- Silicon Metal's 300% Price Surge Throws Another Wrench In Global Supply Chains
Silicon Metal’s 300% Price Surge Throws Another Wrench In Global Supply Chains
Leading producers of silicon metal in China have been forced by the Chinese Communist Party (CCP) to reduce production by 90% below August levels from September through December amid a nationwide power crunch. Production declines may spark tighter supplies in the metal, threatening everything from computer chips to solar panels to medical implants to concrete to glass to automobile parts, furthermore throwing another wrench in chaotic global supply chains.
Bloomberg data shows silicon metal prices have jumped more than 350% since the beginning of July. This comes as power supply disruptions have become more intense over the last couple of months as CCP curbs power to energy-intensive industries because lower than the expected output at power plants has strained the country’s grid.
The ripple effects are alarming for chemical manufacturers who convert silicon metal into silicone-based products. “If you have silicon supply constraints, then you’ve got a problem,” Keith Wildie, head of trading at aluminum alloy-maker Romco Metals, told Bloomberg. “There is still some supply out there, but it’s trading at a clearing price that is obviously very high.”
This week, more than half of China’s provinces experienced their worst power-supply disruptions in more than a decade. There’s a confluence of factors for CCP’s clampdown on energy-intensive industries, such as carbon emission targets set by the central government, thermal coal supply constraints, and lower than expected output by power plants.
The Yunnan province in southwestern China is the second-largest producer, accounting for more than 20% of the country’s output, has experienced power curbs in recent months. Sichuan is third at 13% is also facing power disruptions. The top producer, Xinjiang, has yet to face significant power issues.
Along with higher prices for aluminum, copper, and crude, the silicon shortage is feeding into a squeeze that may continue to worsen the great computer chip shortage.
The damaging effects of China shuttering factories because of power constraints are raising bets that rising inflation and slumping growth have already sparked global stagflation forces.
Tyler Durden
Mon, 10/04/2021 – 02:45 - Electricity Bills In Italy Rise By Almost 30 Percent From Friday
Electricity Bills In Italy Rise By Almost 30 Percent From Friday
By TheLocal Italy,
Household electricity bills will rise by 29.8% for the typical family and gas bills will go up by 14.4%, Italy’s energy regulatory authority Arera confirmed in a press release last week. The new national tariffs came into effect on Friday, the start of the fourth quarter of 2021. The increase comes amid surging energy costs across Europe, and beyond.
The price rise passed on to Italian consumers could’ve reached 45 percent, Arera said, if the government had not stepped in to cap the new rise in rates.
The Italian government last week announced measures costing three billion euros aimed at limiting a steeper rise in energy prices for consumers.
As well as keeping the cost to most families below 30 percent and 15 percent, the government measures will keep additional costs at zero for those least well-off, including households with an income under 8,265 euros, families with at least 4 dependent children with an income of less than 20,000 euros, those who receive a state pension or unemployment benefit, and people who are seriously ill, Sky TG24 reports.
The measures also cut the ‘general charge’ from gas bills for all throughout the last quarter of 2021, and on electricity for families and some small businesses.
Last quarter, the retail cost of electricity rose by 9.9% and gas by 15.3% from July 1st. The government also stepped in that time to cap costs, with 1.2 billion euros in state aid.
Italian Prime Minister Mario Draghi said last week that many of the reasons for the energy price increases were temporary but called for long-term action, including at a European level, to address the problem, including through diversifying supplies.
Italy is highly dependent on imports and consumes a large amount of gas. Some 40% of its primary energy consumption is gas, compared with about 15 percent in France, according to official statistics for both countries.
Europe is facing soaring power prices as its economy recovers from the coronavirus pandemic, while natural gas reserves are at a worrying low level as winter approaches.
Italian consumers are now paying some of the highest electricity prices in Europe, with the average cost already at 145.03 euros per mw/h (megawatt hour) according to newspaper Corriere della Sera.
This means the cost is higher than in Portugal and in Spain, where electricity costs have soared to 141.71 euros per mw/h, reaching an all-time high on September 9th after significant price rises across much of Europe over the past 12 months.
Tyler Durden
Mon, 10/04/2021 – 02:00 - How Democray Ends
How Democray Ends
Authored by Vinay Prasad via Substack,
COVID19 policy shows a (potential) path to the end of America…
The pandemic events of 2020-2021 outline a potential pathway for a future democratically elected President of the United States to systematically end democracy.
The course of events leading to this outcome need not be a repeat of the direct assault on the Capitol, but a distortion of risk of illness as a justification for military force and suspension of democratic norms.
Sometime over the next quarter century, it is inevitable that America, and all nations, will experience a cold and flu season above average. In a typical season approximately 40,000 Americans may die, but it is possible an above average season may see 80,000 or more deaths.
Inevitably some location(s) in the country will experience a surge in cases. Television news will show overworked hospital workers, and report that Intensive Care Unit beds have nearly run out– of course, ICU’s often operate near capacity, so this finding alone may not be that noteworthy, but in our attention economy, it may be sensationalized. Some afflicted individuals will be young children– typical for the flu, and these anecdotes will surely be emotionally salient. A video of a young boy or girl on life support machines may be used to show how dire things are. These events will then serve as an opportunity for a strong federal response.
A future US president may declare that the crisis in the region from influenza is unprecedented. Too many children are dying, and hospitals are near capacity. Citing the lessons of COVID19—that if anything we acted too late—the President may call upon the governor to issue a shelter in place warning. A week later, citing a continued rise in case, and “non-compliance” of the local people, the President could order the national guard or army troops in to secure the region. Notably, military force was applied in Australia during COVID19.
During the COVID19 pandemic, some of the most ardent calls for strong restrictions came from members of the political left. If a future president is on the political right; this would serve as a natural opportunity to remind the public that strong tactics were precisely what the other side demanded more of during COVID19. Life and safety, particularly that of children, is of paramount importance, and strong lockdowns must ensue. In many regions across the world, one political party preferred stronger countermeasures to COVID19, in all those nations, the opposing party that has the advantage for misusing force in the future.
Eventually, inevitably, disagreements with the policies will arise. Social media may see small explosions of dialog critical of prolonged lockdown or skeptical of hospital volumes. A future leader can seize this opportunity for a forced takeover of media or social media companies. Misinformation that compromises a national attempt at safety must be shut down. The future leader can remind the public that during COVID19 many were critical that we did not do enough to ban dangerous and misleading speech, and now we are doing just that.
As rules against movement are in place, with communication and media disrupted, a leader can state–without evidence– that cases are still climbing. Anecdotes, even true ones, can be provided to show the public that some people are not doing well. Accordingly, further tracking of movement may be justified. A leader can ask or mandate citizens to carry apps on their phone tracking their location. Random spot checks (such as those faced by parolees) may be applied. Non-compliance can be treated with ankle monitors or imprisonment. Deeper restrictions on movement and assembly may follow, preventing protests and counter-movements.
As elections approach, a future leader may announce that safety is a key concern and exigent circumstances call for exigent responses. As such, elections will be suspended, pending a safer time. While the Constitution of the United States does not permit the election date to be moved, it does permit states to decide electors as they see fit. A future leader may coerce states into deferring elections, and hand pick electors instead. And with that, the end of democracy will have begun.
When democratically elected systems transform into totalitarian regimes, the transition is subtle, stepwise, and involves a combination of pre-planned as well as serendipitous events. Indeed, this was the case with Germany in the years 1929-1939, where Hitler was given a chance at governing, the president subsequently died, a key general resigned after a scandal and the pathway to the Fuhrer was inevitable.
The key factors that currently exist and may pave the way to totalitarianism are the following:
1. Strong force, including military force, has been used in other western, democratic nations to combat a respiratory virus
2. The public has accepted severe restrictions on movement and commerce in the face of respiratory pandemic, with many calls for greater restrictions to be applied
3. The media is able to present vignettes or anecdotes about overwhelmed hospitals or the untimely death of a young person, without acknowledging the denominator or comparing the risk to other risks we accept.
4. The rise of social media corporations means that public dialog increasingly occurs in spaces that can be regulated.
5. American increasingly comfortable with regulating and censoring information
6. The idea of safety as a virtue above all other dominates the culture
7. The party that favored stronger application of force during the COVID19 pandemic is vulnerable to misuse of force for a respiratory virus from the counterparty in the future
These core trends provide the basis and preconditions for a potential usurping of democratic norms. Increasing political polarization and tribalism would fuel that effort, as would worsening income inequality and reductions in upward mobility, which have worsened in recent decades, but may be exacerbated by the pandemic. Ultimately however, the proximate proffered explanation would be safety.
The key lesson of the coronavirus pandemic is not that the fall of democracy is inevitable, but rather that our policy preferences, and polarization, have set the stage for a series of events where it is possible democracy falls. As Madeleine Albright. says, “While democracy in the long run is the most stable form of government, in the short run, it is among the most fragile.” We must be careful not to create a roadmap to this future with our policy choices today, perhaps we already have.
A video discussion..
Tyler Durden
Mon, 10/04/2021 – 00:00 - Air Force's Secretive X-37B Spaceplane Orbits Earth For 500th Day
Air Force’s Secretive X-37B Spaceplane Orbits Earth For 500th Day
The U.S. Air Force’s secretive X-37B, also known as the Orbital Test Vehicle (OTV-6), is a robotic spacecraft circling Earth for more than 500 days, according to Space.com.
X-37B’s real mission in low Earth Orbit (LEO) is classified. But a 2017 Air Force press release detailed the plane as a “host platform for experimental payloads.”
However, a few unclassified experiments have been named in the latest mission. The U.S. Naval Research Laboratory (NRL) examines if it can transform solar power into radiofrequency microwave energy. The experiment is called Photovoltaic Radio-frequency Antenna Module (PRAM). Another experiment is being conducted by the U.S. Air Force Academy and sponsored by the Air Force Research Laboratory to test a FalconSat-8, a small satellite, in orbit. That’s as much as we know, and for the other experiments, well, they remain classified.
Here are the most recent space missions of the plane via Space.com:
OTV-1: launched on April 22, 2010 and landed on December 3, 2010, spending over 224 days on orbit.
OTV-2: launched on March 5, 2011 and landed on June 16, 2012, spending over 468 days on orbit.
OTV-3: launched on December 11, 2012 and landed on October 17, 2014, spending over 674 days on-orbit.
OTV-4: launched on May 20, 2015 and landed on May 7, 2015, spending nearly 718 days on-orbit.
OTV-1, OTV-2, and OTV-3 missions landed at Vandenberg Air Force Base, California, while the OTV-4 and OTV-5 missions landed at Kennedy Space Center, Florida.
The X-37B program is managed by the U.S. Space Force unit called Delta 9, established and activated July 2020. There has been no disclosure of how long the space plane will remain in orbit.
In 2019, amateur space enthusiasts captured the X-37B orbiting Earth on camera.
As for the exact mission, we’ll never know what the space plane is doing in low Earth orbit.
Tyler Durden
Sun, 10/03/2021 – 23:30 - Evergrande Stock Suspended Amid Default Concerns; Sending Futures, Cryptos Sliding
Evergrande Stock Suspended Amid Default Concerns; Sending Futures, Cryptos Sliding
Two weeks after markets freaked out about Evergrande, only to completely forget that China’s property sector is about to be gripped by a major crisis, futures got dinged on Sunday night and Hong Kong stocks slumped the most in two weeks after shares in Evergrande and its property management unit were suspended from trading Monday in Hong Kong, as traders eyed a fresh debt test for the developer.
No reason was given for the halts Monday, with shares of another unit, China Evergrande New Energy Vehicle still trading in Hong Kong.
After Evergrande failed to make interest payments on two offshore bonds, uncertainty over Evergrande’s debt returned amid concerns if the company would also default on a dollar note maturing Oct. 3 issued at an initial amount of $260 million by an entity called Jumbo Fortune Enterprises and which is guaranteed by Evergrande. As the maturity is a Sunday, the effective due date is Monday. The issuer is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit.
What is notable about the Jumbo Fortune note is that unlike the previous two non-payments which have a 30 day “cure” period, the Sunday maturity has no grace period and non-payment of bond principal would constitute a default, although as Bloomberg notes five business days would be allowed if failure to pay is down to administrative and technical error. Details of the guarantees weren’t broadly known as the note prospectus isn’t publicly available and the deal wasn’t listed on exchanges. Adding to the potential leeway is that Monday is a holiday in China.
The news of the suspension sent S&P futures in the red after earlier gains, with Japan’s Topix also reversing an early gain…
… and sent Hong Kong’s Hang Seng falling as much as 2.7%, the most in two weeks, as shares of pharmaceutical and tech companies slide. Following the Merck news, Wuxi Biologics slumped as much as 8.1%, the most since Aug. 20, while CSPC Pharmaceutical tumbles as much as 7.1% In tech land, the Hang Seng Tech Index extended its fall to 2.6%; Ping An Healthcare and Alibaba Health drag it lower, declining at least 6% each
The Evergrande suspension also hammered cryptos although why anyone, beyond a handful of confused algos, would sell here when China can no longer ban bitcoin and its peers having already banned it about 17 times.
Yet as nervous algos were once again googling Evergrande, it appears that China was already taking active steps at ringfencing the coming default, with Caillan reporting that Hopson Development – which is also halted in HK this morning – was set to acquire a 51% stake in Evergrande Property Services for more than HK$40b, a template for what future piecemeal (forced) bailouts of the insolvent property developer will look like.
Tyler Durden
Sun, 10/03/2021 – 23:13 - Why "Science Denial"?
Why “Science Denial”?
Authored by Sheldon Richman via The Libertarian Institute,
In a new book two professors of psychology, Gale Sinatra and Barbara Hofer, seek to explain why what they call “science denial” is rampant today and how dangerous it is. They also give their account in a strange conversation with Michael Shermer, the editor of Skeptic magazine, from whom we might have expected a tad more “skepticism” or at least some devil’s advocacy.
The views of all three are in some ways vague and even confused, but the condescension toward the unenlightened rubes who disagree with them on certain scientific controversies–primarily climate- and COVID-19-related–couldn’t have been more clear.
Pacific Press/LightRocket via Getty Image While Sinatra and Hofer smear a large and diverse group of people as “science deniers,” they undercut their own claim when they admit that no one actually rejects science per se. So their sensational but misleading title and broad statements are designed not to inform but rather to sell books to their progressive-minded audience. The rubes they are talking about, the authors admit, go to doctors, take prescribed medicines, fly on airplanes, etc. That hardly sounds like general science denial.
So what’s the problem? What the authors have in mind is doubt about or rejection of particular scientific claims. They are willing to apply the label “cafeteria deniers.” But why not call them “cafeteria skeptics”? Or would that hit Shermer too close to home?
My purpose is not to defend or criticize any particular scientific claim in dispute. Some are backed by strong evidence, while others have little or no evidence behind them. Laymen ought to exercise care in (tentatively) deciding who among the contending scientists are likely to be right. Here I only want to raise a big reason for doubt that the authors and Shermer ignore.
But first, to demonstrate authors’ and Shermer’s sloppiness (which may be too charitable an interpretation of what they’re doing), please note that early on they embrace the allegedly near-unanimous (97 percent) consensus among climate scientists on ominous manmade global warming. Their point is that anyone who would take a position contrary to such an overwhelming consensus would have to be a jerk.
In fact, that so-called consensus was cobbled together by examining just the abstracts of a selection of climate scientists’ journal articles over a certain period. Only a third of those papers expressed an explicit or implicit view on whether manmade global warming was happening. Of those, 97 percent agreed on–well, something. But what? What they all apparently agreed on was that an unspecified amount of warming has occurred and that human activity has had an unspecified degree of responsibility.
Notice that no magnitudes and no net assessment of harms and benefits are implied in that sentence whatsoever. By that low bar, most if not all climate scientists and laymen in the realist-optimist camp are part of the consensus! That a good deal of the force out of the consensus proclamation, wouldn’t you say?
Yet this “consensus” is decisive for climate alarmists Sinatra, Hofer, and Shermer. (If you think humility is a virtue in scientists, don’t look for it in these writers.) Shermer says what impressed him is that all those in the 97 percent “converged” on that view (again, what view?) “independently,” while the others, he says, converged on no particular theory about the climate. Has he looked into the facts? Or does he go along with whatever is called a consensus by the news media? Is this is how he decides on matters outside his specialty? They’re growing a strange crop of skeptics these days.
Here is the problem: when the authors and Shermer call someone a “climate change (or just a climate) denier,” they are making a slickly illegitimate move; for what’s being denied is not climate change or warming between 1850 and 1998, but a looming climate catastrophe, natural or manmade. Catastrophe denial does not equal climate-change denial. No one–no one!–thinks that climate does not change. Well, actually one group does seem to think this: the alarmists who imply or say outright that except for human activity, climate would not change (or not change very much). But that of course is absurd. The concept change is baked into the concept climate. The only sense in which the climate is not changing today is that it never stops changing.
Sinatra, Hofer, and Shermer spent an hour and a half talking about “science denial,” with no disagreement among them. In all the time none of them mentioned the word politicization, that is, the perverse incentives from government meddling in scientific research. They discussed lots of possible reasons for “denial”–like confirmation bias and other well-known cognitive biases–but it seems never to have occurred to any of them that some people are more inclined to distrust particular scientific claims these days than previously because they have observed that purportedly objective claims (and not just about scientific matters) are used to advance political causes. Sinatra, Hofer, and Shermer have no trouble believing that so-called deniers have hidden political and cultural agendas, but they show no sign of suspecting that those who make the claims, along with the politicians who translate them into coercive government policy, may also have political and cultural agendas–and often not so hidden.
This seems like a serious shortcoming. While Sinatra and Hofer acknowledge that scientists are human beings and subject to the same imperfections as everyone else–envy, greed, ambition, a desire for peer approval, etc.–they assure us that these faults are rooted out by an internal checks-and-balance system. Because of these, no threat to science can arise from within, but only from outside, that is, from “deniers.”
That, however, isn’t how it works out. Checks and balances on paper often bear little relationship to checks and balances in practice. (This is true of constitutions too.) For example, the peer-review process for academic publication and promotion has become incestuous “pal review.” Paradigms are protected against challenges and patched up through ad hoc salvage operations when a paradigm’s shortcomings are exposed.
Moreover, politicians are naturally inclined toward research that identifies “crises” that allegedly only government can address. As H. L. Mencken pointed out, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.”
In need of government grants to secure promotion and tenure at their universities, many scientists are inclined to give the politicians what they want. Those are the ones who will get the money, at any rate. An orthodoxy arises, and independent thinkers, no matter how qualified, are marginalized and smeared as, say, “science deniers.” (The obvious association with the properly stigmatized term Holocaust deniers is no coincidence.) It’s happened repeatedly before. It’s happening now. (Again, I don’t mean that every scientific claim that is criticized is necessarily wrong.)
Politicians demand research that goes in one direction, and some scientists are happy to supply it. The politicians then use the research to justify expanded power (the Green New Deal and economic shutdown in a pandemic), which stimulates further research in that direction. I’m not saying that every participant is a cynic, but it is fun to be near the action. To borrow a trope from the analysis of the military-industrial complex, it’s a self-licking ice-cream cone. And all of this is further amplified by the 24/7 news media, which will always prefer reports of looming disasters to good news, and of course the social networks, which are the lookout for “misinformation.”
If you want to see how politicization can create doubters, here’s one case apart from scientific controversies: Russiagate. For years the American people were assured by most of the “objective” mainstream media, fed by “public-spirited” leaks and retired government spies working as dispassionate commentators, that the allegedly nonpolitical intelligence apparatus had solid evidence that Vladimir Putin had rigged the 2016 election to put his puppet Donald Trump in the White House. None of that was true, as shown by the massive FBI investigation led by a sainted special counsel. Don’t you think that a good portion of the American people realize that this establishment campaign was intended to drive Trump from office or at least cripple his presidency, effectively reversing the election? (One need not be a Trump fan–I’m certainly not–to see this.) Germane to my point, if that kind of gross abuse can occur in one matter, why can’t it be occurring in other matters?
A key part of the politicization of science is government finance of research, which Sinatra and Hofer predictably want more of. As I noted recently, in his 1961 farewell speech President Dwight Eisenhower warned about the emerging government-science complex, which he said was just as dangerous as the military-industrial complex.
If climate alarmists regard private support for research as tainted by self-interest, the rest of us are entitled to regard government support as similarly tainted. Sinatra, Hofer, and Shermer really should grow up and embrace what Public Choice political economist James Buchanan called “politics without romance.”
Maybe if politics had not tainted institutional science, fewer people would distrust so many of its claims. Politics is the craft of winning and maintaining power by assembling self-serving coalitions in order to impose costs on everyone else. Some people have justifiably come to assume that many government-financed scientific claims are formulated for that purpose.
If I’m right, then the use of science to advance an interventionist political agenda has sown very distrust the authors and Shermer abhor. Laymen should certainly be discriminating when they judge scientific claims, and real consensuses should be taken into account. But that does not exonerate the scientists who have actively fed policymakers’ efforts to control our lives.
Tyler Durden
Sun, 10/03/2021 – 23:00 - Watch: First-Ever Drone Boat Sails Into Eye Of Cat 4 Hurricane
Watch: First-Ever Drone Boat Sails Into Eye Of Cat 4 Hurricane
Saildrone Inc. and the National Oceanic and Atmospheric Administration (NOAA) deployed a sailing drone boat into the heart of a Category 4 hurricane last week. The 23-foot-long uncrewed vessel captured stunning video of “where no research vessel has ever ventured” before, the eye of a major storm.
The video of the un-crewed surface vehicle called the Saildrone Explorer SD 1045 battled Hurricane Sam’s 50-foot waves and winds of over 120 mph to collect scientific data about the storm and gave researchers a new view of one of earth’s most destructive forces.
“Saildrone is going where no research vessel has ever ventured, sailing right into the eye of the hurricane, gathering data that will transform our understanding of these powerful storms,” said Richard Jenkins, Saildrone founder and CEO. “After conquering the Arctic and the Southern Ocean, hurricanes were the last frontier for Saildrone survivability. We are proud to have engineered a vehicle capable of operating in the most extreme weather conditions on earth.”
SD 1045 is one of five drone ships collecting information on tropical cyclones throughout the Atlantic during the busy 2021 hurricane season. Saildrone has allowed NOAA researchers to “improve forecast models and predict rapid intensification of hurricanes,” said Greg Foltz, an NOAA scientist.
Foltz said, “new data from saildrones and other uncrewed systems that NOAA is using will help us better predict the forces that drive hurricanes and be able to warn communities earlier.”
“This is an amazing victory for meteorology and will increase our knowledge of hurricanes,” said AccuWeather Director of Forecast Operations Dan DePodwin, who wasn’t involved with the operation.
Watch SD 1045’s onboard camera from inside Hurricane Sam.
Tyler Durden
Sun, 10/03/2021 – 22:30 - College Students Beg For Ammo As Millennials And Gen Z Embrace Guns
College Students Beg For Ammo As Millennials And Gen Z Embrace Guns
Submitted by The Machine Gun Nest (TMGN).,
Not too long ago, we wrote a response to something that prominent gun activist David Hogg said on Twitter. He believes that all gun owners are old fogey dinosaurs and will somehow “die out one day.” When they do, all the young people will usher in the utopia where nothing bad happens, and there will be no more evil guns.
Well, according to an article recently published by The Daily Gamecock, an editorially independent student news organization of the University of South Carolina, involves college students complaining about the ammo shortage. It seems like just another piece of evidence that Hogg’s idea, and honestly, the left’s idea in general that young Americans are increasingly against guns, is flat out wrong.
As the article mentions, not much attention is paid to college students regarding anything firearms-related, even though they’re increasingly becoming a large demographic of gun-buying Americans.
In fact, the idea that younger Americans are against guns is a silly one; younger Americans were raised on the “scary” violent video games, tv, and movies from the 2000s that politicians and corporate media outlets were hysterical about back then. Those same entertainment properties are pop-culture staples today.
Maybe even more importantly, young people have access to the internet. They have access to the opinions of independent commentators and can get both sides of the story being told to them. They don’t just get the news on current events from the corporate media and accept it as being the truth. Ironically though, some of the biggest gun control supporters are baby boomers, who largely still do get their news and information from corporate media outlets.
We also have the pandemic and social unrest of 2020 to thank for a major awakening in many American citizens on gun ownership. Nine million people became gun owners between 2020 & that number continues to rise through 2021. A considerable percentage of that 9 million people are women, minorities, and younger people.
Women, for example, make up almost half of new gun owners. In our own experience here at Maryland-based The Machine Gun Nest, it has become very common to see women come in by themselves to get range time in and practice with their handguns. A lot of these women are younger, college-aged people as well!
It’s unlikely that gun ownership will simply “die out.” But it seems that people are starting to wake up to the idea that the anti-gun lobby is controlled by a few extremely wealthy individuals who spend big money on people like David Hogg to become mouthpieces for their ideology.
As the trend flips and younger Americans embrace the Second Amendment, Hogg’s campaign against guns could be fading into darkness.
Tyler Durden
Sun, 10/03/2021 – 22:00 - DHL Joins Rivals FedEx And UPS In Raising Shipping Rates Amid Inflationary Woes
DHL Joins Rivals FedEx And UPS In Raising Shipping Rates Amid Inflationary Woes
DHL Express joins rivals FedEx Corp. and United Parcel Service Inc. in raising freight rates for customers, which begs the question: Is inflation structural in nature rather than “transitory”?
Effective Jan. 1, DHL will increase freight rates by 5.9%, or about the exact rate FedEx announced last week.
“You have general inflation; We’ve got to cover for that,” Mike Parra, CEO of DHL Express Americas, told WSJ. He said other costs for increasing capacity, such as planes, trucks, and facilities, are becoming more expensive.
DHL Express announced the increase on Friday and said it would apply to U.S. account holders shipping to or from the 220 countries and territories. It was only last week when FedEx and UPS stated they would increase freight rates. Both companies called today’s environment “challenging” as costs rose.
This ultimately means that retailers will have to increase prices as the cost of shipping is only going higher. The cost pressures will force retailers to absorb added costs or pass them along to consumers.
Cathy Roberson, head of research and consulting firm Logistics Trends & Insights LLC, said rising shipping costs could be a nightmare for companies that may have to rethink their logistical fees for customers:
“Retailers may need to rethink the whole ‘free shipping’ offering that they provide to their customers,” Roberson said. “It’s going to end up having to be trickled down to the customer, because the shippers—such as retailers, manufacturers, wholesalers and so on—they can’t keep absorbing higher costs. They’ve got to pass them on in some form or another.”
Meanwhile, at the annual Morgan Stanley Laguna conference, some of the largest U.S. corporations warned last week that inflation is “unprecedented” and becoming “structural.”
There’s even talk from BofA’s Michael Hartnett that this winter could be filled with higher inflation, hawkish central banks, weaker growth, i.e., stagflation.
One would suspect that it’s only a matter of time before Amazon raises its monthly Prime membership as soaring logistical costs show no signs of abating anytime soon.
Tyler Durden
Sun, 10/03/2021 – 21:30 - Man Asks California Reparations Task Force For "40 Acres & A Tesla"
Man Asks California Reparations Task Force For “40 Acres & A Tesla”
Authored by Brad Jones via The Epoch Times,
California’s Reparations Task Force recently heard ideas ranging from “40 acres and a Tesla” to cash settlements to compensate the descendants of chattel slavery in America.
The Task Force to Study and Develop Reparation Proposals for African Americans listened to hours of professional and personal testimony from witnesses and public comments at a two-day hearing Sept. 23 and 24.
The meeting focused on the evils of chattel slavery during the Trans-Atlantic slave trade and its effect on the descendants of black Americans who were enslaved. Although the tone of the meeting was mostly somber and emotional, the “40 acres and a Tesla” comment drew smirks from a few individuals on the nine-member task force, including Assemblyman Reggie Jones-Sawyer (D-Los Angeles) who broke into laughter.
A man who said his name was Kash Gaines made the remark on Sept. 23 during public comments.
Aside from direct cash payments to descendants of slavery, Gaines suggested “40 acres and a Tesla” would be more in step with modern times than the “40 acres and a mule,” as the phrase is popularly known.
Since the task force often mentioned that California is “one of the richest states in America and comparable economically to some countries,” Gaines said, “it’s a shining beacon for setting a high ceiling for what reparations could look like.”
“So just keeping that in mind—I hope that that’s well understood—what are y’all’s thoughts on trying to connect our reparative justice to so-called influencers of our time and specifically Silicon Valley … and in a way, even the black church, and that’s by having a 40 acres and a Tesla claim, essentially an update to the mule, where Elon Musk would have to argue why he wouldn’t fulfill a claim for 38 million cars for black Americans?” he asked the task force.
Gaines, also poked fun at California Gov Newsom’s executive order to phase out gasoline-powered cars by 2035.
“It is my understanding Gavin Newsom is trying to move California off of being on gasoline cars anyway,” he quipped.
“So just something to keep in mind that we are very, very interested in not just the direct cash payments as reparations, but in our land, and trying to connect it to something sexy for the next generation. And again, this connects to the black church, as was mentioned earlier, because it was the black church who gave that solution to General Sherman of 40 acres. It’s just I’m not with a mule no more, I’m with Tesla or something that’s an update.”
The phrase “40 acres and a mule” is commonly used to exemplify broken promises made to the descendants of slaves, and it has surfaced often during task force hearings.
The saying stems from the words of Union Army Gen. William T. Sherman, who—with the support of President Abraham Lincoln—promised 400,000 acres of confiscated Confederate land in the Carolinas to freed slaves near the end of the American Civil War.
Sherman and Union leaders met with black church ministers in Savannah, Ga., where the former slaves were asked what they wanted. The slaves told the famous general they wanted their own land. Sherman, in his Special Field Order 15, stated that land along the Southeast coast was to be set aside for 4,000 black families that had been enslaved so that “each family shall have a plot of not more than forty acres of tillable ground.”
He then assigned Brig. Gen. Rufus Saxton to the job of dividing up the land into 40-acre plots.
Though the words “and a mule” were never mentioned in Sherman’s order, it is said some of the freed slave families were given Army mules, and by Jan. 16, 1865, the promise of 40 acres became popularly known as “40 acres and a mule.”
As it turned out, Sherman’s order was short-lived. Not long after Lincoln, a Republican, was assassinated on April 15, 1865, his successor, President Andrew Johnson, reversed the order and returned the 400,000 acres to its previous Confederate owners. Johnson was a southern Democrat who ran as Lincoln’s running mate on the National Union ticket in 1864.
The Reparations Task Force has two years to draft an apology to the descendants of slaves and recommend ways the state might compensate them. It was established on Sept. 30 last year when Newsom signed Assembly Bill 3121, authored by then-Assemblywoman Shirley Weber, into law. She now serves as Secretary of State in Newsom’s administration.
Tyler Durden
Sun, 10/03/2021 – 21:05 - 90,000 Educators Beg Biden: We Need FBI Protection From "Mobs" Of Parents Irate Over Mask Mandates
90,000 Educators Beg Biden: We Need FBI Protection From “Mobs” Of Parents Irate Over Mask Mandates
How bad has the “it’s for your health” vaccine and mask mandates debate gotten?
The National School Boards Association, which represents more than 90,000 school officials, “begged” President Biden on Wednesday for FBI and Secret Service agents to help protect against “mobs” of angry parents protesting the mandates, according to the Daily Mail.
The NSBA wrote a letter asking the government to stand up against “mobs of angry parents”, labeling them “domestic terrorism” and “extremist hate organizations”.
NSBA President Viola Garcia and Interim Executive Director and CEO Chip Slaven signed the letter, which specifically asked President Biden to use his executive power to help guard school officials by mobilizing the FBI.
The letter reads: “The National School Boards Association (NSBA) respectfully asks for federal law enforcement and other assistance to deal with the growing number of threats of violence and acts of intimidation occurring across the nation”.
The letter says there have been “threats or actual acts of violence” by “angry mobs”.
“As these threats and acts of violence have become more prevalent, NSBA respectfully asks that a joint collaboration among federal law enforcement agencies, state and local law enforcement, and with public school officials be undertaken to focus on these threats,” it reads.
It continues: “With such acute threats and actions that are disruptive to our students’ well-being, we urge the federal government’s intervention against individuals or hate groups who are targeting our schools and educators.”
“As the threats grow and news of is being reported, this is a critical time for a proactive approach to deal with this difficult issue.”
“There also must be safeguards in place to protect public schools and dedicated education leaders as they do their jobs,” the letter says, before calling outraged parents showing up at school board meetings across the county “right-winged radicals.”
The outrage has been carrying over to school board meetings, like one that recently took place in Nevada’s Clark County. The board was forced to leave the room three times within the first two hours of the meeting.
‘We will not have comments from the audience,’ Board President Linda Cavazos said after one attendee had to be removed by police.
The letter concludes: “As the threats grow and news of extremist hate organizations showing up at school board meetings is being reported, this is a critical time for a proactive approach to deal with this difficult issue.”
We have to ask: instead of mobilizing the FBI and the Secret Service to try and protect 90,000 teachers using taxpayer dollars, has the idea of just ending the mask mandates and vaccine mandates ever crossed their mind?
Tyler Durden
Sun, 10/03/2021 – 20:40 - These Are The Four Main Risks In The Upcoming Q3 Earnings Season
These Are The Four Main Risks In The Upcoming Q3 Earnings Season
One of the major challenges facing the bull case, in addition to numerous previously discussed factors such as the Fed’s imminent tightening (save us the semantics, and just read Morgan Stanley on “Tapering is Tightening“), rapidly shrinking margins, rising interest rates and stagflation fears, China’s real estate slowdown, the global energy crisis, snarled supply chains, a potential US debt default, and the first failure of dip buying to push the S&P back to its rising trendline, is that after several quarters of record corporate earnings, equity valuations are increasingly coming under scrutiny and, as Goldman’s David Kostin writes in his latest Weekly Kickstart note, “investor focus will increasingly assess whether earnings growth can continue to lead the market higher.”
3Q earnings season kicks off when the largest Banks report during the week of Oct. 11th, 47% of S&P 500 market capitalization will report during the week of October 25th and 86% will report by November 6th.
Consensus expects S&P 500 EPS growth of +27% year/year in 3Q, a sharp deceleration from the 2Q growth rate of +88%, even if EPS growth for the median stock is forecast to slow more modestly, from +38% to +12%. Bottom-up estimates imply a roughly equal contribution to EPS growth from sales and margin expansion. Excluding Financials and Utilities, S&P 500 sales are expected to rise 15% yr/yr and net profit margins are forecast to equal 11.6% (+146 bp yr/yr). However, this would bring 3Q margins below the realized level of net profit margins from 1H 2021 (12.2%). All 11 sectors are expected to report positive EPS growth in 3Q, led by Energy (from negative to positive EPS), Materials (+90%) and Industrials (+71%).
And while a generally optimistic Goldman, which recently upped its S&P price target to 4,700 believes there is upside to consensus estimates (as a reminder, the share of companies beating EPS by more than a standard deviation averaged 71%, a record high, and the average EPS beat equaled 21%, well above the long-term average of 6%), the bank does warn that the frequency and magnitude of EPS beats will moderate from 1H 2021 – as economic and earnings growth are decelerating and base comparables have become more challenging – and warns that there are four key risks to watch: (1) Supply chains, (2) oil, (3) labor costs, and (4) China growth.
We delve deeper into these four earnings season themes below, but first we note that arguably the biggest challenge for stocks – especially high growth, ultra-high duration tech names, namely the rapid recent rise in rates which have led to a contraction in tech name valuations (the FAAMG sector is about 7% below its all time high). As Goldman recently warned (again) S&P 500 returns “have typically been below-average when rates rise by 1 standard deviation in a month and negative when rates rise by 2 standard deviations. The recent move in nominal rates was a 1.5 standard deviation event on a monthly basis, but reached the 2 standard deviation threshold on a 10-day basis.“
So going back to Goldman’s key risk factors we start with…
1. Supply chains.The ISM Suppliers Deliveries Index averaged 74 during the past six months (>50 indicates slower deliveries), the highest level since 1974. Of the 26 S&P 500 firms that reported results since the start of September, 18 mentioned supply chains on their earnings calls, primarily within Consumer and Industrial sectors. The average consensus revision to 4Q 2021 EPS for these firms has equaled -4%.
Goldman economists estimate that strong goods demand accounts for two-thirds of global manufacturing delays. Ironically, Goldman then writes that the strong demand backdrop and expectations that disruptions will ease is likely one reason that 2022 EPS estimates for these firms have been roughly unchanged. This is completely wrong as even the CEO of Mersk said that global demand has to ease so that supply can catch up and supply-chains can normalize; absent this we will remain in an indefinite state of stagflation. Where Goldman does get it right is that the largest firms have highlighted mechanisms including price hikes, cost controls, leveraging scale,and switching suppliers to mitigate the impact of supply chain disruptions, which however means sharply higher prices for a much longer length of time than the “transitory” argument suggests. As such, Goldman warns that “a key risk is that supply chain normalization takes longer than expected and that unmet demand today is not fully recouped in later quarters. Services industries such as Financials and Software have less EPS risk than goods-producing industries such as Industrials.”
2.Oil. Brent oil prices have risen by 51% YTD and Goldman’s commodities team recently hiked its year-end forecast to $90/bbl, above their previous forecast of $80. However, contrary to expectations that these will be rapidly passed on to consumers leading to sharp gains for energy companies, Kostin says that “based on our top-down earnings model, oil prices have a roughly neutral impact on aggregate S&P 500 EPS” and calculates that every 10% increase in Brent prices boosts S&P500 EPS by just 0.3%. Furthermore, while higher oil prices are a tailwind to Energy EPS they are also a headwind to most non-Energy sectors that rely on oil as an input or are sensitive to consumer spending (higher gas prices act as yet another tax on the US consumer). Also, it is worth noting that the boost from Energy to index EPS is likely smaller today, as it represents just 4% of S&P 500 2021E EPS.
3. Labor costs. Ongoing commentary from corporations shows an acute focus on rising wages and the lack of labor supply. Goldman’s adjusted Wage Tracker sits at the highest level since 2007.
Here, however, Kostin is again quick to defuse fears that labor costs will hit margins, calculating the these represent only 13% of the median S&P 500 stock’s revenues, and historical correlations show that the large-cap index is relatively insulated from wage pressures.
Furthermore, as noted last month, Goldman’s analysis suggests a 100 bp acceleration in wage growth would reduce S&P 500 EPSby just 0.7%, all else equal.
Small-caps and the Industrials and Consumer sectors are most vulnerable to rising wages due to their high labor costs and low profit margins.
4. China growth. Goldman’s China Economics team recently lowered their Q3 growth forecasts to 0% (QoQ) amid sharp cuts to production in a range of high energy intensity industries and the property market slowdown.
And while the indirect impact on supply chains is likely a greater EPS risk than the direct effect from reduced end demand in China, Kostin says that in aggregate, the S&P 500 generates just 2% of its sales explicitly from Greater China. Indeed, the S&P 500 derives 72% of its sales in the US and US GDP growth is the most important driver of EPS, however some very high growth sectors such as semis (43% of sales in China), tech Hardware(11%), and stocks with the highest sales to China are more exposed.
The good news – according to the traditionally cheerful Goldman – is that downside risk from these four factors appears relatively contained in aggregate today, but certain stocks face more risks than others. Indeed, several early reporters beat on 3Q EPS but offered weak guidance (MKC, MU, NKE). Consistent with recent quarters, and as we predicted recently, guidance will be a clearer differentiator of stock price reactions than 3Q results during the season. As Kostin – correctly – cautions, earnings revisions typically carry a particularly strong signal for stock returns in the current backdrop of decelerating economic growth, underscoring the importance of identifying the “winners” and “losers” around these key macro risks. Readers should monitor management commentary to assess the implications of these macro factors on the S&P 500 earnings outlook.
Finally, in addition to these four themes, Biden’s corporate tax hikes remain a broad-based, imminent risk to the 2022 EPS outlook. As Goldman warned previously, a change in the corporate tax code would have a direct impact on nearly all S&P 500 companies. The bank’s baseline assumption for a 25% statutory corporate tax rate and an increase in the foreign income tax rate would represent a 5% hit to 2022 S&P 500 EPS. However, thanks to growing bickering between progressive and centrist Democrats, uncertainty about whether tax reform will actually become law is high, as the House delayed a vote on the bipartisan infrastructure bill. Prediction market odds of an increase in the corporate tax currently stand at 66%.
Tyler Durden
Sun, 10/03/2021 – 20:15 - Elon Musk's Ex, Grimes, Spotted Walking Through Downtown LA Reading Karl Marx
Elon Musk’s Ex, Grimes, Spotted Walking Through Downtown LA Reading Karl Marx
In case you were wondering whether or not Elon Musk’s ex, Grimes, was holding up well after their split (we know you weren’t wondering, but humor us), she appears to be doing just fine.
That is, if walking around Los Angeles dressed like some type of Star Wars extra while flipping through the pages of Karl Marx’s “Communist Manifesto” is “doing just fine”.
Grimes was spotted gallivanting in downtown LA, flipping through the book, in what the NY Post calls her “first public appearance since the split”.
She appeared to be “enthralled” by the book, or at least giving off the appearance that she was. We can’t imagine Grimes would leave the house dressed as she was an expect not to be noticed or photographed.
The Post reported she was “blithely flipping” through the book. Perhaps she was wondering where the pictures were.
Grimes has previously said that artificial intelligence was the “fastest way to communism” and Elon Musk has described himself in the past as a “socialist”.
We are still waiting for either of the two to give away their fortunes for the better of the cause. It hasn’t happened just yet, and we won’t hold our breath.
We noted about a week ago that the couple had split. The two are reportedly “semi-separated” and “still love each other” while remaining “on great terms”.
Musk confirmed that the two would continue to co-parent their one year old son, X Æ A-Xii Musk.
Musk told the NY Post: “We are semi-separated but still love each other, see each other frequently and are on great terms.”
He continued: “It’s mostly that my work at SpaceX and Tesla requires me to be primarily in Texas or traveling overseas and her work is primarily in LA. She’s staying with me now and Baby X is in the adjacent room.”
While people in LA may think the book is a status symbol, those with real world experience in Marxism didn’t seem too amused.
I have lived under communist rule in Hungary in the 1980’s. We were told what to believe, what to think, and where we can go. Government propaganda was everywhere. Freedom was crushed and I had to escape. Does she know what she is doing? I hope this is just a joke.
— Attila (@enviroartist) October 3, 2021
Tyler Durden
Sun, 10/03/2021 – 19:50 - $2.2 Million Raised For Marine In Military Detainment After Criticizing Afghan Chaos
$2.2 Million Raised For Marine In Military Detainment After Criticizing Afghan Chaos
Authored by Jack Phillips via The Epoch Times,
Some $2 million has been raised for a Marine who was put in the brig for speaking out against the U.S. military’s leadership amid the chaotic Afghanistan evacuation.
More than $2.2 million was raised for Lt. Col. Stuart Scheller after more than 29,000 donors contributed. Scheller is awaiting a hearing over viral videos in which he called for accountability from top leaders in the military and the Department of Defense.
He was placed in confinement at the Regional Brig for Marine Corps Installations East at Marine Corps Base Camp Lejeune, officials said. About a week ago, the Marine Corps confirmed his detainment, although it’s not clear when his Article 32 hearing will take place.
“The time, date, and location of the proceedings have not been determined,” Marine Corps Training and Education Command spokesman Capt. Sam Stephenson told Task & Purpose.
“Lt. Col. Scheller will be afforded all due process.”
In August, Scheller gained viral fame after posting a video on social media alleging that top military brass were not taking responsibility for how the military withdrawal from Afghanistan was handled, including the ISIS terrorist attack that left 13 service members dead in Kabul.
“The reason people are so upset on social media right now is not because the Marine on the battlefield let someone down,” Scheller said in a video posted several weeks ago.
“People are upset because their senior leaders let them down. And none of them are raising their hands and accepting accountability or saying, ‘We messed up.’”
After releasing several videos, Scheller was reportedly told by his superiors to stop posting on social media entirely. He appeared to ignore that alleged directive by writing about the gag order in his most recent social media post.
In one post, he announced that he was relieved from his position as the battalion commander for the Advanced Infantry Training Battalion at School of Infantry East at Camp Lejeune, North Carolina. In another post, Scheller suggested in a post that he could be be taken to the brig.
“What happens when all you do is speak truth and no one wants to hear it. But they can probably stop listening because… I’m crazy… right?” Scheller wrote in another post.
“Col Emmel please have the [military police] waiting for me at 0800 on Monday. I’m ready for jail.”
Scheller’s father, Stu Scheller, told the same publication that he believes the military is treating his son unfairly, also confirming that he was taken to lockup pending a hearing.
“All our son did is ask the questions that everybody was asking themselves, but they were too scared to speak out loud,” he told Task & Purpose.
“He was asking for accountability. In fact, I think he even asked for an apology that we made mistakes, but they couldn’t do that, which is mind-blowing.”
The elder Scheller said that his son was merely asking for accountability from top military leaders over the withdrawal.
The Epoch Times has contacted the Department of Defense for comment.
Tyler Durden
Sun, 10/03/2021 – 19:25 - First Responders Aren't Prepared For Lithium Fires When Teslas Crash And Uncontrollably Burn
First Responders Aren’t Prepared For Lithium Fires When Teslas Crash And Uncontrollably Burn
With 40% of new cars predicted to be electric by 2030, Baltimore County’s volunteer firefighter’s association hopes Tesla can figure out how to stop making portable fireballs.
Investment bank UBS predicts by 2025, 20% of all new cars sold globally will be electric. Then by 2030, new sales will jump to 40%, and by 2040, every new car sold globally will be electric. The electric car adoption curve appears parabolic, and emergency responders need improved methods to safely and quickly extinguish electric vehicle fires as they’re likely to become more frequent.
Take, for example, a Tesla crash in Towson, Maryland, on Thursday evening. The vehicle immediately caught fire after it smashed into a median. The driver was unharmed, but the fire raged out of control after multiple fire stations didn’t have the proper resources to extinguish the flames.
“The fire escalated to fully involved within about five minutes, officials said. Firefighters initially used portable extinguishers, but a foam unit from the fire department’s hazmat unit was deployed, along with copious amounts of water, to cool the fire as it intensified due to damaged battery-powered cells that contain lithium, which ignites when exposed to oxygen,” local news WBAL said.
Traditional fire extinguishers, such as foam and water, are ineffective at immediately extinguishing lithium-metal fires. A class-D dry powder extinguisher is certified for use in lithium fires, though there was no mention if firefighters that night had that or a lithium fire blanket to isolate the fire. Instead, a large-capacity water tanker, hazmat unit, and a foam unit were called in and eventually extinguished the blaze two hours later.
Commenting on the fire, one Twitter user said: “What is going to happen if the majority of cars are electric. Every accident/car fire can’t require this level of Emergency Service assets.”
Sounding frustrated, the Baltimore County Volunteer Firefighters Association responded to the user and said: “Let’s hope @elonmusk can work with the fire service and together we can develop a better response.”
Let’s hope @elonmusk can work with the fire service and together we can develop a better response.
— Baltimore Co. Volunteer Firefighter’s Association (@BaltCoVolFire) October 1, 2021
https://platform.twitter.com/widgets.js
Earlier this summer, 20 tons of water were used to extinguish a Tesla fire in Taiwan. For some context, it only takes 3 tons of water to put out a gasoline car fire. A Texas fire chief told The Independent that a Tesla fire needed 40 times more water to control the blaze in a separate incident.
The National Transportation Safety Board (NTSB) has encouraged electric car companies to educate and help emergency responders on techniques and new tools to put out lithium-ion battery fires. But in the Baltimore fire, the three firehouses appeared not to be well versed in controlling a lithium fire.
Meanwhile, where’s all that lithium going to come from, and how will environmentally conscious world leaders dispose of it?
Tyler Durden
Sun, 10/03/2021 – 19:00 - Morgan Stanley: Tapering Is Tightening… And Dip Buying Is Starting To Fail
Morgan Stanley: Tapering Is Tightening… And Dip Buying Is Starting To Fail
By Michael Wilson, Morgan Stanley’s chief US equity strategist
Our US equity strategy process has several key components. Most importantly, we focus on the fundamentals of growth and valuation to determine whether the overall market is attractive and which sectors and styles look the best. The rate of change in growth is more important than the absolute level, and we use a market-based equity risk premium framework that works well as long as you apply the right regime when using it. In that regard, we’re avid students of market cycles and believe that historical analogies can be helpful. For example, the mid-cycle transition narrative that has worked so well since March came directly from our study of historical economic and market cycles.
The final component we spend a lot of time studying is price, i.e., technical analysis. Markets aren’t always efficient, but we believe that they are often very good leading indicators for fundamentals – the ultimate driver of value. This is especially true if one focuses on sector and style leadership and relative strength of individual securities. In short, we find these internals to be much more useful than simply looking at the major averages.
This year, we think that the process has lived up to its promise as the price action has lined up nicely with the fundamental backdrop. More specifically, cyclicals dominated growth stocks in the first quarter during the most accelerative phase of the early-cycle recovery. Large-cap quality leadership since March is signalling what we believe is about to happen – decelerating growth and tightening financial conditions. The question for many investors now is whether the price action has already discounted these fundamental outcomes. The short answer, in our view, is no.
Equity markets sold off sharply two Mondays ago on concerns about an Evergrande bankruptcy. While our house view is that it won’t lead to major financial spillover, it will weigh on China’s growth. This means that the growth deceleration we (and the markets) were already expecting will likely be worse and is probably not fully priced in. The other reason why equity markets were soft a few weeks ago had to do with concerns about the Fed articulating its plans to taper asset purchases. The Fed did not disappoint, as it essentially told us to expect the taper to begin this year. The surprise was the speed with which it expects to be done tapering – by mid-2022. This is about a quarter sooner than the market had been anticipating and increases the probability of a rate hike in 2H22, a clearly hawkish shift.
After the Fed meeting on Wednesday, real 10-year yields were up 12bp in two days and are now up 31bp in just eight weeks. In addition, the US dollar was stronger. Both weighed heavily on equity markets. In other words, tapering is tightening for stocks even if it isn’t for the economy – the more important consideration for the Fed. In short, higher real rates should mean lower equity prices. Secondarily, they may also mean value over growth even as the overall equity market goes lower. This makes for a doubly difficult investment environment given how most investors are positioned. Finally, the most powerful offset to a material correction in the S&P 500 this year has been the extremely resilient buy-the-dip mentality among retail investors, a strategy that is now being challenged. After the Evergrande dip and rally, stocks have probed lower and taken out the prior lows, making this the first time that buying the dip hasn’t worked, simultaneously violating important technical support.
For the past month, our strategy has been to favor a barbell of defensive quality sectors like healthcare and staples, together with financials. The defensive stocks should hold up better as earnings revisions start to come under pressure from decelerating growth and higher costs, while financials can benefit from the higher interest rate environment. On the other side of the ledger are consumer discretionary stocks, which remain especially vulnerable to a payback in demand from last year’s over-consumption. Within that bucket we favor services over goods, where we think there remains some pent-up demand. The risk to earnings may also be higher than average for some tech stocks levered to the work-from-home dynamic that is now fading. Within the sector, we are most concerned about semiconductors and neutral overall.
Tyler Durden
Sun, 10/03/2021 – 18:35 - Hollywood Stageworkers Consider First Strike In History In Threat To "Cripple" Content Studios
Hollywood Stageworkers Consider First Strike In History In Threat To “Cripple” Content Studios
The International Alliance of Theatrical Stage Employees, one of Hollywood’s most prominent unions, is eyeing a strike.
In what could be a massive blow to movie and TV studios, many of whom are still trying to deal with fallout from the pandemic, the union’s leaders have hit an impasse while seeking shorter working hours as part of a new contract, Bloomberg reported Thursday.
The request has been in response to longer hours that have become the norm since Covid shut down a large portion of the industry.
The union has a membership of about 60,000, most of whom are based in Los Angeles. They are threatening to walk off the job, should the union’s leadership – which is countrywide – decide. This means that a strike would affect studios across the U.S., not just in Los Angeles.
In total, 1 million jobs “directly tied to film and TV production” could be affected.
(Photo/Bloomberg) Alongside of a historic labor shortage coming back from the pandemic, production has been on the rise as the studio arms of companies like Netflix and Amazon look to build out their content. Both Netflix and Walt Disney have told shareholders that the lack of new content has been a headwind for streaming sign-ups.
The Alliance of Motion Picture and Television Producers says it “put forth a deal-closing, comprehensive proposal that meaningfully addresses the IATSE’s key bargaining issues.”
But the union isn’t amused. It wrote to its members: “As you may be aware, negotiations with the major producers have reached a standstill. They refused to reply to our last proposal.”
