Looking Backwards …
LB #1
A few weeks back, I called the end of New York Community Bank. I was wrong. The market managed to save itself, but on Wednesday it appeared the end was near again. The stock, which was already down 60% in the last year, was down 25% or so and trading on the exchange was halted. It reopened and promptly sold off another 18% before trading was halted again at -42%. Just over an hour later, Sandro Dinello the newly appointed CEO from last week announced a bailout package of over $1 billion led by Steve Mnuchin, the former secretary of the Treasury under Donald Trump and Joseph Otting, former comptroller of the currency. Otting will take over duties as CEO immediately from Dinello who lasted one week in the role. The stock was halted at $1.86 before the news and rallied back to trading in the $3.50 range on Thursday and Friday. The new investors will receive common stock, and some convertible stock, and they will receive warrants on non-voting, common-equivalent stock with an exercise price of $2.50 per ZeroHedge. $1 billion divided by $2 is 500 million roughly. According to a quick look at the key stats of the company, there were only 722 million shares outstanding. Stock dilution is a nefarious business, but I assume a little less nefarious than going out of business. It seems the establishment saved this bank this week. The market seems to think that this panic was isolated to this one stock as the KRE, the regional bank index, which was down during the middle of the week along with other regional banking stocks, rallied to close the week.
LB#2
The Houthis, the band of rebels operating out of Yemen, and backed by Iran have sunk a British ship. Benoit Faucon writes for the Wall Street Journal, “A Houthi missile strike on Feb. 18 had blown a hole in the cargo vessel, Rubymar, which was shipping 22,000 metric tons of Saudi fertilizer to Bulgaria. That evening, the crew abandoned the vessel, flagged in Belize, and it vanished into the sea late Friday after taking on water for two weeks.” This has now created an environmental disaster as the oil slick is an eyesore, but it becomes complicated as no ships want to enter the area because they might share the same fate. This might not get cleaned up at all. This attack by the Houthis came after extensive missile attacks on the Houthis by the United States as part of operation Prosperity Guardian or whatever stupid name they gave this futile exercise.
I remember listening to Brent Johnson from Santiago Capital, the guy who coined the dollar milkshake theory, talk about his theory where the dollar is not strong overall, but it is incredibly strong in comparison to all the other currencies in the world. He said the dollar is the reserve currency because of the ships and carriers of the US Navy protecting trade all around the world. I hadn’t thought of it in quite those terms. Now we see that the merry little band of goat herders are in control of the Bab al Mandeb Strait and not the world’s superpower in decline. It might not be total control, but a large majority of the world’s trade is bypassing the Red Sea region and going around Africa. That will add to the prices of everything, and also disrupt shipping schedules as the boats will be taking longer to return from their port of call. This requires more ships to haul the same cargo and supply chain shocks could return in a muted form of what we saw during Covid. Shipping costs and insurance costs are already rising for ships in that region. Asia/European trade just got more expensive.
LB#3-
Speaking of violence, we live in a more and more bifurcated world. The haves seem to be having more while the have nots seem to be having less. Joe Schmo is getting poorer while Bezos and Musk are building hobby rockets to go to space. That is my observation here in America, one of the richest countries in the world in aggregate and per capita. A poor person here is still much better off than the poor in other countries which is why so many are immigrating here. But don’t think for a minute that the dissatisfied in other countries are taking this developing set of events peacefully. When there is inequality, it can lead to social chaos or revolt. We have two cases today that showcase the inequality of responses. First, we go to Brandenburg Germany where the Tesla plant was vandalized by arsonists that started a fire that caused hundreds of millions of euros of damage. Production had to be stopped and workers evacuated.
Vassia Barba writes for the Mirror, “Hours after the attack, a letter by the “Volcano Group”, a far-left group, claiming the suspected attack appeared on the alternative media website kontrapolis.info. The letter read: “We sabotaged Tesla,” describing the attack as a gift marking March 8 – International Women’s Day. “Tesla consumes earth, resources, people, workers and in return spits out 6,000 SUVs, killer cars and monster trucks each week… The lithium batteries come from toxic mines in Chile and devour other rare metals, causing misery and destruction for the people in the mining areas. The battery factory in Grünheide near Berlin requires the rare raw material lithium, which is also mined in Bolivia, for example.
