Hail to the beef: Americana on the rise in London

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A few years ago, an American visiting London would have been hard-pressed to find a quality hamburger with a decent US craft beer to accompany it. Now, anyone can enjoy a Five Guys or Shake Shack burger in town, and then head to a pub serving Brooklyn Lager, in a sign the British capital is looking state-side for culinary inspiration.

Sandia Chang, the American founder of Bubbledogs, a hot dog and champagne bar/restaurant in central London, said it is not just that London is becoming more American – It`s that the city’s food and drinking culture is improving.

“Four or five years ago, when I first came to England, it was still either a sit-down restaurant with table cloths or a dirty kebab shop on the corner,” Chang told CNBC. “The middle market was missing. There was nowhere where you could just pop up at the bar and move onto somewhere else.”

But things are starting to change. Over the past few years, London has seen a boom in US-inspired higher-end fast-food restaurants, with chains like Honest Burger and Byron opening a number of stores. Chang opened her London restaurant last year, and American fine burger chains Shake Shack and Five
Guys opened their first UK stores in the capital earlier this month.

The British are slowly becoming less traditional when it comes to dining out, according to Chang. Rather than making a big deal of it, younger Brits are easy to just pop into her restaurant, have a quick bite to eat, and then head on out.

John Eckbert, director of operations for Five Guys UK, agreed that things have improved. “When I lived here 25 years ago, the food wasn`t great, it wasn`t well tended to and the customer service interface was pretty rough,” he told CNBC.

He said the Americanization of London`s food scene is just part of today`s globalism, pointing out that Pret A Manger, a UK sandwich chain, and Nando`s, a South African chicken-specialist, have both become big in the US in recent years.

“The world`s just a smaller place,” Eckbert said. “Whereas it took McDonald`s [to build] 5,000 units in the US for them to then move abroad, that international cycle is coming faster than it was before.”

It is not just an appetite for US-style burgers that is growing. Brooklyn Lager`s”brewmaster” Garrett Oliver said American brands are becoming increasingly popular abroad – especially when it comes to beers.

Brooklyn Lager is now sold across London, and Oliver said its sales had been helped by the New York borough`s “cool” image, compared to its more upmarket and brash Manhattan counterpart.

“Over the past decade, the US craft beer scene has become highly influential all around the world,” he said. “It has partly to do with the rise of the IPA style and American hops, but also with the diversity and number of beers we have here.”

And there is plenty more where that came from, according to Oliver. “We have more than 3,000 breweries [in the US] and the number is climbing fast.”

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Retail investors most bearish in 7 months: Survey

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Retail investors took profits in July on fears about the Federal Reserve’s exit plan from its monster monetary stimulus, with the group showing the lowest sentiment reading since January, according to data culled from the largest pool of retail traders by TD Ameritrade.

The firm’s proprietary “Investor Movement Index” released Monday showed a 4.87 reading, down from a bullish 5.15 reading in June. They were net sellers of equities last month, especially in shares of 2013 highfliers like Hewlett Packard, Cisco and Time Warner Cable.

“I think its taper fears,” said Steve Quirk, senior vice president of TD Ameritrade’s Trader Group. “The investing public is not stupid. They know it’s coming and this is probably a point that if you’ve seen appreciable gains, you should start to take them off the table.”

 The S&P 500 jumped to a record high last week as a solid, but a not super jobs report gave professional investors the impression that the Fed could hold off from dialing back bond buying (QE3) in September/October. Or at the very least, according to their thinking, the economy is now strong enough to handle it.

TD uses a formula for its index that weighs active traders more than less frequent buyers and sellers among its 6 million funded accounts. The firm releases this unprecedented look into client activity in an effort to create a sentiment reading that is more of a leading indicator, rather than a contrarian “dumb money” measure which many on Wall Street feel retail sentiment indicators have become.

This profit-taking behavior at record highs is not what you’ve typically seen from the retail investors, often referred to as the uninformed herd on Wall Street. These moves are more akin to leading hedge fund manager Daniel Loeb, who took profits in his winning Yahoo position last month despite many of the catalysts he cited for buying the stock not yet coming to fruition.

TD Ameritrade clients also heavily sold fixed-income mutual funds and bond exchange-traded funds as U.S. Treasury yields shot higher. Other stocks they sold included Baidu and EMC.

The investors bought into blue-chip names that dipped after earnings, including Coca-Cola, Boeing and AT&T. They still remain fans of Apple, Tesla and Facebook.

