Wave Theory, will also owe their motive forces to cycles of credit and not business activity. The effect on commodity and consumer prices Kondratieff wave followers claim that commodity bull and bear markets are the consequence of a K-wave spring and summer followed by autumn, when it tops out, and winter when it collapses before rising into the next K-wave cycle. But we have demonstrated that the K-wave is not supported by the evidence. Instead, changes in the general level of commodity prices are a function of changes in the quantity of money. And as we have seen, there is a base component and a cyclical component of bank credit. We must now refocus our attention from the long-run UK statistics shown in Figure 1 to the contemporary situation for the US dollar, in which commodities have been priced almost exclusively since the early 1970s. The chart from the St Louis Fed below is of an index of industrial materials from 1992. We can see why the Kondratieff myth might be perpetuated, with industrial material prices more than halving between 2011 and 2016. But these swings came substantially from the dollar side of prices, whose trade-weighted index rose strongly between these dates. Between 2016—2018 the dollar weakened, before strengthening into 2020. Clearly, it was the purchasing power of the dollar driving speculative as well as commercial flows in international commodity markets. In March 2020, the Fed reduced its fund rate to the zero bound and announced QE (money-printing) of an unprecedented $120bn every month. Figure 2 below shows the consequences for the general level of commodity prices. Since late-March, the components of this ETF have almost doubled in price, and after a period of consolidation appear to be increasing again. K-wave followers might conclude that it is evidence of a new Kondratieff spring or summer, with the global economy set for a new spurt of economic “growth”. But this ignores the expansion of the Fed’s balance sheet reflected in base money, which is the next FRED chart. The monetary base has approximately doubled since the Fed’s March 2020 stimulus, additional to the post-Lehman crisis expansion. The last expansion undermined the purchasing power of the dollar to a similar extent in terms of the commodity prices shown in Figure 2. Evidential consequences of price inflation Sudden increases in the money quantity have disruptive effects on markets for goods and services and the behaviour of individuals. As well as undermining a currency’s purchasing power, supplies of essential goods become disordered by unexpected shifts in demand. Throughout history there has been evidence of these inflationary consequences, often exacerbated by statist attempts to impose price controls. The Roman emperor Diocletian with his edict on maximum prices caused starvation for citizens, who were forced to leave Rome to forage for food in the surrounding countryside. The edict made the provision of food uneconomic, leading to extreme scarcity. During the reign of Henry I in England there was a monetary crisis in 1124 from the debasement of silver coins, which combined with a poor harvest drove up the prices of staples, causing widespread famine. The French revolution has been attributed to the insensitivity of royalty and the aristocracy to the masses; but it occurred at the time of the assignat inflation, which led to aggravated discontent among the lower orders and the storming of the Bastille. And today, we have widespread disruption of essential supplies, ranging from energy to carbonated foodstuffs. The lesson from history is it has only just started. Why today’s logistics and energy disruptions have only just started The problems arise because individuals’ knowledge of the relationship between money and goods comes from the immediate past. They use that knowledge to decide what to buy for future consumption, and if they are in business, for production. In the latter case, they might change inventory policies from today’s just-in-time practices to ensure an adequate stock of components is available, driving up demand for them and creating shortages of vital factors of production. Consumers faced with shortages will alter the balance between their money liquidity and goods for which they may not have an immediate need but expect to consume at a future date. Bank account balances and credit available on credit cards will be drawn down, for example, to fill their car tanks with fuel, even though no journey is planned. And as we see in the UK today, it rapidly leads to fuel shortages and rationing at the petrol pumps. While the authorities try to calm things down, either by denying there is a supply problem or by imposing price controls, consumers are likely to see these moves as propaganda and justification for reducing money liquidity even further by purchasing yet more goods. The flight out of currency liquidity has a disproportionate effect on prices, particularly for essentials. They will simply drive prices higher until no further price rises are expected. Or put more accurately, the value of the currency continues to fall. It is worth illustrating the problem for its true context. If on the one hand everyone decides they would rather have as much cash in hand money as possible rather than goods, prices will collapse. It is, as a matter of fact, a situation which cannot occur. If alternatively, everyone decides to dispose of all their liquidity by buying everything just to get rid of the currency, then the purchasing power of the currency sinks to zero. Unlike the former case, this can and does happen, when it becomes widely recognised that the currency might become worthless. In other words, a state-issued unbacked currency then collapses. Almost no one, so far, attributes today’s logistical and economic dislocations to monetary inflation, yet as pointed out above, empirical evidence points to a clear connection. Governments and central banks also seem unaware. But they appear to sense that there is an undefinable risk of consumer panic, making fuel and other shortages even worse. So far, the blame lies with logistic failures, which seem to be getting worse. Comments from leading central bankers, currently meeting in Portugal and organised by the ECB, confirm the official position of playing popular tunes while the ship goes down. The heads of the Fed, the ECB, the Bank of England, and the Bank of Japan are quoted in the Daily Telegraph as agreeing that staff shortages, shipping chaos and surging fuel costs are likely to cause further disruption as winter draws near. Andrew Bailey, Governor of the Bank of England, warned “…that the UK’s GDP will not recover to pre-pandemic levels until early next year”. But besides the Bank keeping a close watch on inflation, he commented that monetary policy can’t solve supply side shocks. Jay Powell admitted that at the margin apparently bottleneck and supply chain problems are getting marginally worse. But all the central bankers agreed that price pressures will be temporary. We can see from these comments a desire not to rock the boat and cause further panic among consumers. More worrying is the insistence that inflation remains a temporary problem. Unless there is a move to stop the monetary printing presses, they must believe it. It is confirmation that there is no intention to change monetary policy. But these problems are not restricted to the West. This week we learn that even China, which has followed a policy of restricting monetary growth, faces an energy crisis with coal at power plants critically low, and coal prices up fourfold. Energy is being rationed with production of everything from food and animal feedstuffs to steel and aluminium plants supplying other factories, which in turn face power outages. China is the world’s manufacturing hub. The United States relies on China’s exports. There were some seventy container ships at anchor or at drift areas off San Pedro earlier this week, but after dropping slightly the numbers are expected to rise again. And in China, there are delays at ports of more than three days in Busan, Shanghai, Ningbo and Yantian. Ship charter rates have rocketed from $10,000 a day to as much as $200,000.[ix] There can be no doubt as the northern hemisphere enters its winter that the consuming nations in America and Europe will see yet more product shortages, more price rises, and continuing logistics disruption. Central banks will become increasingly desperate to discourage consumers’ from hoarding items by claiming that shortages and price increases are transitory. What they fail to realise is that the consequences of currency debasement have led to consumption goods being wrongly priced, fuelling the shortages. These shortages can only be addressed by yet higher prices, even in the absence of further monetary debasement — until no further price increases are expected by consumers. But with massive and increasing government deficits to finance, central banks have no mandate to restrict the expansion of currency. An acceleration of monetary debasement as each unit of it buys less is therefore inevitable because consumers and businesses alike will begin to understand there is no limit to prices increasing. Left to its logical conclusion, the purchasing power of a currency falls exponentially until it has no value left. The speed at which it happens depends on the time taken for acting humans to realise what is happening. Unless it is stopped, an economy experiences what in the 1920s was described as a flight into real goods, or a crack-up boom. Economists today seem unable to comprehend the instability caused by monetary inflation. They adopt their models to ignore it. As von Mises put it, “The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call ‘velocity of circulation’". The confusion in the minds of central bank economists renders it unlikely that they will take the actions necessary to stop their currencies sliding towards worthlessness sooner rather than later. Central to resolving the problem is maintaining confidence that the currency will retain its purchasing power. But with the advent of cryptocurrencies, there is a growing proportion of the public who understand in advance of inflationary consequences that fiat currencies are being debauched at an accelerating rate. This represents a major change from the past, when, as Keynes put it supposedly quoting Lenin, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in one million is able to diagnose”. The fact that millions now do understand the currency is being debauched is likely to make it more difficult for the state to maintain confidence in the currency in these troubled times. We should know that what is happening to commodity prices is not some long-term Kondratieff wave, or any other wave with origins in production beyond purely seasonal factors. We can say unequivocally that the cause is in changing quantities of currency and bank credit. We can also see that there are yet further effects driving prices higher from the expansion of currency so far. We can expect currency expansion to continue, so prices of commodities and consumer goods will continue to rise. Or put in a way in which it is likely to become more widely understood as the current hiatus continues, the purchasing power of the currencies in which prices are measured will continue to fall. Tyler Durden Mon, 10/04/2021 - 21:40.....»»