“To enforce lithium mining in Bolivia, Musk puts his cards on the table: ‘We will stage a coup if we want.’” That is saying a lot, and it is not a lot that we haven’t said while criticizing Musk for raping the earth to create virtue signaling EVs to enrich himself. Such is business and the market will decide, but this is an example of social chaos in developed countries, ones at the top of the food chain if you will. The displaced workers will go home to their beds and sleep safely tonight, but that is not happening in our second example.
Haiti is quickly developing into a country without basic law and order. Gangs are running large parts of the country and trying to seize the main airport to prevent current Prime Minister Ariel Henry from returning to the island nation. Isabelle Stanley writes for DailyMail, “Heavily armed gangs have tried to seize control of Haiti’s main airport after 4,000 inmates escaped prison and started ‘massacring people indiscriminately… The ensuing chaos has forced more than 15,000 people to flee their homes, many of which have been destroyed, leaving them living in camps. Gangs already were estimated to control up to 80 percent of the capital Port-au-Prince. They are increasingly coordinating their actions and choosing once unthinkable targets such as the Central Bank….
One of the privileges of living in a developed country is that we benefit from law and order. However, our law has been hijacked, our police officers have been villainized, and our order becomes threatened when this happens. I always find it chilling when I hear that saying, what happens if you called 9-1-1 and no one answered. I think that is exactly where Haiti finds itself. The gangs are armed, the citizenry is not. The gangs will take, and the citizens can’t stop them. The gangs and lawlessness are the result of abject poverty that has plagued the nation since the 2021 earthquake that destroyed up to 10% of its GDP costing billions of dollars of damage and thousands of destroyed buildings.
We try to learn from our history and let this serve as an example when financial chaos leads to real chaos. It isn’t vandalism in a car factory, it is rampant lawlessness, brutal murder, and helplessness.
Looking Forwards…
LF#1
Moving from that rather macabre scene and back to first world problems, the modern cheeseburger in a bar is being threatened by inflation. Heather Haddon and Ruth Simon write for the Wall Street Journal “A $16 bacon cheeseburger may not be enough to save your neighborhood bar and grill. Independent restaurants are on financial life support, owners say, squeezed between escalating payroll costs and diners’ dwindling tolerance for ever-higher checks. Wages for waitstaff, table bussers and line cooks will grow more expensive for many eateries this year, with 22 states in January raising the minimum wage for hourly workers.” Financial statement analysis over long stretches of time is compared only in ratios not absolute figures. This is due to inflation. At the top are revenues, below that cost of goods, labor and other expenses are below that and at the bottom is hopefully a profit. If you compare a restaurant from the 1970s to today the numbers wouldn’t make any sense but if looked at on a percentage basis, they would be similar. Restaurant owners are scared to death to raise prices, and they should be, because if they raise prices too high they will lose customers. However, labor is a price, insurance is a price, utilities are a price, and eventually if they go up, the top line revenue price that is received from a cheeseburger must go up or there is not profit. The ratios are getting all messed up, and the owners of these restaurants are eating the higher input costs and sacrificing profit, for now.
Haddon and Simon had a great stat in this article as well, “In January, prices for food eaten away from home were up 30% compared with the same month in 2019, Labor Department data showed.” Despite 30% price gains, it still isn’t enough. The natural price for this cheeseburger needs to be higher than $16. When some of these restaurants close, there will be less supply of cheeseburgers and the ones that survive will charge $20 for a cheeseburger and the ratio will again be back to the 1970’s ratio balance maybe it is $22, but it isn’t $16. Even less people will be able to afford a $22 cheeseburger and eventually they might consider voting for a fiscally responsible elected representative to stop this foolish fiscal spending that is the reason why they can’t afford a damn cheeseburger. You liked how I tied that all together to blaming the government didn’t you? That’s right, fans of the cheeseburger unite!