Besides that negative reading back during an uncertain January, the so-called IMX Index plumbed the 4 level during the summer of 2012, which was plagued by worries about the so-called fiscal cliff and an unstable Europe. Dysfunction in Washington and Europe are often mentioned by pundits as additional reasons to be negative for this year’s second half.

Still, TD Ameritrade’s peek at client activity raises the question: If the market is going to continue to march higher, can it do it without the retail investor participating?

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why emerging markets could sell off again

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The risk that the Federal Reserve starts winding down its asset purchases sooner rather than later could spark another emerging market (EM) sell-off, analysts told CNBC, with some countries better placed to deal with higher real US interest rates than others.

EM funds made a comeback in July – posting gains for the first time since March, according to Morningstar research – after taking a battering on uncertainty surrounding the end of the Federal Reserve’s massive stimulus program.

While Friday’s disappointing US jobs data helped ease fears of an imminent end to asset purchases, Luis Costa, emerging markets strategist at Citi, said that the possibility the Fed might start the tapering process after its next meeting could cause another EM sell-off.

“We are still seeing outflows in EM funds, albeit at a decelerated pace to what we saw 2 or 3 months ago,” Costa told CNBC on Monday. “While I do believe the tapering call in September is definitely questionable, we do know that we are talking about a scenario where the Fed are willing to change QE [quantitative easing] dynamics over the next 6 months.”

 He added: “I am not an all-time seller of EM, but we do believe there is value in the front-end curves, given the dovish central bank bias. If you look at the long-end of the curve you have to be careful, because that is where we expect a lot more reassessment to go on.”

Costa said the countries most reliant on borrowing to balance their current accounts would be most exposed to tapering, and highlighted Turkey and Brazil as a “case in point”.

Slim Feriani , CEO of Advance Emerging Capital, agreed that some nations would deal better with higher US rates than others. He said the less vulnerable countries are the “savers” or those with a current account surplus, such as South Korea or Russia.

“Contrast that to the likes of South Africa, Brazil and Turkey, with current account deficits — they will find it much more difficult if the cost of capital increases, certainly it wouldn’t be great news for them,” Feriani said.

 Despite these risks, Feriani said valuations were close to bottoming out for emerging market stocks – both in absolute terms, as well as relative to their own history and to developed markets.

“The stars have lined up the wrong way for the last 12-18 months for EM, but I go back to valuations and a lot has been priced in, so I do think we should be closer to the bottom,” he said.

“After this period of relative weakness, with emerging equities trading, in aggregate, at a 35 percent discount to the rest of the world on a price-to-earnings basis and a 30 percent discount on a price to book basis.”

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What’s important in Asia this week

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A raft of data from China is likely to put the world’s second-largest economy back in focus for Asian markets this week, with central bank meetings in Australia, Japan and South Korea also on the calendar.

At the weekend, China released better than expected data on the services sector. The non-manufacturing purchasing managers’ index (PMI) rose to 54.1 last month from June’s 53.9, the National Bureau of Statistics (NBS) said in a statement on Saturday.

The data momentum is set to continue when the government releases July trade data on Thursday, while the latest consumer price index, producer price index, industrial output, fixed asset investment and retail sales numbers are expected towards the end of the week.

“We will watch the slew of data from China closely,” said analysts at Nomura in a research note.

“We expect mixed signals from the July data as industrial production is likely to improve slightly to 9.0 percent year-on-year, in line with the rise of the official PMI’s production component, while fixed asset investment may have moderated to 19.8 percent year-on-year, partly due to extremely high temperatures this July which may have slowed progress of some investment projects,” they said.

Data last week showed China’s official manufacturing PMI rose to 50.3 in July from 50.1 in June, beating expectations. Analysts said the data could be a sign of stabilization in the Chinese economy.

Analysts polled by Reuters forecast a 4.8 percent rise in July exports from a year earlier, compared with a 3.1 percent fall the previous month.

Rate cut coming?

Down under, the Reserve Bank of Australia is widely expected to cut its benchmark lending rate by 25 basis points to a record low of 2.50 percent on Tuesday. But what could dominate focus are political developments after Prime Minister Kevin Rudd on Sunday called for general elections to be held on September 7.

“The RBA decision tomorrow is almost a non-event. 26 out of 27 economists are calling for a cut tomorrow and the swaps market is currently trading at 91 percent chance of a 25 basis point cut,” Evan Lucas, market strategist at IG Markets said in a note.

 Lucas said the decision has been mostly priced in, but traders will be watching closely for hints for the cut will be this year’s last.

