Before the Open (Mar 21-25)

Good morning. Happy Friday.

With the exception of China and Hong Kong, which posted sizable losses, the Asian/Pacific markets were mixed. Europe, Africa and the Middle East are currently mixed. France, Turkey, Germany, the Netherlands, Italy and Portugal are up; Denmark, Greece, Finland and the Czech Republic are down. Futures in the States point towards a positive open for the cash market.

————— VIDEO: A Tale of Two Markets —————

The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is up big.

Stories/News from Seeking Alpha…

End of globalization

The economic globalization seen since the end of the Cold War is coming to a close, which relied heavily on the interconnectedness of national economies for cross-border movement of goods, services, technology, and capital. Protectionism and self-reliance have stepped in over the last few years, replacing free trade agreements and the promotion of economic liberalization. What started off as trade wars and increasing tariffs has morphed into an outright rejection of the complex multinational supply chain, with pandemic restrictions exacerbating supply shortages and now the war in Ukraine endangering food and energy security.

Economist Adam Posen, President of the Peterson Institute: “It now seems likely that the world economy really will split into blocs, each attempting to insulate itself from and then diminish the influence of the other. With less economic interconnectedness, the world will see lower trend growth and less innovation. Domestic incumbent companies and industries will have more power to demand special protections. Altogether, the real returns on investments made by households and corporations will go down.”

Atlanta Fed President Raphael Bostic: “The tragic war in eastern Europe will further momentum toward reorienting production and supply networks away from pure cost minimization and toward resilience and risk tolerance. Supply chain disruptions [also] caused by the coronavirus pandemic prompted business leaders to start diversifying supplier locations and firms, increasing inventories, and bringing production closer to final markets to maximize reliability. Think of it as a shift to just-in-case inventories from just-in-time.”

Oaktree Capital’s Howard Marks: “The availability of ever-cheaper goods like cars, appliances and furniture produced abroad was a major contributor to the benign U.S. inflation picture in this quarter-century. On the other hand, offshoring also led to the elimination of millions of U.S. jobs, the hollowing out of the manufacturing regions and middle class of our country, and most likely the weakening of private-sector labor unions. The recognition of these negative aspects of globalization has now caused the pendulum to swing back toward local sourcing. Rather than the cheapest, easiest and greenest sources, there’ll probably be more of a premium put on the safest and surest.”

BlackRock CEO Larry Fink: “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades. We had already seen connectivity between nations, companies and even people strained by two years of the pandemic. It has left many communities and people feeling isolated and looking inward. I believe this has exacerbated the polarization and extremist behavior we are seeing across society today.” (15 comments)

Food concerns

As wheat and corn futures continue to surge, and fertilizer prices ride the commodity boom, some investors are reaping big gains. Compared with the nearly 6% YTD loss of the S&P 500, shares of the top three U.S.-listed fertilizer producers are having a great year. Mosaic (NYSE:MOS) is up a staggering 70%, CF Industries (NYSE:CF) is ahead by 50%, while Nutrien (NYSE:NTR) is up 40% – and the first quarter is not even finished yet.

Not all is well: The fertilizer shortage comes at a time when Northern Hemisphere producers are preparing for spring planting, according to Ben Maddox, Director of Farm Operations for AcreTrader. That could reduce crop yields across the board, with some farmers not even able to get their hands on fertilizer. Supply shortages continue for ingredients like nitrogen, phosphate and potash, while the crisis in Ukraine is compounding the problem, throwing a wrench into global food supply.

“With regards to food shortages, it’s going to be real,” President Biden declared after meeting with NATO allies in Brussels, adding that Russia and Ukraine are the breadbasket of Europe. “The price of these sanctions is not just imposed on Russia, it is imposed on an awful lot of countries as well, including European countries and the U.S.” Biden also related that the G7 had discussions on ways to “increase and disseminate more rapidly” grain from America and Canada, while European nations were urged to end limitations on sending food abroad.

Outlook: “This is a really big deal, because when that volume of calories comes out of the food chain, it triggers other things. Not only hunger, but unrest,” AGCO (NYSE:AGCO) CEO Eric Hansotia told CNBC. “The last time we had this kind of disruption, it was one of the major triggers for the Arab Spring, and it’s because a lot of this food goes to areas like North Africa, the Middle East, or places where the cost of food is a large portion of the income of that population.” (8 comments)

Roll a fatty

Cannabis stocks lit up yesterday on news that the U.S. House of Representatives was preparing to vote on the federal legalization of marijuana next week. A hearing on the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act – sponsored by House Judiciary Committee Chairman Jerrold Nadler (D-NY) – will be held on Monday, the final step before consideration on the floor. The bill aims to deschedule cannabis from the list of federally controlled substances and promote social equity in the industry.

Flashback: A previous version of the MORE Act cleared the House floor in December 2020, but it stalled in the Republican-controlled Senate before the end of the legislative cycle. “Hopefully, the next time this unofficial holiday, 4/20, rolls around, our country will have made progress in addressing the massive overcriminalization of marijuana in a meaningful and comprehensive way,” Senate Majority Leader Chuck Schumer said last year. The nation’s war on drugs has “too often been a war on people, particularly people of color.”

