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

    Debt-Ceiling Fears Drive Early June T-Bill Yields Above 7%

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

    Treasury-bill yields slated to mature early next month surged, driving them above 7% amid building concern that talks in Washington will fail to resolve the debt-ceiling crisis and the US might default.

    The rate on the June 1 and June 6 maturities soared more than a percentage point on the day, while others for early June also climbed sharply. By comparison, the earliest June tenors yield around 4 percentage points above the May 30 issue. 

    This section continues in the Subscriber's Area.

    Mexico's Foreign Investment Surges 48% as Nearshoring Booms

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

    Aside from the capital, no state received more money than Nuevo Leon’s $2.3 billion. Jalisco received $1.2 billion, while Puebla and Mexico State followed with $0.9 billion each. The majority of the investment growth came from companies that expanded existing operations in Mexico.

    “The greatest part of the foreign direct investment was reinvestment in utilities, which is related to the increase in the capacity of plants already installed by companies, and explained by the long-term perspective on export growth,” said Gabriela Siller, director of economic analysis at Banco Base.

    The movement of companies from other parts of the world to just south of the US — a practice known as nearshoring — has generated buzz around Mexico’s production possibilities. Nearly $10 billion of the investment went to the manufacturing sector, while $6 billion went into financial services.

    If the current pace continues, total investment for the year could reach $43 billion, Siller said. That would represent a 51% gain in total foreign direct investment from 2022 after $6.9 billion from the media merger and Aeromexico restructuring is excluded.

    This section continues in the Subscriber's Area.

    LVMH, Hermes Spark $30 Billion Luxury Stocks Rout on US Slowdown

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

    Confidence in that view has now been dented, however, with attendees at a luxury conference in Paris organized by Morgan Stanley flagging a “relatively more subdued” performance in the US, according to Edouard Aubin, an analyst at the investment bank. That reflects “weakness in the aspirational consumer in particular.”

    That was counterbalanced by more buoyant demand elsewhere, according to Morgan Stanley. “Overall, we found corporate commentary resilient, pointing to an ongoing soft landing in the US largely offset by strength in other markets.”

    Both Asia and the US are important markets for European luxury companies. Asia excluding Japan accounted for 30% of LVMH’s sales in 2022, while the US made up 27%, according to the company’s annual report. 

    Deutsche Bank AG analysts have also said that a slowdown in the US is now a growing concern. While the rebound in Chinese demand has been among the key drivers of strong sales, investors are likely to be picky from here on, they added.

    This section continues in the Subscriber's Area.

    Technology Was Supposed to Transform Insurance Pricing. It Hasn't.

    This article from the Wall Street Journal may be of interest. Here is a section: 

    At first, the insurance pricing process -- heavily reliant on algorithms and mathematical modeling -- seemed ripe for upending, thanks to advances in the sheer amount and variety of data digitally-native companies could suddenly collect on customers.

    But the Silicon Valley axiom to move-fast-and-break-things hasn't been enough to transform an industry built on centuries of observed human behavior, massive marketing budgets and a savvy grasp of the regulatory environment.

    Founded in 2015, Lemonade initially aimed to sell renters and homeowners insurance. It was worth $9.87 billion at its peak in 2021; it's now worth $1.23 billion. Root Insurance, also founded in 2015, began with the idea of using telematics -- or in-car data -- to offer personalized auto insurance based on how people drive. In 2020, it was worth roughly $6.8 billion, and has since swooned to about $67 million. Property and casualty insurance startup Hippo went public at a $5 billion valuation in 2021. It is now worth around $425 million.

    So far, the insurtechs have been slow to gather and contextualize enough data to actually build better models. Regulations have restricted the use of some of their data and differentiated pricing. And it has been difficult to chip away market share from established industry giants.

    This section continues in the Subscriber's Area.

    China's $23 Trillion Local Debt Mess Is About to Get a Lot Worse

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

    “Many cities will become like Hegang in a few years’ time,” said Houze Song, an economist at US think tank MacroPolo, noting that China’s aging and shrinking population means many cities don’t have the workforce to sustain faster economic growth and tax revenue.
    “The central government may be able to keep things stable in the short term by asking banks to roll over local governments’ debt,” Song said. Without loan extensions, he added, “the reality is that over two thirds of the localities won’t be able to repay their debt on time.” 

    In Heilongjiang province, where Hegang is located, bond investors are already wary of the risks. The province’s outstanding seven-year bond had an average yield of 3.53%, 18.8 basis points higher than the average nationwide, ranking it among the top four most expensive.

    This section continues in the Subscriber's Area.

    New type of quasiparticle emerges to tame quantum computing errors

    Thanks to a subscriber for this technical article may be of interest. Here is a section: 

    The Quantinuum group, meanwhile, made non-Abelian anyons in a different way. Using the Honeywell 32-qubit H2 quantum processor, which holds ytterbium ions in an electromagnetic trap and alters their quantum states using lasers, they created a quasi-one-dimensional chain of interacting trapped-ion qubits.

    Here, the anyons correspond to natural excitations of the ground state of the qubit system – which technically means they are not quasiparticles, since quasiparticles must be excited states. “The Majorana zero modes at the end of superconducting wires in the Microsoft experiment and the lattice defects in the Google experiment are non-Abelian defects,” emphasizes Ashvin Vishwanath of Harvard University, who collaborated with the Quantinuum team. “Unlike our experiment, they are not realized on top of true non-Abelian topological order.”

    This section continues in the Subscriber's Area.

    Why So Many Electric Car Chargers in America Don't Work

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

    There isn’t a single reason for EV charger failures. Some of the problems, particularly with older machines, can be chalked up to a new technology going through the usual learning curve of improvements, all while sitting outside, exposed to the weather. There have been cycles of needed upgrades, such as replacing modems to deal with 5G wireless internet service. The myriad networks, retail outlets and garage owners who own the machines don’t always stay on top of maintenance. And chargers must communicate with a rapidly expanding variety of cars. 

    To that end, the precise scope of the problem isn’t known. EV drivers face a complex landscape of competing charging companies, each with its own stations and app, and there is no central repository of data on station performance. One widely cited 2022 study of fast-charging stations in the San Francisco Bay Area (excluding Tesla Inc.’s Superchargers), found that about 25% of the 657 plugs weren’t working. While J.D. Power doesn’t disclose reliability rankings, Gruber said the worst-performing charging company leaves drivers unable to plug in about 39% of the time. 

    “With public charging, it’s a bit of the wild, wild West,” he said.

    Tesla proved that reliable charging is possible. The all-electric automaker runs a global network of 45,000 Superchargers, which can add up to 200 miles of range in just 15 minutes. Tesla consistently gets the highest customer-satisfaction marks of any charging company in J.D. Power’s surveys, Gruber said. Its drivers report charger downtime of just 3%.

    But Tesla has the advantage of keeping everything in-house. Until recently, Superchargers could only be used by Tesla cars, and didn’t need to work with the growing array of other EVs and batteries. Tesla also owns its Supercharger network, whereas many of the public chargers installed over the past decade are owned by whoever owns the parking lot where they’re located. Such property owners, Gruber said, don’t have as strong an incentive to maintain their machines.

    This section continues in the Subscriber's Area.