“If the RBA suggest that tomorrow’s cut is the last for the interim cycle it might see the Aussie dollar moving higher as easing relaxes,” Lucas wrote.

“The other train of thought could see the RBA go the complete opposite direction and change the statement to an easing bias with a dovish outlook. This will drive the Aussie dollar and see a second rate cut expectation in the later quarter of the year increasing,” he added.

On the election front, IG reiterated a warning for stock markets should the results become too close to call.

“As far as we can see, what will increase volatility is the prospect of another hung parliament. Current polling suggests both major parties are neck and neck. If this does eventuate on polling day, another three years of cautious trade could be on the cards – whoever wins and the local economy really cannot handle this,” Lucas said.

Australia will also get a dose of data deluge, with retail sales figures, the trade balance, the employment change and the unemployment rate all due over the next five days.

Other events

The Bank of Japan meanwhile (BOJ) concludes a two-day meeting on Thursday – the same day that South Korea’s central bank is scheduled to meet.

 Analysts do not expect any major policy changes from the two central banks.

“In Korea, we expect the Bank of Korea to keep its policy rate on hold at 2.50 percent and in Japan the BOJ’s policy board will probably vote to leave conditions unchanged,” analysts at Bank of America Merrill Lynch said in a note.

Also due out this week are Taiwan’s July consumer price index on Monday, Australian June trade data on Tuesday and Malaysian trade numbers on Wednesday.

 The corporate earnings season also continues with HSBC due to report its results on Monday, followed by global miner Rio Tinto and Taiwan’s TSMC later in the week.

Markets in Indonesia, Malaysia and Singapore are closed on Thursday and Friday for a holiday.

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4 reasons why hedge funds are selling gold

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As gold has gotten crushed this year, hedge funds have backed out of the trade, according to Anthony Scaramucci. And the managing partner of SkyBridge Capital, often viewed as one of the most-connected people on Wall Street, believes there will be no reason for them to get back in anytime soon.

“Guys like [John] Paulson are always going to have a steady position in gold,” Scaramucci said. “It’s a very good diversifier for their overall aggregate personal net worth. But in general, most of the hedge funds have backed out of this trade.”

Scaramucci believes that “when they write the history of this period,” financial historians will remark that “gold should’ve worked, it could’ve worked, it would’ve worked, but it didn’t work in this environment.”

He then went on to list the four reasons why it won’t get any easier to own gold.

 1. Central bankers are exercising caution

Scaramucci notes that investors often hold gold to hedge against an inflationary catastrophe. The problem? The inflationary wolf is not exactly knocking at the door.

“There’s a lot of very wealthy people that are going to own gold as a defensive hedge for what they’re fearing is that whole Weimar Republic thing, where either the Europeans or the United States aggressively prints money, where the multiplier effect kicks in on the banking side, and you get this out-of-control inflation,” Scaramucci said, referring to hyperinflation that occurred under the German democratic system in place between 1919 and 1933.

But Scaramucci says these gold bugs just aren’t doing their research. “If you read the minutes from the Federal Reserve, or if you look at the essays that Ben Bernanke just recently published, you will discover that your central bankers, particularly in the United States, understand this issue very well. And that’s one of the main reasons that gold has not worked in this environment.”

The Fed minutes make clear that the Fed is keeping a close eye on inflation, and is keeping risk factors in mind. For instance, the latest Fed meeting minutes, from the July 18-19 meeting, note: “Although the staff saw the outlook for inflation as uncertain, the risks were viewed as balance and not particularly high.”

 2. Deflation has become a risk

If inflation isn’t a risk, what is? Actually, it could be deflation. “What’s happening now is the specter of deflation is way, way, way more fearful to the central banking community than inflation,” Scaramucci said, “and gold typically works when there’s a devaluation of currency, or inflation.”

As the Federal Open Market Committee noted in its July 31 statement: “inflation persistently below its 2 percent objective could pose risks to economic performance.”

Inflation tends to be good for gold, because as the value of each dollar drops, it takes more of those dollars to buy gold, leading gold to spike as the currency inflates. But in a deflationary environment, as each dollar becomes more valuable, the dollar value of gold drops. And that is the environment in which the U.S. could find itself, the Fed fears.

“In a deflation economy,” Scaramucci said, “gold is not going to work.”

 3. The Fed won’t sell its bonds

Scaramucci said fears about bonds have given investors another reason to get into bullion. “People are buying gold because they predict there’s a bond bubble,” he said. “And they predict that at some point, the Fed is going to shed their USD 3.9 trillion balance sheet. But that’s not going to happen either.”