Category: blogSource: zerohedgeOct 4th, 2021

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge US index futures, European markets and Asian stocks all turned negative during the overnight session, surrendering earlier gains as investors turned increasingly concerned about China's looming slowdown - and outright contraction - amid a global stagflationary energy crunch, which sent 10Y TSY yields just shy of 1.50% this morning following a Goldman upgrade in its Brent price target to $90 late on Sunday. At 745 a.m. ET, S&P 500 e-minis were down 4.75 points, or 0.1% after rising as much as 0.6%, Nasdaq 100 e-minis were down 83 points, or 0.54% and Dow e-minis were up 80 points, or 0.23%. The euro slipped as Germany looked set for months of complex coalition talks. While the market appears to have moved beyond the Evergrande default, the debt crisis at China's largest developer festers (with Goldman saying it has no idea how it will end), and data due this week will show a manufacturing recovery in the world’s second-largest economy is faltering faster. A developing energy crisis threatens to crimp global growth further at a time markets are preparing for a tapering of Fed stimulus. The week could see volatile moves as traders scrutinize central bankers’ speeches, including Chair Jerome Powell’s meetings with Congressional panels. “Most bad news comes from China these days,” Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings, wrote in a note. “The Evergrande debt crisis, the Chinese energy crackdown on missed targets and the ban on cryptocurrencies have been shaking the markets, along with the Fed’s more hawkish policy stance last week.” Oil majors Exxon Mobil and Chevron Corp rose 1.5% and 1.2% in premarket trade, respectively, tracking crude prices, while big lenders including JPMorgan, Citigroup, Morgan Stanley and Bank of America Corp gained about 0.8%.Giga-cap FAAMG growth names such as Alphabet, Microsoft,, Facebook and Apple all fell between 0.3% and 0.4%, as 10Y yield surged, continuing their selloff from last week, which saw the 10Y rise as high as 1.4958% and just shy of breaching the psychological 1.50% level. While growth names were hit, value names rebounded as another market rotation appears to be in place: industrials 3M Co and Caterpillar Inc, which tend to benefit the most from an economic rebound, also inched higher (although one should obviously be shorting CAT here for its China exposure). Market participants have moved into value and cyclical stocks from tech-heavy growth names after the Federal Reserve last week indicated it could begin unwinding its bond-buying program by as soon as November, and may raise interest rates in 2022. Here are some other notable premarket movers: Gores Guggenheim (GGPI US) shares rise 7.2% in U.S. premarket trading as Polestar agreed to go public with the special purpose acquisition company, in a deal valued at about $20 billion. Naked Brand (NAKD US), one of the stocks caught up in the first retail trading frenzy earlier this year, rises 11% in U.S. premarket trading, extending Friday’s gains. Among other so-called meme stocks in premarket trading: ReWalk Robotics (RWLK) +6.5%, Vinco Ventures (BBIG) +18%, Camber Energy (CEI) +2.9% Pfizer (PFE US) and Opko Health (OPK US) in focus after they said on Friday that the FDA extended the review period for the biologics license application for somatrogon. Opko fell 3.5% in post-market trading. Aspen Group (ASPU) climbed 10% in Friday postmarket trading after board member Douglas Kass buys $172,415 of shares, according to a filing with the U.S. Securities & Exchange Commission. Seaspine (SPNE US) said spine surgery procedure volumes were curtailed in many areas of the U.S. in 3Q and particularly in August. Tesla (TSLA US) and other electric- vehicle related stocks globally may be active on Monday after Germany’s election, in which the Greens had their best-ever showing and are likely to be part of any governing coalition. Europe likewise drifted lower, with the Stoxx Europe 600 Index erasing earlier gains and turning negative as investors weighed the risk to global growth from the China slowdown and the energy crunch. The benchmark was down 0.1% at last check. Subindexes for technology (-0.9%) and consumer (-0.8%) provide the main drags while value outperformed, with energy +2.4%, banks +2% and insurance +1.3%.  The DAX outperformed up 0.5%, after German election results avoided the worst-case left-wing favorable outcome.  U.S. futures. Rolls-Royce jumped 12% to the highest since March 2020 after the company was selected to provide the powerplant for the B-52 Stratofortress under the Commercial Engine Replacement Program. Here are some of the other biggest European movers today IWG rises as much as 7.5% after a report CEO Mark Dixon is exploring a multibillion-pound breakup of the flexible office-space provider AUTO1 gains as much as 6.1% after JPMorgan analyst Marcus Diebel raised the recommendation to overweight from neutral Cellnex falls as much as 4.3% to a two-month low after the tower firm is cut to sell from neutral at Citi, which says the stock is “priced for perfection in an imperfect industry” European uranium stocks fall with Yellow Cake shares losing as much as 6% and Nac Kazatomprom shares declining as much as 4.7%. Both follow their U.S. peers down following weeks of strong gains as the price of uranium ballooned For those who missed it, Sunday's closely-watched German elections concluded with the race much closer than initially expected: SPD at 25.7%, CDU/CSU at 24.1%, Greens at 14.8%, FDP at 11.5%, AfD at 10.3% Left at 4.9%, the German Federal Returning Officer announced the seat distribution from the preliminary results which were SPD at 206 seats, CDU/CSU at 196. Greens at 118, FDP at 92, AfD at 83, Left at 39 and SSW at 1. As it stands, three potential coalitions are an option, 1) SPD, Greens and FDP (traffic light), 2) CDU/CSU, Greens and FDP (Jamaica), 3) SPD and CDU/CSU (Grand Coalition but led by the SPD). Note, option 3 is seen as the least likely outcome given that the CDU/CSU would be unlikely willing to play the role of a junior partner to the SPD. Therefore, given the importance of the FDP and Greens in forming a coalition for either the SPD or CDU/CSU, leaders of the FDP and Greens have suggested that they might hold their own discussions with each other first before holding talks with either of the two larger parties. Given the political calculus involved in trying to form a coalition, the process is expected to play out over several months. From a markets perspective, the tail risk of the Left party being involved in government has now been removed due to their poor performance and as such, Bunds trade on a firmer footing. Elsewhere, EUR is relatively unfazed due to the inconclusive nature of the result. We will have more on this in a subsequent blog post. Asian stocks fell, reversing an earlier gain, as a drop in the Shanghai Composite spooked investors in the region by stoking concerns about the pace of growth in China’s economy.  The MSCI Asia Pacific Index wiped out an advance of as much as 0.7%, on pace to halt a two-day climb. Consumer discretionary names and materials firms were the biggest contributors to the late afternoon drag. Financials outperformed, helping mitigate drops in other sectors.  “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy.”  The Shanghai Composite was among the region’s worst performers along with Vietnam’s VN Index. Shares of China’s electricity-intensive businesses tumbled after Beijing curbed power supplies in the country’s manufacturing hubs to cut emissions. The CSI 300 still rose, thanks to gains in heavily weighted Kweichow Moutai and other liquor makers. Asian equities started the day on a positive note as financials jumped, tracking gains in U.S. peers and following a rise in Treasury yields. Resona Holdings was among the top performers after Morgan Stanley raised its view on the stock and Japanese banks. The regional market has been calmer over the past few trading sessions after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. While anxiety lingers, many investors expect China will resolve the distressed property developer’s problems rather than let them spill over into an echo of 2008’s Lehman crisis. Japanese equities closed lower, erasing an earlier gain, as concerns grew over valuations following recent strength in the local market and turmoil in China. Machinery and electronics makers were the biggest drags on the Topix, which fell 0.1%. Daikin and Bandai Namco were the largest contributors to a dip of less than 0.1% in the Nikkei 225. Both gauges had climbed more 0.5% in morning trading. Meanwhile, the Shanghai Composite Index fell as much as 1.5% as industrials tumbled amid a power crunch. “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy. That’s why marine transportation stocks, which are representative of cyclical sectors, fell sharply.” Shares of shippers, which have outperformed this year, fell as investors turned their attention to reopening plays. Travel and retail stocks gained after reports that the government is making final arrangements to lift all the coronavirus state of emergency order in the nation as scheduled at the end of this month. Australia's commodity-heavy stocks advanced as energy, banking shares climb. The S&P/ASX 200 index rose 0.6% to close at 7,384.20, led by energy stocks. Banks also posted their biggest one-day gain since Aug. 2. Travel stocks were among the top performers after the prime minister said state premiers must not keep borders closed once agreed Covid-19 vaccination targets are reached. NextDC was the worst performer after the company’s CEO sold 1.6 million shares. In New Zealand, the S&P/NZX 50 index. In FX, the U.S. dollar was up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. •    The Bloomberg Dollar Spot Index was little changed and the greenback traded mixed versus its Group-of-10 peers o    Volatility curves in the major currencies were inverted last week due to a plethora of central bank meetings and risk-off concerns. They have since normalized as stocks stabilize and traders assess the latest forward guidance on monetary policy •    The yield on two-year U.S. Treasuries touched the highest level since April 2020, as tightening expectations continued to put pressure on front-end rates and ahead of debt sales later Monday •    The pound advanced, with analyst focus on supply chain problems as Prime Minister Boris Johnson considers bringing in army drivers to help. Bank of England Governor Andrew Bailey’s speech later will be watched after last week’s hawkish meeting •    Antipodean currencies, as well as the Norwegian krone and the Canadian dollar were among the best Group-of-10 performers amid a rise in commodity prices •    The yen pared losses after falling to its lowest level in six weeks and Japanese stocks paused their rally and amid rising Treasury yields   In rates, treasuries extended their recent drop, led by belly of the curve ahead of this week’s front-loaded auctions, which kick off Monday with 2- and 5-year note sales.  