A total of 37 states and the District of Columbia already permit cannabis products for medical purposes, while 18 states and D.C. have legalized marijuana for recreational use. Legal pot sales in the U.S. are even expected to top $28B in 2022, marking a 20% Y/Y increase, according to cannabis market research firm BDSA.

On the move: Thursday’s outsized gains are continuing in the premarket session. Sundial Growers (SNDL) +20%, Tilray (TLRY) +17%, Aurora Cannabis (ACB) +14%, Canopy Growth (CGC) +12%, HEXO (HEXO) +11%, Cronos (CRON) +8%. Note that all of the names are down 80%-90% from their all-time highs seen back in 2018/19. (145 comments)

Industry truce

In a move that has the potential to be one of the most symbolic in its history, Uber (UBER) will soon begin listing all New York City taxis on its app as a ride-hailing option for its customers. The partnership marks a form of peace between the nation’s largest, and most-famous taxi fleet, and the company that was set up to explicitly disrupt and change an industry that had operated virtually unchallenged for more than a century. The partnership could also help Uber overcome a driver shortage in its biggest U.S. market when it goes into effect later this spring.

Quote: “It’s bigger and bolder than anything we’ve done,” said Andrew Macdonald, SVP of Global Mobility.

All 14,000 of NYC’s iconic yellow cabs will integrate their technological system with Uber’s so that riders will be able to hail taxi rides as well through the Uber app. The company plans to make sure passengers are charged approximately the same rates for taxi bookings as they are for rides through the UberX ride-hailing option. With regards to how drivers are to be paid, a driver will see on their app how much they can expect to earn from the fare before they accept an Uber ride, giving them the ability to turn down a ride if they choose.

Market movement: Uber shares advanced 5% on Thursday, while Medallion Financial (MFIN), which finances taxi medallions for drivers in New York and elsewhere, is up 2% in premarket trade. (6 comments)

Today’s Economic Calendar
10:00 Consumer Sentiment
10:00 Pending Home Sales
10:00 Fed’s Williams Speech
11:00 Fed’s Daly Speech
11:30 Fed’s Barkin Speech
12:00 PM Fed’s Waller: “Should Central Banks Issue Digital Currencies?”
1:00 PM Baker-Hughes Rig Count

What else is happening…

Apple (AAPL) working on subscription plan for iPhones, other hardware.

EU hopes to rein in Big Tech with Digital Markets Act.

U.S. to boost LNG supplies to Europe, helping replace Russian gas imports.

Energy regulator to delay climate impact guidelines on new gas projects.

Biden calls for Russia to be expelled from the G20.

Russian stocks rebound as the Kremlin props up local shares.

Cook, Nadella, Jassy make the cut for new ‘Return on Character’ ETF (ROCI).

Exxon (XOM) considers going global with gas-to-bitcoin pilot.

Gates, Bezos-backed KoBold to begin drilling for EV metals in Greenland.

Philip Morris (PM) scales down in Russia, explores full exit.


Good morning. Happy Thursday.

The Asian/Pacific markets leaned up. Japan, Indonesia, Singapore and the Philippines did well; China and Hong Kong were weak. Europe, Africa and the Middle East currently lean down. Denmark, Greece, Finland, Hungary, Austria and Sweden are down the most. Futures in the States point towards a positive open for the cash market.

————— VIDEO: A Tale of Two Markets —————

The dollar is up. Oil is down; copper is up. Gold and silver are up. Bonds are down. Bitcoin is up.

Stories/News from Seeking Alpha…

Weaponizing energy

The energy war between Russia and the West is heating up after President Vladimir Putin demanded that natural gas sold to “unfriendly” countries be paid for in rubles. The Russian currency gained 7% against the dollar immediately after the announcement, paring its year-to-date losses to 23%, while Dutch gas futures, a European benchmark, reigniting a wild rally. “Unfriendly” nations accounted for 70%, or around $69B, of Gazprom’s (OTCPK:GZPFY) export revenue in 2021, according to Dmitry Polevoy, economist at Moscow-based Locko Invest.

Fine print: Supply contracts will likely need to be reworded to allow a switch in payment to rubles, but once those are reopened, all types of negotiations could take place (shorter terms, less volumes, etc.). Supply deals often have provisions, like “significant market price changes,” that can trigger renegotiations, but changing clauses of these agreements is often arduous and time-consuming. Putin has given the Russian central bank one week to come up with a way to shift to the new payment system and Gazprom was ordered to revise its contracts to accommodate the move.

While it’s possible for Russia to devise new contracts that require ruble payments, it would demand that Western governments hold rubles in their central banks or buy them on the open market, which would be seen as skirting financial sanctions. Both sides would lose if the gas stops flowing, with Putin missing out on cash for his flailing domestic economy and the West needing to secure pricier supplies elsewhere. Putin may also be trying to chip away at dollar dominance in global trade, which could have long-term implications for American borrowing and financing costs.

The response: Ukraine President Volodymyr Zelenskyy is hoping that a series of NATO, G7 and EU summits taking place this week will lead to more aid for the country and additional sanctions against Russia. The U.S. and EU are already close to a deal aimed at slashing Europe’s dependence on Russian energy sources and an agreement could be announced as early as Friday. “You can expect that the U.S. will look for ways to increase LNG supplies, surge LNG supplies to Europe, not just over the course of years, but over the course of months as well,” said National Security Advisor Jake Sullivan. (9 comments)

Alternative app payments

Google (GOOG, GOOGL) is moving to let app developers offer users a chance to use their own billing systems rather than the one in the Play Store. That starts with Spotify (SPOT), which has announced a multi-year agreement on “User Choice Billing.” It’s a small pilot for now, but could have profound effects across the app eco-system, and sent shares of Spotify up 3.5% in premarket trading.

Quote: “Users who’ve downloaded Spotify from the Google Play Store will be presented with a choice to pay with either Spotify’s payment system or with Google Play Billing,” Spotify wrote in a blog post. “For the first time, these two options will live side by side in the app. This will give everyone the freedom to subscribe and make purchases using the payment option of their choice directly in the Spotify app.”

Specifically, the changes involve Spotify sending Google some chunk of the subscription fees it collects, though something less than the well-publicized 30% cut. Google has noted previously that the vast majority of developers don’t pay 30%, saying today 99% of developers qualify for a service fee of 15% or less.

Go deeper: The decision follows some controversy over the last couple of years, during which Google battled Epic Games over Fortnite, while the Play Store approach drew an antitrust lawsuit from state attorneys general. It also puts pressure on fellow tech giant Apple (AAPL), which has similarly fought against Epic and is firmly against third-party billing in its App Store. (8 comments)

Maskless skies

As more states continue to turn the page on COVID – from pandemic to endemic – the masks are coming off and many testing sites are shutting down. Most requirements are now rolled back, except for masking in airports and on public transportation, where federal mandates are binding for another month. Meanwhile, new COVID-19 infections in the U.S. are now at their lowest level since last July – despite an uptick in the BA.2 subvariant – and over 99% of Americans are living in “low” or “medium” risk areas.

Masks on a Plane: The largest U.S. airlines are urging the Biden administration to drop the federal mask mandate on jetliners, along with the pre-departure testing requirement for international travelers. Earlier this month, the CDC for the third time extended its mass transit mask mandate by 30 days, until mid-April, and masking guidelines for airlines remain in place. The federal mandate applies across airports and trains, as well as buses and car share services.

“Much has changed since these measures were imposed and they no longer make sense in the current public health context. Given that we have entered a different phase of dealing with this virus, we strongly support your view that ‘COVID-19 need no longer control our lives,'” wrote CEOs of American Airlines (NASDAQ:AAL), Alaska Air (ALK), Atlas Air (AAWW), Delta (NYSE:DAL), FedEx (NYSE:FDX), Hawaiian Holdings (HA), JetBlue (JBLU), Southwest (LUV), United (NASDAQ:UAL) and UPS (UPS).

More from the letter: “It is critical to recognize that the burden of enforcing both the mask and predeparture testing requirements has fallen on our employees for two years now. This is not a function they are trained to perform and subjects them to daily challenges by frustrated customers. This in turn takes a toll on their own well-being. We are requesting this action not only for the benefit of the traveling public, but also for the thousands of airline employees charged with enforcing a patchwork of now-outdated regulations implemented in response to COVID-19.” (11 comments)

Four-day workweek

Debates over the length of the workweek are nothing new, but recent calls for a new model in the U.S. are making headlines. Pennsylvania Representative Chris Rabb from Philadelphia is appealing for a four-day, 32-hour workweek, and is set to propose a bill that would conduct a cost-benefit study of the shorter schedule. Across the country, California Congressman Mark Takano is echoing the position, saying a four-day workweek should be enshrined in legislation.

Some history: In the United States, Henry Ford is largely credited for standardizing the five-day, 40-hour workweek. In 1926, he shortened the then-prevalent six-day work routine – without reducing employee pay – saying we “can get at least as great production and probably greater.” Later in the 1930s, President Franklin Delano Roosevelt signed the Fair Labor Standards Act, which was subsequently amended to make the 40-hour workweek a standard (after which overtime pay applies).

Belgium just gave employees the option to choose a four-day week (with 10-hour days) under a series of labor market reforms, while Ireland and Scotland launched four-day pilot programs (same pay, less hours) in January. Last year, Spain similarly offered companies the chance to apply for subsidies to introduce a four-day workweek without salary reductions, and Iceland ran the world’s largest trial of a shorter working week from 2015 to 2019 with measurable success. The UAE separately cut its official working week to four-and-a-half days in December 2021 (with a Saturday-Sunday weekend) to better align its economy with the global market.

Business-wise: Some individual corporations have been experimenting with shorter workweeks to boost employee efficiency and well-being. E-commerce software provider Bolt famously decided to offer its employees a 32-hour week this year, and back in 2019, Microsoft Japan revealed that a closely-watched trial of its four-day workweek boosted productivity by 40%. Flexible workweeks can also be a powerful recruiting tool, especially at a time when the U.S. is struggling to source and retain workers across the economy.