He believes this incentive for the Fed to sell its bonds simply isn’t there. “The Fed’s duration on its balance sheet is only about seven years,” Scaramucci said. But “they’re a 100-year-old institution, they live inside a 237-year-old country and there’s no reason to shed that portfolio. They’ll just let their portfolio unwind. And so the prediction here will be that gold prices will languish.”

4. Economic growth would hurt gold

To Scaramucci, holding gold has become a lose-lose proposition. “If the economy picks up, rates pick up, that’s bad for gold. If the economy doesn’t pick up, the Fed is going to be in exactly the position that it’s in now, which is effectively QE but no real money creation.”

Simply put, while people thought quantitative easing would create gold-boosting mega-inflation, that simply hasn’t happened. So now, the risk remains to the downside—because rising rates make gold, which does not produce yield, even less attractive in comparison to bonds.

Scaramucci does not take a view on where short-term action could take the gold market. But from his “30,000-foot view,” the prospects for gold look awfully dim.

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Fed and ECB accused of ‘muddying the waters’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As markets digest monetary policy statements from three of the world’s major central banks within 24 hours, two of the institutions have been hit with accusations of causing confusion and lacking transparency by economists.

The US Federal Reserve kicked off the medley of announcements on Wednesday, and was closely followed by the Bank of England (BoE) and European Central Bank (ECB) on Thursday.

All three banks agreed that consumer and business confidence was on the up, giving a boost to long term growth prospects, but both the ECB and the Fed “muddied the waters” and lacked transparency, according to some economists.

Jennifer McKeown, senior European economist at Capital Economics, said there was “significant confusion and some disappointment” about ECB President Mario Draghi’s lack of clarity on the longer-term policy outlook.

 “Despite trying to improve the ECB’s transparency last week, president Draghi seems mainly to have muddied the waters,” she said. “Admittedly, he added some detail to last month’s pledge that interest rates would ‘remain at present or lower levels for an extended period’ by stating that markets’ expectations of a hike in late 2014 were ‘unwarranted’. But despite this, markets’ rate expectations have since edged up.”

McKeown said the ECB’s “hawkish reputation” – as a result of the implementation of two unexpected rate hikes – was not helped by Thursday’s meeting. Draghi’s particular focus on the inflation outlook had done little to “assure markets that the Bank will not make the same mistake again,” she said.

“In all, the bank has a lot more work to do if it wants to be considered a truly transparent institution,” she added.

 McKeown’s comments echoed remarks made last month by Richmond Fed’s Robert Hetzel and International Monetary Fund chief Christine Lagarde. Hetzel described the ECB as lacking a “coherent strategy” and urged it to stop using monetary policy as a “lever for achieving structural changes and to end its contractionary policy,” while Lagarde warned central banks that any pulling back must be flexible, visible and predictable.

Alan Higgins, chief investment officer at Coutts, was also left confused by the central bank announcements, but rather than bashing the ECB, he accused the Fed of lacking a clear plan.

Fed Chairman Ben Bernanke’s said on Wednesday that rates would not increase anytime soon, and its monthly bond buying program – known as quantitative easing or QE – would be trimmed back only if the data points, particularly on unemployment, continued to improve.

 “European policymakers are trying hard to bring down long-term interest rates and assist economic recovery by adding clarity and direction, but the Fed appears to have done the opposite,” he said. “Its decisions appear more dependent on volatile data points (that are often heavily revised) than a well-thought-out exit plan.”

Higgins added that while the assessments of growth were becoming more alike in Europe and the U.S., plans for how to deal with ultra-low interest rates in a recovery were starting to look very different – and in the Fed’s case, unpredictable.

The U.S. central bank also raised concern about rising government bond yields – which have move higher following Bernanke’s comments to Congress about QE in June – and the impact this will have on the housing market.

But this reference to the run-up in mortgage rates as a result of rising yields added yet another “worry to the list,” according to Higgins. “The Fed has in effect made it more difficult to work out its next move.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Time to bet on Chinese exporters: Goldman Sachs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While China`s exporters are reeling from weak external demand, Goldman Sachs recommends gaining exposure to the mainland sector now since it is set to benefit from a turnaround in the global economy, in particular a revival in the US economy.

“China`s exports have been highly correlated (correlation at 84 percent) with the global economy since 2000, despite less GDP [gross domestic product] reliance on net exports than before,” strategists at Goldman Sachs wrote in a new report on the beneficiaries of the global recovery.