Yields were higher by up to 4bp across belly of the curve, cheapening 2s5s30s spread by 3.2bp on the day; 10-year yields sit around 1.49%, cheaper by 3.5bp and underperforming bunds, gilts by 1.5bp and 0.5bp while the front-end of the curve continues to sell off as rate-hike premium builds -- 2-year yields subsequently hit 0.284%, the highest level since April 2020. 5-year yields top at 0.988%, highest since Feb. 2020 while 2-year yields reach as high as 0.288%; in long- end, 30-year yields breach 2% for the first time since Aug. 13. Auctions conclude Tuesday with 7-year supply. Host of Fed speakers due this week, including three scheduled for Monday. In commodities, Brent futures climbed 1.4% to $79 a barrel, while WTI futures hit $75 a barrel for the first time since July, amid an escalating energy crunch across Europe and now China. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz In equities, Stoxx 600 is up 0.6%, led by energy and banks, and FTSE 100 rises 0.4%. Germany’s DAX climbs 1% after German elections showed a narrow victory for social democrats, with the Christian Democrats coming in a close second, according to provisional results. S&P 500 futures climb 0.3%, Dow and Nasdaq contracts hold in the green. In FX, the U.S. dollar is up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz Investors will now watch for a raft of economic indicators, including durable goods orders and the ISM manufacturing index this week to gauge the pace of the recovery, as well as bipartisan talks over raising the $28.4 trillion debt ceiling. The U.S. Congress faces a Sept. 30 deadline to prevent the second partial government shutdown in three years, while a vote on the $1 trillion bipartisan infrastructure bill is scheduled for Thursday. On today's calendar we get the latest Euro Area M3 money supply, US preliminary August durable goods orders, core capital goods orders, September Dallas Fed manufacturing activity. We also have a bunch of Fed speakers including Williams, Brainard and Evans. Market Snapshot S&P 500 futures down 0.1% to 4,442.50 STOXX Europe 600 up 0.3% to 464.54 MXAP little changed at 200.75 MXAPJ little changed at 642.52 Nikkei little changed at 30,240.06 Topix down 0.1% to 2,087.74 Hang Seng Index little changed at 24,208.78 Shanghai Composite down 0.8% to 3,582.83 Sensex up 0.2% to 60,164.70 Australia S&P/ASX 200 up 0.6% to 7,384.17 Kospi up 0.3% to 3,133.64 German 10Y yield fell 3.1 bps to -0.221% Euro down 0.3% to $1.1689 Brent Futures up 1.2% to $79.04/bbl Gold spot little changed at $1,750.88 U.S. Dollar Index up 0.15% to 93.47 Top Overnight News from Bloomberg House Speaker Nancy Pelosi put the infrastructure bill on the schedule for Monday under pressure from moderates eager to get the bipartisan bill, which has already passed the Senate, enacted. But progressives -- whose votes are likely vital -- are insisting on progress first on the bigger social-spending bill Olaf Scholz of the center-left Social Democrats defeated Chancellor Angela Merkel’s conservatives in an extremely tight German election, setting in motion what could be months of complex coalition talks to decide who will lead Europe’s biggest economy China’s central bank pumped liquidity into the financial system after borrowing costs rose, as lingering risks posed by China Evergrande Group’s debt crisis hurt market sentiment toward its peers as well Global banks are about to get a comprehensive blueprint for how derivatives worth several hundred trillion dollars may be finally disentangled from the London Interbank Offered Rate Economists warned of lower economic growth in China as electricity shortages worsen in the country, forcing businesses to cut back on production Governor Haruhiko Kuroda says it’s necessary for the Bank of Japan to continue with large-scale monetary easing to achieve the bank’s 2% inflation target The quant revolution in fixed income is here at long last, if the latest Invesco Ltd. poll is anything to go by. With the work-from-home era fueling a boom in electronic trading, the majority of investors in a $31 trillion community say they now deploy factor strategies in bond portfolios A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines but with gains capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger. ASX 200 (+0.6%) was led higher by outperformance in the mining related sectors including energy as oil prices continued to rally amid supply disruptions and views for a stronger recovery in demand with Goldman Sachs lifting its year-end Brent crude forecast from USD 80/bbl to USD 90/bbl. Furthermore, respectable gains in the largest weighted financial sector and details of the reopening roadmap for New South Wales, which state Premier Berijiklian sees beginning on October 11th, further added to the encouragement. Nikkei 225 (Unch) was kept afloat for most of the session after last week’s beneficial currency flows and amid reports that Japan is planning to lift emergency measures in all areas at month-end, although upside was limited ahead of the upcoming LDP leadership race which reports noted are likely to go to a run-off as neither of the two main candidates are likely to achieve a majority although a recent Kyodo poll has Kono nearly there at 47.4% of support vs. nearest contender Kishida at 22.4%. Hang Seng (+0.1%) and Shanghai Comp. (-0.8%) were varied with the mainland choppy amid several moving parts including back-to-back daily liquidity efforts by the PBoC since Sunday and with the recent release of Huawei’s CFO following a deal with US prosecutors. Conversely, Evergrande concerns persisted as Chinese cities reportedly seized its presales to block the potential misuse of funds and its EV unit suffered another double-digit percentage loss after scrapping plans for its STAR Market listing. There were also notable losses to casino names after Macau tightened COVID-19 restrictions ahead of the Golden Week holidays and crypto stocks were hit after China declared crypto activities illegal which resulted in losses to cryptoexchange Huobi which dropped more than 40% in early trade before nursing some of the losses, while there are also concerns of the impact from an ongoing energy crisis in China which prompted the Guangdong to ask people to turn off lights they don't require and use air conditioning less. Finally, 10yr JGBs were flat but have clawed back some of the after-hour losses on Friday with demand sapped overnight amid the mild gains in stocks and lack of BoJ purchases in the market. Elsewhere, T-note futures mildly rebounded off support at 132.00, while Bund futures outperformed the Treasury space amid mild reprieve from this month’s losses and with uncertainty of the composition for the next German coalition. Top Asian News Moody’s Says China to Safeguard Stability Amid Evergrande Issues China’s Tech Tycoons Pledge Allegiance to Xi’s Vision China Power Crunch Hits iPhone, Tesla Production, Nikkei Reports Top Netflix Hit ‘Squid Game’ Sparks Korean Media Stock Surge Bourses in Europe have trimmed the gains seen at the open, albeit the region remains mostly in positive territory (Euro Stoxx 50 +0.4%; Stoxx 600 +0.2%) in the aftermath of the German election and amid the looming month-end. The week also sees several risk events, including the ECB's Sintra Forum, EZ CPI, US PCE and US ISM Manufacturing – not to mention the vote on the bipartisan US infrastructure bill. The mood in Europe contrasts the mixed handover from APAC, whilst US equity futures have also seen more divergence during European trade – with the yield-sensitive NQ (-0.3%) underperforming the cyclically-influenced RTY (+0.4%). There has been no clear catalyst behind the pullback since the Cash open. Delving deeper into Europe, the DAX 40 (+0.6%) outperforms after the tail risk of the Left party being involved in government has now been removed. The SMI (-0.6%) has dipped into the red as defensive sectors remain weak, with the Healthcare sector towards to bottom of the bunch alongside Personal & Household Goods. On the flip side, the strength in the price-driven Oil & Gas and yield-induced Banks have kept the FTSE 100 (+0.2%) in green, although the upside is capped by losses in AstraZeneca (-0.4%) and heavy-weight miners, with the latter a function of declining base metal prices. The continued retreat in global bonds has also hit the Tech sector – which resides as the laggard at the time of writing. In terms of individual movers, Rolls-Royce (+8.5%) trades at the top of the FTSE 100 after winning a USD 1.9bln deal from the US Air Force. IWG (+6.5%) also extended on earlier gains following reports that founder and CEO Dixon is said to be mulling a multibillion-pound break-up of the Co. that would involve splitting it into several distinct companies. Elsewhere, it is worth being cognizant of the current power situation in China as the energy crisis spreads, with Global Times also noting that multiple semiconductor suppliers for Tesla (Unch), Apple (-0.4% pre-market) and Intel (Unch), which have manufacturing plants in the Chinese mainland, recently announced they would suspend their factories' operations to follow local electricity use policies. Top European News U.K. Relaxes Antitrust Rules, May Bring in Army as Pumps Run Dry Magnitude 5.8 Earthquake Hits Greek Island of Crete German Stocks Rally as Chances Wane for Left-Wing Coalition German Landlords Rise as Left’s Weakness Trumps Berlin Poll In FX, the Aussie is holding up relatively well on a couple of supportive factors, including a recovery in commodity prices overnight and the Premier of NSW setting out a timetable to start lifting COVID lockdown and restrictions from October 11 with an end date to completely re-open