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

Treasury Secretary Janet Yellen will convene a meeting of the Financial Stability Oversight Council Friday.

FSOC comprises the heads of the nation's top financial regulators, and was created in the wake of the 2008 financial crisis to enable the government to coordinate efforts at combating systemic risks to the U.S. economy.

The announcement comes amid concerns over the health of the banking sector following the recent failures of Silicon Valley Bank and Signature Bank.

The uncertainty is being felt overseas as well with shares of Germany's Deutsche Bank (DBK.XE) slumping as its credit default swaps widened.

Financial sector equities (XLF) were under pressure Friday, ranking as the worst performing sector in the S&P 500 in morning trade.

The Plunge Protection Team is convening so the monetary and fiscal authorities are fully aware of the $1.7 trillion in unrealised losses in the US banking sector. The simple fact is anyone who bought long-dated bonds between 2019 and 2022 is sitting on fat losses. 

Collapses of Large Banks on Fridays:

- Friday, Mar. 14, 2008: Bear Stearns hit by liquidity crisis

- Friday, Sept. 12, 2008: Last trading day before Lehman Brothers declares bankruptcy

- Friday, Sept. 26, 2008: Washington Mutual seized by regulators marking largest bank collapse in US history

- Friday, Mar. 10, 2023: SVB seized by regulators, marking 2nd biggest bank failure in US history

- Friday, Mar. 10, 2023: Signature Bank sees $10 billion in withdrawals, seized by regulators 2 days later

- Friday, Mar. 17, 2023: UBS bids for Credit Suisse, $CS, to avoid its collapse

- Friday, Mar. 24, 2023: Deutsche Bank, $DB, credit default swaps hit 4-year high on contagion fears

Just about every large bank failure in recent history has occurred on a Friday.

This can't be a coincidence.

Giving regulators time to make an announcement over the weekend helps to avert market panic. That’s as good a reason as any to announce bad news as close to the market close as possible on a Friday. 

“What’s changed in the last few weeks is the credit markets,” said Rich Hill, chief of real estate strategy research at Cohen & Steers Capital Management Inc. “It went from a story of work-from-home and the impact on occupancy and the lack of rent growth to also the compounding of tighter financial conditions given everything happening with banks.”

Fears of tighter credit are adding to risks for offices that have been building for some time, Green Street analysts wrote in a Tuesday report. Hedge fund manager Jim Chanos, Marathon Asset Management and Polpo Capital Management founder Daniel McNamara are among those who have been betting for months that landlords will struggle to lure staff back to workplaces. 

“This regional banking crisis is just throwing fuel on the fire,” McNamara said in a telephone interview. “I just don’t see a way out of this without a lot of pain in the office sector.” 

Commercial real estate is a massive and highly diversified sector that forms the basis for most alternative asset portfolios. That’s because it is the only asset class large enough to absorb the flow of cash out of conventional assets when yields were too low to meet pension and institutional return requirements. 

The PDI-P, which secured 22 per cent of parliamentary seats in 2019, is the only party that can nominate candidates without having to ally with other parties. Both Mr Widodo and Mr Ganjar are members of PDI-P.

For Mr Ganjar, the main obstacle to being named PDI-P’s presidential candidate is his own party, said Padjadjaran University political communication expert Kunto Adi Wibowo.

“If Ganjar wants the nomination, PDI-P should be the one to nominate him. He doesn’t want to quit his own party. But will Megawati (Sukarnoputri) give the ticket to Ganjar while she is grooming Puan (Maharani)?,” he said.

Ms Megawati is PDI-P’s chief, while Ms Puan, her daughter, is the House of Representatives Speaker and ranks low in electability rating polls.

Prof Firman noted that both PDI-P and Gerindra may finally have to strike a “tough deal” if they cannot come up with their nominees amid the constant rise in popularity of Dr Anies, given the solidity of his support. 

“If they are forced by pressing circumstances, they will make a deal and resort to the most popular candidates,” he said.  

President Widodo has been a stabilizing force for Indonesia throughout his tenure. The biggest test of sound governance is in the transfer of power. If the sound base he has built can be sustained, the long-term outlook for Indonesia’s potential will be upgraded by investors. 