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Durable Goods
8:30 Current Account
9:10 Fed’s Kashkari Speech
9:45 PMI Composite Flash
9:50 Fed’s Evans Speech
10:30 EIA Natural Gas Inventory
11:00 Fed’s Bostic Speech
11:00 Kansas City Fed Mfg Survey
4:30 PM Fed Balance Sheet

What else is happening…

Following a month-long shutdown, Russian stock market set to reopen.

Ex-Boeing (BA) pilot found not guilty in 737 MAX criminal case.

Tepid start for McPlant at McDonald’s (MCD) and Beyond Meat (BYND).

GameStop (GME) pops again after Ryan Cohen boosts stake.

Pulling plug on Arm, Nvidia (NVDA) interested in Intel (INTC) foundry.

NIO (NIO) reaches record high on Hong Kong exchange.

‘Heavily damaged’ black box found from Boeing (BA) China crash.

FBI warns Russian hackers scanned networks of five U.S. energy companies

Moderna (MRNA) seeks regulatory nod for COVID shot in very young children.


Good morning. Happy Wednesday.

The Asian/Pacific markets did well. Japan, Hong Kong, South Korea, Taiwan and Malaysia posted solid gains; New Zealand was weak. Europe, Africa and the Middle East are currently mostly down. Denmark, France, Germany, Greece, South Africa, Finland, Spain, the Netherlands, Italy, Portugal, Austria and Sweden are weak. Only the UAE is up much. Futures in the States point towards a negative open for the cash market.

————— Masterclass Overview –>> here —————

The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is unchanged.

Stories/News from Seeking Alpha…

Gas tax holiday

With gas prices soaring nationwide, Maryland and Georgia have become the first states in the country to temporarily suspend their gas taxes. The measure in Maryland will be in effect for 30 days, saving drivers 36.1 cents per gallon on gas, or 36.85 cents per gallon on diesel fuel. Georgia’s suspension will last through May 31, suspending levies of 29.1 cents per gallon on gas, and 32.6 cents per gallon of diesel.

Bigger picture: A dozen other states are considering similar measures, with Connecticut set to vote on a gas tax holiday later today. There are also several proposals on Capitol Hill to suspend the federal gas tax, which is 18.4 cents per gallon, though such a move would be unprecedented. There has never been a federal gas tax holiday in the history of the U.S., while past breaks on state gas taxes have mostly been limited to a few days.

Over in Maryland, the gas tax holiday will save the average consumer around $15 over the course of the month, but it will end up costing the state over $100M in revenue. While the measure is overwhelmingly popular, some warn it could eventually add to the tab of the taxpayer down the road, hurting budgets and infrastructure spending. “Producers are going to be the ones to really get the benefit of that tax decrease,” added Kent Smetters, a former economist at the Congressional Budget Office. “They’re the ones with the power here.”

Other ideas: The White House has reportedly dropped a proposal to send out pre-paid gas cards, given strong opposition in Congress over the plan’s viability and effectiveness. Delivering the cards could also distract the IRS in the middle of the tax filing season. Regular gasoline now averages $4.23 per gallon, according to AAA, down about 7 cents from a week earlier, but up from $2.87 one year ago. (2 comments)

Robotaxis are coming

Marking its first expansion outside of Phoenix, Alphabet’s (NASDAQ:GOOGL) Waymo is set to make its ride-hailing service fully driverless on the hilly streets of San Francisco. That means no safety driver in the front seat of the distinctive electric Jaguar I-Pace vehicles, which have been spotted all over Golden Gate City. Waymo was last valued at more than $30B, according to investor website PitchBook, after completing a 2.5B Series B financing round in June 2021.

Flashback: Waymo began offering free autonomous rides to a limited number of SF natives last August, but safety drivers were obligated to be on board. Over 10,000 “robo-taxi” rides have been completed since then under a program entitled “Trusted Testers.” Waymo and its chief rival Cruise – majority owned by General Motors (GM) – subsequently obtained permits from the California Public Utilities Commission to charge riders for trips with a safety driver, but they still need to get a separate license to collect fares for a fully driverless passenger service.

“We’ve made this decision after carefully benchmarking the Waymo Driver’s performance against our safety evaluation methodologies,” co-CEO Tekedra Mawakana wrote in a blog post.

Go deeper: Earlier this month, the NHTSA cleared the way for the production and deployment of self-driving vehicles without conventional controls, like steering wheels and pedals, as long as they meet other safety regulations. “Through the 2020s, an important part of USDOT’s safety mission will be to ensure safety standards keep pace with the development of automated driving and driver assistance systems,” Transportation Secretary Pete Buttigieg declared. “This new rule is an important step, establishing robust safety standards for ADS-equipped vehicles.”

Fourth dose?

As the highly infectious BA.2 version of the Omicron variant spreads across the globe, federal regulators and health officials continue to debate whether a fourth coronavirus shot is needed. The subvariant made up an estimated 34% of U.S. cases in the week of March 19, up from 23% and 13% in the weeks prior, according to the CDC. Some countries have already approved second boosters, like Israel, Germany, Spain and Sweden, but the U.S. is still debating its move forward, while a $15B spending package remains stalled in Congress that could place advance orders for additional vaccines.