“The global recovery could be a multi-year investment theme and export-driven listed companies could benefit and outperform the market against the global economy`s recovering backdrop,” they said in a report.

As the US and euro zone economies stage a recovery, Goldman Sachs expects global growth to accelerate to 3.1 percent in the second half of 2013, from 2.7 percent in the first half, and to 3.8 percent in 2014, higher than the 10-year average of 2.6 percent.

The US and Europe are China`s second and third biggest export destinations, after Hong Kong, accounting for 16 and 15 percent of total shipments, respectively. While Hong Kong is the mainland`s top export destination, at 19 percent, a significant portion of shipments into the city are re-exported to the West.

Despite China`s dismal trade data in the recent months, Goldman believes the country`s export growth will recover later this year. In June, exports declined 3.1 percent against forecasts for a rise of 4 percent – the first fall since January 2012.

It recently lowered its forecast for China`s full-year economic growth to 7.4 percent for 2013 from 7.8 percent.

The bank said some of the mainland`s top export products – such as kitchen appliances, furniture, TV/telecommunications equipment, computers, toys, bicycles and textiles – are directly linked with the housing market in the US, and will therefore see higher demand as that sector recovers.

Companies to bet on

Goldman identified several mainland listed companies that could benefit from this theme. They include Shenzhen-listed hand tool maker Great Star, computer accessory producer Anjie Technology, wood furniture manufacturer Yihua Timber and agriculture chemicals firm Lianhe Chemical.

The bank noted that each of these companies has a market capitalization of above USD 4 billion yuan (USD 652 million), and derives 50 percent of their revenue from sales overseas.

It also recommended mainland exporters listed in Hong Kong including shoe manufacturers Stella International and Yue Yuen Industrial, global PC maker Lenovo and telecom equipment provider ZTE .

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is the worst over for risky assets?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Risk assets such as emerging market equities have been thrown under the bus in the recent months on concerns about the Federal Reserve scaling back its monetary stimulus, but with investors coming to terms with tapering, are the worst days over for the battered asset class?

The MSCI emerging markets index has plunged 8.2 percent over the past three months, a stark contrast to the S&P 500 and FTSEurofirst 300 gains of 7.9 and 1.6 percent, respectively, over the same period.

This is among the worst-ever periods of performance for emerging market equities relative to their developed market counterparts, according to Morgan Stanley.

But the storm has likely passed, says research firm Capital Economics, which argues that impact of tapering and worries over a growth slowdown in the developing economies, have now been factored into equity prices.

“A tapering of the Fed`s asset purchases is surely now discounted. The central bank should continue to tread extremely carefully, with rates probably remaining near-zero until early 2015,” Capital Economics, wrote in a new report.

“Second, although the prospects for growth in emerging economies may have diminished we do not think this will have much additional negative impact on the prices of emerging market equities,” the firm said, adding that some countries, such as Mexico, should actually benefit from a revival in the US economy.

In addition, valuations do not appear to be stretched anymore, the firm said, noting that the price to earnings ratio of the MSCI Emerging Markets Index at around 12 remains comfortably below its ten-year average of 15.

Given the decline in valuations, the firm expects emerging Europe and parts of Southeast Asia to attract investor interest. It forecasts the MSCI Emerging Markets index, which currently stands at 956 to end the year at 940, before climbing to 975 in 2014, and to 1,025 in 2015.

“Another reason why we are relatively sanguine about the outlook for emerging market equities is that persistent underperformance vis-à-vis developed market equities has typically only occurred when there has been a major global economic or financial crisis. We do not assume there will be another such crisis in the next few years,” it added.

While Capital Economics believes the medium to longer-term outlook may be more encouraging for the asset class, Morgan Stanley is not as convinced. The bank, which rates emerging market equities as the “least preferred” within its global equities coverage, said a host of factors need to be watched to determine the outcome for the asset class.

Some of these include the funding environment for emerging markets as US monetary policy tightens, the impact of Japan`s resurgence on other export-driven economies, and China`s slowdown. The dependence of emerging markets on China, particularly those in Asia, has increased sharply in the recent years as the country has emerged as a key source of end demand for exports.

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First lady named best dressed, and it isn’t Michelle Obama

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Even before her husband became the next Chinese leader, the wife of President Xi Jinping, Peng Liyuan, was already turning heads with her fashion choices as a famous folk singer in the world`s second largest economy.

Now, China`s first lady has landed on the coveted annual Vanity Fair international best-dressed list. Her US counterpart Michelle Obama, however, has not made the list for the second time since 2007.

