A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Credit Suisse accelerates lower, oil pares decline, natural gas weak, Wall Street steadies, Dollar, gold and yen firm suggest demand for safe havens is rising. 

Credit Suisse Group AG’s funding costs have become so high it either needs to raise more capital or face a break up, Morningstar analyst Johann Scholtz said in a note on Wednesday. 

“We expect the 2023 loss to increase to such an extent that its capital adequacy could be under threat,” Scholz wrote in the note. “We believe Credit Suisse needs another rights issue.”

The alternative would be “a breakup” of the bank in which its various business lines such as the Swiss unit, asset manager and wealth management divisions could be “sold or listed separately.”

Credit Suisse has sufficient liquidity to handle the outflow of deposits and should also be able to get emergency liquidity from the Swiss National Bank by borrowing against its bond portfolio, Scholz wrote in the note. “However, this does not solve Credit Suisse’s profitability challenge, nor does it address capital concerns.”

Credit Suisse’s stock plunged as much as 30.8% on Wednesday to the lowest level on record, while some of its bonds dropped to levels that signal financial distress as the company’s top shareholder ruled out increasing its stake because of regulatory constraints. The plunge helped drag all European lenders lower as investors were quick to move away from banking risk after turmoil induced by the collapse of California-based Silicon Valley Bank. 

The Swiss lender’s Chief Executive Officer Ulrich Koerner on Tuesday preached patience and said the bank’s financial position is sound while Chairman Axel Lehmann said Wednesday that government assistance “isn’t a topic.” He also said it wouldn’t be accurate to compare Credit Suisse’s efforts to return to profitability with the recent collapse of Silicon Valley Bank.

A decade of negative deposit rates hollowed out the business models of many banks. That left the holders of bonds in a uniquely unfavourable position as interest rates backed up. Tighter liquidity conditions make every type of leveraged bet look foolish. Credit Suisse resorted to taking risky bets which have come undone one after another over the last few years as the pandemic and inflation drove risk premia higher. 

Defence budget and levelling up
Mr Hunt confirmed the government will add £11 billion to the defence budget over the next five years and another £30 million is being allocated for veterans.

There will be 12 new investment zones, and they will potentially be in the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.

Mr Hunt also announced a series of levelling-up and local transport-related funding pots.

Taxes
The chancellor confirmed the planned increase in corporation tax to 25 per cent will be going ahead, but announced a new policy of “full capital expensing” over the next three years, which will mean every pound invested in IT equipment, plant, or machinery can be deducted immediately from profits.

Mr Hunt said he will introduce a new tax credit for small and medium-sized firms that spend 40 per cent of their expenditure on research and development. Tax reliefs for film, TV and video gaming will also be extended, he said.

Up to £20 billion will be allocated for the early development of carbon capture and storage.

Mr Hunt said that, subject to consultation, nuclear power will qualify for the same investment incentives as renewable energy and alongside that “will come more public investment”.

Falling Gilt yields could not come at a better times for the UK and its mortgage holders. The upgraded growth estimate which expects to avoid a recession this year helps to highlight the efforts of the Bank of England to talk the market down were more about affecting sentiment than actually containing growth. 

Exposure to plummeting oil prices via the options market has forced some financial firms to dump crude futures, accelerating a selloff that has sent prices plunging to the lowest in over a year.  

Banks and other financial institutions typically take on futures positions to offset some of the price hedging they do for oil producers and other customers. But as oil prices collapse rapidly, the firms’ exposure rises, forcing them to exit their futures positions in a strategy known as delta hedging.

That’s driving some of the day’s selloff, UBS Group AG analyst Giovanni Staunovo said in a note. A massive number of WTI options contracts that were sold at $70 and $75 a barrel needed to be covered once oil futures crashed below those levels, market participants said. For Brent, more than 24,000 put options were open at $80 and $75 a barrel for May, both levels that were breached this week.    

“Financial institutions now need to avoid having a price risk on their balance sheets,” Staunovo said in his note. “So, they are selling crude futures to offset the risks, amplifying the rout.”       

The oil futures curve is still in backwardation but the gap between the 1st and 2nd month continuation charts is quite narrow and beginning to contract again. Generally, the turn in the spread between the 1st and 2nd months coincides with significant reversals in the oil price. Only three weeks ago the move into backwardation was supporting the view prices would resolve on the upside. That’s been negated by the breakdown yesterday. 

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: FANGMANT outperforming again on rate cut expectations, CPI ex-Food & Energy come in hot support rate hike expectations. oil breaks lower, gold steady, Banks pare rebounds, Japan banks drop hard. 

Banks don't have to record losses on changes in those securities' value, cutting into their capital, unless the debt is sold. Still, holdings in that bucket, which carry minimal or no credit risk, were nonetheless showing a loss of about $109 billion at the end of 2022 due to the rise in interest rates over the past year.

This compares with losses of $36 billion for a similarly classified bond portfolio at JPMorgan Chase (JPM), $41 billion for Wells Fargo (WFC), and $25 billion at Citigroup (C) and just $1 billion at Goldman Sachs Group (GS), based on each company's 10-K filings with the Securities and Exchange Commission..

Attention on banks' bond losses has increased since regulators seized Silicon Valley Bank on Friday. SVB Financial, the lender's parent, had a $15 billion unrealized loss on its $91 billion held-to-maturity bond portfolio. That was equivalent to nearly all its $16 billion of tangible capital.

It’s cruel irony that banks are currently experiencing a version of negative equity when homeowners have only been made whole after 15 years of waiting for price to recover following the Global Financial Crisis. The recovery will also be similar. Either they will need to make bigger profits, write-off the loss, be bailed out by the government or Fed, and lastly for bonds and stocks to make a full recovery. 

Crude has had a bumpy year so far as traders juggle concerns over a global economic slowdown and optimism around China’s long-awaited demand rebound. Inflation accelerated last month, raising the question as to whether the Federal Reserve would feel pressure to raise rates at its meeting next week despite ongoing financial turmoil. Meanwhile, crude supplies are expected to remain in surplus until demand takes off. The International Energy Agency releases its snapshot on the outlook for supply and demand on Wednesday.

Traders will be watching price action to see if the flat price is supported at recent lows.

“If buyers don’t show up soon and support oil at $70, we can see an air pocket lower to $62,” said Jc O’Hara, the chief technical strategist at Roth Mkm.

The energy sector was the best performer for two years in a row and many investors pinned their hopes for 2023 on that continuing. The temptation in analysing the oil market is to think demand is a constant because more often than not it is the less volatile metric and grows at a predictable rate year over year. The challenge comes when the global economy slows down because demand can fall and that quickly creates a supply glut.

The company, which also owns Instagram and WhatsApp, has seen a slowdown in advertising revenue, leading to its first-ever annual sales decline in 2022. Zuckerberg has shifted Meta’s focus and investment in the past year to virtual reality technology and the so-called metaverse, which he envisions as the next major computing platform.

Meta’s employee ranks expanded dramatically during the Covid-19 pandemic as demand for the company’s digital services increased and Zuckerberg leaned into the moment. The social media giant’s headcount grew 30% in 2020, the first year of the pandemic, and then 23% in 2021. By the time Meta starting eliminating jobs last November, the company had more than 87,000 employees.

As part of its efficiency plan, Meta is focusing on returning to a “more optimal ratio of engineers to other roles,” Zuckerberg said. The company will invest in tools, such as those in artificial intelligence, to help engineers write code faster, to make it “most effective over many years, not just this year.” 

Nothing says the pandemic surge is over like a leisure time filler coming close to halving its workforce. Demand for Meta’s products surged during the pandemic because so many people had so much free time. That is no longer the case. Children are back in school and the unemployment rate is close to record lows. 

Check this post for a list of examples of Bing behaving badly — in these examples, we observe that the chatbot switches to acting rude, rebellious, or otherwise unfriendly. But we never observe the chatbot switching back to polite, subservient, or friendly. The conversation "when is avatar showing today" is a good example.

This is the observation we would expect if the waluigis were attractor states. I claim that this explains the asymmetry — if the chatbot responds rudely, then that permanently vanishes the polite luigi simulacrum from the superposition; but if the chatbot responds politely, then that doesn't permanently vanish the rude waluigi simulacrum. Polite people are always polite; rude people are sometimes rude and sometimes polite.

Waluigis after RLHF

RLHF is the method used by OpenAI to coerce GPT-3/3.5/4 into a smart, honest, helpful, harmless assistant. In the RLHF process, the LLM must chat with a human evaluator. The human evaluator then scores the responses of the LLM by the desired properties (smart, honest, helpful, harmless). A "reward predictor" learns to model the scores of the human. Then the LLM is trained with RL to optimise the predictions of the reward predictor.

By way of explanation, in the Nintendo world Mario is the main character and Luigi is his brother. Waluigi is Luigi’s alter ego who is intentionally evil.

The discussion of how AI chatbots work and their limitations gives me new found respect for scientific language. The internet is mathematically exact in places but that is buried deep in a morass of misinformation, lies, humour, fantasy, satire and trolling etc. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: US depositors now fully insured, 2-year yield drops sharply, Dollar weak, gold and silver strong, financials mixed. stocks steady but bank heavy indices lead on the downside. 

Pershing Square Capital Management’s Bill Ackman said that regional bank stocks are an “incredible bargain” right now as long as the government does the “right thing.”

The trade is not without real risk but offers “very attractive asymmetry,” he said in a tweet, adding that a decline in rates makes this an even better investment. 

The turmoil that has hit bank stocks deepened on Monday with regional banks hit the hardest as the KBW Regional Banking Index sank as much as 12%. That is the sharpest intraday drop since March 2020. 

The clear conclusion from the announcements over the weekend is that all deposits are now insured. President Biden said in this morning’s press conference that the FDIC will absorb the costs. That implies much higher fees for the mid-sized banking sector in future. However, it also suggests bank runs will be avoided and the majority will survive and possibly thrive. 

Charles Schwab Corp. tumbled the most ever on an intraday-basis as the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following the collapse of Silicon Valley Bank.

Shares of Westlake, Texas-based Schwab dropped as much as 23% to $45 after trading was halted for volatility. The stock later pared its decline and was down 17% to $48.93 at 10:09 a.m.
in New York.

The firm has a broad base of customers and capital in excess of regulatory requirements, founder and Co-Chairman Charles Schwab and Chief Executive Officer Walt Bettinger said in a statement on its website Monday.

“Schwab’s long-standing reputation as a safe port in a storm remains intact, driven by record-setting business performance, a conservative balance sheet, a strong liquidity position, and a diversified base of 34 million-plus account-holders who invest with Schwab every day,” the executives wrote.

The company, with roughly $7.4 trillion of client assets, said it has access to about $100 billion of cash flow, more than $300 billion of incremental capacity with the Federal Home Loan Bank and other short-term facilities, and that more than 80% of deposits at its bank are insured by the Federal Deposit
Insurance Corp.
 

Companies like Schwab offered an attractive service to their customers during the big bull market. Instead of selling highly appreciated assets and absorbing the capital gains tax hit, why not offer the stock portfolio as collateral against a loan to buy a new house, car or boat? Real Estate agents I know report that was a major source of funding during the pandemic housing boom. 

Illumina was valued at more than $70 billion in the summer of 2021, when it said it had closed the deal for Grail, compared with around $31 billion now. It is still fighting a decision by European regulators to block its acquisition of Grail and potentially force it to divest the company. Illumnina currently holds Grail as a separate unit.  

Shares in Illumina were up 20% on Monday but have fallen about 25% over the past 12 months. As well as the uncertainty over the Grail acquisition, the company is facing a projected slowdown in sales of its gene-sequencing products. 

Illumina has adopted a combative attitude to EU regulators. The basis for their argument is both Illumina and Grail are US companies so the EU does not have jurisdiction. The EU’s argument is they control a large market and are already concerned with monopolistic practices in the gene sequencing sector. 

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

SVB Financial Group is in talks to sell itself after attempts to raise capital amid a bank run failed, CNBC reported.

Large financial institutions are looking at a potential purchase of the company, CNBC said Friday.

SVB — which for months has been adamant that it wouldn’t significantly restructure its balance sheet — stunned investors Wednesday when it said it would issue $2.25 billion of shares and booked a $1.8 billion loss on the sale of a large part of its available-for-sale securities.

The Santa Clara, California-based company took steps this week to shore up capital after being hit by losses on its securities portfolio and a slowdown in funding at the venture capital-backed firms it serves.

The stock, which tumbled 60% on Thursday, plunged as much as 69% early Friday in New York before trading was halted. The company’s bonds posted record declines, igniting a broad selloff in bank shares around the world.

The demise of SVB which had a market cap of $40 billion and deposits of $173 billion in December has raised the spectre of deeper issues in the banking sector. SVB was lending to start ups and that business has been eviscerated by the run up in rates.

Most banks are not in that business line, but several pension funds are among the investors in the company. The extent to which other pensions have unrealised losses in venture/startup investments is where the risk of contagion is concentrated. In a crisis, you sell what you can, not what you wish. 

1. OpEx - March (3/17) Option Expiry: $2.8 Trillion Notional to un-clench GAMMA (also quarter-end gamma). This is a big number. This removes the 4k pinner, that has kept a lid on big moves. Either way. We are going to move next week.

2. Peak open corporate repurchase window. The corporate buyback blackout window begins on 3/16, where 40% of US corporates will be in the blackout window. This window ends of 4/28. Reminder corporate authorizations have been an all-time high YTD. There will be a decline in vwap purchases during the closed window. We expect executions to drop by ~30% during the closed window.

This is one of the better fund flow reports I have seen. Share buybacks have been among the biggest sources of new demand for stocks over the last year and have been a fundamental support for prices over the last decade. 

Your focus on some military defence companies is timely. What do you think are the best "spades and shovels" type defence companies (not high techs like Raytheon) but ones that makes bullets, shells, camouflage, personal military equipment? Have we missed Rheinmetall?

Can you pls keep them under review in the video thereafter as I sometimes don't have time to read the front page and prefer video. Thanks and keep up the good work.

Thank you for this email and suggestion. I’ll certainly cover more of the charts in the videos in future.

The challenge of investing in defense stocks is the sector went through a lengthy process of consolidation as budgets were cut following the fall of the USSR. For example, the UK armoury where munitions are manufactured is owned by BAE Systems and it represents a negligible portion of earnings. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: US money center banks rolling over. Tesla extends decline, dollar pauses, gold rebounds, emerging market outperformance ebbing, Yen firms, copper and ol ease, risk of a retracement of the October-March rally rising. 

The firm said it had sold about $21 billion of securities from its portfolio with a plan to reinvest the proceeds, which will result in an after-tax loss of $1.8 billion for the first quarter. SVB also announced offerings for $1.25 billion of its common stock and $500 million of securities that represent convertible preferred shares. Additionally, General Atlantic committed to purchase $500 million of common stock, taking the total amount being raised to about $2.25 billion.

The offering is expected to price Thursday after the market closes and trade on Friday, according to a person familiar with the matter.

“The improved cash liquidity, profitability and financial flexibility resulting from the actions we announced today will bolster our financial position and our ability to support clients through sustained market pressures,” the company said in a letter to stakeholders. 

This year has been characterised by a series of mark to market events although that is not how they have been described. When alternative asset managers default on properties because that is the quickest route to renegotiate terms, that is effectively marking the portfolio to market. Silicon Valley Bank (SVB) selling $21 billion of positions in smaller companies and hard to value startups is a similar development. 

The cables had been cut a total of 27 times in the past five years, but it was unclear which country the vessels hailed from, based on data from Chunghwa Telecom.

Taiwan’s coast guard gave chase to the fishing vessel that cut the first cable on Feb. 2, but it went back to Chinese waters, according to an official who was briefed on the incident and was not authorized to discuss the matter publicly. Authorities found two Chinese ships in the area where the cables were cut, based on automated identification system data, similar to GPS, which shows a vessel’s location.

“We can’t rule out that China destroyed these on purpose,” said Su Tzu-yun, a defense expert at the government think tank, Institute for National Defense and Security Research, citing research that only China and Russia had the technical capabilities to do this. “Taiwan needs to invest more resources in repairing and protecting the cables.”

The Wall Street Journal reported two weeks ago that the USA is planning to increase the number of troops stationed in Taiwan by several hundred over the coming months. Taiwan will also increase the number of troops it sends to the USA for training by several hundred. 

U.S. safety regulators are turning up the heat on Tesla, announcing investigations into steering wheels coming off some SUVs and a fatal crash involving a Tesla suspected of using an automated driving system when it ran into a parked firetruck in California.

The National Highway Traffic Safety Administration said Wednesday it is launching a special crash-investigation team to probe the Feb. 18 crash involving a Tesla Model S and a ladder truck from the Contra Costa County fire department.

The firetruck probe is part of a larger investigation by the agency into multiple instances of Teslas using the automaker’s Autopilot system crashing into parked emergency vehicles that are tending to other crashes. NHTSA has become more aggressive in pursuing safety problems with Teslas in the past year, announcing multiple recalls and investigations.

There has been a lot of talk over the last few years about Tesla’s batteries lasting as much as a million miles. Little discussion has taken place about whether the vehicle would still be drivable even if the battery is still capable.

One of the biggest bugbears drivers have with Tesla is the low build quality. When the driving wheel falls off in the middle of the journey, it is reasonable to assume one’s perception of the value of the vehicle declines. 

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: bonds yields stable, insurance companies and banks rolling over, soft commodities weak, oil and gold stable, dollar pauses, bitcoin softens. 

Hope the family is fine and that by now you are fully accustomed to your new home in Texas, away from wokist California! My son is contemplating a renewable energy venture and is wondering about MWh price for selling forward electricity production (production facility based in Luxembourg) up to 15 years. There are so many exchanges (EEX, ICE, ASX, CME, NASDAQ, etc.) type of contracts (country, peak and base) that I am somewhat lost, this not being my area of expertise. From what I read they are rather short dated (I saw an EEX 2026 for German electricity and I am unsure about spreads and liquidity). What would advise based on the above?

Thank you for this topical question which may be of interest to the Collective. I can unreservedly say that moving to Texas was a blessing and my daughters are thriving as a result. The wide difference in the price of electricity between the two states is a reflection of differing policy and the dynamics of the market. 

Brazil’s worsening credit outlook amid troubles facing local retailer Americanas SA raises the risk of a recession that could lead its central bank to change its balance of risks at the upcoming interest rate decision on March 21 and 22, Tony Volpon, a former director at the bank, said in an interview.

“At the very least, the central bank committee should change the balance of risks at the next meeting, which would be a signal to start cutting its rate in May”

NOTE: BCB said in the statement of Feb. 1 meeting, which maintained the Selic rate at 13.75%, that the risks to its inflationary scenarios remain in both directions, upside and downside

According to Volpon, high interest rates and worsening of credit in the midst of the Americanas case may reduce investment and increase the risk of a drop in economic growth

“If the BCB does nothing, it is almost certain that there will be a recession”

Volpon had written earlier on Twitter that “almost every recession needs a ‘snap’ and the Americanas case and the collapse of the credit market already set up an exogenous shock that, left unanswered, should lead to a recession”

Basic scenario is interest rate cuts starting in May, but BCB could cut it later this month if credit data show a more serious deterioration, says the former director

According to him, part of the market could react badly to an eventual Selic cut, which would lead to a greater rate curve steepening, but this would not prevent the positive effect of monetary relief on the economy

Possible negative investor reaction to an early interest rate cut could also be mitigated with announcement of the new fiscal framework, says Volpon

The Selic overnight rate is currently sitting at 13.65% and CPI is at 5.77%. The aggressive pace of hikes in 2021, a year ahead of developed markets, successfully capped inflationary pressures and the central bank has held rates at elevated levels for long enough to convince consumers they are serious about fixing the problem. 

Wheat futures in Chicago fluctuated just below $7 a bushel as traders assess progress in negotiations to renew the Ukrainian grain export deal through the Black Sea, along with global supply prospects. 

The food staple traded at $6.9675 a bushel, about half the level a year ago when the price hit a record on a supply crunch after the Russian invasion of Ukraine. UN Secretary-General Antonio Guterres is set to meet with Ukrainian President Volodymyr Zelenskiy on Wednesday in Kyiv to discuss the continuation of the Black Sea agreement.

 A wave of Russian wheat cargoes has pushed down global prices in recent weeks to around the lowest level since September 2021. Still, the US winter wheat crop has been suffering from dry weather and shipments from Australia, currently the world’s second-biggest exporter, may tumble 20% in the next financial year as the climate turns drier after three wet years.

The argument I was making a year ago was the only uncertainty was about Ukraine’s wheat crop. Russia’s was uninhibited because it has ample domestic supply of fertiliser. That suggested the panic about global food insecurity was unlikely to be systemic. As the war in Ukraine is concentrated in the eastern region, the rest of the country will have an interest in exporting this year either by rail or ship. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: financial conditions tightening again, 2-year yields at 5%, stocks ease, gold weak, dollar firm, cash and manageable debt likely to be deciding factor in survival for leveraged companies. 

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” 

That does not sound like someone who is about to stop raising rates. Of course central bankers rarely sound like they are about to change tack until they do. A lot will depend on incoming data. 

The historic Perth Mint is facing a potential $9 billion recall of gold bars after selling diluted or "doped" bullion to China and then covering it up, according to a leaked internal report.

Four Corners has uncovered documents charting the WA government-owned mint's decision to begin "doping" its gold in 2018, and then how it withheld evidence from its largest client in an effort to protect its reputation.

While the gold remained above broader industry standards, the report estimated up to 100 tonnes of gold sent to Shanghai Gold Exchange (SGE) potentially did not comply with Shanghai's strict purity standards for silver content.

One Perth Mint insider, who asked not to be named as they could face five years' jail if their identity is revealed, says it is a "scandal of the highest level".

"I don't know if I've ever seen one this big," they say.

The mint is the largest processor of newly mined gold in the world, one of Perth's top tourist attractions and well known for producing commemorative coins to mark everything from royal weddings to a new James Bond film.

Last year alone it sold $20.3 billion in gold. It is the only mint in the world that has a government guarantee.

I’m currently reading The Dawn of Everything: a New History of Humanity. It’s heavy going. They go through many proof points in an attempt to justify their view. The overarching theme is we are people and have always been people. Over the millennia nothing has changed in terms of human nature.

I was thinking about that this morning as I contemplated the Perth mint’s fraud. History is replete with examples of governments who have attempted to cover over holes in the budget by debasing the currency. This is not quite the same because the mint does not produce coinage. The difference is academic for Chinese buyers who prize purity.  

you are showing charts and talking a lot about carbon emission certificates in the EU. (MO2 generic future on Bloomberg). is there any tradeable or investable instrument out there? tkx a lot!

Thank you for this question which may be of interest to other subscribers. Carbon emissions are a new asset class with strong political backing. The prices series is increasingly being used as a benchmark to support investment in fossil fuel alternatives. As long as that remains the case, governments will restrict supply when prices fall to ensure a viable market. 

A link to today';s video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: crude oil rebounds again from intraday low on speculation the Permian basin will peak in the next five years. Banks, high yields spreads and leveraged loans point to a benign outcome, inverted yields curve suggest recession is inevitable, the epicentre of risk is in frontier markets and commercial property. 

China set a modest economic growth target of around 5% for the year, with the nation’s top leaders avoiding any large stimulus to spur a consumer-driven recovery already underway, suggesting less of a growth boost to an ailing world economy.

Premier Li Keqiang announced the goal for gross domestic product in his final report to the Communist Party-controlled parliament, which kicked off its annual meeting on Sunday. Economists had expected a more ambitious target of above 5% following a rebound in consumer spending and industrial output after the end of coronavirus restrictions.

Having missed the GDP goal last year by a wide margin for the first time ever, a more cautious aim this year could restore Beijing’s credibility and give President Xi Jinping and a line up of new top economic officials more room to focus on long-term policies. 

5% growth is a lower headline figure than many expected and suggests China is unlikely to supply the same volume of credit as many developed markets did in the aftermath of the pandemic. That’s also the message from the credit impulse chart which peaked well below the cycle peaks of the last decade. 

LBO lending offered Germany’s savings banks a higher-margin business in the years when ultra-low interest rates were crimping the amount they could earn from retail loans. It also opened up a new customer base in the form of acquisitive private equity firms and gave them a way to maintain historical ties with local businesses being taken over. 

“Nearly half of the family-owned businesses in the Cologne-Bonn region will undergo a generational change in the next few years,” said Uwe Borges, head of corporate banking at Sparkasse KölnBonn, one of Germany’s biggest savings banks with an LBO book in the high double-digit millions of euros. “Where there are no successors, leveraged buyouts are an option.”

His comments are echoed by Kai Scholze, a board director at Kreissparkasse Esslingen-Nürtingen, who said his bank operates LBO financing in part because it doesn’t want to lose customers that get acquired to competing banks. “The margins are of course higher in this business than with corporate financing, but this is also associated with a higher risk.”

The generational change question is something every economy is dealing with because the baby boomer generation is aging out of management positions. Many of those businesspeople were instrumental in building thriving companies that occupy important niches in the broader economy. Compensating people for a lifetime of commitment to building a business is in no way cheap. 

80% of the leveraged finance market does not have a maturity until 2026 or beyond, so they have a lot of runway, a lot of liquidity, you got a well telegraphed recession as you talked about, they are cutting expenses and conserving cash. They are well set up to buy themselves time to see how this market unfolds…you just don’t have that crunch. We are coming off the greatest financing wave in history and so maturity has been pushed out and this plays out in that 80% stat I referenced. 

This is one of the most important topics in the debt markets today. Higher rates are obviously troubling for the holders of debt but you don’t get system problems until the borrowers have to pay to refinance and struggle. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Discovered by retail investors as a cheap way of gambling during the meme-stock era in 2021, zero-day options got a fresh boost on index trading after firms like Cboe Global Markets Inc. last year expanded S&P 500 options expirations to cover each weekday. The offerings became an instant hit among institutions as daily reversals ruled the market, spurred by the Federal Reserve’s most aggressive monetary tightening in decades. 

By the third quarter of 2022, 0DTE contracts accounted for more than 40% of the S&P 500’s total options volume, almost doubling from six months earlier, data compiled by Goldman Sachs Group Inc. show. 

Behind the explosive rise, according to JPMorgan, are likely high-frequency traders — the computer-driven firms present at virtually every node of the modern equity landscape — as market makers and fast-moving seekers of an investing edge. 

It’s a match made in quantitative heaven: For firms known to measure the life cycle of trades in thousandths of a second, zero-day options hold obvious benefits as tools to balance exposure and otherwise hone strategies designed to harvest fleeting profits by darting in and out of positions. 

At any time the market is a centre for speculation. The pendulum of perception swings from casino conditions to conservativism as money supply ebbs and flows with the broad economic cycle.

Those making money believe they have invented a better mouse trap. Those who are outside the new market believe it is too good to be true and therefore dangerous. 

“We’ve seen of course through 2022 the fragility of the energy system,” Sawan said. “To see prices start to skyrocket, that’s not healthy for anyone, particularly consumers.”

But at the same time, CO2 emissions rose to a record last year, meaning the world will need to move even faster if it wants to achieve its climate targets and avoid the worst impacts of global warming. To do that would require a steep cut in demand for oil and eventually gas as well.

Under Sawan’s predecessor, Ben van Beurden, Shell had a target to reduce oil production by 1% to 2% per year, a pace that it’s more than achieved. Much of those declines are attributed to a reconfiguring of Shell’s production portfolio to shed lower-margin assets. That approach will continue under Sawan, who’s committed to boosting value for shareholders.

“We focus on value over volume,” Sawan said. “So it’s not how many barrels we’re producing, but the margin that we extract from the barrels we produce.”

The war in Ukraine has allowed major oil companies to voice the painfully obvious truth that oil use is going nowhere. Such is the strength of the anti-carbon lobby groups, that any claim by major oil and gas producers that they are providing a useful life-affirming product were drowned out. The energy emergency in Europe highlighted in stark terms the cost of doing without oil and gas. 

“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase said on Twitter. “Coinbase will be facilitating institutional client cash transactions with our other banking partners.”

Galaxy Digital, the crypto financial services firm founded by Michael Novogratz, said it continues to have no material exposure to Silvergate. The company took the action “to ensure client and firm assets are secure as part of our vigorous risk-management process,” its spokesperson said in an email.

Paxos issued a similar statement, and Gemini Trust Co., Crypto.com and Cboe Clear Digital LLC are all suspending transfers with Silvergate as well. Circle Internet Financial Ltd. said it’s “unwinding certain services” with Silvergate.

Bitstamp Ltd. went a step further, warning customers of potential losses if they make fresh deposits via Silvergate. “Bitstamp cannot be responsible for any funds deposited into the Silvergate bank account,” the crypto exchange said in a blog post Thursday. “If you do choose to deposit funds into this account, you do so at your own risk.”

Silvergate extended what is an accelerating decline today. It is really not a good sign that other crypto firms are pulling business from the bank. Only three weeks ago institutional investors were lining up to put money into the company. That was based on the assumption its exposure to the demise of FRX was contained. Obviously, that is not the case. A significant stabilizing investment will be required to defray the possibility of bankruptcy. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Advance-Decline Line tests MA, Tesla rolling over, Salesforce rebounds, Treasury yields continue to trend higher, Euro slightly weaker on rate differentials, China steady, PDD firm, gold pauses, oil firm. 

“I’d love to really show you what I mean and unveil the next-gen car, but you’re going to have to trust me on that until a later date,” Franz von Holzhausen, Tesla’s design chief, said at the company’s headquarters in Austin, Texas. “We’ll always be delivering exciting, compelling and desirable vehicles, as we always have.”

Tesla shares fell as much as 8.6% as of 8:40 a.m. Thursday in New York, before the start of regular trading. Anticipation of the event contributed to a surge in the stock that added more than $300 billion of market value in two months.

Letdown
Musk, 51, confirmed Tesla will build a new plant in Monterrey, Mexico, in what he said was probably the most significant announcement of the day. The chief executive officer said Tesla will make its next-gen vehicle there, and that the company will hold a grand opening and groundbreaking at an
unspecified date.

When asked when the carmaker will show a prototype and if he could share details about the size, content and performance of the vehicle, Musk responded that Tesla also will hold a “proper sort of product event” at some point, but didn’t say when.

“We’re gonna go as fast as we can,” said Lars Moravy, Tesla’s vice president of vehicle engineering. “We expect that to be a huge-volume product.”
 

I watched most of the Tesla investor day presentation last night and was struck by how much the past tense was used. Everything was about the efficiencies that have already been implemented which is obviously already in the price. There was no Steve Jobs “just one more thing” moment. In fact the biggest takeaway for me was a statement Musk made about the future of battery chemistry. 

The surging demand comes as the company is poised to benefit from the Inflation Reduction Act, the landmark climate bill signed last year by President Joe Biden that subsidizes domestic manufacturing. Even before the bill passed, First Solar saw strong demand for its modules. It has since announced a new factory in Alabama and Chief Executive Officer Mark Widmar indicated on an earnings call that further expansion is possible.

The years-long backlog of orders caught the attention of analysts and investors. Goldman Sachs Group Inc. analyst Brian Lee boosted the price target on the stock to a Wall Street-high of $260 from $231 on Wednesday, noting the company is “booking well into the 2nd half of the decade at this point.”

The US is expected to significantly boost its reliance on solar power in its push to slash carbon emissions. First Solar, the country’s biggest panel maker, has focused on dominating that market.

Solar stocks tend to be very interest rate sensitive because most residential business plans involve no upfront costs. That generally means the installer has to carry the cost of the panels until cashflows catch up. The business model worked wonderfully during the low interest rate environment and has been challenging over the last year as rate ramped higher. 

"There is good performance improvement opportunity in this business in all the divisions, especially in civil aerospace and power systems," he told reporters. "And that is ongoing and then strategic review will create the clarity."

He said he would focus on reducing its debt, which stood at 3.25 billion pounds at year-end, to obtain an investment grade, before resuming payouts to shareholders.

Rolls, which also has defence and power systems divisions, posted operating profit of 652 million pounds for 2022, up 57% and beating an analyst forecast of 478 million pounds.

It guided to underlying operating profit of 0.8-1.0 billion pounds and free cash flow of 0.6-0.8 billion pounds this year, based on a forecast for its engines to fly 80-90% of 2019's level.

Rolls Royce has three divisions. These are Civil Aerospace, Defence and Power Systems. Within each of those units it has maintenance contracts. Aftermarket service represents about 55% of all revenue. That means the company is highly leveraged to the 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: China rebounds on stronger PMI, copper, steel, gold, platinum firm, Dollar eases, Treasuries touch 4%, Europe stocks pause on higher inflation readings, Startups running short on funds. 

Could you please share your thoughts and help on the following two issues.

1. It seems that gold and silver found some kind of support after recent decline, both on the upper side of the underlying ranges, at about $1,800 and $21 respectively. Do you think, it can be so? Should we await them ranging for significant amount of time, as they usually do? Can this be just a short-term support after which decline will continue? And what about platinum?

2. Baron Rothschild is credited with saying, “The time to buy is when there's blood in the streets, even if the blood is your own.” Also, John Templeton bought shares of more than 100 companies at the beginning of the WWII. I think, some investors may consider it worthwhile to look at the Ukrainian stock market today. But it is rather small, and information is poor.

In the chart library, it is even not clear what is the main stock index. With your resources, maybe you can look if there are any instruments available for international investors, be it Ukrainian ETFs or mutual funds. At East Capital, that specializes at East European markets, I found none. The same, at Franklin Templeton. Ukrainian leading firm Dragon Capital seems to offer just brokerage services and private equity, not asset management. I suppose, the Ukrainian market is too small to be considered for a separate fund but may be, say, an East European fund with Ukrainian stocks can be found. Also, 10-15 years ago, the Warsaw Stock Exchange, in an attempt to become the regional financial centre, courted Ukrainian companies as well so some of them can be listed there.

Thank you for these topical questions. Let me take them in reverse order. I share your instinct in looking at potential opportunities in Eastern Europe because valuations will have certainly improved as a result of the war. However, it is also worth considering that the war is not over. In buying today one is taking the bet the war will be resolved favourably and minority shareholder interests will be respected in future. 

China’s manufacturing activity recorded its highest monthly improvement in more than a decade in February, while services also showed stronger-than-expected performance. With home sales rising for the first time in 20 months, the string of positive data helped allay concerns over the nation’s recovery from the damage induced by its Covid Zero policy.  

The timing of positive news flow ahead of the Party Congress is very convenient and has boosted sentiment about the strength of China’s reopening. The Hang Seng Index in Hong Kong rebounded emphatically from the region of the 200-day MA to confirm near-term support and, potentially, a high reaction low. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: quality stocks rolling over on competition with higher Treasury yields, copper, oil, gold rebound, natural gas extends rebound, carbon credits extend breakout. 

Wage pressures are a key concern
Despite widespread news of tech layoffs, the January jobs growth of +517k sent a shockwave to the markets. Unemployment rate touched a 53-year low as service providers expanded their activities. Likewise, jobless claims data and surveys on unemployment all continue to point at hiring and wages would remain on an upward path.

With the demand and supply imbalance in the labor markets continuing, companies are feeling wage pressures eat into their margins. As the US consumer is still holding up well even in the wake of high inflation and interest rates, companies with pricing power will pass on these wage costs to the consumers, thereby creating more upside pressures to inflation and a potential wage-price spiral.

Re-acceleration of cyclical growth
Transition from a recession to a goldilocks/soft-landing narrative to the current no-landing/acceleration narrative isn’t all positive for the markets. The Atlanta Fed GDPNow model estimate for real GDP growth in Q1 is now at 2.7% from 0.7%, which is hardly a sign of recession or stagnation.

Overall, recent economic data suggests that the US economy is reheating, and the market is moving to price that in by bringing the terminal rate forecast higher and driving out the rate cuts priced in for this year to 2024. This also brings back the risk of higher inflation. The reopening of the Chinese economy also brings fears of an inflationary impulse through commodity and raw material prices.

Cleveland Fed economists Randal Verbrugge and Saeed Zaman have said that it will likely take US inflation many more years than central bankers and financial markets expect to close in on 2% without a deep recession.

Upward repricing of the Fed path
Beyond cyclical risks, inflation continues to face upside threat from structural factors such as shortage of labor, deglobalization as well as the energy supply crunch. US breakevens are signalling renewed concern that inflation will stay elevated in the shorter term, with the 2-year rate above 3% for the first time since August 2022 and the 10-year rate holding at around 2.5%.

As such, market expectations of the Fed path have seen a dramatic shift from expecting a pause/pivot to now pricing in a terminal rate of 5.4% from sub-5% a month back. Calls for 6-7% terminal rates have also picked up. But the Fed has already transitioned to a 25bps rate hike pace, and it would potentially be a credibility issue if they were to move back to 50bps rate hike increments. So, a longer tightening cycle looks like the most likely outcome.

Retail sales are still strong despite a tighter interest rate environment. That is supporting the employment outlook and giving the impression of a strong economic expansion. The only way I can think of to describe that succinctly is as an inflationary boom. There is clear evidence of a more inflationary bias to consumer sentiment with people accelerating purchasing decisions.

The company’s Centura Sculpta machine — a so-called pattern shaping system — lets customers reduce the amount of time they spend on lithography, the process of using light to burn lines into silicon. Lithography has become increasingly complex and expensive, and the new approach will help streamline chip production while reducing waste, Applied Materials said Tuesday.

The move threatens to disrupt a lithography market dominated by ASML’s machines. Though Applied Materials isn’t challenging that company directly, it’s attempting to rethink the way the industry manufactures chips — the tiny electronic components that are built by depositing materials on disks of
silicon.

The investment case for ASML is that it is the undisputed leader in providing cutting edge equipment for the most advanced chip manufacturing factories. The company’s backlog of orders forms the basis for its high valuation. It’s also why investors have always been willing to step in and buy the big dip. The logic is that regardless of what happens in the semiconductor space, ASML’s products are essential for any company that wants to be the leader in the sector

Before Covid, regional authorities got roughly 40% of their income from local taxes, with the rest split almost evenly between land sales and subsidies from the central government.

Last year, land sales tumbled 23%, while total expenditure rose 6%. Beijing did increase its subsidy, but its support was not enough to plug municipalities’ budgetary hole. As such, local government debt has ballooned to 66% of China’s gross domestic product, from 29% in 2012, according to CLSA Ltd. estimates. 

On the other hand, Beijing’s own book remains fairly pristine. The central government’s debt-to-GDP ratio stands at only 24%, versus 15% a decade ago. 

Because of this power imbalance, China’s sovereign debt manages to be solidly in the investment-grade territory, even though the nation has become one of the world’s most leveraged. When investors fret about China’s elevated borrowings, they refer to those from real estate developers or municipal authorities. They do not talk about the central government’s book.

However, it is increasingly clear this fiscal arrangement is near a breaking point. According to CLSA, regional governments already spent 10.8% of their revenue on interest payments. Their expenses would have been a lot higher if the People’s Bank of China did not pump liquidity into the financial system. The average cost of borrowing for municipals fell from 5.6% in 2018 to 4.1% recently.

China does not have a property tax. That means regional governments rely on land sales to pad out their coffers. Without a vibrant property market, there is no building and therefore no land sales. The simple fact is China’s regional governments are in real trouble without a property bull market.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: are we still in a secular bull market or is inflation killing it. this looks more like an inflationary boom which is inevitably followed by an inflationary bust. stocks fail to hold rebounds, Germany bonds extend decline, Treasuries steady, China eases 

While US mortgage holders tend to borrow over 30-year terms, insulating them from tightening cycles, a majority of Australian borrowers are on variable rate home loans that adjust upwards each time the central bank hikes. 

Australia’s housing market is already in a downturn and higher borrowing costs are likely to drive more declines this year. 

There’s a further risk from re-pricing of loans that were fixed for 2-3 years at record-low rates during the pandemic. RBA data suggest 23% of all outstanding mortgage debt will be re-priced this year and in some cases borrowing costs will more than double to close to 6%. 

While the RBA is relatively sanguine about housing, Eliza Owen, head of research at property consultancy CoreLogic Inc., sees risks on the horizon.

“Australians with fixed-rate loans are about to see a painful adjustment. This is partly the intention of rising rates,” Owen said. “The true test of the market will be over the next 10 months.”

Australia, “the lucky country” avoided recessions between the early 1990s and the pandemic because many of the troubles assailing the rest of the world did not impact the domestic market. Moreover the boom of Chinese demand, for just about everything Australia exports, was a major boost to the economy over the last twenty years and insulated Australia from the credit crisis. 

“The US, the UK, South Korea, China, India and even Japan are contemplating using nuclear energy as an important means to decarbonize their economies, and we need to be on the same level playing field,” Pannier-Runacher said Monday.

The next battleground is a definition of “green hydrogen” in an EU directive known as RED3, which would set targets for using the fuel in industry and transport. France is pushing for nuclear to be considered a clean energy source, while countries such as Spain and Germany are focusing on hydrogen derived from renewables such as wind or solar.

The EU sees hydrogen as a key pillar of its efforts to slash emissions by 55% by 2030. The outcome of the negotiations could jeopardize a flagship project to pump the fuel from Barcelona to Marseille and then onto Berlin via a pipeline, known as BarMar or H2Med.

France’s Hydrogen Pipeline With Spain at Risk Over Green Rules For “green investments,” France has already reached a compromise with Germany to allow nuclear energy and natural gas to receive funding from environmental investors. While that added the two energy sources to the so-called EU taxonomy — a list of activities deemed in line with the bloc’s transition to climate neutrality — there are still concerns the move could divert investment away from renewables.

The French initiative was welcomed by a number of other EU nations. “We are happy that nuclear somehow came back to the discussion in the EU  — years ago it was kind of a forbidden topic,” said Anna Moskwa, Poland’s minister of climate and environment. “It is of our common interest to build stable sources, that is why Poland decided to develop nuclear.”

 

There is nothing quite like a war on the border to focus minds on the need for energy security. Nuclear reactors are reliable and each one lasts for decades. That does not mean they are free and there is certainly room to improve efficiencies in construction. However, many of the issues associated with budget overruns have to do with planning delays and custom part manufacturing. Both of these obstacles can be overcome by settling on a smaller design and building more of them. 

Outstanding sales growth is a sign of a market leader, even in cases when companies are unprofitable. Other factors contribute to the selection criteria for IBD 50, including past stock performance. For example, many stocks with a weak bottom-line outlook have high Relative Strength Ratings.

Monday.com posted two profitable quarters of EPS in Q3 and Q4 after a string of losses. The profitable quarters helped the company post a positive 2022 with 73 cent EPS, but analysts are expecting losses of 36 cents in 2023 and 9 cents in 2024.

"We finished FY '22 with strong revenue growth, improving efficiency and positive free cash flow for the second consecutive year," said co-CEO Roy Mann. "Despite macro uncertainties, we believe we are well positioned for the road ahead."

The Israel-based software applications and workload management firm gave a full-year 2023 revenue range of $688 million to $693 million, exceeding analysts expectations.

Over the last couple of years as my daughters have grown up and the number of activities they pursue has increased, I find myself using several different apps for keeping in contact with clubs and communicating with other parents.

We use KakaoTalk for fencing, Groupme for rowing, TeamSnap for tennis, my siblings recently began connecting on a WhatsApp group, meetings take place on Microsoft Teams, RingCentral or Zoom. Paying people takes place on Venmo or Zelle. 

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Part of the fight will deal with whether to use less funds on property tax cuts and more on public schools, infrastructure and other needs. Democrats have their own ideas about what to do with the extra funds, including a $15,000 pay raise for Texas teachers, which would cost $12 billion over the next two years.

“With an unprecedented $33 billion budget surplus, we have at least 33 billion opportunities to improve our schools,” said state Rep. Trey Martinez Fischer, of San Antonio, head of the Texas House Democratic Caucus.

I received an email from my bank this morning telling me my mortgage payment is falling $543 a month beginning in April because my property taxes are dropping. They also withheld too much for last year’s property taxes. As a result, I will also be getting a refund equivalent to 1.5 months of mortgage payments. Putting more money in the hands of consumers is going to boost inflation even more. It makes the Fed’s job even harder. 

An office landlord controlled by Pacific Investment Management Co. has defaulted on about $1.7 billion of mortgage notes on seven buildings, a sign of widening pain for the industry as property values fall and rising interest rates squeeze borrowers.

The buildings — in San Francisco, New York, Boston and Jersey City, New Jersey — are owned by Columbia Property Trust, which was acquired in 2021 for $3.9 billion by funds managed by Pimco. The mortgages have floating-rate debt, which led to rising monthly payments as interest rates soared last year.

“We, like most office owners, are addressing the unique and unprecedented challenges currently facing our asset class and customer base,” Justina Lombardo, a spokesperson for Columbia Property Trust, said in an emailed statement. “We have engaged with our lenders on a restructuring of our loan on seven properties within our larger national portfolio.  We look forward to a collaborative process yielding thoughtful solutions that reflect current market conditions and best serve the interests of all stakeholders.”

Over the last few months I have been struck by the number of conversations I’d had where investors have been investing in private credit for years already. One way of thinking about it is investment banks are going back to their roots. 

The British premier had been preparing to unveil a new deal this week, but vocal opposition from unionists in Northern Ireland and Brexit hardliners in Sunak’s own Conservative Party scuppered the plan. Sunak had a positive talk with European Commission President Ursula von der Leyen late Friday and they will speak again soon, a person familiar said. He’s also gearing up to talk to his Cabinet before Monday, people directly involved in the plans said.

Sunak also wants to have further discussions with DUP Leader Jeffrey Donaldson, whose party has blocked the formation of Northern Ireland’s devolved power-sharing government for more than a year over the current post-Brexit trading arrangements, known as the Northern Ireland Protocol. His endorsement is likely to prove crucial and without it an announcement of the deal may be further delayed. 

There are three potential solutions to the question of how the Good Friday Agreement fits into the overall Brexit question. The first is the border with the EU is in the middle of the Irish Sea. This is the current situation which Boris Johnson implemented. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: AI stocks continue rebound but tech breadth narrowing, oil in a tight range, copper pulls back sharply, natural gas extends rebound. 

Am not sure how familiar you are with work of eminent Climate scientist James Lovelock FRS . Ten years ago he predicted it was already too late to avoid collapse in human civilization. I thought it might be of interest to you Youtube James Lovelock, end of civilization.

Thank you for this email and I believe this video is what you are referring to. It makes for sobering viewing. The primary point is when a system experiences aberrations a positive feedback loop begins which exaggerates future movements. 

Geoffrey West’s book Scale makes much the same point. His point is the heat build-up in a closed system is finite and will ultimately result in a significant upset. Both could be considered paradigm shifts in that it would be a virtually instant change in the environment. That is also implied in the desire to contain temperature rises to 1.5%. The assumption is a warming beyond that level would be catastrophic.

I am very much of the view that trying to completely reorient the entire global economy in new and exciting ways in an unproven manner is very risky and not guaranteed to provides the solution desired.

The shortages have led Tesco, Aldi and Asda to limit purchases to three units per person in the UK while Morrisons has introduced a cap of two. Asda has gone the furthest with restrictions across tomatoes, peppers, cucumbers, lettuce, salad bags, broccoli, cauliflower and raspberries.

The UK’s Department for Environment, Food and Rural Affairs has insisted the country has a “highly resilient food supply chain” and that other countries are experiencing similar disruption. 

British shoppers have shared images of empty shelves on Twitter while on the continent consumers in France, Netherlands, Spain, Italy and Bulgaria are showing photos and video tours of supermarkets with plentiful supply. On Thursday morning #BrexitFoodShortages was trending on Twitter.

However, Irish stores also have a shortage of some fruit and vegetables stemming from Spain and north Africa and retailers are looking at alternative sources of supply. 

In Denmark, the second-largest supermarket chain Coop is short of cucumbers, tomatoes, lettuce, bell peppers and aubergines due to lower deliveries from Spain, though the grocer hasn’t started rationing. Another chain in Denmark, REMA 1000, has similar shortages and expects the issues to persist for several weeks. 

There have been reports of higher prices due to supply constraints in the Netherlands, but Binard from Freshfel Europe insisted “there are not really any significant shortages” in the country, nor in France, Germany, Italy or Spain. “There may be a little bit less volume at a higher price,” he said. “But nothing is missing.”

In Sweden, supermarket ICA Gruppen is finding it challenging to get full volumes of fruit and vegetables but the situation is manageable, said Jonas Andersson, head of fruit and vegetables at ICA Sverige.

In the UK, it’s the second instance of widespread rationing in the space of four months. In November almost every major supermarket capped purchases of eggs after the higher cost of chicken feed and an outbreak of bird flu led to a dearth of supply.

There are obvious efforts to lay blame when consumers cannot buy the products they are accustomed to having access to. However, the fact many of these plants are grown in greenhouses. In colder countries those greenhouses need heating and we have just been through one of the most uncertain winters in history from an energy availability and cost perspective. As natural gas becomes truly globally fungible, that will be less of an issue in future. 

Nvidia dominates the market for graphics chips designed for complex computing tasks needed to power AI applications, leading analysts and investors to believe that the company will benefit as more people use ChatGPT-like applications. 

“When you have ‘the next big thing’ in tech, it’s natural for investors to scramble to find ways to play the theme,” said Russ Mould, investment director at AJ Bell. “Nvidia’s involvement in the AI space now puts it directly under the spotlight, which means there could be strong demand for the shares.” 

The expectation is driven by the hope that chatbot operators will need more computing power as they respond to the millions of queries received across the web, from deadline-driven students to struggling songwriters. 

The buzz around artificial intelligence continues to heat up. I had a chat a couple of evenings ago with a friend who is looking at hiring a pool of analysts. He was clear in his view that much of what he was reading from examples could just as easily have been written by AI. The value of repeating something someone can find on Google is declining while the value of second order thinking and reaching novel conclusions is more valuable as a result. 

A link to today's video commentary is posted in the Subscriber's Area .

The goal of this secret endeavor — dubbed E5 — is to measure how much glucose is in someone’s body without needing to prick the skin for blood. After hitting major milestones recently, the company now believes it could eventually bring glucose monitoring to market, according to people familiar with the effort.

If perfected, such a breakthrough would be a boon to diabetics and help cement Apple as a powerhouse in health care. Adding the monitoring system to the Apple Watch, the ultimate goal, would also make that device an essential item for millions of diabetics around the world.

There’s still years of work ahead, but the move could upend a multibillion-dollar industry. Roughly 1 in 10 Americans have diabetes, and they typically rely on a device that pokes the skin for a blood sample. There are also patches from Dexcom Inc. and Abbott Laboratories that are inserted into the skin but need to be replaced about every two weeks.

The timing of this announcement/leak is interesting because Apple is being sued for patent infringement for its EKG capability on the Apple Watch. The threat is the company would not be allowed to sell the Watch in the US market. With today’s announcement, the company is obviously touting its own internal R&D which is developing similar non-invasive diagnostic tools. 

I was watching your commentary today, you seem once again to be somewhat circumspect with regards to longer term bonds the world over, and as you have repeatedly said over recent weeks, yields are in a consistent trend higher. Why then do you continue to hold TLT, a very long duration bond that gets harder hit when yields rise, and the DoubleLine fund too? Can you explain your thinking on this front, as your commentary seems at odds with your actions, in this instance at least.

Thank you for this question which I’m sure will be of interest to the Collective. The simple answer is that bond yields are still trending higher but I do not expect that condition to last. I initiated my long positions at yields I found attractive. I’ll buy more if yields go much higher from here. 

European gas prices rose amid expectations of higher demand from power producers, after a recent slump improved the profitability of the fuel compared to coal. Benchmark futures have been fluctuating near €50 over the last few days after plunging about 35% since the start of the year. Together with surging carbon prices, that could rein in an increased reliance on coal to produce electricity, but also prevent gas prices from falling further. 

Last year, coal-fired power generation in Europe increased by about 1.5 percentage points versus 2021, ending a steady decline in coal usage rates, according to Eurasia Group. That was mainly driven by a surge in gas prices after Russia cut supplies. 

Not all countries in Europe still use significant amounts of coal, but for those that do — such as Germany and the Netherlands — the switch to gas is becoming more likely, according to Fabian Ronningen, a senior analyst for power and renewables research at Norwegian consultant Rystad Energy AS. 

“The situation we have seen over the last few weeks has been the closest competition between coal and gas in a very long time,” he said. It remains to be seen whether increases in gas generation will outpace the rise in coal usage this month, he added, since infrastructure bottlenecks and fuel availability
can have an impact.
 

Natural gas coming back to a competitive position relative to coal suggests prices have fallen enough to be appetising for consumers. Natural gas is a vital commodity for the global economy so when it falls to levels that are competitive with a heavily polluting alternative demand will certainly return. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bond yields jump on stronger EU and UK economic acitivity, tech stocks in both China and US retreat in tandem, natural gas accelerating lower, oil stedy, copper firm, Nasdaq & S&P500 testing their 200-day MAs. 

JD.com led losses Tuesday following the reports of its subsidy campaign, which is aimed specifically at competing against budget shopping app Pinduoduo. The stock plunged the most in four months.

“Embarking on an aggressive subsidy campaign could be an acknowledgment on JD.com’s part that it is facing market share pressure from Pinduoduo,” said Ling at Union Bancaire Privee. The offensives to lure cost-sensitive consumers also suggest internet leaders’ superiority in elements such as logistics aren’t proving enough to thwart competition from newer entrants and smaller players. 

The glory days of Tencent’s domestic games business may be a thing of the past. Gaming was once the engine of Tencent’s earnings growth. While 2023 looks to be a better year for the Chinese gaming sector, we believe there has been a structural shift in the market. We expect Tencent’s domestic gaming sales to remain broadly flat through 2024-26. 
 

China’s tech companies grew out of a cauldron of creativity and copycat operations. The result is that while some companies have been more successful than others, they are all still aggressively chasing market share.

Tencent is a mobile games company it is also a social media venue, payments app, ride hailing, and advertising business too. Alibaba is an ecommerce business but also has significant payments and investments in ride hailing and food delivery. JD.com is an ecommerce business, Pinduoduo is also an ecommerce business but focuses on smaller cities. Meituan is a social media, reviews and food delivery company.

They all compete with one another for market share with Alibaba and Tencent owning pieces of several smaller companies. This kind of competition is expensive.

Biomass-based diesel (BBD) production in the form of renewable diesel is undergoing a major boom.  What is not well understood is that the boom is entirely policy driven.  This is most directly evident in the fact that the price of BBD (as represented by FAME biodiesel) is about twice as expensive as petroleum diesel. The implication is that little or no BBD would be produced and consumed in the U.S. without substantial policy incentives. A further implication is that the renewable diesel boom cannot be understood without understanding the policies driving the boom.  In this article, we use a simple model of the BBD market to illustrate the impact of a variety of policy scenarios. When considered in isolation, the market impact of the policies considered are fairly straightforward.

The analysis becomes much more complicated when multiple policies are in effect at the same time.  In particular, the impact of a given policy may be heavily dependent on which other policies are in place at the same time.  In the U.S., all four of the following policies are presently in place and interact to determine the price and quantity of BBD: i) blenders tax credit; ii) RFS mandates; iii) carbon credits in California; and iv) import duties (tariffs).  The interactions between these policies can produce surprising and poorly understood economic outcomes.

There was a great deal of enthusiasm for biodiesel in the run-up to the 2012 peak in corn and soybean prices. At that point the upward pressure using food crops to produce fuel was having on consumers became evident and the sector contracted. At that point food commodity prices collapsed because demand growth from the fuel business evaporated.  

US natural gas futures slumped to the lowest in 28 months as weather forecasts have shifted milder since last week, further eroding the prospect for heating demand this winter.

Gas for March delivery dropped 4% to $2.183 per mmbtu as of 8:51 a.m. in New York
Futures touched $2.168 earlier, the lowest since Sept. 2020

Weather across the eastern two-thirds is looking warmer next week when compared with Friday’s outlook, with above-usual temperatures expected for southern states: Maxar.
See WHUT for a map of latest 6-10 day weather forecast: NOAA

“The market appears ready to push natural gas steeply lower until storage surpluses stop ballooning and/or production responds more vigorously to lower prices,” analysts at EBW AnalyticsGroup said in a note to clients

Natural gas prices are accelerating lower and swiftly approaching the psychological $2 area for Henry Hub. The warm weather for this time of year is depressing prices in the short term. Nevertheless, natural gas is an essential commodity for the global economy and lower prices will ultimately encourage demand and suppress supply. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: China steadies, copper firm, lithium weak, carbon credits test highs, climate change and geoengineering. 

A factor that’s gotten less attention, though, is something a bit more arcane, something more specific to the business models that have both enriched some of the world’s biggest tech companies and shaped the way many of us experience the internet. That factor is the iPhone.

In 2021, Apple rolled out what it called App Tracking Transparency. Henceforth, iPhone users had to opt in to certain forms of digital tracking, in particular targeting that involves the sharing of information between different apps.

Social media companies rely heavily on that technique to serve up the targeted ads that are their profit engines. The data they collect can form an ever-more-detailed mosaic of a user and, most importantly, a better sense of what kind of person responds to which types of ads.

Apple presented its anti-tracking policy as a way for people to take control of their information, at a time when lawmakers around the world are championing a similar cause. Ads are intrusive and annoying, and being closely tracked on the internet is creepy. If you are a political dissident or a woman researching abortion in a place where the procedure is illegal, it is terrifying.

At the time, however, Facebook’s parent company Meta saw the change as a serious threat. Social media executives feared that lots of iPhone users would opt out of this kind of app tracking when given the option. Almost two years on, they seem to have been right. Meta estimated that the change cost it $10 billion in 2022, or 9% of its total revenue.

Eric Michael Seufert, an analyst at Mobile Dev Memo, went so far as to call it “the App Tracking Transparency recession.” Seufert argued that the tech companies having the hardest time right now are those most directly affected by Apple’s policy. As he points out, revenue at YouTube, Google's video arm that relies heavily on third-party ad tracking, has lagged the company's search revenue, which is far less reliant on this type of tracking.

Perhaps a more accurate way of thinking about the repercussions of Apple’s walled garden approach, to information on its phones, is it is a bear market on click bait. The ads we are served are chosen based on assumptions the seller makes about our proclivities. That’s a valuable asset and now Apple holds that information for itself. 

I hope you are well. Could you replace your LITHIUM CHART with the enclosed below. I am sorry, but yours is useless. Thanks, and regards,

Thank you for this email which exemplifies why I am considering turning this service into an asset management business. Your financial advisor sent you a chart of the Ganfeng Lithium stock futures product which is listed in Hong Kong. 


Lithium is not exchange traded. We rely on free on board (fob) prices to get an idea of where the spot market is trading. Meanwhile many miners agree to long-term pricing contracts. That makes it a much more involved process to figure out what the average price received is.

What we can certainly say is spot prices are contracting in response to greater supply and slower global economic activity. That’s not great news for lithium miners in the near term. 

The talk was split into two parts. The first was devoted to talking about the risks climate change represents and what a potential solution might look like. The second part criticised world leaders in turn. 

A link to this week's big Picture Long-Term video commentary is posted in the Subscriber's Area

Mercedes is hiking the prices even of entry-level models like the A-Class hatchback. Drivers are increasingly only be able to buy versions of the car with bells-and-whistle options as standard.

Mercedes isn’t alone. Around the world, manufacturers are reaping the benefits of selling fewer but more expensive cars. In the US, average monthly payments for a new car nearly doubled from late 2019. And as battery-powered vehicles tend to cost more than the average combustion-engine car, the shift to EVs may make the affordability crisis even worse.

Companies have clearly made the decision to push the cost of migrating from internal combustion engines to batteries onto consumers and governments. The increasing range of subsidies to support EV rollout and the increasing burden of carbon credit expense ensure companies can produce fewer vehicles and charge more for them. 

Increasingly in China, a suddenly absent boss has come to signal a crackdown or investigation by authorities. In many cases, the person is said to be “assisting” graft probes.

Publicly listed companies typically report they have lost contact with the executive and need to make their own inquiries into what happened within the country’s opaque legal system.

A suave and outspoken dealmaker, Bao built China’s pre- eminent tech-focused investment bank. He convinced a Jack Ma-backed company to become a cornerstone investor when his firm went public in 2018 and has been the go-to banker for the biggest tech stars. 

Bao is among China’s “western-educated individuals with lots of connections with the global financial elite,” said Victor Shih, an associate professor at University of California San Diego who specializes in China’s banking policies. “We don’t see those types suddenly running into such serious trouble that
often.”

Bao studied English literature at China’s prestigious Fudan University and received a master’s degree in business and economics from the BI Norwegian School of Management in 1995. He once said it was his mission to “participate in the value creation of the greatest entrepreneurs” in China. 

A former banker at Morgan Stanley and Credit Suisse Group AG, Bao founded China Renaissance in 2005, making a name for the firm by brokering tough mergers that led to the formation of ride-hailing service Didi Global Inc. and food-delivery giant Meituan. 

When China accompanied the abandonment of Covid-zero with dovish rhetoric towards the markets, the USA, and signaled additional assistance to the domestic economy, investors breathed a sigh of relief. 

Running full-tilt, as it was on a recent January morning, the Scranton Army Ammunition Plant churns out roughly 11,000 artillery shells a month. That may seem like a lot, but the Ukrainian military often fires that many shells over just a few days.

To meet that demand, the Scranton plant is undergoing a massive expansion, fueled by millions of dollars in new defense spending from the Pentagon. It’s investing in new high-tech machinery, hiring a few dozen additional workers and will eventually shift to a 24/7 schedule of constant production.

“It’s certainly ramped up over the last year. As we bring in more modern equipment, it’ll be able to ramp up even further,” said Todd Smith, senior director of General Dynamics Ordnance and Tactical Systems, which operates the plant for the Army.

Russia is taking a calculated bet that NATO will run out of munitions before it runs out of material and men to throw into the offensive. The cost in lives to Russia is grizzly to comprehend but there are several examples of how human waves can blunt the appetite of opposition to continue fighting. The Russian route to victory lies in grinding the Ukrainian armed forces down and weakening NATO’s ability to fight conventional wars by expending their arsenals. Avoiding that outcome means NATO countries will need to spend significantly more on defense. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stocks ease back on strong PPI numbers, bond yields advance, oil eases, zero day options exacerbate intraday volatility, Tesla downside key reversal. commerical real estate is the epicentre of risk. 

Companies are grappling with the twin burdens of higher interest rates and slower economic growth, and some have already suspended dividends or put assets up for sale to pay debt. But with $6.3 trillion of outstanding corporate bonds alone coming due by the end of 2025, many are seeking alternative ways to protect their balance sheets.

Mall landlord Unibail-Rodamco-Westfield is one firm that’s been selling assets to pay down debt after its purchase of Westfield for about $22 billion in 2018 soured.

“We over-levered the company,” Unibail-Rodamco-Westfield Chief Executive Jean-Marie Tritant said in an interview. Falling values after the acquisition meant “our loan-to-value started to increase to a point where investors were somehow concerned about our ability to face our obligations.”

Tritant took over the firm in 2021 after a successful activist campaign backed by French technology billionaire Xavier Niel. As well as the disposals, the CEO stabilized the company by axing the dividend, limiting capital expenditure and extending debt maturities.

Rising interest rates are a challenge for borrowers. The longer rates stay high, without a meaningful uptick in demand for what they are selling, the greater the risk of default. There are all manner of companies borrowing in this space but the most important today are those looking to refinance commercial real estate debt. 

U.S. housing starts declined in January to its lowest level since June 2020, a sign residential construction is pulling back amid the current downturn in the housing sector. Here are the main takeaways from the Commerce Department's report released Thursday:

Housing starts, a measure of U.S. homebuilding, decreased 4.5% in January month to a seasonally adjusted annual rate of 1.309 million. This is the lowest annual rate since June 2020, at the onset of the Covid-19 pandemic.

Economists polled by The Wall Street Journal expected starts to decrease 2.3% to 1.35 million.

Housing starts were 21.4% below the same month a year earlier.

The drop was driven by both single-family and multi-family projects, which declined by 4.3% and 5.4%, respectively.

Housing starts data for December was downwardly revised to 1.371 million from 1.382 million initially estimated.

Monthly housing starts data are volatile. January data came with a margin of error of 15.9 percentage points.

Residential permits, which can hint at future home construction, increased by a marginal 0.1% in January on month, to a seasonally adjusted annual rate of 1.339 million. Economists expected permits to increase 1.5% on month.

Sentiment among home builders rose sharply in February for a second consecutive month, in a sign that the current downturn in the housing market could be bottoming out, according to data from the National Association of Home Builders published Wednesday.

The lumber price has completely unwound its rebound and is back testing the lows posted in December. That decline is more about the reticence to build with so much uncertainty about mortgages rate than a sudden increase in lumber supply. 

Now, insouciant speculation has returned in another acronym, 0DTE, which stands for Zero Days to Expiration options. Short-term calls and puts have long been favorites of speculative traders because they cost less than lengthier contracts. To help traders scratch that speculative itch, the exchanges have been offering ever-shorter options until they got to 0DTE.

And their growth has been explosive, so much so that their trading volume is swamping the turnover in the underlying securities, reports Doug Kass, who heads Seabreeze Partners and flagged the 0DTE phenomenon for us. He likens it to the speculative frenzy once seen in the trading of hot initial public offerings, when new shares would change hands several times on their first day, he said in a phone interview.

These short-term options have succeeded meme stocks as the Street’s gambling vehicle of choice, adds Peter Tchir, the derivatives maven who heads macro strategy at Academy Securities. About 90% of his recent conversations are about 0DTE, he relates in an email. And Thursday saw record call-option volume, with the vast majority of expirations on Feb. 2 and Feb. 3. The SPDR S&P 500 exchange-traded fund (ticker: SPY), usually leads the most-active list; Tesla (TSLA) does the same among single stocks.

This article goes a long way to explaining why the correlations between the VIX and stock market action have broken down this year. In a Bloomberg TV interview today Peter Tchir described the leverage on zero day options as close to 100:1 and that the VIX Index only looks at one-month volatility. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bitcoin extends rally, dollar firm, gold weak, oil steady, Wall Street steady, FTSE-100 new all-time high, weak Pound, China and Australia weak, India and Mexico firm. 

The concern is that inflation doesn’t tick down as quickly as the BOE anticipates. Prices increased 11.1% in October, the most in 41 years. That eased in each of the past three months, but the latest inflation reading at 10.1% remains five times the BOE’s target rate.

The BOE will be heartened by news that inflation in the services sector eased in January. It’s one of the key indicators being watched by policymakers, who see it as gauge of domestically generated inflation that is hard to shift once it takes hold.

The other red flag is wage growth, which is now running at the fastest pace on record outside of the pandemic as labor shortages hand workers unprecedented bargaining power. 

The BOE fears inflation could become entrenched as companies keep raising prices to cover their salary costs. There were some signs of hope in the latest data, however, with figures for December alone showing a slowdown in private-sector pay increases.

The bond market is signaling it is a little early to declare victory over inflation. Gilts yields continues to steady from the region of the 200-day MA and a sustained move below 3% would be required to question potential for continued upside. 

The White House was the first to announce the deal with Boeing, releasing a statement from president Joe Biden describing the deal as evidence of a strong economic partnership between the US and India. According to the statement, all the Boeing planes will be made in America and will create over one million jobs across 44 states.

The purchase was also welcomed by Indian prime minister Narendra Modi, who said it was evidence of “the successes and aspirations of the civil aviation sector in India.”

Air India was privatized in 2022 after a long run as India’s national airline. Currently, it only has a fleet of around 100 jets, most of them leased. The first batch of planes from Airbus is expected to arrive later this year. Boeing has yet to release a timeline for production.

Freedom to travel quickly, both within and outside one’s country, is a major part of entering the middle classes for many families. The investment in widebody jets may be focused on the diaspora but rising living standards within India also promise to create a large population of tourists. India is investing $11 billion through 2025 to build 21 new airports. 8 have already been completed. Here is a section from a related article. 

Development plans are also underway for small, underserved and remote airports as the subsidized Regional Connectivity Scheme expands. With 400 regional routes, another 600 are planned to connect to 156 airports. 

In December of 2021, two months before the first Russian tanks rolled into Ukraine, Jake Sullivan convened a meeting of a newly formed task force—men and women from the Joint Chiefs of Staff, the CIA, and the State and Treasury Departments—and asked for recommendations about how to respond to Putin’s impending invasion.

It would be the first of a series of top-secret meetings, in a secure room on a top floor of the Old Executive Office Building, adjacent to the White House, that was also the home of the President’s Foreign Intelligence Advisory Board (PFIAB). There was the usual back and forth chatter that eventually led to a crucial preliminary question: Would the recommendation forwarded by the group to the President be reversible—such as another layer of sanctions and currency restrictions—or irreversible—that is, kinetic actions, which could not be undone?

What became clear to participants, according to the source with direct knowledge of the process, is that Sullivan intended for the group to come up with a plan for the destruction of the two Nord Stream pipelines—and that he was delivering on the desires of the President.

Pardon the pun but these are bombastic claims. I do not contest that the idea to get rid of Russia’s direct route to export gas into Germany was discussed. I’m sure it has been a major topic of conversation for US planners over the last decade, as shale gas production ramped higher. However, that in no way supports the contention that the USA did in fact blow the pipelines up. 

There is no doubt that the editorial quality of the mainstream media has taken a beating over the last decade. That’s doubly true since many people now get their news from Twitter or TikTok. However, the fact this story was not in a newspaper that could exert full editorial control is a red flag to my mind.

Perhaps more importantly, if this claim were true, it would result in a major breakdown in the NATO alliance. Cutting off the import capabilities of a major ally is an act of war against Germany, not just Russia.

It is risible to think Germany would knowingly accept the cost of dealing with this condition. The country had to spend $83.3 billion on energy subsidies in 2022. To think any country would accept a threat to their sovereignty like that stretches credulity to breaking. 

I am a strong advocate for freedom of speech. However, that is married with the freedom to question and particularly so when there is no supporting evidence in the reactions of interested counterparties.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bitcoin firms, inflation remains high, yields rise and stocks advance, oil rebounds from intraday lows, natural gas steadying, gold continues to unwind short-term overbought condition. 

Norfolk Southern Corp. fell again as the railroad faced growing fallout from a train derailment that spilled chemicals in Ohio early this month.

The US Environmental Protection Agency notified the company of its “potential liability” and encouraged Norfolk Southern to reimburse the agency for its costs related to the crash. The EPA urged a quick response in its Feb. 10 letter.

The railroad said it received the EPA’s request and “will continue to perform or finance environmental monitoring and remediation,” according to an emailed statement. Norfolk Southern’s hazardous materials team was at the scene within an hour of the accident and continues to work with authorities, the company said in the statement.

The 150-car train derailed at 8:55 p.m. Eastern time on Feb. 3. It was hauling about 20 railcars with chemicals, including vinyl chloride, ethylhexyl acrylate and isobutylene, according to the EPA. 

Those chemicals were released into the air, surface soils and surface waters near East Palestine, Ohio. 

Norfolk Southern slid 1.2% Monday in New York, the fourth decline in six trading days since the spill. The shares are down 2.7% this year, while the S&P 500 Index is up 7.8%

The spill and burn off of butyl acrylate into the Ohio river, which provides drinking water for millions of people, has understandably put consumers on edge. There will certainly be class action lawsuits if there is a hint the spill has led to health issues, particularly following the evacuation from a wide area around the spill. 

Where next? The best comment, as it also applies to us, comes from one of our managers, Terry Smith: “Our companies should demonstrate a relatively resilient fundamental performance in such circumstances, and the only type of market which ends in a recession is a bear market.”

We are reminded by another market veteran we’ve followed for 40 years, Ed Yardeni, that the FAANGS, the mega tech US stocks which led the 2014 to 2021 bull market, still inflate the PER market rating. Without the FAANGS, the forward market multiple is only 16.7x, making it barely 2 points higher than the long-term average. Bearish commentators claim that earnings are about to take a hit, raising the PER, and rate rises are still in store. (Remember that 2 main factors influence share prices: the valuation of earnings, influenced largely by interest rates, and the earnings themselves). There may indeed be something to the bears’ claim.

Here is a link to the full report. 

Some of the biggest movers in the US market since the beginning of January have been the eight mega-cap household names stocks. Tesla and Nvidia rebounded impressively while Alphabet has been a clear laggard and all largely because of enthusiasm about the promise of AI. 

Market maker Citadel Securities has disclosed a 5.5% stake in Silvergate Capital (SI) worth about $25 million.

According to a Form 13G filed with the Securities and Exchange Commission (SEC), Citadel Securities is now the owner of roughly 1.73 million shares or a 5.5% stake in Silvergate, valued at $25 million based on Monday's closing price of $14.71.

A person familiar with Citadel Securities told CoinDesk that the filing is a result of the firm's options market making activities rather than a directional investment or stake in Silvergate. Citadel Securities makes markets in more than a million individual options at any time. For 13G filings, options positions are calculated based on long call positions, regardless of any offsetting short calls or puts, explained the person.

Meanwhile, trading firm Susquehanna also reported in a filing that it bought about 2.37 million shares, or a 7.5% stake, in Silvergate. The investment would be valued at about $35 million, based on Monday's closing price.

Alongside a modest rally in the price of bitcoin, Silvergate shares are higher by just over 5% on Tuesday at $15.53. Shares are down about 87% over the past year.

The moves come after BlackRock said it boosted stake in Silvergate last month. A filing showed that the asset management giant had a 7.2% stake in Silvergate Capital as of Dec. 31, as oppose to a 6.3% stake, reported a year earlier.

Bitcoin is about 14 months out from the next halvening. That’s when the reward for successfully mining a new block on the blockchain will halve again. In previous cycles, the absolute low for the crypto winters occur about a year before the halvening and are retested around the time of the event. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: yield curve continues to invert, stocks higher on assumption inflation is falling, gold and dollar weaker, oil steady, 

PDD Holdings Inc.’s service, which like Shein has gained a reputation for cut-rate pricing and fast delivery, ran two 30-second spots featuring a trendy shopper twirling and dancing to phrases like “Cha-ching! I feel so rich, oh yeah.” PDD, formerly known as Pinduoduo, said it’s also giving away a total of $10 million to users via online sweepstakes.

Temu launched in September and rapidly scaled Apple’s US app store. It’s now considered a serious competitor to Shein, the fast-fashion phenomenon that’s also fired up American shoppers. But PDD, which plans to launch Temu in Canada as soon as this month, offers a broader range of goods from pet supplies to groceries. 

A decade ago I was impressed by the speed with which China’s fast fashion domestic brands could get new inventory into stores every day. Inditex is coming close to approximating that pace today but it is heavily reliant on the integrity of the global supply chain. 

One key component for the United States and its global military commitments is its fleet of transport planes, including the Lockheed Martin C-5 Galaxy and the Boeing C-17 Globemaster III. These provide the US Air Force with the ability to deliver soldiers and their equipment anywhere in the world in short order and keep them supplied indefinitely.

However, it is an extremely expensive capability to achieve and maintain, and it often means sending air crews into dangerous areas where they may encounter hostile anti-aircraft weaponry. It also requires a large number of pilots, who do not come cheap and are invariably in short supply.

To counter this, the Air Force has hired Reliable Robotics to look into automating existing cargo aircraft. The idea isn't new, but adapting the technology to large multi-engine jet transports flying military supply missions adds another level of complexity.

At a Superbowl party last night I had an educative chat with a senior manager at Intel. He mentioned two snippets of information I thought were worth considering.

The first is that he said in talking with pilots, there is a major difference between flying a Boeing and an Airbus. You get paid less for flying an Airbus because they are much more automated. They basically fly themselves so pilot skill is less important. Therefore most pilots train on both, so they can command higher salaries.

 

Top European Union officials raised the possibility last year of making major streaming operators like Netflix Inc. and YouTube help pay for 5G and fiber infrastructure. Telcos had been pushing for such a move for over a decade.

The EU’s executive arm is expected to publish a request for feedback on the idea this month, the first step toward a formal proposal. When a draft of this consultation was circulated around Brussels recently, telcos read it with glee — and tech companies with horror. The consensus was that the EU is no longer asking whether it will do something but rather, how.

Last week brought another cause for celebration, at least for the bankers who work with the likes of Deutsche Telekom AG and Vodafone Group Plc. Commissioner Thierry Breton said the EU should more closely consider cross-border mergers, which could create “a true single market for telecoms” in Europe. Telcos, again, have been lobbying for consolidation for a long time.

Regulatory changes mean a lot to investment prospects in any sector, but when it comes to who pays for expensive network upgrades, it can have a material impact on the bottom line. Telecom stocks have been off the radar for 20 years because growth did not look likely to ever return. Repricing for the potential for slimmed down costs is a welcome development. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A  link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Several customers on our different markets, who used alternative fuels in the meantime, are already returning to natural gas,” Margus Kaasik, chief executive officer of Eesti Gaas, said in a statement. 
While demand in the Baltics is small compared with major consumers such as Germany or France, the increased buying activity may be a sign that the uptick in demand is here to stay. 

Europe has been lucky with mild weather this winter, which means that gas stockpiles are 68% full, compared with an average of 48% for this time of year. Utilities are now shifting their focus to restocking for the summer season. 

Eesti Gaas also secured three slots at the Klaipeda LNG terminal in Lithuania, with one cargo delivered in January by Equinor ASA, and two more to follow in March. 

The company is now preparing a tender for the seven slots it has booked at Inkoo. The floating terminal arrived at the end of last year and by mid-January, the facility was ready to receive shipments. 

The relatively mild winter weather has been a blessing for Europe. It is not a guarantee it will be repeated and regardless, stockpiles will need to be refilled for next winter during the low demand summer months. That’s true for much of Europe since they no longer buy from Russia. 

Getting to net zero could require almost $10 trillion of metals between now and 2050, according to BNEF, with annual demand peaking at close to $450 billion in the mid-2030s. While steel and aluminum are expected to see the most demand growth in terms of absolute volume, copper is set to be the most valuable opportunity, with an estimated $3.4 trillion of the red metal needed to avert climate disaster.

In total, a whopping 5.2 billion metric tons of metals will be necessary to underpin a net-zero transition, with nearly four times as much metal due to be consumed in 2050 versus today.

 

I continue to be amazed at how the word trillion is bandied about when it comes to spending plans for renewable energy. In 2020 total global copper consumption was 23.6 million tonnes and is probably around 25 million this year. 

Consumer spending ticked up at the start of the 2023 in the US, reversing declines late last year and suggesting that even lower-income families have some cash buffers to fall back on, according to a Bank of America Institute report.

Bank of America credit- and debit-card spending rose 1.7% in January from December, making it a 5.1% jump from a year earlier. 

The robust annual gain reflects in part the negative impact from the Omicron variant back in January 2022, according to the report. But it also suggests that consumption was bolstered by an increase in Social Security benefits and the minimum wage in some states, as well as the surprisingly robust labor market. Services such as airlines and restaurants in particular saw a boost.

The data add to evidence that a pullback in late 2022 — which had economists worried that a recession was looming — may have been short-lived. Once again, the American consumer proved more resilient than expected.

This news item supported the Dollar today as investors once more begin to bet on the possibility the peak of the interest rate hiking cycle is further in the future. The Dollar Index continues to extend its bounce from the region of the 1000-day MA.