The union is pushing for rest and meal breaks, as well as higher pay for its lowest earners, some of whom only make $15 per hour.
The IATSE has never gone on strike in its history, though both parties likely remember a writers strike from 13 years ago that lasted 100 days.
An IATSE strike could “cripple” the production industry, Bloomberg wrote.
Tyler Durden
Sun, 10/03/2021 – 18:10 - The Next "Lehman Moment" – Will China Try To Create A Dangerous Diversion?
The Next “Lehman Moment” – Will China Try To Create A Dangerous Diversion?
Authored by James Rickards via DailyReckoning.com,
The happy talk out of Wall Street would have you believe that the Evergrande financial collapse in China is under control and that responsible parties have taken steps to avoid a “Lehman moment” in Chinese capital markets.
Almost everything about that narrative is factually wrong. It’s Wall Street happy talk at its finest, assuring investors that things are under control while the smart money runs for the hills. Something closer to the truth was reported the same day in The Wall Street Journal. Here’s their summary:
Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group, according to officials familiar with the discussions, signaling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout from the company’s travails…
Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, talk to local state-owned and private property developers to prepare to take over local real estate projects and set up law enforcement teams to monitor public anger… a euphemism for protests, according to the people.
China’s Bogus Plan
This actual crisis management plan is the worst possible playbook. Why?
Any response to a financial crisis has to be centralized so that decisions about how to deploy limited resources can be made rapidly. Some lenders must be saved, some should be allowed to fail. Equity holders should be wiped out. Foreign investors in dollar-denominated debt of Evergrande will be left to fend for themselves and possibly seek relief in their home countries.
The point is these types of decisions cannot be made by “local governments” as proposed by the Chinese. The government plan is not a serious effort to truncate a financial crisis. It seems designed more to suppress social unrest and perhaps arrest “troublemakers.”
Western analysts don’t understand this dynamic because they view events through the lens of Wall Street and Washington norms.
But the Communist Party of China does not care if Chinese oligarchs or investors in BlackRock ETFs lose money. That suits them fine. They’re communists.
The Good News and the Bad News
The good news is that the China myth has now been revealed to be a fraud. The globalist dream for China has crashed and burned. Good riddance.
Chinese regulators believe they have the resources to bail out or restructure Evergrande with some haircuts for creditors.
They probably do, but that misses the point.
Evergrande investors are now staging protests at banks after learning that their loans to Evergrande will not pay out for two years. Of course, Evergrande will be bankrupt long before that, and the investors will get nothing in the end.
This is another fiasco in the making because those investors will dump that unwanted real estate, which will collapse the property market in turn. Essentially, Chinese regulators are so desperate that they are trying to pay off creditors in kind with deeds to real estate that no one wants.
The Chinese are only looking at what’s inside the four walls of Evergrande and ignoring the fact that their entire property and financial system is on the verge of a world-historic crack-up.
But here’s the real problem: The damage will not be confined to Evergrande. It will spread quickly to counterparties of Evergrande, including other developers and banks.
This unprecedented combination of a financial crisis and Communist indifference could result in full-blown contagion that could emerge as a crisis in the U.S. and Europe within a few months.
I’ve predicted this all along, but in reality, it wasn’t that hard to predict. The Chinese economy is basically a debt-driven Ponzi scheme.
Up to half of China’s investment is a complete waste. It does produce jobs and utilize inputs like cement, steel, copper and glass. But the finished product, whether a city, train station or sports arena, is often a white elephant that will remain unused. The Chinese landscape is littered with “ghost cities” that have resulted from China’s wasted investment and flawed development model.
And as I’ve explained before, that has serious implications for China’s leadership…
The “Mandate of Heaven” in Jeopardy
China’s economy is not just about providing jobs, goods and services. It is about regime survival for a Chinese Communist Party that faces an existential crisis if it fails to deliver.
It is an illegitimate regime that will remain in power only so long as it provides jobs and a rising living standard for the Chinese people. The overriding imperative of the Chinese leadership is to avoid societal unrest.
If China’s job machine seizes, as parts of it did during the coronavirus outbreak, Beijing fears that popular unrest could emerge on a scale potentially much greater than the 1989 Tiananmen Square protests. This is an existential threat to Communist power.
President Xi Jinping could quickly lose what the Chinese call “the Mandate of Heaven.”
That’s a term that describes the intangible goodwill and popular support needed by emperors to rule China for the past 3,000 years. If the Mandate of Heaven is lost, a ruler can fall quickly.
Even before the present crisis, China has had serious structural economic problems that are finally catching up with it.
China is so heavily indebted that it is now at the point where more debt does not produce growth. Adding additional debt today slows the economy and calls into question China’s ability to service its existing debt.
Essentially, China is on the horns of a dilemma with no good way out. China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes.
The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities.
Will China Try to Create a Dangerous Diversion?
The two ways to get rid of debt are deflation (which results in write-offs, bankruptcies and unemployment) and inflation (which results in theft of purchasing power, similar to a tax increase).
Both alternatives are unacceptable to the Communists because they lack the political legitimacy to endure either unemployment or inflation. Either policy would cause social unrest and unleash revolutionary potential.
The question is will China move aggressively against Taiwan, for example, to distract the people and attempt to unite them?
China does not want war at this time. But diverting the people’s attention away from domestic problems toward a foreign foe is an old trick leaders use to unite the people in times of uncertainty.
If China’s leadership decides that the risk of losing legitimacy at home outweighs the risk of conflict that would likely involve the United States, the likelihood of war rises dramatically.
I’m not making a specific prediction, but wars have started over less. This is a very dangerous time.
Tyler Durden
Sun, 10/03/2021 – 17:45 - Restaurant Recovery Fried As "Business Conditions Worse Now Than Three Months Ago"
Restaurant Recovery Fried As “Business Conditions Worse Now Than Three Months Ago”
The National Restaurant Association (NRA) penned a letter to Speaker Pelosi, Leaders Chuck Schumer, Kevin McCarthy, and Mitch McConnell about the restaurant industry’s dire situation heading into the fall season.
NRA said the “struggling restaurant industry is of grave concern to us.” The association included a new survey of the industry’s economic conditions and concluded the “state a recovery from the pandemic will be prolonged well into 2022.” They warned: “the majority of full-service and limited-service operators say business conditions are worse now than three months ago.”
The findings below are on the heels of soaring food inflation, labor shortages, and logistical nightmares that have made some restaurant items nearly impossible to obtain.
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78% of operators say their restaurant experienced a decline in customer demand for indoor, on-premises dining in recent weeks because of the delta variant spike.
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63% of operators said their sales volume in August, historically one of the busiest months for restaurants, was lower than it was in August 2019.
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Costs are up – 91% of operators are paying more for food; 84% have higher labor costs; 63% are paying higher occupancy costs, but profitability is down – 85% of operators reported smaller margins than before the pandemic.
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Although the industry has added back many of the jobs lost during the pandemic, 78% of operators say their restaurant doesn’t have enough employees to support current customer demand.
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95% of restaurant operators say their restaurant experienced supply delays or shortages of key food or beverage items during the past three months.
The new findings paint a grim economic backdrop for President Biden’s “Build Back Better” plan and suggest the stagflation is begging to bite. After all, more and more economists are warning about the increasing risk of 1970s-style stagflation, the latest to warn was Stephen Roach.
A separate study by small business networking site Alignable, conducted between Aug. 28 and Sept. 27, found that most restaurants (51%) were unable to cover their September rent.
Both studies suggest the return to normalcy for restaurants is puttering out as deterioration in finances due to surging costs, labor shortages, and a decline in traffic may indicate another round of restaurant busts are ahead.
Tyler Durden
Sun, 10/03/2021 – 17:20 -
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