on December 1. However, Aud/Usd is off best levels against a generally firm Greenback on weakness and underperformance elsewhere having stalled around 0.7290, while the Loonie has also run out of momentum 10 pips or so from 1.2600 alongside WTI above Usd 75/brl. DXY/EUR/CHF - Although the risk backdrop is broadly buoyant and not especially supportive, the Buck is gleaning traction and making gains at the expense of others, like the Euro that is gradually weakening in wake of Sunday’s German election that culminated in narrow victory for the SPD Party over the CDU/CSU alliance, but reliant on the Greens and FDP to form a Government. Eur/Usd has lost 1.1700+ status and is holding a fraction above recent lows in the form of a double bottom at 1.1684, but the Eur/Gbp cross is looking even weaker having breached several technical levels like the 100, 21 and 50 DMAs on the way down through 0.8530. Conversely, Eur/Chf remains firm around 1.0850, and largely due to extended declines in the Franc following last week’s dovish SNB policy review rather than clear signs of intervention via the latest weekly Swiss sight deposit balances. Indeed, Usd/Chf is now approaching 0.9300 again and helping to lift the Dollar index back up towards post-FOMC peaks within a 93.494-206 range in advance of US durable goods data, several Fed speakers, the Dallas Fed manufacturing business index and a double dose of T-note supply (Usd 60 bn 2 year and Usd 61 bn 5 year offerings). GBP/NZD/JPY - As noted above, the Pound is benefiting from Eur/Gbp tailwinds, but also strength in Brent to offset potential upset due to the UK’s energy supply issues, so Cable is also bucking the broad trend and probing 1.3700. However, the Kiwi is clinging to 0.7000 in the face of Aud/Nzd headwinds that are building on a break of 1.0350, while the Yen is striving keep its head afloat of another round number at 111.00 as bond yields rebound and curves resteepen. SCANDI/EM - The Nok is also knocking on a new big figure, but to the upside vs the Eur at 10.0000 following the hawkish Norges Bank hike, while the Cnh and Cny are holding up well compared to fellow EM currencies with loads of liquidity from the PBoC and some underlying support amidst the ongoing mission to crackdown on speculators in the crypto and commodity space. In commodities, WTI and Brent front-month futures kicked the week off on a firmer footing, which saw Brent Nov eclipse the USD 79.50/bbl level (vs low 78.21/bbl) whilst its WTI counterpart hovers north of USD 75/bbl (vs low 74.16/bbl). The complex could be feeling some tailwinds from the supply crunch in Britain – which has lead petrol stations to run dry as demand outpaces the supply. Aside from that, the landscape is little changed in the run-up to the OPEC+ meeting next Monday, whereby ministers are expected to continue the planned output hikes of 400k BPD/m. On that note, there have been reports that some African nations are struggling to pump more oil amid delayed maintenance and low investments, with Angola and Nigeria said to average almost 300k BPD below their quota. On the Iranian front, IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with the exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility, with no real updates present regarding the nuclear deal talks. In terms of bank commentary, Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. Conversely, Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and nat gas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Over to metals, spot gold and silver have fallen victim to the firmer Dollar, with spot gold giving up its overnight gains and meandering around USD 1,750/oz (vs high 1760/oz) while spot silver briefly dipped under USD 22.50/oz (vs high 22.73/oz). Turning to base metals, China announced another round of copper, zinc and aluminium sales from state reserves – with amounts matching the prior sales. LME copper remains within a tight range, but LME tin is the outlier as it gave up the USD 35k mark earlier in the session. Finally, the electricity crunch in China has seen thermal coal prices gain impetus amid tight domestic supply, reduced imports and increased demand. US Event Calendar 8:30am: Aug. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.9% 8:30am: Aug. Cap Goods Orders Nondef Ex Air, est. 0.4%, prior 0.1% 8:30am: Aug. -Less Transportation, est. 0.5%, prior 0.8% 8:30am: Aug. Durable Goods Orders, est. 0.6%, prior -0.1% 10:30am: Sept. Dallas Fed Manf. Activity, est. 11.0, prior 9.0 Central Banks 8am: Fed’s Evans Speaks at Annual NABE Conference 9am: Fed’s Williams Makes Opening Remarks at Conference on... 12pm: Fed’s Williams Discusses the Economic Outlook 12:50pm: Fed’s Brainard Discusses Economic Outlook at NABE Conference DB's Jim Reid concludes the overnight wrap Straight to the German elections this morning where unlike the Ryder Cup the race was tight. The centre-left SPD have secured a narrow lead according to provisional results, which give them 25.7% of the vote, ahead of Chancellor Merkel’s CDU/CSU bloc, which are on 24.1%. That’s a bit narrower than the final polls had suggested (Politico’s average put the SPD ahead by 25-22%), but fits with the slight narrowing we’d seen over the final week of the campaign. Behind them, the Greens are in third place, with a record score of 14.8%, which puts them in a key position when it comes to forming a majority in the new Bundestag, and the FDP are in fourth place currently on 11.5%. Although the SPD appear to be in first place the different parties will now enter coalition negotiations to try to form a governing majority. Both Olaf Scholz and the CDU’s Armin Laschet have said that they will seek to form a government, and to do that they’ll be looking to the Greens and the FDP as potential coalition partners, since those are the most realistic options given mutual policy aims. So the critical question will be whether it’s the SPD or the CDU/CSU that can convince these two to join them in coalition. On the one hand, the Greens have a stronger policy overlap with the SPD, and governed with them under Chancellor Schröder from 1998-2005, but the FDP seems more in line with the Conservatives, and were Chancellor Merkel’s junior coalition partner from 2009-13.  So it’s likely that the FDP and the Greens will talk to each other before talking to either of the two biggest parties. For those wanting more information, our research colleagues in Frankfurt have released a post-election update (link here) on the results and what they mean. An important implication of last night’s result is that (at time of writing) it looks as though a more left-wing coalition featuring the SPD, the Greens and Die Linke would not be able for form a majority in the next Bundestag. So the main options left are for the FDP and the Greens to either join the SPD in a “traffic light” coalition or instead join the CDU/CSU in a “Jamaica” coalition. The existing grand coalition of the SPD and the CDU/CSU would actually have a majority as well, but both parties have signalled that they don't intend to continue this. That said, last time in 2017, a grand coalition wasn’t expected after that result, and there were initially attempts to form a Jamaica coalition. But once those talks proved unsuccessful, discussions on another grand coalition began once again. In terms of interesting snippets, this election marks the first time the SPD have won the popular vote since 2002, which is a big turnaround given that the party were consistently polling in third place over the first half of this year. However, it’s also the worst ever result for the CDU/CSU, and also marks the lowest combined share of the vote for the two big parties in post-war Germany, which mirrors the erosion of the traditional big parties we’ve seen elsewhere in continental Europe. Interestingly, the more radical Die Linke and AfD parties on the left and the right respectively actually did worse than in 2017, so German voters have remained anchored in the centre, and there’s been no sign of a populist resurgence. This also marks a record result for the Greens, who’ve gained almost 6 percentage points relative to four years ago, but that’s still some way down on where they were polling earlier in the spring (in the mid-20s), having lost ground in the polls throughout the final weeks of the campaign. Markets in Asia have mostly started the week on a positive note, with the Hang Seng (+0.28%), Nikkei (+0.04%), and the Kospi (+0.25%) all moving higher. That said, the Shanghai Comp is down -1.30%, as materials (-5.91%) and industrials (-4.24%) in the index have significantly underperformed, which comes amidst power curbs in the country. In the US and Europe however, futures are pointing higher, with those on the S&P 500 up +0.37%, and those on the DAX up +0.51%. Moving onto another big current theme, all the talk at the moment is about supply shocks and it’s not inconceivable that things could get very messy on this front over the weeks and months ahead. However, I think the discussion on supply in isolation misses an important component and that is demand. In short we had a pandemic that effectively closed the global economy and interrupted numerous complicated supply chains. The global authorities massively stimulated demand relative to where it would have been in this environment and in some areas have created more demand than there would have been at this stage without Covid. However the supply side has not come back as rapidly. As such you’re left with demand outstripping supply. So I think it’s wrong to talk about a global supply shock in isolation. It’s not as catchy but this is a “demand is much higher than it should be in a pandemic with lockdowns, but supply hasn't been able to fully respond” world. If the authorities hadn’t responded as aggressively we would have plenty of supply for the demand and a lot of deflation. Remember negative oil prices in the early stages of the pandemic. So for me every time you hear the phrase “supply shock” remember the phenomenal demand there is relative to what the steady state might have been. This current “demand > supply” at lower levels of activity than we would have had without covid is going to cause central banks a huge headache over the coming months. Should they tighten due to what is likely to be a prolonged period of higher prices than people thought even a couple of months ago or should they look