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: banks break lower again, AI beneficiaries short-term overbought, gold firms, oil eases, bond yields contracting in preparation for a deflationary shock. 

“As we keep on telling our LPs, we are not alternative anymore,” said Lockhead. “Every deal that gets done, private credit is in the mix.”

Regulatory arbitrage is one of the commonest ways new financial sector solutions thrive. For example, Alibaba circumvented China’s wide difference between the lending and deposit rate by going direct to consumers via the internet and created Ant Financial. When regulators felt threatened by the company they move to contain its growth.

The fintech sector is attempting to carve a piece out of traditional banking operations by going online and direct to consumer via mobile apps. Companies like Block and PayPal avoid banking regulation but offer credit services in the same ways as credit card companies.

The cryptocurrency sector is primarily aimed at further disrupting the payments and international transfer market.

Private lending and private equity more generally thrived in a falling interest rate environment because asset prices of all varieties rose. Active markets were created in everything from businesses to fine wine and whiskey.  

WeChat’s fledgling short-video feed has been a rare bright spot in Tencent’s portfolio. The company is under pressure to better monetize China’s most ubiquitous app, just as users and marketers flee to rivals like ByteDance. WeChat’s video accounts tripled in views last year, garnering more than 1 billion yuan of ad sales through the feature in the fourth quarter.

“The ads turnaround is pretty positive, showing that WeChat video accounts is a real opportunity for Tencent,” said Vey-Sern Ling, senior equity advisor for Asia technology at Union Bancaire Privee. “New approvals of game titles for the domestic market could also help growth this year.”

It’s unlikely Xi Jinping is suddenly going to reverse his suspicion of the video gaming industry but there are clearly efforts underway to boost confidence that capricious policy changes will be well telegraphed in future. 

Hardly. The world’s population of people aged 60 years and older is expected to double by 2050, according to the World Health Organization, while fertility rates are in long-term decline. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes. Pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. One key measure is the old-age dependency ratio — the number of older people compared to the population that is working age. In Europe and North America, that ratio will be about 50 per 100 by 2050, according to UN forecasts, a rise from 30 per 100 in 2019. In short, we’re on a trajectory toward a smaller share of people paying taxes and a higher proportion drawing pensions. By 2035, the basic US system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees. 

Very few people are keen on the idea of working more than they have to. That has been one of the primary selling points of union negotiators for decades. You might not like your job, but we’ll make sure you are looked after in your (lengthy) retirement. With union workers negotiating favourable terms, government pensions have also become more generous. 

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

Some of the topics discussed include: Fed raises rates and flags tightening credit as doing the job of tightening, gold firms, dollar declines, Nasdaq-100 downside key reversal, 2-year yield on cusp of breaking lower. 

“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” Chair Jerome Powell said at a press conference following the Fed’s two-day meeting. “It is important that we sustain that confidence with our actions as well as our words.”

Officials are prepared to raise rates higher if needed, he said.

Powell also emphasized the US banking system is sound and resilient, reiterating what officials said in their post-meeting statement, and said the agency is prepared to use all of its tools to maintain stability.

He also acknowledged recent banking turmoil is “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” but added, “It’s too soon to tell how monetary policy should respond.”

Fed policymakers projected rates would end 2023 at about 5.1%, unchanged from their median estimate from the last round of forecasts in December. The median 2024 projection rose to 4.3% from 4.1%.

The Fed raised rates as expected and left the door open to hiking further. The bond market continues to expect rate cuts before the end of the year. That implies inflationary pressures are expected to contract significantly this year. That entails higher unemployment and a recession risk. 

After the GICS change, Financials will account for roughly 14% of the S&P 500 Index versus its current 11% weight. Information Technology will lose 11 stocks, resulting in the largest reduction in market capitalization among the 11 GICS sectors.2

Reclassification Within FinTech and Impacts on the Financials Sector

Mobile payments and payment processing companies have been the center of a digital revolution in banking, disrupting the traditional banking industry as society has become increasingly cashless. Up until now, some of these FinTech companies have been classified as Data Processing & Outsourced Services within the Information Technology sector. As part of the GICS sector changes, this portion of the FinTech theme will be reclassified to Transaction & Payment Processing Services, a proposed new sub-industry within the Financials sector.

Focusing on the S&P 500 Index, the GICS sector reshuffle will involve eight companies moving from Information Technology to Financials. These firms account for roughly 10% of their present home in the Information Technology sector. Following the GICS changes, the eight payment companies will account for roughly 12% of the Financials sector, based on Bloomberg data as of March 16, 2023. The remaining three firms currently classified as Data Processing & Outsourcing Services will be moved to Industrials under a new sub-industry of Human Resources & Employment Services.

The chart below shows current industry and sub-industry group weights for the Financials sector versus proposed weights by GICS. The new sub-industry, Transaction & Payment Processing Services, is also included.

Visa, Mastercard, PayPal, Fiserv, Fidelity National Information Services, Global Payments, FleetCor, and Jack Henry are all now financial services companies according to the GICS sector classification. The net effect is the financial services sector is being beefed up and the information technology sector looks more like a semiconductor and pure tech group now. 

“This is an ugly report, and especially disappointing after the false hope given by the drop in core inflation in the January report,” said Antoine Bouvet, a strategist at ING Groep NV. “This cements the call for another 25-basis-point hike.” 

UK food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, and increases in clothing costs accelerated. Core prices — which exclude volatile food and energy — also picked up last month to 6.2% after decelerating to 5.8% in January. Services inflation jumped to 6.6% from 6%, a sign of increasing domestic wage pressures that is closely watched by the BOE.

The report will likely intensify the debate at the BOE, where divides have emerged on the Monetary Policy Committee over how much further to raise rates given the headwinds to growth. Officials raised the benchmark rate to 4% in February, extending a tightening cycle that has lifted borrowing costs from 0.1% in late 2021. Money-market pricing implies around 65 basis points of further hikes, up from around 40 basis points at Tuesday’s close. 

Energy prices are a major component in UK inflation because they impact both domestic costs and those of imported goods. The other big contributor was the excessive spending deployed during the pandemic which boosted demand. The retreat from living standard creep is as painful for countries as it is for individuals. 

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: Fed meeting tomorrow. market expects this is the top of the hiking cycle and the return of easy monetary conditions can't be far away. With such a deep inverted yield curve and tightening lending standards I'm not so sure. oil rebounds, Tesla firms, dollar pauses, gold pulls back. 

Dear Eoin, When you started the Corporate Autonomies Fund it was based on the correct hypothesis that globalisation was the future trend and therefore it was wise to invest in companies that had, or would have, a global footprint. Now it seems that there is a trend away from globalisation and towards the repatriation of national production. What does this mean for the fund and for our investment strategy?

And

Thanks for consequential audio Friday in both content and timing. Overlaying today with 2007-09 is key at this time.

Your focus on the 1980 - 2022 bull market in bonds I found spot on and would like a little more commentary on that. The bubbles of housing (2007) and technology (2000) have been put away but Japan (1990) has not. We've punctured a rather big bubble. How do you see this playing out moving forward as far as global U.S. Treasury ownership is concerned in scope (range in long rates) and timing (years to repair damage) considering how many bonds are and will stay underwater if not sold? It took U.S. stocks 25 years to unwind the 1929 bubble and Japan is 33 and counting.

Considering the bond bubble is arguably the mother of all bubbles this side of 1929 and 1980 I would find it helpful to at least make a run at how it ranks in the standings.

Thank you for these topical questions which should be of interest to other subscribers. The basis for the bull trend, which the Autonomies benefit from, was based on a confluence of factors. The assumptions we made were:

1. The rise of the global consumer, driven by economic growth, adoption of capitalism and demographic sweet spots would boost demand for just about everything.

2. The shale revolution would allow the USA to become energy independent and a lengthy contraction in energy prices would boost demand and economic potential.

3. The march of technological innovation would create efficiencies that drive profitability for both creators and consumers.

4. The best hedge against inflation is companies that have growing business and solid competitive edges.

The list of Autonomies was compiled with these characteristics in mind and picked only the most attractive companies from each sector that offered exposure to these themes. In many respects it is a list compiled of oligarchies which dominate specific niche businesses.

Let’s consider the main questions everyone is considering today. 

Good morning, Eoin I hope you and yours are well. I am considering baby steps into Bitcoin ownership. I would welcome any guidance you may have. Particularly, where best to purchase and how to hold/protect. Many thanks for the excellent ongoing guidance.

Thank you for this question which may be of interest. At present, the safest way to hold bitcoin is in a cold storage wallet. Then you must ensure that it is kept somewhere safe. The second best option is a fund like the Grayscale Bitcoin Trust which has done a reasonable job of tracking the price. The last would be to buy bitcoin miners which offer leverage to the price. 

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

Some of the topics discussed include: Bonds yields steady, banks rebound on open swap lines, dollar eases, stocks rebound, China bonds steady, stocks weak, gold steady, bitcoin pauses. 

A link to the full report is posted in the Subcsriber's Area. 

Crisis-era swap lines were reopened over the weekend to ensure Europe has sufficient liquidity to deal with its unfolding banking crisis. Credit Suisse will not be the only bank caught on the wrong side of bonds with negative yields suddenly having positive yields.

The Fed’s balance sheet jumped last week in response to the actions to support the US banking sector. While this is not technically QE, it is certainly confidence boosting. The conclusion is clear. If they are willing to unwind half of the quantitative tightening program to deal with the collapse of several mid-sized banks, what will they do when unemployment rises and earnings roll over?  

DB’s CDS has widened by virtually the same as UBS’s over the last month, even though it has not had to digest a rival with $575 billion in assets over a weekend.

Deutsche Bank’s revenues have fallen over most of the last decade, and the bank has faced questions around its governance, with BaFin, the German bank regulator, censuring it over its money-laundering controls. However, over the last two years the investment bank has spearheaded a recovery, with revenues and profitability improving.

Nonetheless, DB lagged the rebound seen in European bank shares that began last summer, while its price-to-book ratio remains subterranean.

Contagion risk is much lower than it was in 2008, but it is not zero. And contagion is not always fully logical: Credit Suisse’s tier 1 capital ratio was higher than DB’s.

No one reads prospectuses until they must. They are both long and boring, so file searches will now be underway to identify those with similar characteristics to the CoCos issued by Credit Suisse and UBS. Bond investors are not in the habit of being zeroed, and particularly so when the equity is still trading.

I would be grateful if Mr Treacy could provide comment on which casualty will government and central banks choose

The way I see the situation now is:

Printing money to save banks = increasing inflation + sinking small people
Raising interest rates = reducing inflation + sinking banks + sinking small people with adjustable/variable mortgages
EQUALS
government and central banks caught in vicious circle of their own making

Which casualty will in Mr Treacy's opinion governments + central banks choose going forward?

Thank you for this question which may be of interest to other subscribers. The big question is about the permanence of inflationary pressures.

In your first scenario, the return of excessive money printing takes place before inflationary pressures are under control. That would greatly increase the scope for a wage price spiral and would result in significantly higher interest rates than are currently in place. The net result would be a complete repricing of asset prices and financial risk which equates to market crashes in stocks, bonds and property. That sinks everyone not just small people. In fact, the lease affected would be those with fewer assets.

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. 

Analysts at JPMorgan Chase & Co. estimated $2 trillion as an upper level for how much liquidity the new backstop could ultimately provide, although they also developed a smaller calculation of around $460 billion based on the amount of uninsured deposits at six US banks that have the highest ratio of uninsured deposits over total deposits.

I think everyone has been perplexed by the relative strength of the Nasdaq-100 over the last week. The market-to-market losses on bank balance sheets are unresolved, even with the backstop for depositors. At a minimum that means less credit will be available over the next year. That increases the likelihood of a recession. 

any comments from US officials as-to when they start to replenish the US strategic oil reserve…….?

Thank you for this question which may be of interest to other subscribers. I’ve been contemplating the same question over the last week, but I framed it differently. Can the US government afford to refill the Strategic Reserve? 

Volkswagen’s China joint venture with SAIC Motor is offering 3.7 billion yuan ($540 million) in cash subsidies to boost sales, according to a statement on the company’s Wechat account, making the German automaker the latest participant in the ongoing price war. 

The venture will provide a subsidy of between 15,000 yuan and 50,000 yuan on any model in its lineup until April 30, which includes brands like Teramont, Lavida, Lamando, Tiguan, Passat, Touran, and the all-electric ID. series

Other incentives include short-tern interest-free loans, lifelong service packages, upgraded components and buy-back guarantees.

It’s been a busy week for Volkswagen. They are attempting to compete on price in China. The company revealed the design of a compact electric vehicle slated for mass production and costing around €25,000. Then they are also talking about direct investments in mining companies to boost access to resources. That all sounds expensive. 

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

Some of the topics discussed include: Semiconductor stocks rebounds sharply, bitcoin firms on the assumption liquidity is on the rise, dollar stable, oil firms. QT is generally followed by massive QE so how does that work with high inflation?

Support from the Swiss National Bank, which offered as much as 50 billion francs ($54 billion) from its liquidity facility, had brought some temporary relief to Credit Suisse and risk gauges for the broader European banking sector. That fizzled amid comments from the European Central Bank that some of the region’s lenders could be vulnerable to monetary policy tightening, followed by its decision to proceed with a planned half-point increase in interest rates.

The continued selloff signals more action may be needed to arrest a collapse in confidence that’s prompted clients to step back from the Swiss lender and banks to shield their finances from the potential fallout. While the panic surrounding Credit Suisse has so far shown little sign of infecting the broader financial system, any further turmoil would pose a significant risk for markets already on edge amid soaring interest rates and rampant inflation.

I have always been intrigued by the idea of Aleph null. It’s the infinity of infinities [ℵ0]. The set of natural number is infinite, but so is the set of even numbers, and so is the set of uneven numbers. There is also an infinite number of times a single number can be divided. Most of the time that is an academic novelty but when it comes to confidence and bailouts infinity matters. 

Fears that anything but a half-point hike would trigger panic among investors helped settle the European Central Bank’s interest-rate decision on Thursday, according to people familiar with the talks.

As officials met over the past two days, traders were scouring financial markets for signs that other lenders might suffer the same strains that had hammered Credit Suisse Group AG and Silicon Valley Bank. ECB Vice President Luis de Guindos already warned European finance ministers earlier in the week that banks could be vulnerable to rising borrowing costs.

While the ECB dropped language in their Thursday statement on the future path for rates, there remains a live discussion on the need for more increases to bring inflation under control once market turmoil subsides, said the people who declined to be identified because such deliberations are confidential.

Several hawkish officials still see the terminal rate well above the current 3%, the people said, pointing to President Christine Lagarde’s remark that the ECB “would have more ground to cover” if its baseline outlook for the economy were to be confirmed. Yet, some are questioning whether the peak in borrowing costs might now be lower than previously thought. 

The beginning of a hiking cycle leads to central banks trying to re-establish credibility they will do what is necessary to combat inflation. That also implies they will accept whatever pain in the economy is necessary to achieve that goal. The end of a hiking cycle forces them to reverse course because the economic pain grows so intense that it overwhelms the desire to appear credible. 

Taiwan Semiconductor Manufacturing Co. founder Morris Chang declared globalization for the chip industry over and expressed support for US efforts to limit China’s tech advancement through export curbs and company sanctions.

“In the chips sector, globalization is dead. Free trade is dead,” Chang said at an event in Taipei Thursday. “Just look at the way China has been embargoed and the entity list. I agree with that.” 

The 91-year-old industry pioneer said that the global chip supply chain will grow even more bifurcated as the US acts to curtail China’s access to the most advanced technology, and “I certainly support that part of American industrial policy to slow down China’s progress.”

Chang said China is at least five to six years behind Taiwan in chipmaking technology, but he also cautioned Taiwan should not be naive about its position relative to the US. When American leaders speak of “friend-shoring” high-tech manufacturing, Taiwan is not included in that policy, Chang said, as they’ve repeatedly voiced concerns about relying on Taiwan. 

The war in Ukraine is running down NATO arsenals. Poland is getting ready to send 4 Soviet-era MiGs. The unspoken after thought is they are going to their ultimate fate of being destroyed. NATO is rapidly running down the inventory of conventional weapons required to hold an advancing force in check. Meanwhile China is sitting on the sidelines with its arsenal both intact and expanding. The conclusion is clear, investment in new inventory is inevitable. 

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. 

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

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.