Peng, 51, is the only Chinese person to the make the prestigious list this year, together with the likes of celebrities Beyonce and Justin Timberlake, and Duchess of Cambridge Kate Middleton.

Peng drew worldwide attention in March, when she received accolades for an outfit worn during a trip to Russia with her husband. Vanity Fair said her ensemble of a black double breasted and belted coat, and a handbag by Chinese fashion label Exception was the most notable of 2013 (pictured).

The Chinese first lady has since appeared frequently in fashion news, and been described in the media as “photogenic,” “glamorous,” and even nicknamed as the “Carla Bruni of the East” after singer and former model wife of former French President Nicolas Sarkozy.

(Read more: China`s glamorous new First Lady an instant Internet hit )

China had hoped Peng could deploy her charms on America during an official trip with Xi to California in June, but her appearance to the media was limited because of the absence of Michelle Obama, who decided to remain in Washington during that time. Obama`s move was widely interpreted in the media as a snub to Peng.

Twitter talk

Peng`s entry into the Vanity Fair list is generating buzz on social media, with many Twitter users lauding her elegant and fashionable style.

Grace Lam tweeted China`s first lady #Peng Liyuan made it on @vanityfair best dressed woman luv her chic style!

Amandadnama tweeted Beginning of Beijing Fashion? China`s first lady Peng Liyuan makes @VanityFair`s best dressed list #ChinaBiz #china

Others took to comparing Peng to US first lady Michelle Obama.

L.A. Times film editor Julie Makinen tweeted So China`s first lady is on Vanity Fair`s best dressed list, but Michelle Obama is not?

Justin Hill tweeted Forget the US-China cyber-war: this is serious – First Lady Fashion

While Financial Times fashion editor Vanessa Friedman questioned the geopolitics behind the fashion list and tweeted #MObama is NOT on the #VFbestdressed list; only first lady to make the cut: China`s Peng Liyuan. Is there a geopolitical pt being made here?

-By CNBC.com`s Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu .

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why markets are getting comfortable with higher rates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For a good part of this earnings season, we’ve heard comments from companies that lackluster earnings in the first half should improve in the second half, along with the economy.

Today, the bulls got some ammunition as July manufacturing report for the US came in stronger than expected, with strong showings for new orders, as well as employment.

It wasn’t just in the US: manufacturing reports in Europe and China were also a bit better than expected.

The major indices reacting by moving to historic highs…that’s a bit of a surprise considering interest rates (yields on 10-year Treasury bonds) have moved up as well. In the past, higher rates have rattled stocks.

But maybe that’s changing.

Have you noticed the pattern this week:
• ADP stronger than expected: rates higher, markets up
• ISM stronger than expected: rates higher, markets up
• Jobs report: ?

That’s the big question: How will the markets react if the jobs report comes in a little stronger than expected, say, over 200,000 jobs created.
If that happens, and rates go up while the stock market goes up or even stays even, that will be a sure sign the trading community is getting comfortable with higher rates.

Exxon Mobil: here’s the problem in a nutshell…Exxon’s big miss this morning took everyone by surprise. A lot of people shrugged it off, arguing that misses because of refinery shutdowns (they are typical in the summer) are nothing new.

But it’s worse than that. The entire report was “a clunker” as one prominent oil analyst called it, missing on all sorts of metrics, including gas production.
But it’s worse than even that. Here’s the problem: big oil can’t grow. They can’t get enough oil to replace what is being used. Exxon, for example, produces about four million barrels a day (nearly five percent of the world’s output), but that’s declining about six percent a year, or a loss of 240,000 barrels.

Think about that. Just to stand still, they have to grow at least six percent. You know how hard that is? A decent well will throw off maybe 500 barrels a day (1,000 is a gusher), and then typically declines 30 percent in the following year. You have to find a lot of wells to replace 240,000 barrels a day!

Then there’s geography. It’s true the US has found new sources, particularly for natural gas, but don’t kid yourself. Much of the world’s oil is in politically difficult areas. The top five producers remain Saudi Arabia, Iran, Iraq, Nigeria, and Venezuela, as well as Russia.

Throw in higher taxes from everyone, you have a real problem: 1) no growth, 2) no growth in returns.

What to do? The obvious answer is to increase buybacks, but buybacks for Exxon have been shrinking. The other choice is to increase dividends. Exxon now pays a 2.7 percent dividend, well above the 1.7 percent the S&P 500 pays, after raising it 11 percent in April. But there have been calls for an even higher dividend. I wouldn’t be surprised if they accommodated.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow