Looking Backwards …
LB #1
We start today with an article by Alexander Kaufman over at Huffpost.com. Nuscale Power is one of the latest new energy startups that is struggling. This has been a recurring theme for us here at the C Thomas Printer Cooperative, but this is actually a technology that could be a long-term solution. About a year ago NuScale won regulatory approval for its reactor design and was planning to build a nuclear reactor site with small modular reactors in the Idaho desert and sell electricity across the western United States. They abandoned that idea as rising interest rates began to affect their cash flow.
Kaufman writes, “In 2022, NuScale went public via a SPAC deal, a type of merger that became a popular way for debt-laden startups to pay back venture capitalists with a swifter-than-usual initial public offering on the stock market.
In its latest quarterly earnings, NuScale reported just under $200 million in cash reserves, nearly 40% of which was tied up in restricted accounts.
On a call with analysts in November, Ramsey Hamady, NuScale’s chief financial officer, said the firm expected to “take in about $50 million worth of cash from customers from work that we do.”
We have talked about inflation and higher interest rates having a lag before they affected businesses, and this is a good example. The higher construction costs caused the company to burn through too much cash and a potentially great idea will get mothballed. Now they have laid off 40% of their staff. It is not just EV and greenie projects, but business in general that will fall prey to economics. Unlike the US government, they are unable to print money.
Nuclear is not immune to cash flow concerns
LB#2
Staying on the theme of running out of money, Mary Ann Azevedo writes over at TechCrunch that Frontdesk, a startup that specialized in short term furnished rentals is going into receivership, an alternative to bankruptcy. They manage more than 1,000 furnished apartments across the United States. Their entire 200-person workforce was notified during a 2 minute Google Meet call.
Azevedo writes, “Frontdesk, which was founded in 2017, had raised about $26 million from investors such as JetBlue Ventures, Veritas Investments and Sand Hill Angels, according to Crunchbase.
Frontdesk went out for a bridge round, attempting to sell investors on a new plan of doing full building management, sources told TechCrunch. That tactic didn’t work out and the company couldn’t keep operating. Frontdesk was apparently still optimistic about its ability to raise more capital; the startup had posted on LinkedIn openings for several jobs, including a chief of staff role, just two months ago.”
That will do that, folks. Businesses are running out of money. Whether or not this was a good business idea or not isn’t really material because companies close their doors due to running out of money, not running out of good ideas. Making a profit is necessary when more funding isn’t available.
It seems that they also had quit paying their rent on numerous properties infuriating their landlords. Ahh, they were trying the ole Elon Musk trick at Twitter. The music is slowing down over at his outfit, but the music seems to have stopped at Frontdesk.
LB#3-
From running out of money to running out of credibility, we turn our eyes toward the Middle East where the United States recently launched Operation Prosperity Guardian. The latest ridiculous name to come out of the administration that gave us a huge spending bill called the Inflation Reduction Act. The US navy was deploying carriers, ships, and other resources to the Middle East to secure the sea lane of the Red Sea and in particular the Bab-el Mandeb, the narrow strip of water between the Indian Ocean and the Red Sea. The US Navy meanwhile has been busy. Benoit Faucon writes for the Wall Street Journal
“On Saturday evening, the Maersk Hangzhou, a Singapore-flagged container vessel that operates between Europe and Asia, came under missile attack, the U.S. said. Four boats later approached the vessel, shot at it and attempted to board it, according to Danish shipping giant Moller-Maersk, which operates the containership.
Early Sunday, helicopters from nearby U.S. Navy vessels responded to fire coming from boats controlled by Houthis, an Iranian-backed rebel group in Yemen, sinking three of them and killing the crews, the U.S. said. The fourth boat fled. The Houthis later claimed the attack and said they lost 10 fighters in the encounter.
There have been more than 20 attacks by the Houthis on commercial vessels since they started striking at commercial ships in November. A U.S. defense official said the sinking of the boats “is the first time we have seen this kind of close combat between the U.S. and the Houthis.” White House spokesman John Kirby told ABC that the U.S. is “not looking to widen the conflict in the region.”
Moller-Maersk has now instructed its ships to avoid the region completely. Shipping costs have just gotten more expensive folks, and the rebels have become more emboldened. This is not how to guard prosperity, this is how to endanger it.
Prosperity Guardian off to an auspicious start
Looking Forwards…
LF#1
Mauro Orru and Jennifer Maloney wrote an article for the Wall Street Journal this week that caught my eye in which the large European supermarket chain Carrefour told PepsiCo that it would no longer carry its products because of what it called unacceptable price increases. Who does this? What a great line in the sand. This will affect soft drinks and potato chips mostly, but the article had a graph that showed the price increases YoY by PepsiCo and it was baffling. PepsiCo has had 9 straight quarters of over 9% price increases. Inflation reduction what? In addition,
“Carrefour’s decision on PepsiCo products comes roughly four months after the retailer began attaching labels to products it claims are subject to so-called shrinkflation—when the quantity of a product diminishes in its packaging but the retail price is unchanged. Reuters and local media earlier reported on Carrefour’s decision.” What a great supermarket. How nice of them to look out for their customers.
Supermarket pushes back on Pepsi prices
LF#2
In an article from bnamericas.com we see a fascinating development out of Argentina’s Neuquen region. The governor of the province told local media outlet that he expects to double oil production in 4 years and reduce regulation aka red tape. This is part of Javier Milei’s new vision of Argentina and one of the best ways to do that would be to increase their exports and in return get dollars to pay off their debt with the IMF. Milei is cutting a lot of government fat right now, and that is beneficial, but the best way to cure what ails Argentina is to grow the economy by reducing government red tape. This is a very positive sign and could open the door for mining, energy extraction, and even further agricultural exports. Milei has said that he wants to privatize the state owned YPF corporation. Remember when we talked about the Iron Lady Margaret Thatcher? She privatized more than 40 businesses in the UK when she turned around her country’s economy in the early 80’s. These are positive steps for freedom and success in the great experiment in South America. We will keep an eye on Milei’s progress. I am afraid his regulatory fight is just beginning, but I support his first steps.
LF#3
Lastly I wanted to discuss the financial damage that has been done to the Fed’s tightening in the last 2 months. The financial conditions have loosened at a historic rate. Markets up, bond yields down, and now here is a Fed President saying hold on just a minute. This isn’t just any president either, but Lorie Logan, one of the smartest people in the room. She came from the New York Fed where she led market ops for 10 years. She knows markets and she knows people that know markets.
John Nathan-Kazis writes for Barron’s where he says that she isn’t sure about rate cuts at all and that rate hikes are not out of the question. Whoa! Lorie, does the market know about this?
He writes “Logan said that growth is “settling down” and that the labor market “continues to rebalance.” She said that risks to a return to 2% inflation include geopolitical threats to supply chains and “financial fragilities” in commercial real estate and other sectors… If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made,” Logan said, according to a transcript of her delivered remarks. “In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.” When Lori Logan speaks, you should listen.
When Lorie Logan speaks, you should listen
The Dow Jones finished trading at ….37,466
The 10 year Treasury bond is at …4.05%
The price of Brent Crude is …78.76
The price of gold is …2,052
The price of silver is …22.39
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com