Looking Backwards…
LB #1 We often talk about what Doomberg says, “Energy is life.” Europe got their energy supply cut off last year and they are feeling the economic consequences, and they will moving forward. Their economy is slowing dying. Their experiment with green energy is blowing up as we speak. Wind energy giant Siemens stock was down 35% on Thursday as it went hat in hand to the government for guarantees of up to $15 billion euros. Will the country in recession bail out a failed green energy company we shall see? On the island, Standard Chartered the large British Bank was down 12% after it missed profit expectations, and Sanofi was down 19% in France after it decided to split out its lucrative consumer business from its pharmaceutical business. The Dax is down 11%, the Stoxx index made a 52-week low and is down 9%. They are following the US stock market which had a terrible week as well, but the US controls its own energy something the EU wishes it could do. If you aren’t concerned about the economy, there is a bed bug pandemic that is derailing French tourism and driving its citizens mad. The hungry little buggers are forcing people to throw their mattresses into the streets. It seems there is no rest for the Europeans.
LB#2
We often talk about green energy and its failing economics. It is just math and if you remove the spin, and hope trafficking and virtue signaling, at the end of the day are financial statements that is all that is left. The Networthof had an insightful article The Biden administration quietly released a new report from the Department of Energy Energy Information Administration, (EIA), that showed that fossil fuels received $24.5B in subsidies last year. As a taxpayer this annoys me, that Big Oil is getting subsidized. What enrages me is that $83.8B went to renewable sources like wind and solar despite fossil fuels producing 60% of electricity production and the vast majority of transportation energy. Natural gas produced 74 times the energy in the US in 2022 than solar yet solar received over 3x more subsidies. They figured out what Tesla did, you farm the government not the market. The government prints money. Unfortunately, these companies are having the same success as Tesla’s solar divisions. Enphase energy is down 64% this year while Solar Edge is down 71%. Biden’s hilariously named Inflation Reduction Act allocates close to $400 B for direct funding and tax credits to clean energy development according to the Wall Street Journal. Remember these environmental projects rely on a 0% interest rate environment and until that return these green projects will be in the red.
LB#3-
RIP Matthew Perry, who died in his hot tub Saturday. No reports of foul play or drug use has been found although the actor famously battled addiction for decades including his stint as Chandler Bing during the sitcom hit Friends. There were two interesting things I thought about when I heard the news. Here was a guy that was at the top of the world for years, he dated Julia Roberts, he was rich, he was adored as the quirky funny actor, and yet beneath the surface he was taking so many pills and alcohol that he almost died. He states that he doesn’t remember about three seasons worth of the show. What appears on the surface is not always what is going on, and we should always remember that as we look for clues to what is really going on. Second, I remember the show ran for years when other shows often crash and burn, but the 6 main characters all worked together to fight jealousy and infighting by negotiating together and all taking the same salary for each show. Together they won, when other shows became divided and fell.
Looking Forwards…
LF#1
Finland is looking for who damaged their Balticconnector pipeline. This is key to providing Finland’s energy security and it had to be switched off last week according to Politico. Prime Minister Petteri Orpo said the leak was “not exactly the act of an ordinary person.” I don’t know what that means Petteri. Do ordinary humans usually swim down to the bottom of the sea and pound on the pipeline with hammers and then spray graffiti on the pipeline or something.
The investigation into the damaged gas pipeline connecting Finland to the rest of Europe is focusing on the role of a Chinese ship, the Finnish National Bureau of Investigation said late Friday.
“The movements of the vessel Newnew Polar Bear flying the flag of Hong Kong coincide with the time and place of the gas pipeline damage,” the investigators said
I am looking forward to seeing if their investigation bears any fruit considering it has been 13 months and there still hasn’t been a culprit identified in the Nord Stream gas pipeline explosions.
Finland probes Hong Kong ship for pipeline rupture.
LF#2
We have discussed how the big companies Cruise and Waymo rushed self-driving cars into the San Francisco market. We remarked how could a city that couldn’t place a port-a-potty for less than a million dollars have these self-driving cars cut through all the red tape? Russ Mitchell writes for the LA Times, “At the time, the companies sought permission for a major expansion of their robotaxi services in San Francisco from the California Public Utilities Commission. Opponents asked the commission for a pause, recommending the emergency responder issue be resolved first. In August, the commission voted 3 to 1 to greenlight the expansion. One of the yes votes came from Commissioner John Reynolds, Cruise’s former corporate counsel, appointed by Gov. Gavin Newsom.” That sounds about right. After the vote the automated vehicles started behaving weirdly, clustering together and blocking pedestrian walkways. Bryant Walker Smith, an expert in automated vehicle law at the University of South Carolina says in the article “One possibility is that this feeds into the narrative of automated vehicles and the companies behind them are suffering and failing,” These cars have caused traffic delays around construction sites and angered citizens, but now it gets worse. Cruise has been forced to suspend its autonomous vehicles following a barrage of safety concerns and incidents according to CNBC. The California Department of Motor Vehicles is now alleging that GM misled them about basic facts regarding safety. One incident involved an AV dragging a pedestrian 20 feet while under the car before coming to a full stop. There is a video of the accident and Cruise is withholding that video. Remember the NFL player Ray Rice video where he knocks out his girlfriend in the casino? Lots of players had domestic disputes and were fined and suspended briefly, but if a video exists? Ray Rice never played in the NFL again. If that video leaks to the public and we see a robot car dragging a woman down the street, folks that is pure poison to autonomous driving industry. GM which owns Cruise said on Tuesday that Cruise has lost $1.9 billion through September of this year alone with $732 million in the 3rd quarter. GM is still losing money every day with its labor dispute with United Auto Workers. Mitchell makes one other interesting point, The state has given cities no authority to regulate the technology, a restriction that had been pushed by industry lobbyists, and backed by Governor Newsom. How much money has GM and Google had to pay these lobbyists and how much of that lobby money has ended up in Newsom’s coffers. Always follow the money, what appears on the surface is not what is going on.
LF#3
Lastly, I’m looking forward to Wednesday. That is when the Fed will announce its most recent decision on interest rates. That isn’t why I am looking forward to Wednesday though. Janet Yellen will be announcing how many notes and bonds will need to be sold to finance the US government and its ridiculous policies. Her last announcement marked the high in the stock market and since then the Russell Stock Index has dropped 18%, the S&P has dropped 10.3%, and bond yields have broken through to 5% in the 10-year Treasury Bond. If she decides to finance the government with short term Treasury bills, you can expect even more money to flow out of the Government’s reverse repo facility. It is like a liquidity slush fund that provides dealers and liquidity providers a rate of return, but when T-Bills are sold that money has been buying them since they provide a better yield. This facility had $2.5 trillion dollars at the beginning of the year and now that level is down to just over $1T. I have been asking, “Who is going to buy the bonds and at what price? The answer has been the reverse repo for short term paper. Since Yellen announced in August, this facility is down $700 billion. I’m attaching the August announcement which has a schedule showing how Yellen is actually reducing slightly the long-term bond issuance and sharply increasing the short-term issuance. But what happens when the reverse repo runs out of money? Oops! She knows she has a temporary buyer with the reverse repo market for the short end of the curve, but what has happened to the long end? Despite her offering less long-term bonds, the interest rate on the 10-year bond jumped 100 basis points from 4 to 5% since she last announced. Folks there are far smarter people out here than I. They have figured this out and it is their actions that are pushing all these markets around. Those people are called the bond vigilantes. They deserve far more attention than the Fed on Wednesday.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.