David Fuller and Eoin Treacy's Comment of the Day
Category - General

    California Wants to Pay Farmers to Not Farm This Year

    This article from Modern Farmer may be interest to subscribers. Here is a section:

    This year, California farmers have been given a financial incentive to not plant crops.

    Much of the state is already experiencing extreme drought conditions. As part of a $2.9-billion plan to try to keep water flowing in California rivers, the state will pay farms to keep thousands of acres vacant this growing season. 

    Both state and federal officials, as well as some major water companies in the region, signed the plan on Tuesday. Their hope is to keep upwards of 824,000 acre-feet of water every year in the Sacramento-San Joaquin River Delta. The Capital Press explains that one acre-foot of water adds up to around 325,000 gallons of water—or typically enough to supply water to two households for a year.

    The most impacted sector will be the rice industry, as the plan would leave 35,000 acres of rice fields in the northern Central Valley—adding up to about six percent of the yearly crop—unused.

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    Barclay's $600 Million Blunder Follows Years of U.S. Run-Ins

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Barclays Plc’s $600 million structured products blunder has little precedent on Wall Street. But the bank’s past misconduct may have set the stage for the paperwork fail it revealed this week.

    A key issue at the heart of the regulatory breach appears to be its loss of the so-called well-known seasoned issuer status in 2017, a right granted by the U.S. Securities and Exchange Commission that allows banks to sell notes in the U.S. with fewer filing requirements. 

    Since 2007, Barclays had faced the risk of losing this right at least five times in the aftermath of issues from dark pool disclosures to foreign exchange manipulation, an analysis by Bloomberg News shows. The bank had to repeatedly engage with the SEC over it and apply for waivers, so it didn’t lose this classification.

    Barclays isn’t the only bank to have engaged in such back-and-forth with regulators, and the loss of the WKSI approval explains how a limit breach could happen. But the years-long battle to keep that status raises ever more questions over how it could have overlooked one of the most expensive clerical errors ever. 

    The oversight is landing the bank with about 450 million pounds ($600 million) in expected expenses from buying back unregistered securities the bank sold, a halt to a booming U.S. business, possible regulatory fines that will deepen the pain, and a delay to a highly anticipated stock buyback.

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    Supply Shock vs. Demand Destruction: Commodities Face Lose-Lose

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    Commodities can be their own worst enemies when they get too far out over their skis, and we see 2022 risks akin to 2008's pump and dump. Energy prices may inch higher or collapse, the latter typical amid similar supply-shock spikes. What's different now is the U.S. paradigm shift to largest energy producer and net exporter from the top importer. Embracing technology is a primary reason, and the war and high prices should accelerate existing trends away from a world reliant on fossil fuels, notably from mercurial sources. Copper and base metals are subject to demand destruction and reversion risks along with crude oil, in addition to central banks fighting inflation. A record Corn Belt crop this year is likely, but it may not be enough to cover production lost to the war. Gold may be a primary beneficiary.

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    Russia's Other War of Attrition Is Against Europe

    This article by John Authers for Bloomberg may be of interest. Here is a section:

    In a provocative but persuasive column for the New York Times, Bret Stephens suggests that Russia’s war aim is not preventing NATO enlargement, or rebuilding the Soviet empire, but cementing its status as an energy superpower:

    Suppose for a moment that Putin never intended to conquer all of Ukraine: that, from the beginning, his real targets were the energy riches of Ukraine’s east, which contain Europe’s second-largest known reserves of natural gas (after Norway’s). Combine that with Russia’s previous territorial seizures in Crimea (which has huge offshore energy fields) and the eastern provinces of Luhansk and Donetsk (which contain part of an enormous shale-gas field), as well as Putin’s bid to control most or all of Ukraine’s coastline, and the shape of Putin’s ambitions become clear. He’s less interested in reuniting the Russian-speaking world than he is in securing Russia’s energy dominance.

    Even if this is not the aim, the possibility of entrenching Russia’s energy power is now at the center of the broader conflict between Putin’s Russia and the West. 

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    Brazil Central Bank Tempts Fate on Rates and Traders Follow Suit

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    The drop in Brazil’s swap rates goes against the move seen elsewhere in emerging markets, with yields rising across the board following the U.S. bond rout. Treasury yields surged recently with traders pricing in more tightening in the world’s biggest economy amid concern about rising prices. 

    “BCB has raised rates almost 1,000 basis points in two years, so they are certainly willing to fight inflation,” said Brendan Mckenna, a currency strategist at Wells Fargo in New York. “There is little they can do to defend against external shocks, but at some point policy makers have to wait for the effects of tighter policy to materialize.”

    Brazil’s policy makers defied analyst expectations when it said that a final 100 basis-point rate hike in May would be enough to bring inflation back toward the 3.25% target next year. The last central bank weekly Focus survey shows economists see consumer prices running at 3.8% next year.

    “The central bank was being held hostage of the Focus survey forecasts and now it decided to follow its own views,” said Tony Volpon, chief strategist at Wealth High Governance and a former central bank director.

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    Chinese Stocks in the U.S. Drop as Audit Dispute Drags On

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    Chinese stocks listed in the U.S. fell Thursday after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges.

    The Nasdaq Golden Dragon China Index dropped as much as 4.9%, with iQIYI Inc. and Baidu Inc. sinking more than 6% after being added late Wednesday to SEC’s growing delisting watch list. Alibaba Group Holding Ltd. fell 4.6%, while its e-commerce rivals JD.com Inc. and Pinduoduo Inc. slid more than 7%.

    U.S.-listed China stocks have steadied in recent trading after authorities signaled support to overseas listings and financial markets, yet investors remain on edge amid a long-standing dispute over whether American regulators can get full access to U.S.-traded Chinese company audits. In response to the SEC chair’s comments, China said talks with the U.S. accounting
    watchdog will continue.

    Under the Holding Foreign Companies Accountable Act, the SEC started publishing a provisional list of companies identified as running afoul of requirements with the first
    release in early March.

    “The growing provision list is a reminder that there’s a risk” and a reminder to do a risk check, TH Capital analyst Tian X. Hou said in an interview, noting that as investors become more familiar with the delisting situation, they will realize this is a routine check by the SEC under the new rules.

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