Funding concerns: “Right now, we don’t have enough money for fourth doses, if they’re called for,” White House coronavirus coordinator Jeff Zients told podcast In The Bubble With Andy Slavitt. “We [also] don’t have the funding if we were to need a variant-specific vaccine in the future.”

Last week, Pfizer (NYSE:PFE) and partner BioNTech (NASDAQ:BNTX) announced they had submitted an application to the FDA for Emergency Use Authorization of an additional booster for adults 65 years of age and older. “Data showed rates of confirmed infections were 2 times lower and rates of severe illness were 4 times lower among individuals who received an additional booster dose, compared to individuals who received only an initial booster,” according to the companies. A few days later, Moderna (NASDAQ:MRNA) said it will seek approval for a second booster shot in all adults, and while the data is still coming in, some medical experts have flagged concerns with the applications.

Outlook: “I hate to even bring this up, but there’s evidence from studies in mice that repeated immunizations, with the intervals too short, you can actually start to induce tolerance, and that’s the last thing you want,” said Dr. James Hildreth, a leading immunologist who advises the FDA on vaccines. “I would much prefer the focus being on looking at the sequences that have come out from the variants that we’ve dealt with, and try to do a vaccine that would offer protection against those, as opposed to just giving people a fourth shot [that is tailored to a two-year-old virus].” (32 comments)

The way forward

An interesting dynamic has been playing out in the market over the past week. Treasury yields have skyrocketed as the Fed signaled it would raise rates more aggressively than previously projected, which would typically be a drag on stocks. Tightening cycles have also traditionally spooked equity investors (at least in the short-term) with the risk of looming recession on tap, but the opposite seems to be happening. What’s going on?

Preemptive strike: “Maybe investors are feeling that with the Fed taking more of a proactive approach early on it won’t have to slam on the brakes later,” said Sam Stovall, chief investment strategist at CFRA.

The whole picture: “The message that came out of the [Fed] meeting last week is that they are going to be tightening [monetary policy] but the U.S. economy is resilient enough to withstand that,” explained Huw Roberts, head of analytics at Quant Insight. “The equity market chose to emphasize the economic resilience portion.”

Inflation slayer (Part 2): “Faster hikes are clearly going to help inflation come down and may reduce the need for a longer tightening campaign,” noted Seema Shah, chief strategist at Principal Global Investors. “We are positive for equities for this year.”

Buy the dip: “You’re beginning to see a little bit of the revenge of growth stocks,” said Wayne Wilbanks, chief investment officer of Wilbanks Smith & Thomas Asset Management. “Prices have collapsed, so valuations have gotten much better, to the point where that outweighs interest-rate concerns.”

Some caution: “If I’m investing over the next 12-month horizon, I would reduce equities at this point. I would take some money off the table,” pointed out Mohamed El-Erian, chief economic advisor at Allianz. “I don’t think the market has factored in yet what’s going to happen to the economy.”

Alarm bells: “One thing I did learn many years ago, you don’t fight the Fed,” declared billionaire activist investor Carl Icahn. “I have kept everything hedged for the last few years. I think there very well could be a recession or even worse, and the market can be in for a rough landing.” (1 comment)

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:00 Jerome Powell Speech
10:00 New Home Sales
10:30 EIA Petroleum Inventories
11:30 Results of $22B, 2-Year FRN Auction
11:45 Fed’s Daly Speech
1:00 PM Results of $16B, 20-Year Note Auction

What else is happening…

Tesla (TSLA) inaugurates Giga Berlin; Musk can’t stop SEC tweet scrutiny.

Li Auto (LI) follows XPeng (XPEV) in price hikes, NIO (NIO) says no.

Disney (DIS) facing worker walkout amid Florida controversy.

Seattle Starbucks (SBUX) unionizes, a first in coffee giant’s hometown.

Editors exit as BuzzFeed (BZFD) sheds jobs in struggling news division.

Hackers hit authentication firm Okta (OKTA), Truist cuts rating.

Meme stocks are back! AMC (AMC) and GameStop (GME) on the move.

Adobe (ADBE) drops as Q2 forecast misses estimates.

Nvidia (NVDA) unveils new Hopper H100 GPU with 80B transistors.

U.S., U.K. reach agreement to ease steel, aluminum tariffs.


Good morning. Happy Tuesday.

The Asian/Pacific markets did well. Japan, Hong Kong, South Korea, India, Australia, Indonesia and the Philippines posted solid gains. Europe, Africa and the Middle East currently lean up. France, Germany, South Africa, Norway, the Netherlands, Italy, Portugal, Austria and the Czech Republic are up. Futures in the States point towards a positive open for the cash market.

————— VIDEO –>> Bear Market Bounces – What Can We Expect —————

The dollar is down slightly. Oil and copper are up. Gold is up; silver is down. Bonds are down. Bitcoin is up.