to the potential demand destruction of higher prices? The risk of a policy error is high and the problem with forward guidance is that markets demand to know now what they might do over the next few months and quarters so it leaves them exposed a little in uncertain times. This problem has crept up fast on markets with an epic shift in sentiment in the rates market after the BoE meeting Thursday lunchtime. I would say they were no more hawkish than the Fed the night before but the difference is that the Fed are still seemingly at least a year from raising rates and a lot can happen in that period whereas the BoE could now raise this year (more likely February). That has focused the minds of global investors, especially as Norway became the first central bank among the G-10 currencies to raise rates on the same day. Towards the end of this note we’ll recap the moves in markets last week including a +15bps climb in US 10yr yields in the last 48 hours of last week. One factor that will greatly influence yields over the week ahead is the ongoing US debt ceiling / government shutdown / infrastructure bill saga that is coming to a head as we hit October on Friday - the day that there could be a partial government shutdown without action by the close on Thursday. It’s a fluid situation. So far the the House of Representatives has passed a measure that would keep the government funded through December 3, but it also includes a debt ceiling suspension, so Republicans are expected to block this in the Senate if it still includes that. The coming week could also see the House of Representatives vote on the bipartisan infrastructure bill (c.$550bn) that’s already gone through the Senate, since Speaker Pelosi had previously committed to moderate House Democrats that there’d be a vote on the measure by today. She reaffirmed that yesterday although the timing may slip. However, there remain divisions among House Democrats, with some progressives not willing to support it unless the reconciliation bill also passes. In short we’ve no idea how this get resolved but most think some compromise will be reached before Friday. Pelosi yesterday said it “seems self-evident” that the reconciliation bill won’t reach the $3.5 trillion hoped for by the administration which hints at some compromise. Overall the sentiment has seemingly shifted a little more positively on there being some progress over the weekend. From politics to central banks and following a busy week of policy meetings, there are an array of speakers over the week ahead. One of the biggest highlights will be the ECB’s Forum on Central Banking, which is taking place as an online event on Tuesday and Wednesday, and the final policy panel on Wednesday will include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and BoJ Governor Kuroda. Otherwise, Fed Chair Powell will also be testifying before the Senate Banking Committee on Tuesday, alongside Treasury Secretary Yellen, and on Monday, ECB President Lagarde will be appearing before the European Parliament’s Committee on Economic and Monetary Affairs as part of the regular Monetary Dialogue. There are lots of other Fed speakers this week and they can add nuances to the taper and dot plot debates. Finally on the data front, there’ll be further clues about the state of inflation across the key economies, as the Euro Area flash CPI estimate for September is coming out on Friday. Last month's reading showed that Euro Area inflation rose to +3.0% in August, which was its highest level in nearly a decade. Otherwise, there’s also the manufacturing PMIs from around the world on Friday given it’s the start of the month, along with the ISM reading from the US, and Tuesday will see the release of the Conference Board’s consumer confidence reading for the US as well. For the rest of the week ahead see the day-by-day calendar of events at the end. Back to last week now and the highlight was the big rise in global yields which quickly overshadowed the ongoing Evergrande story. Bonds more than reversed an early week rally as yields rose for a fifth consecutive week. US 10yr Treasury yields ended the week up +8.9bps to finish at 1.451% - its highest level since the start of July and +15bps off the Asian morning lows on Thursday. The move saw the 2y10y yield curve steepen +4.5bps, with the spread reaching its widest point since July as well. However, at the longer end of the curve the 5y30y spread ended the week largely unchanged after a volatile week. It was much flatter shortly following the FOMC and steeper following the BoE. Bond yields in Europe moved higher as well with the central bank moves again being the major impetus especially in the UK. 10yr gilt yields rose +7.9bps to +0.93% and the short end moved even more with the 2yr yield rising +9.4bps to 0.38% as the BoE’s inflation forecast and rhetoric caused investors to pull forward rate hike expectations. Yields on 10yr bunds rose +5.2bps, whilst those on the OATs (+6.3bps) and BTPs (+5.7bps) increased substantially as well, but not to the same extent as their US and UK counterparts. While sovereign debt sold off, global equity markets recovered following two consecutive weeks of declines. Although markets entered the week on the back foot following the Evergrande headlines from last weekend, risk sentiment improved at the end of the week, especially toward cyclical industries. The S&P 500 gained +0.51% last week (+0.15% Friday), nearly recouping the prior week’s loss. The equity move was primarily led by cyclicals as higher bond yields helped US banks (+3.43%) outperform, while higher commodity prices saw the energy (+4.46%) sector gain sharply. Those higher bond yields led to a slight rerating of growth stocks as the tech megacap NYFANG index fell back -0.46% on the week and the NASDAQ underperformed, finishing just better than unchanged (+0.02). Nonetheless, with four trading days left in September the S&P 500 is on track for its third losing month this year, following January and June. European equities rose moderately last week, as the STOXX 600 ended the week +0.31% higher despite Friday’s -0.90% loss. Bourses across the continent outperformed led by particularly strong performances by the IBEX (+1.28%) and CAC 40 (+1.04%). There was limited data from Friday. The Ifo's business climate indicator in Germany fell slightly from the previous month to 98.8 (99.0 expected) from 99.4 on the back a lower current assessment even though business expectations was higher than expected. In Italy, consumer confidence rose to 119.6 (115.8 expected), up just over 3pts from August and at its highest level on record (since 1995). Tyler Durden Mon, 09/27/2021 - 08:09.....»»

Category: personnelSource: nytSep 27th, 2021

Key Inflation Gauge Tracked by the Fed Remains a High 6.3%

The report indicated inflation is inflicting particular harm on low-income families and people of color A measure of inflation that is closely tracked by the Federal Reserve jumped 6.3% in May from a year earlier, unchanged from its level in April. Thursday’s report from the Commerce Department provided the latest evidence that painfully high inflation is pressuring American households and inflicting particular harm on low-income families and people of color. The government’s report also said that consumer spending rose at a sluggish 0.2% rate from April to May. Consumer spending is beginning to weaken in the face of high inflation. But it’s still helping fuel inflation itself, especially as demand grows for services ranging from airline tickets and hotel rooms to restaurant meals and new and used autos. [time-brightcove not-tgx=”true”] On a month-to-month basis, prices rose 0.6% from April to May, up from the 0.2% increase from March to April. Chronically high inflation has become a leading threat to the economy and a political hazard for President Joe Biden and Democrats as midterm elections near. Seventy-nine percent of U.S. adults describe the economy as poor, according to a new survey from The Associated Press-NORC Center for Public Affairs Research. Inflation is eclipsing the healthy 3.6% unemployment rate as a focal point for Americans who are struggling, in particular, with high gasoline and food prices. In response, the Fed has embarked on a series of aggressive interest rate hikes that are intended to slow growth by making borrowing more expensive but that also risk causing a recession. Two weeks ago, the Fed raised its key rate by three-quarters of a point — its largest hike in nearly three decades — and signaled more large rate increases to come. The Fed tends to monitor Thursday’s inflation gauge, called the personal consumption expenditures price index, even more closely it does the government’s better-known consumer price index. While the components of the two indexes differ — CPI tends to weigh gasoline and housing costs more heavily and to show higher inflation — the two gauges tell the same basic story: Inflation is running dangerously hot. Thursday’s report showed that consumer incomes rose 0.5% from April to May, staying slightly ahead of inflation. In addition, the savings rate rose slightly to 5.4% last month, though it remains well below its peak of nearly 34% in April 2020. At that time, millions of Americans were banking government relief checks and otherwise saving money while staying at home as a precaution against COVID-19. Soaring prices are a consequence of the economy’s unexpectedly swift rebound from the pandemic recession of 2020. Boosted by government stimulus checks, record-low borrowing rates and savings built up while stuck at home during the pandemic, consumers went on a spending spree that caught businesses off guard and overwhelmed factories, ports and freight yards. The resulting shortages of goods and labor sent prices spiking. The Fed was slow to recognize the severity of the inflation threat, dismissing it as mainly a temporary consequence of supply chain bottlenecks. But spiking prices have proved intractable, and now the central bank is playing catch-up with sizable rate hikes that could end up derailing the economy. High inflation has made consumers increasingly anxious about the economy. Prices have risen faster than their earnings and eroded their purchasing power. A measure of consumer confidence has reached its lowest point in 16 months, with Americans’ outlook darkened by inflation fears, especially gas and food prices......»»