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LF#2
Another area that has caught my attention this week is what are we going to do going forwards with all this electricity demand. Contrary to what millennials think, electricity doesn’t grow on trees. Not even those great big ones with the little wires. No, those aren’t trees, those are power lines, Sebastian. Going back to playing Halo and let the adults talk. That’s right, the United States is running short of electricity. Electric cars, new onshored factories, and data centers are consuming vast amounts of electricity. The Washington Post writes “In Georgia, demand for industrial power is surging to record highs, with the projection of new electricity use for the next decade now 17 times what it was only recently. Arizona Public Service, the largest utility in that state, is also struggling to keep up, projecting it will be out of transmission capacity before the end of the decade absent major upgrades.
Northern Virginia needs the equivalent of several large nuclear power plants to serve all the new data centers planned and under construction. Texas, where electricity shortages are already routine on hot summer days, faces the same dilemma.”
Cloud based computing, AI facilities and bitcoin miners are all huge users of electricity that didn’t really exist just a few years ago. Data centers used 4% of the nation’s electricity in 2022 and by 2026 that is expected to be 6%. The ability to generate power will be needed to support these new industries. Now, let’s stop and think for a minute. How will we generate enough reliable power for that to happen? Hmmm. We have talked about how wind and solar are not the answer and how many problems the companies that are trying to come to market with that technology are having. The best answer would be nuclear, but there seems to be a NIMBY issue. Not in my backyard. The regulatory process for that seems to take decades even if there was appetite for that technology. So as is, the prices for electricity like the cheeseburger must go up. It is supply and demand. Do you think the average consumer or Google can better afford a 20% price increase? We saw the prices of homes become unaffordable for most citizens in the last decade because big business investors came in and outbid the potential owner occupants for homes with their Wall Street money and cash offers and quick closings. I expect the same thing to happen with electricity in the future, it will become a luxury. In the 70’s, a father’s job was to yell at their kids to turn the light off in their room if they weren’t in it because electricity was so expensive. We will return to the 1970s ratios in electricity just like restaurants.
LF#3
Ireland has voted against another woke agenda item and did so convincingly. The government seems stunned. Olivia Fletcher writes for Bloomberg, “Irish referendums held to change outdated language on women and the family in the constitution were defeated Saturday in a surprise setback for the government, which admitted that it had failed to convince citizens the vote was necessary for social progress.
“It was our responsibility to convince the majority of people to vote yes,” Irish Prime Minister Leo Varadkar told reporters in Dublin as it became clear the votes would fail. “I think we struggled to convince people of the necessity or need for the referendums at all, let alone detail on the wording.” This autocratic authoritarian language just makes my blood boil.
Fletcher continues, “The votes centered around changing two parts of the charter, written in 1937 under the influence of the Catholic church. The first referendum proposed that the definition of “family” should be widened beyond marriage to include other “durable” relationships like cohabitation, while the second sought to remove language referring to womens’ care duties in the home and replace it with gender-neutral wording.
A majority of people, 68%, opted against broadening the definition of family. The second vote to recognize the role of all kinds of caregivers in the home, meanwhile, fell as 74% of citizens chose “no,” according to the returning officer’s website, due to confusion over the vague outcomes it would produce…. The government went on a solo run. They wouldn’t listen,” Sinn Fein leader Mary Lou McDonald said in a statement. ” This was 7 out of 10 and 3 out of 4. This is Ireland saying we believe in family being relation. Not roommates, not sleepovers, not boyfriend and girlfriend, why do I have to be surprised again when governments are trying to change the meanings of words. Maybe because they are the real enemy. I can’t believe I forgot to mention that, but then again April 15 is coming up next month. That is always a good reminder.
Sincerely Yours,
C Thomas Printer
The Dow Jones finished trading at ……..38,222.
The 10-year Treasury bond is at …4.077%
The price of Brent Crude is … $82.08 per barrel.
The price of gold is … at an all-time high of $2,186/oz.
The price of silver is … $24.53/oz.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.