Stories/News from Seeking Alpha…

Powell gets aggressive

A bond selloff is deepening after yesterday’s comments from Jerome Powell, which said the Fed is prepared to act even more aggressively to tackle inflation. The yield on the 10-year Treasury has soared 20 basis points to 2.32% since the remarks, leading to the worst month for the asset class since 2016. Meanwhile, the 2-year Treasury yield broke above 2%, jumping almost 24 bps over the past 24 hours to reach 2.19%, as the yield curve hurtles towards an inversion (or one of the best indicators of a coming recession). Stocks are hanging in there despite the latest comments – closing in positive territory yesterday – while futures linked to the major averages are up another 0.4% this morning.

Quote: “If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth) and into a more restrictive stance, we will do that,” Jerome Powell announced during a speech at the National Association for Business Economics. He even went as far to say that the central bank is prepared to raise interest rates by 50 basis points at the next policy meeting. Consumer prices took a turn for the worse in February as CPI growth rose by 7.9%, representing the largest 12-month increase since January 1982.

What happened to transitory? “In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation,” Powell declared at the conference. However, he’s somewhat optimistic that central bankers will be able to engineer a so-called soft landing, in which the rate is raised high enough to keep the economy from overheating but not so much that it triggers a recession. “While some have argued that history stacks the odds against achieving” this, there are three episodes – in 1965, 1984, and 1994 – where the Fed “significantly” raised rates without a downturn. “I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context.”

Analyst commentary: “Investors are taking Powell’s transparency as a step further to say ‘he’s just preparing us for the worst,’ whereas, the bond market is saying, ‘no, no, he’s telling you he’s going to do at least seven [rate hikes], and you aren’t listening,'” said Shannon Saccocia, chief investment officer at Boston Private. “For the long term, 2.3% on the 10-year is not such a high figure at all,” added Linda Duessel, senior equity strategist at Federated Hermes. “What spooks the market is when you have very quick moves, such as what we’re having now.” (8 comments)

Consumer Direct

Shares of Nike (NKE) rose 5.5% in after-hours trading on Monday as the sneaker giant posted a set of impressive results. Revenues climbed 5% Y/Y to $10.9B during the holiday quarter (beating estimates of $10.6B), while adjusted EPS came in at $0.87 (topping expectations of $0.72). In terms of guidance, the company anticipates revenue for FY22 to grow mid-single digits versus the prior year, though specifics will be provided next quarter given “several new dynamics creating higher levels of volatility.”

By the numbers: A drop in revenue in Greater China (-5%) was more than offset by gains in Asia Pacific & Latin America (+11%), North America (+9%) and Europe, Middle East, & Africa (+7%). Footwear sales were up 2% to $6.7B, while apparel sales rose 9% to $3.2B. Nike Direct sales rose 15% during the quarter to $4.6B and were up 17% on a currency-neutral basis.

“Fueled by deep consumer connections, compelling product innovation and an expanding digital advantage, we have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport,” said CEO John Donahoe.

Growth potential: Given the strong results, Nike was quick to flag that its direct-to-consumer model was working. The strategy was rolled out in 2017, but recently saw Nike even move away from Foot Locker (FL) and DSW (DBI) in favor of its own apps, websites and stores. “Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies,” added CFO Matt Friend, in a statement that was noted by investors. (27 comments)

Crash investigation

Locating parts of the aircraft wreckage, investigators are working to recover the so-called black boxes of China Eastern (NYSE:CEA) Flight MU5735, which crashed yesterday in a mountainous area near the city of Wuzhou with 132 people on board. The aircraft was a Boeing (NYSE:BA) 737-800 Next Generation, often called the 737NG, which preceded the 737-MAX involved in the two high-profile crashes in 2018/19 that led to the global grounding of the entire MAX fleet. According to aviation consultancy Cirium, the 737NG is known as one of the safest jetliners in the world, with 11 fatal accidents out of more than 7,000 planes delivered since 1997.

Snapshot: A reported video of the crash, posted by Chinese media outlet The Paper, shows an aircraft that was intact on its way down, but too far away to display markings that would identify it as a China Eastern plane. However, radar tracking shows the aircraft descending steeply on an almost vertical trajectory – which would match the video – with the plane disappearing from the flight tracker at 2:22 p.m. local time. Following a 45 second plunge from the skies, the plane actually went up from 7,425 feet up to 8,600 feet in about 10 seconds, but resumed its dive immediately thereafter. The entire incident lasted a minute and 35 seconds, with the plane dropping over 500 feet per second.

The crash is China’s first commercial plane disaster in over a decade, and a standout for a country that has a strong record when it comes to aviation safety. As a result, Cowen analysts feel it seems less likely, although not impossible, that the cause would be a manufacturing or design issue. The plane was seven years old and has been in commercial service since 2015, meaning maintenance problems, pilot error or sabotage would likely be the cause of the crash.

It’s (really) bad timing: The 737NG crash comes as Boeing seeks to restart 737 MAX deliveries into China following a three-year halt. “A significant delay would likely affect 2022 deliveries and cash flow, as well as production plans, with implications for suppliers like Spirit AeroSystems (NYSE:SPR),” said J.P. Morgan analyst Seth Seifman. Spirit assembles nearly 70% of 737 MAX frame, and shares of the first-tier aerostructure manufacturer slipped 3.5% on Monday (Boeing fell by the same amount). (5 comments)

SEC’s environmental agenda

The Securities and Exchange Commission has unveiled a new proposal that would compel U.S.-listed companies to disclose climate-related risks and greenhouse gas emissions. Firms would not only need to divulge Scope 1 and 2 emissions, or emissions that are generated through the normal course of business, but they would also cover Scope 3. Those are emissions that are “actual or likely” to ensue from the use of products by customers, however, some feel that the category has no clear definition.

Bigger picture: The proposal, approved by a 3-1 margin, is subject to public feedback, but will likely be finalized in 2022. If approved and adopted, companies with over $700M of market capitalization would have the most aggressive phase-in period, with expectations to file climate-related data to the SEC in fiscal year 2023.

“I really do think that the SEC has a role to play here when this amount of investor demand and need is there,” said SEC Chair Gary Gensler. Others think the agency is overstepping its mandate, like former Chair Jay Clayton. “Taking a new, activist approach to climate policy – an area far outside the SEC’s authority, jurisdiction and expertise – will deservedly draw legal challenges,” he declared. “Setting climate policy is the job of lawmakers, not the SEC.”

Thought bubble: From an investor perspective, many companies like Exxon (XOM) and Chevron (CVX) already disclose Scope 3 emissions, and few investors will be surprised to find energy companies underperform on climate metrics. Those points could suggest the new reporting requirements are unlikely to have a meaningful impact on share prices going forward. (98 comments)

Today’s Economic Calendar
8:55 Redbook Chain Store Sales
10:00 Richmond Fed Mfg.
10:30 Fed’s Williams Speech

What else is happening…

Apple (AAPL) services, including Music and TV+, restored after big outage.

PayPal (PYPL), Venmo hike fees on crypto trades of under $200.

Alibaba (BABA) raises buyback to $25B to boost slumping stock.

Chip market FY22 targets growth at 10.4%, down from 26.2% in 2021.

Ukraine would say no to NATO membership in exchange for ceasefire.

Saudis “will not incur responsibility” for oil supply shortage.

N. America’s big three fertilizer producers continue to shatter records.

Musk set to cut a red ribbon at Tesla (TSLA) Gigafactory in Berlin.

Wall Street banks see revenue drop $4.6B from equity raising drought.


Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets leaned down. Japan and Singapore did well, while Hong Kong, South Korea, India and the Philippines were weak. Europe, Africa and the Middle East currently lean up, but movement is minimal. The UK, Turkey, Norway, Hungary, India and the Czech Republic are up. Futures in the States point towards a slight down open for the cash market.

————— VIDEO: Bear Market Bounces – What Can We Expect —————

The dollar is up. Oil is up; copper is down. Gold is up; silver is down. Bonds are down. Bitcoin is down.

Stories/News from Seeking Alpha…

Conflict goes hypersonic

Russia deployed its newest Kinzhal hypersonic missile in Ukraine twice over the weekend, claiming to have hit an underground ammunition depot in Deliatyn on Saturday and a fuel storage site near Mykolaiv on Sunday. Analysts say it marks the first time hypersonic missiles have been used in combat, though there were reports of the weapons being used during campaigns in Syria. China and Russia first began testing hypersonic weapons in 2014 and 2016, respectively, prompting the U.S. to ramp up its testing programs.

What are hypersonic weapons? Missiles in development, like boost-glide missiles and air-breathing missiles, are being designed to evade defense systems while flying at speeds higher than Mach 5. The objective is to travel at such a high velocity and low altitude that make them difficult to intercept, while they can also maneuver in-flight compared to the fixed sub-orbital trajectories of ballistic missiles. Some ground-based radars can detect hypersonic weapons, but current systems cannot give an early enough warning to respond to an attack in real-time.

Looking to play catch-up, the U.S. is rushing the development of its own hypersonic arsenal. General Dynamics (NYSE:GD) subsidiary Bath Iron Works is beginning the engineering and design work needed to retrofit the weapon system on three Zumwalt-class destroyers in fiscal year 2023. The project will continue through 2025, while hypersonics will be added to Virginia-class nuclear-powered attack submarines by 2028.

Outlook: Former acting Navy Secretary Thomas Modly has said hypersonic weapons “have already changed the nature of the battlespace, much as nuclear technology did in the last century.” The Pentagon’s FY2022 budget reflected as such, with requests for hypersonic-related research and development pegged at $4B, up from $3.2B a year earlier. “The engineering is not that hard,” added Bryan Clark, a defense analyst at the Hudson Institute. “It’ll just take time and money to make it happen.” (22 comments)

Oil tears higher

The rebound in oil prices is continuing this morning as the war in Ukraine approaches the end of its first month with no conclusion in sight. WTI crude futures (CL1:COM) climbed as much as 5% to over $108 a barrel, after falling to as low $93/bbl last week (from $130 the week before). Russia is now turning to more destructive weaponry in Ukraine as the latter rejected a demand to surrender the besieged southern port city of Mariupol.

Other catalysts: The EU is considering whether to impose an oil embargo on Russia, which could prompt Moscow to close flows on the Nord Stream 1 pipeline that helps provide the bloc with 40% of its natural gas needs. It comes after Qatar agreed to work on supplying Germany with LNG as it seeks to reduce its long-term dependence on Russian imports. Houthi rebels also unleashed a series of drone and missile strikes on energy facilities in Saudi Arabia on Sunday, temporarily cutting crude production at one site.

In fact, the recent upward pressure on oil saw Saudi Aramco (ARMCO) more than double its profits to $110B in Q4. “We see healthy oil demand. Unfortunately, there is shrinking global spare capacity, combined with low inventories and a lack of investment,” CEO Amin Nasser said following the results, blaming “a transition plan that is totally unrealistic” for the current pricing dynamic. “We’re doing our part, but it’s not enough. Other players in the industry also need to do their part and increase investment.”

Alarm bells? The International Energy Agency, which last year urged an end to new oil, gas and coal projects as a way to help the environment, is now warning of an “emergency situation” for global energy security. The notice came along with a 10-point plan that focuses on cutting consumption, though it will be hard to convince consumers and corporations to play along. The actions include lowering speed limits on highways, car-pooling, working from home, eliminating air travel for business, taking trains instead of planes and the adoption of “car-free Sundays.” (6 comments)

Food protectionism

The conflict in Ukraine has already led nations to reassess their energy security, but with two of the world’s biggest grain exporters at war, food security is also making waves. The Hungarian government now has the option to buy any grain destined for export, while Moldova and Serbia have restricted sales of crops like wheat and sugar. Bulgaria has also allocated government funds to increase its national grains reserve, while proposals in France are lobbying the government to stockpile grains on fears that supplies could get depleted.

Breadbasket of Europe: Ukraine yields 10% of global wheat exports, 14% of corn exports and about half of the world’s sunflower oil, according to the U.S. Department of Agriculture. Russia is the world’s largest exporter of wheat, accounting for more than 18% of international exports.

“What’s going on in Ukraine is going to change our whole approach, and our view on the future of agriculture,” declared EU Commissioner for Agriculture Janusz Wojciechowski. EU officials will meet today to discuss ways for making food supplies more secure, like allowing fallow land to be used for protein crops, relaxing state-aid rules to grant assistance to farmers or offering support to the pig meat industry.

Go deeper: Food protectionism is even enveloping markets outside of Europe. Indonesia, the No. 1 producer of palm oil, is raising export duties to make it more profitable for companies to supply the domestic market. Argentina, the biggest exporter of soybean meal and oil, is blocking traders from registering cargos for export, while Egypt is prohibiting staples like flour, lentils and wheat from leaving the country for three months. “Any stability that you get in the country that’s putting up the export ban is an instability exported to the rest of the world,” explained Joseph Glauber of the International Food Policy Research Institute. (6 comments)

Buffett makes moves

In his 2022 annual letter to shareholders, Warren Buffett bemoaned the lack of good investment opportunities, noting that both he and longtime right-hand man Charlie Munger found “little that excites us.” That sentiment may be changing as Berkshire Hathaway (BRK.A, BRK.B) just disclosed an $11.6B deal to buy insurance firm Alleghany Corporation (Y). Shares of the latter are ripping higher in premarket trade, climbing 25% to over $850 at the time of writing.

Quote: “Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years,” the Oracle of Omaha said in a statement.

Recall that Alleghany CEO Joseph Brandon once led Berkshire-owned General Re, before departing in the midst of the global financial crisis. At one point he was even seen as a possible successor to Warren Buffett, but later joined Alleghany in 2012, before working his way up to chief executive in December 2021. Alleghany has a whole host of different insurance lines, including wholesale specialty, property and casualty, as well as reinsurance operations.

Next steps: The latest transaction, which was unanimously approved by both boards of directors, includes a “go-shop” period where the insurer can solicit and consider other acquisition proposals for 25 days. It also means Buffett is diving deeper into the world of insurance, which has been a key driver of Berkshire’s growth into a conglomerate. While Buffett had recently turned to stock buybacks to put his almost $150B cash pile to work, the old-time deal hunter might be back in action. (10 comments)

Today’s Economic Calendar
8:00 Fed’s Bostic Speech
8:30 Chicago Fed National Activity Index

What else is happening…

Boeing (BA) 737 crashes in China with more than 130 on board.

Shenzhen reopens, but Shanghai Disney (DIS) closed until further notice.

Ivermectin had no clinical benefit against COVID in largest study to date.

Thoma Bravo said to agree to buy Anaplan (PLAN) for $10.7B.

Nielsen (NLSN) rejects $9B proposal from private equity consortium.

Potential commodity fallout from the Canadian Pacific (CP) rail strike.

U.S. recession risks rise as Ukraine-Russia adds to inflation.

How have the 5 largest dividend ETFs matched up in 2022?

Microsoft (MSFT) has a platform that could drive more growth than Office.

Kinder Morgan (KMI) urges FERC not to apply tough new climate policy.


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