Category: topSource: time5 hr. 23 min. ago

The 30 bestselling audiobooks on Audible in 2022, from celebrity memoirs to the most gripping thrillers

These are the most popular audiobooks on Audible that make for great road trip or beach day entertainment. When you buy through our links, Insider may earn an affiliate commission. Learn more.These are the most popular audiobooks on Audible that make for great road trip or beach day entertainment.Crystal Cox/Insider Audible has thousands of books and podcasts. You can start a free 30-day Audible trial here. Below, we compiled its 30 bestselling audiobooks among Audible users right now. Books run the gamut from popular novels to self-help hits. If you're spending more time outside these days and have already cycled through your weekly podcasts, we'd recommend the slow burn of a great (and highly mobile) audiobook. If you're looking for a new title, we suggest starting with the books currently gaining buzz. Below are the top 30 bestselling audiobooks on Audible right now. The site has hundreds of thousands of titles to choose between, as well as a catalog of podcasts. If you're new to Audible or audiobook services in general, be sure to check out the FAQ section at the bottom of this article to get started. You can access Audible for free as part of a 30-day trial.The 30 bestselling audiobooks on Audible right now:Descriptions are provided by Amazon (lightly edited and condensed)."Where the Crawdads Sing" by Delia OwensAmazonFree on Audible with 30-day trialAvailable on Amazon for $12.39For years, rumors of the "Marsh Girl" have haunted Barkley Cove, a quiet town on the North Carolina coast. So in late 1969, when handsome Chase Andrews is found dead, the locals immediately suspect Kya Clark, the so-called Marsh Girl. But Kya is not what they say.Sensitive and intelligent, she has survived for years alone in the marsh that she calls home, finding friends in the gulls and lessons in the sand. Then the time comes when she yearns to be touched and loved. When two young men from town become intrigued by her wild beauty, Kya opens herself to a new life — until the unthinkable happens."Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones" by James ClearAmazonFree on Audible with 30-day trialAvailable on Amazon for $11.98No matter your goals, "Atomic Habits" offers a proven framework for improving every day. James Clear, one of the world's leading experts on habit formation, reveals practical strategies that will teach you exactly how to form good habits, break bad ones, and master the tiny behaviors that lead to remarkable results.“The Summer I Turned Pretty” by Jenny HanAmazonFree on Audible with 30-day trialAvailable on Amazon for $9.25Some summers are just destined to be pretty.Belly measures her life in summers. Everything good, everything magical happens between June and August. Winters are simply a time to count the weeks until the following summer, a place away from the beach house, away from Susannah, and most importantly, away from Jeremiah and Conrad. They are the boys Belly has known since her very first summer — they have been her brother figures, her crushes, and everything in between. But one summer, one wonderful and terrible summer, the more everything changes, the more it all ends up just the way it should have been all along.“Dreadgod: Cradle, Book 11” by Will WightAmazonPre-order: Free with 30-day trialThe battle in the heavens has left a target on Lindon's back.His most reliable ally is gone, the Monarchs see him as a threat, and he has inherited one of the most valuable facilities in the world. At any moment, his enemies could band together to kill him.If it weren't for the Dreadgods. All four are empowered and unleashed, rampaging through Cradle, and grudges old and new must be set aside. The Monarchs need every capable fighter to help them defend their territory.And Lindon needs time. While he fights, he sends his friends off to train. They'll need to advance impossibly fast if they want to join him in battle against the kings and queens of Cradle. Together, they will need enough power to rival a Dreadgod.“Scars and Stripes: An Unapologetically American Story of Fighting the Taliban, UFC Warriors, and Myself” by Tim Kennedy, Nick PalmiscianoAmazonFree on Audible with 30-day trialAvailable on Amazon for $18.37From decorated Green Beret sniper and UFC headliner Tim Kennedy comes a rollicking, inspirational memoir. It offers lessons on embracing failure and weathering storms — to unlock the strongest version of yourself.“It’s Not Summer Without You: Summer I Turned Pretty, Book 2” by Jenny HanAmazonFree on Audible with 30-day trialAvailable on Amazon for $9.36It used to be that Belly counted the days until summer until she was back at Cousins Beach with Conrad and Jeremiah. But not this year. Not after Susannah got sick again, and Conrad stopped caring. Everything right and good has fallen apart, leaving Belly wishing summer would never come. But when Jeremiah calls, saying Conrad has disappeared, Belly knows what she must do to make things right again. And it can only happen back at the beach house, the three of them together, the way things used to be. If this summer really and truly is the last summer, it should end the way it started — at Cousins Beach.“The Hotel Nantucket” by Elin HilderbrandAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.99Fresh off a bad breakup with a longtime boyfriend, Nantucket sweetheart Lizbet Keaton is desperately seeking a second act. When she's named the new general manager of the Hotel Nantucket, a once Gilded Age gem turned abandoned eyesore, she hopes that her local expertise and charismatic staff can win the favor of their new London billionaire owner, Xavier Darling, as well as that of Shelly Carpenter, the wildly popular Instagram tastemaker who can help put them back on the map. And while the Hotel Nantucket appears to be a blissful paradise, complete with a celebrity chef-run restaurant and an idyllic wellness center, there's a lot of drama behind closed doors. The staff (and guests) have complicated pasts, and the hotel can't seem to overcome the bad reputation it earned in 1922 when a tragic fire killed 19-year-old chambermaid Grace Hadley. With Grace gleefully haunting the halls, a staff harboring all kinds of secrets, and Lizbet's romantic uncertainty, is the Hotel Nantucket destined for success or doom?“I'd Like to Play Alone, Please” by Tom SeguraAmazonFree on Audible with 30-day trialAvailable on Amazon for $18.33From Tom Segura, the massively successful stand-up comedian and co-host of chart-topping podcasts "2 Bears 1 Cave" and "Your Mom's House," come hilarious real-life stories of parenting, celebrity encounters, youthful mistakes, misanthropy, and so much more.“Verity” by Colleen HooverAmazonFree on Audible with 30-day trialAvailable on Amazon for $23.99Lowen Ashleigh is a struggling writer on the brink of financial ruin when she accepts the job offer of a lifetime. Jeremy Crawford, the husband of bestselling author Verity Crawford, has hired Lowen to complete the remaining books in a successful series his injured wife is unable to finish.Lowen arrives at the Crawford home, ready to sort through years of Verity's notes and outlines, hoping to find enough material to get her started. What Lowen doesn't expect to uncover in the chaotic office is an unfinished autobiography Verity never intended for anyone to read. Page after page of bone-chilling admissions, including Verity's recollection of the night her family was forever altered.Lowen decides to keep the manuscript hidden from Jeremy, knowing its contents could devastate the already grieving father. But as Lowen's feelings for Jeremy intensify, she recognizes all the ways she could benefit if he were to read his wife's words. After all, no matter how devoted Jeremy is to his injured wife, a truth this horrifying would make it impossible for him to continue loving her.You can find more of Colleen Hoover's best books here.“Sparring Partners” by John GrishamAmazonFree on Audible with 30-day trialAvailable on Amazon for $27.90"Homecoming" takes us back to Ford County, the fictional setting of many of John Grisham's unforgettable stories. Jake Brigance is back, but he's not in the courtroom. He's called upon to help an old friend, Mack Stafford, a former lawyer in Clanton, who three years earlier became a local legend when he stole money from his clients, divorced his wife, filed for bankruptcy, and left his family in the middle of the night, never to be heard from again — until now. In "Strawberry Moon," we meet Cody Wallace, a young death row inmate only three hours away from execution. His lawyers can't save him, the courts slam the door, and the governor says no to a last-minute request for clemency. As the clock winds down, Cody has one final request. The "Sparring Partners" are the Malloy brothers, Kirk and Rusty, two successful young lawyers who inherited a once prosperous firm when its founder, their father, was sent to prison. As the firm disintegrates, the resulting fiasco falls into the lap of Diantha Bradshaw, the only person the partners trust. "Atlas of the Heart: Mapping Meaningful Connection and the Language of Human Experience" by Brené BrownAmazonFree on Audible with 30-day trialAvailable on Amazon for $18.34In "Atlas of the Heart," Brown takes us on a journey through eighty-seven of the emotions and experiences that define what it means to be human. As she maps the necessary skills and an actionable framework for meaningful connection, she gives us the language and tools to access a universe of new choices and second chances — a universe where we can share and steward the stories of our bravest and most heartbreaking moments with one another in a way that builds connection.Over the past two decades, Brown's extensive research into the experiences that make us who we are has shaped the cultural conversation and helped define what it means to be courageous with our lives. Atlas of the Heart draws on this research, as well as on Brown's singular skills as a storyteller, to show us how accurately naming an experience doesn't give the experience more power — it gives us the power of understanding, meaning, and choice.“The Seven Husbands of Evelyn Hugo” by Taylor Jenkins ReidAmazonFree on Audible with 30-day trialAvailable on Amazon for $22.49Aging and reclusive Hollywood movie icon Evelyn Hugo is finally ready to tell the truth about her glamorous and scandalous life. But when she chooses unknown magazine reporter Monique Grant for the job, no one is more astounded than Monique herself. Why her? Why now?Monique is not exactly on top of the world. Her husband has left her, and her professional life is going nowhere. Regardless of why Evelyn has selected her to write her biography, Monique is determined to use this opportunity to jump-start her career.Summoned to Evelyn's luxurious apartment, Monique listens in fascination as the actress tells her story. From making her way to Los Angeles in the 1950s to her decision to leave show business in the '80s, and, of course, the seven husbands along the way, Evelyn unspools a tale of ruthless ambition, unexpected friendship, and a great forbidden love. Monique begins to feel a very real connection to the legendary star, but as Evelyn's story nears its conclusion, it becomes clear that her life intersects with Monique's own in tragic and irreversible ways.You can read a review of "The Seven Husbands of Evelyn Hugo" here.“Greenlights” by Matthew McConaugheyAmazonFree on Audible with 30-day trialAvailable on Amazon for $15.98From the Academy Award-winning actor, an unconventional memoir filled with raucous stories, outlaw wisdom, and lessons learned the hard way about living with greater satisfaction.“Finding Me: A Memoir” by Viola DavisAmazonFree on Audible with 30-day trialAvailable on Amazon for $18.53In my book, you will meet a little girl named Viola who ran from her past until she made a life-changing decision to stop running forever.This is my story, from a crumbling apartment in Central Falls, Rhode Island, to the stage in New York City, and beyond. This is the path I took to finding my purpose, but also my voice in a world that didn't always see me.“The End of the World Is Just the Beginning: Mapping the Collapse of Globalization” by Peter ZeihanAmazonFree on Audible with 30-day trialAvailable on Amazon for $31.50For generations, everything has been getting faster, better, and cheaper. Finally, we reached the point that almost anything you could ever want could be sent to your home within days — even hours — of when you decided you wanted it.America made that happen, but now America has lost interest in keeping it going.Globe-spanning supply chains are only possible with the protection of the U.S. Navy. The American dollar underpins internationalized energy and financial markets. Complex, innovative industries were created to satisfy American consumers. American security policy forced warring nations to lay down their arms. Billions of people have been fed and educated as the American-led trade system spread across the globe.All of this was artificial. All this was temporary. All this is ending.In "The End of the World Is Just the Beginning," author and geopolitical strategist Peter Zeihan maps out the next world: a world where countries or regions will have no choice but to make their own goods, grow their own food, secure their own energy, fight their own battles, and do it all with populations that are both shrinking and aging.The list of countries that make it all work is smaller than you think. This means everything about our interconnected world — from how we manufacture products, to how we grow food, to how we keep the lights on, to how we shuttle stuff about, to how we pay for it all — is about to change.“Finna: Book 1” by Nino CipriAmazonFree on Audible with 30-day trialAvailable on Amazon for $14.99When an elderly customer at a Swedish big-box furniture store ― but not that one ― slips through a portal to another dimension, it's up to two minimum-wage employees to track her across the multiverse and protect their company's bottom line. Multi-dimensional swashbuckling would be hard enough, but those two unfortunate souls broke up a week ago.To find the missing granny, Ava and Jules will brave carnivorous furniture, swarms of identical furniture spokespeople, and the deep resentment simmering between them. Can friendship blossom from the ashes of their relationship? In infinite dimensions, all things are possible.“The Golden Couple” by Greer Hendricks, Sarah PekkanenAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.68Wealthy Washington suburbanites Marissa and Matthew Bishop seem to have it all ― until Marissa is unfaithful. Beneath their veneer of perfection is a relationship driven by work and a lack of intimacy. She wants to repair things for the sake of their eight-year-old son and because she loves her husband. Enter Avery Chambers.Avery is a therapist who lost her professional license. Still, it doesn't stop her from counseling those in crisis, though they must adhere to her unorthodox methods. And the Bishops are desperate.When they glide through Avery's door, and Marissa reveals her infidelity, all three are set on a collision course. Because the biggest secrets in the room are still hidden, and it's no longer simply a marriage that's in danger.“It Ends with Us” by Colleen HooverAmazonFree on Audible with 30-day trialAvailable on Amazon for $10.26Lily hasn't always had it easy, but that's never stopped her from working hard for the life she wants. She's come a long way from the small town where she grew up — she graduated from college, moved to Boston, and started her own business. And when she feels a spark with a gorgeous neurosurgeon named Ryle Kincaid, everything in Lily's life seems too good to be true.Ryle is assertive, stubborn, and maybe even a little arrogant. He's also sensitive, brilliant, and has a soft spot for Lily. And the way he looks in scrubs certainly doesn't hurt. Lily can't get him out of her head. But Ryle's complete aversion to relationships is disturbing. Even as Lily finds herself becoming the exception to his "no dating" rule, she can't help but wonder what made him that way in the first place.As questions about her new relationship overwhelm her, so do thoughts of Atlas Corrigan — her first love and a link to the past she left behind. He was her kindred spirit, her protector. When Atlas suddenly reappears, everything Lily has built with Ryle is threatened.You can find more of Colleen Hoover's best books here."Can't Hurt Me: Master Your Mind and Defy the Odds" by David GogginsAmazonFree on Audible with 30-day trialAvailable on Amazon for $20.10For David Goggins, childhood was a nightmare — poverty, prejudice, and physical abuse colored his days and haunted his nights. The only man in history to complete elite training as a Navy SEAL, Army Ranger, and Air Force Tactical Air Controller, he went on to set records in numerous endurance events, inspiring Outside magazine to name him The Fittest (Real) Man in America.In "Can't Hurt Me," he shares his astonishing life story and reveals that most of us tap into only 40% of our capabilities. Goggins calls this The 40% Rule, and his story illuminates a path that anyone can follow to push past pain, demolish fear, and reach their full potential.“We’ll Always Have Summer: Summer I Turned Pretty, Book 3” by Jenny HanAmazonFree on Audible with 30-day trialAvailable on Amazon for $9.31Belly has only ever been in love with two boys, both with the last name Fisher. And after being with Jeremiah for the previous two years, she's almost positive he is her soul mate. Almost. While Conrad has not gotten over the mistake of letting Belly go, Jeremiah has always known that Belly is the girl for him. So when Belly and Jeremiah decide to make things forever, Conrad realizes that it's now or never — tell Belly he loves her or loses her for good.Belly will have to confront her feelings for Jeremiah and Conrad and face the inevitable: She will have to break one of their hearts.“Happy-Go-Lucky” by David SedarisAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.79Back when restaurant menus were still printed on paper, and wearing a mask — or not — was a decision made mostly on Halloween, David Sedaris spent his time doing normal things. As "Happy-Go-Lucky" opens, he is learning to shoot guns with his sister, visiting muddy flea markets in Serbia, buying gummy worms to feed to ants, and telling his nonagenarian father wheelchair jokes.But then the pandemic hits, and like so many others, he's stuck in lockdown, unable to tour and read for audiences — the part of his work he loves most. To cope, he walks for miles through a nearly deserted city. He vacuums his apartment twice a day, fails to hoard anything, and contemplates how sex workers and acupuncturists might be getting by during quarantine.As the world gradually settles into a new reality, Sedaris too finds himself changed. His offer to fix a stranger's teeth rebuffed, he straightens his own, and ventures into the world with new confidence. Newly orphaned, he considers what it means, in his seventh decade, no longer to be someone's son. And back on the road, he discovers a battle-scarred America: people weary, storefronts empty or festooned with "Help Wanted" signs, walls painted with graffiti reflecting the contradictory messages of our time: Eat the Rich. Trump 2024. Black Lives Matter.“Harry Potter and the Sorcerer's Stone, Book 1” by J.K. RowlingAmazonFree on Audible with 30-day trialAvailable on Amazon for $6.98Harry Potter has never even heard of Hogwarts when the letters start dropping on the doormat at number four, Privet Drive. Addressed in green ink on yellowish parchment with a purple seal, they are swiftly confiscated by his grisly aunt and uncle. Then, on Harry's eleventh birthday, a great beetle-eyed giant of a man called Rubeus Hagrid bursts in with some astonishing news: Harry Potter is a wizard, and he has a place at Hogwarts School of Witchcraft and Wizardry.“Match Game: Expeditionary Force, Book 14” by Craig AlansonAmazonFree on Audible with 30-day trialAvailable on Amazon for $14.44For years, the ancient alien AI known as Skippy (the Magnificent, don't forget that part) has been able to do one impossible thing after another. What is his secret? It's simple: 100 percent Grade-A Extreme Awesomeness. And also because he had never been faced with an opponent of equal power. Until now.This time, he might need a little help from a band of filthy monkeys.“The Terminal List” by Jack CarrAmazonFree on Audible with 30-day trialAvailable on Amazon for $11.99On his last combat deployment, Lieutenant Commander James Reece's entire team was killed in a catastrophic ambush. But when those dearest to him are murdered on the day of his homecoming, Reece discovers that this was not an act of war by a foreign enemy but a conspiracy that runs to the highest levels of government.Now, with no family and free from the military's command structure, Reece applies the lessons that he's learned in over a decade of constant warfare toward avenging the deaths of his family and teammates. With breathless pacing and relentless suspense, Reece ruthlessly targets his enemies in the upper echelons of power without regard for the laws of combat or the rule of law."Project Hail Mary" by Andy WeirAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.32Ryland Grace is the sole survivor on a desperate, last-chance mission — and if he fails, humanity and the earth itself will perish.Except that right now, he doesn't know that. He can't even remember his own name, let alone the nature of his assignment or how to complete it.All he knows is that he's been asleep for a very, very long time. And he's just been awakened to find himself millions of miles from home, with nothing but two corpses for company.His crewmates dead, his memories fuzzily returning, Ryland realizes that an impossible task now confronts him. Hurtling through space on this tiny ship, it's up to him to puzzle out an impossible scientific mystery — and conquer an extinction-level threat to our species.And with the clock ticking down and the nearest human being light-years away, he's got to do it all alone. Or does he?You can read a review of "Project Hail Mary" here."12 Rules for Life" by Jordan B. PetersonAmazonFree on Audible with 30-day trialAvailable on Amazon for $13.55What are the most valuable things that everyone should know?In this book, Jordan Peterson provides twelve profound and practical principles for how to live a meaningful life, from setting your house in order before criticizing others to comparing yourself to who you were yesterday, not someone else today. Happiness is a pointless goal, he shows us. Instead, we must search for meaning, not for its own sake, but as a defense against the suffering that is intrinsic to our existence.Drawing on vivid examples from the author's clinical practice and personal life, cutting-edge psychology and philosophy, and lessons from humanity's oldest myths and stories, "12 Rules for Life" offers a deeply rewarding antidote to the chaos in our lives: eternal truths applied to our modern problems.“Run, Rose, Run” by James Patterson, Dolly PartonAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.84From America's most beloved superstar and its greatest storyteller — a thriller about a young singer-songwriter on the rise and on the run, determined to do whatever it takes to survive.Nashville is where she's come to claim her destiny. It's also where the darkness she's fled might find her. And destroy her."The Subtle Art of Not Giving a F*ck" by Mark MansonAmazonFree on Audible with 30-day trialAvailable on Amazon for $12.99In this generation-defining self-help guide, a superstar blogger cuts through the crap to show us how to stop trying to be "positive" all the time so that we can truly become better, happier people.“The Paris Apartment” by Lucy FoleyAmazonFree on Audible with 30-day trialAvailable on Amazon for $17.99Jess needs a fresh start. She's broke and alone, and she's just left her job under less than ideal circumstances. Her half-brother Ben didn't sound thrilled when she asked if she could crash with him for a bit, but he didn't say no, and surely everything will look better from Paris. Only when she shows up — to find a very nice apartment, could Ben really have afforded this? — he's not there.The longer Ben stays missing, the more Jess starts to dig into her brother's situation, and the more questions she has. Ben's neighbors are an eclectic bunch and not particularly friendly. Jess may have come to Paris to escape her past, but it's starting to look like it's Ben's future that's in question.The socialite — the nice guy — the alcoholic — the girl on the verge — the concierge.Everyone's a neighbor. Everyone's a suspect. And everyone knows something they're not telling.“Come with Me” by Ronald MalfiAmazonFree on Audible with 30-day trialAvailable on Amazon for $11.49Aaron Decker's life changes one December morning when his wife Allison is killed. Haunted by her absence — and her ghost — Aaron goes through her belongings, where he finds a receipt for a motel room in another part of the country. Piloted by grief and an increasing sense of curiosity, Aaron embarks on a journey to discover what Allison had been doing in the weeks prior to her death.Yet Aaron is unprepared to discover Allison's dark secrets, the death and horror that make up the tapestry of her hidden life. And with each dark secret revealed, Aaron becomes more and more consumed by his obsession to learn the terrifying truth about the woman who had been his wife, even if it puts his own life at risk.Audible FAQHow much is Audible?Audible Plus is $7.95/month and Audible Premium is $14.95 per month. You can compare the Audible plans here.Audible Plus and Audible Premium Plus have a 30-day free trial to most new members that come with one free credit to use on a title of your choice. And since Audible is an Amazon company, Prime members get two credits in their Audible trial as one of their perks.When your trial is over, you'll be automatically charged a monthly subscription fee. You can cancel anytime. What's the difference between Audible Plus and Audible Premium?Both memberships give you unlimited access to select audiobooks, Audible Originals, podcasts, and more.But, only Audible Premium gives you a credit that's good for one title of your choice in the premium selection every month and 30% off all additional premium titles, plus access to exclusive sales. You can toggle between some of the titles in the Premium selection and Plus selection here.Are there other good audiobook services out there?At Insider Reviews, we also like the service Scribd, which is $10/month for unlimited audiobooks and books. The company also has a joint NYT and Scribd membership for $12.99/month which can be a very good deal. You can start a free trial here, or find a full review of the service here. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 29th, 2022

How Wall Street firms from Goldman Sachs to JPMorgan are responding to the end of Roe v. Wade

After the US Supreme Court ruled that it would end the constitutional right to an abortion, the country's biggest banks said they would step in. The Supreme Court handed down a decision reversing Roe v. Wade, a nearly 50-year-old ruling guaranteeing abortion rights.Anna Moneymaker/Getty Images Citi, Bank of America, and Goldman Sachs responded to the Supreme Court's decision on Friday. Goldman said it will cover travel costs for employees seeking abortions, Insider first reported. In spite of these commitments, the industry has a history of donating to trigger law sponsors. The largest US banks are responding to the US Supreme Court's decision to overturn Roe v. Wade, in some cases telling their employees that they will cover costs if they must travel to seek abortion care. Bank of America, Goldman Sachs, Citi, and Wells Fargo sent emails to employees addressing the court's decision that ends the constitutional right to an abortion, according to memos viewed by Insider. JPMorgan, the largest US bank, said in a memo to employees that it would pay for travel to states where abortion is legal, CNBC reported.Deutsche Bank, which is headquartered in Germany with operations in the US, is updating its employees' health benefits to cover travel and lodging costs for medical treatments that are 100 miles away or more from the employee, a person familiar with the matter said. The responses reflect the way powerful firms in Wall Street's orbit, from banks and asset managers to influential consulting firms, are under pressure to respond to societal issues, like racial inequity and LGBTQ rights.And in an era of stakeholder capitalism, these firms walk a fine line, risking alienating shareholders, employees, and clients — and losing their business — if they appear to support one cause over another. The financial services industry has also played a role in advancing anti-abortion laws. Banks such as JPMorgan and Citi have long track records of donating to lawmakers who sponsored so-called trigger laws. These laws automatically criminalize abortion in 13 states, including Texas and Tennessee, now that Roe has been overturned.Some firms have stayed mum on the issue. Spokespeople for Charles Schwab, which is headquartered in Texas, and UBS, which is based in Switzerland with operations across the US, did not return requests for comment. Here are how firms are responding.BlackRockBlackRock's healthcare plan will reimburse US employees for travel expenses associated with reproductive services starting on July 1, as it has done for other specialized care such as transplants and cancer treatment, according to a Yahoo Finance report late Monday that cited a memo to employees. A spokesperson declined to comment. "Through company-sponsored health insurance, we have long provided reproductive health care services, including coverage for birth control and abortion or miscarriage care," the asset management firm's global head of human resources Manish Mehta wrote in the email that Yahoo Finance viewed.Wells FargoThe third-largest US bank has updated its benefits for US employees so that starting on July 1, it will reimburse employees for transportation and lodging costs related to seeking abortion care, the bank said in a memo to employees on June 27 that Insider viewed. Wells Fargo said that if an employee is enrolled in a medical plan through the bank and healthcare services they are seeking are unavailable within 50 miles of the employee's home, Wells Fargo will reimburse for such costs for the employee and a companion traveling with them. Goldman Sachs The New York-based bank said in an internal memo on Friday that it would reimburse costs for employees to travel out of state to seek an abortion, Insider first reported. "We have extended our healthcare travel reimbursement policies to include all medical procedures, treatments and evaluations, including abortion services and gender-affirming care where a provider is not available in proximity to where our people live," Bentley de Beyer, the firm's global head of human capital management, wrote in the memo to staff on Friday afternoon.Later on Friday evening, Goldman CEO David Solomon released a statement of his own backing up the firm's pledge to cover employees' costs tied to abortion-related travel."This morning, the US Supreme Court overruled Roe v. Wade, holding that the Constitution does not guarantee the right to choose to have an abortion," Solomon wrote in the statement posted to the company intranet which was seen by Insider. "Millions of women are right now grappling with a new legal reality. I know many of you are deeply upset, and I stand with you."The bank's "top priorities are the health and wellbeing of our people and their families," he added.JefferiesJefferies Financial Group told staffers on Monday that it will pay for the costs of abortion-related travel in a memo first reported by Insider."We have thought deeply these past few days about how to respond to the recent Supreme Court decision regarding women's rights. Jefferies will, of course, join other businesses around the US that will cover any employee-partners' costs should she decide to terminate a pregnancy and be forced to do so in a state other than the one in which she lives," CEO Richard Handler and President Brian Friedman wrote.The investment bank's two top leaders added that they will independently donate a combined $1 million to "causes that champion women's rights." Read the full memo here.Bank of AmericaBank of America said in an email to employees on Friday that it would expand coverage for US healthcare-related travel starting on July 1, according to a copy of the memo Insider reviewed."For employees and their dependents who are enrolled in our US self-insured health plans, we are expanding the list of medical treatments that are eligible for travel expense reimbursement," the memo said, expanding this coverage to reproductive healthcare including abortion, cancer treatment, and hospital admissions for mental health conditions. BNY MellonA spokesperson for the New York-based money manager and custodian said late Monday that the firm has "expanded the travel benefits under our medical plan to apply to expenses associated with obtaining covered health services from in-network providers that are not available within the member's state of residence." CitiSara Wechter, Citi's head of human resources, sent a memo to employees on Friday afternoon addressing the Supreme Court's decision, according to a memo Insider viewed."While we are still assessing the impact of the Supreme Court decision and are aware that some states may enact new legislation regarding reproductive rights, we will continue to provide benefits that support our colleagues' family planning choices wherever we are legally permitted to do so," Wechter said. Wechter referred to the commitment the bank made in March to cover the costs of staff traveling to receive abortion care. At the time, it was the only such commitment on Wall Street. Deutsche Bank The German bank is updating health benefits to cover travel and lodging costs for medical treatments that are 100 miles away or more, a person familiar with the matter told Insider.This applies to all healthcare treatments, including abortion care. The update is not effective immediately, but it is being rolled out imminently, the person said.JPMorganThe bank told employees that it would pay for travel to states that allow legal abortions, according to a memo CNBC viewed. Morgan StanleyStarting on July 1, Morgan Stanley will incorporate coverage for travel costs tied to pregnancy care into its employee benefits offerings, the Wall Street Journal reported Friday, citing a person familiar with the company policy.This story was published on June 24 and has been updated to reflect other companies' statements. Do you work for a financial services firm? How is your company responding to the reversal of Roe v. Wade? Contact these reporters. Rebecca Ungarino can be reached at Reed Alexander can be reached at Hayley Cuccinello can be reached out the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 28th, 2022