Pioneer Natural Resources Vs. Devon Energy: Which Is The Best Of The Permian?
Seeking Alpha: Stock Market Analysis / 2023-03-13 20:242

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Thesis
In this article I will compare, head-to-head, two big names of the Permian Basin. The winner will be based on the following metrics for both Devon Energy Corporation (NYSE:DVN) and Pioneer Natural Resources Company (NYSE:PXD).

Dividends - which company has the best shareholder return model.
Debt & Dollars - a measure of overall management performance and forward flexibility.
Dirt - a measure of the physical asset we are investing in. Whoever has the best acreage should (over the long haul) provide the best returns.
A Quick Look
Before we get started, let's take a look at each company. Both DVN and PXD have similar business models as independent oil and gas producers. Pioneer operates strictly in the Midland Basin, while Devon is slightly more diverse. Devon produces roughly 67% of its output from the Delaware Basin (the next-door neighbor to the Midland Basin, but we'll touch on that later). The rest of its production is sprinkled amongst the Eagle Ford, Anadarko, Powder River, and Williston Basins.

Both companies cash flows are derived from commodity prices. Due to the volatility this can create, both companies have created, a variable shareholder return model. Pioneer is the larger company of the two, coming in at a $48 billion market cap, compared to $35 billion at Devon.

DIRT
Ultimately when investing in an oil/gas producing entity, we must remember that the quality of property they own will be the limitation to their success. Poor quality wells will produce poor financial returns. The main focus of this discussion will compare and contrast the Midland Basin and the Delaware Basin, both of which are located in West Texas and Southern New Mexico.

Going back over the last 10 years or so, Devon and Pioneer owned property in both basins. Interestingly, each company progressively sold their acreage in the opposing basin to become focused and have developed into their current form. In 2016, Devon sold its Midland Basin property to Pioneer for $435 million. In 2021, Pioneer also swapped its basin profile away from the Delaware Basin as part of a $3 billion deal.

Midland Basin
The Midland Basin is Pioneer's heart and soul. It is fully committed to that territory and has been able to produce excellent results. The Midland Basin is located just east of the Delaware Basin. One of different physical aspects of the Midland versus the Delaware is that the Midland Basin is in the ballpark of 2,000 ft higher in elevation to the oil producing layers of the basin such as the Wolfberry or the Wolfcamp. This gives Pioneer a distinct cost advantage, having to drill through 2,000 less feet of rock to reach their product. Pioneer uses this advantage to yield one of the lowest production costs per BOE in the industry.


Depth Profile of the Midland and Delaware Basins (Search and Discovery Article #10412)

Delaware Basin
If it's easier to get to the oil products in the Midland Basin, why on earth would someone bother drilling in the Delaware Basin? Being 2,000 feet deeper isn't necessarily ALL bad. The additional rock overhead creates more pressure and thus more oil can be extracted per well. This does create the potential for higher ROIs if the wells are drilled and executed correctly.


Delaware Vs. Midland Basin Properties (Search and Discovery Article #10412)

Diversity
Devon has roughly 1/3 of its production in other basins. These basins include the Eagle Ford, Power River, Williston, and Anadarko. In the aggregate, these basins carry roughly the same margin as the Delaware. The benefit to having some diversity is some sheltering from weather risk. A winter storm or hurricane in Texas can take entire systems offline and reduce output (as was seen in Q4). By having some assets in other regions, this risk is somewhat mitigated. I categorize this as a small, rainy day, advantage for Devon.

Acreage Continuity
Another important variable when evaluating a company's acreage is the continuity of the entire property portfolio. Having large blocks of continuous property allows for longer lateral drilling and a higher ROI per well due to capital efficiency.

The industry has been pushing the envelope to reach 3-mile lateral lengths to boost the overall returns of their wells. Since hundreds of wells are drilled every year by both companies, large swaths of territory are needed to facilitate this capital efficiency push. Therefore, a company who has pockets of acreage would be disadvantaged to one who owns large blocks.


ROI Growth for 3 Mile Laterals (PXD Earnings Presentation)

The following two figures will compare the bulk of both Devon's and Pioneer's acreage. Devon certainly has solid operating pockets but cannot be truly compared to Pioneer's almost entirely continuous acreage. The pros and cons of the Delaware and Midland Basins can be called a push in my opinion. The point goes to PXD on this one for having the best opportunity to maximize its acreage.


Devon Acreage Map (DVN Earnings Presentation)


Pioneer Acreage Map (PXD Earnings Presentation)

Dividends
Devon has a stated goal of returning 50% excess free cash flow to shareholders after the base dividend is paid in the form of a variable dividend. Currently the base dividend is $0.20/quarter, or roughly 1.5% at $55/share. Beyond that, the company executes buybacks opportunistically and are not included in the 50% goal.

Conversely, Pioneer pays back 75% of free cash flow ("FCF") following the base dividend (roughly 2.2% at $200/share) and also buys back shares in addition to the dividend policy. Pioneer has been so generous to its shareholders that it has paid out over 100% of FCF in both Q3 and Q4 of 2022 (108% and 103% respectively when factoring in buybacks). This obviously cannot be sustainable for the long term without taking on debt. Because of this, I put a personal asterisk by the overall payout for Pioneer, but not to diminish that the company is truly delivering for its shareholders.

At this point, it's easy to see a clear difference in shareholder returns. Most would say Devon shouldn't even be in this discussion based on the previous two paragraphs. But we should be asking ourselves the following question.

What is Devon doing with the 25% that Pioneer is giving to their shareholders? Are they lining their pockets with cash?

The short answer is YES! Sort of, anyway.

Let us look at how Devon is spending its excess cash in 2022.

DVN spent $1.8 billion to acquire Validus.
DVN spent $865 million to acquire Rim Rock Oil and Gas.
$2.665 billion total spent between the two purchases.
Combined these acquisitions will net the company an additional output of approximately 60k BOE/day.
Acquired acreage is adjacent to existing property to allow for longer lateral wells, thereby increasing capital efficiency.
This is where the return models diverge. Pioneer will give you cash today, while Devon is earmarking some shareholder cash for inorganic growth to generate cash tomorrow. To say which is strategy is superior may entirely depend on your age and financial goals. The younger you are, the more willing you may be to leave some cash on the table to benefit you later. To decide the victor here I will go with the old tried and true motto, "Cash is King." The score is now 2-0 PXD.

Debt & Dollars
To measure the work of the management team, we must evaluate the financial condition the company is operating under. We will compare the debt and cash profiles of both companies as well as the cost of said debt on a per share basis.

Total Debt Interest Rate Interest Cost Cash Reserves
Devon $6.4 Billion 5.8% $0.14/share/quarter $1.5 Billion
Pioneer $4.9 Billion 1.6% $0.33/share/quarter $1 Billion
Pioneer has the obvious advantage in both total amount of debt and terms of that debt. An average interest rate of 1.6% is hard to compete with and in all honesty is not something that can be replicated. Devon does have a slightly better cash position, especially when considering it has the smaller market cap of the two companies.

Near-Term Maturities
Since both of these investments are aimed at cash production for their shareholders via FCF, one thing that can get in the way is a debt maturity. Over the next 3 years Devon has $1.2 billion in debt coming due, barring any refinancing activity. Conversely, Pioneer has $1.7 billion due in that same timeframe. This comes out to be fairly equivalent debt loads (Devon's is slightly less) when compared to the difference in market cap of the two companies.

Somehow, Pioneer's fantastic debt profile works against them when we look at the maturity dates. The company can either pay off the debt and take the huge hit to FCF. This will jeopardize the payout of the variable dividend. The other option is to refinance into a loan that will be at a considerably higher interest rate. For example, paying off the 2023 notes will burn $750 million that can't be returned to shareholders (and doesn't even help by saving on interest costs). At the same time, refinancing a 0.55% interest loan, into something that can only assumed to be 5% interest or more, would be just embarrassing.

It is hard to refute an average debt profile of 1.6%, and for that reason alone, this section has to be awarded to Pioneer. The score is now 3-0 PXD.


Devon Energy Debt Profile (DVN Form 10-K)


Pioneer Natural Resources Debt Profile (PXD Form 10-K)

The Risks
Both companies operate in the commodities space and thus their earnings can fluctuate wildly. Unfortunately, this is largely out of their control. In one of my previous articles, I discussed the potential near term impacts that face Devon. Pioneer is in the same business and therefore the thesis is applicable.

Both companies have done an excellent job of maintaining a low breakeven operating structure despite inflationary pressures. Breakeven is roughly $40/barrel, WTI. This level is sufficient to fund operations and CAPEX for 2023, which we have been well above so far this year.

Per the EIA, over the last 10 years, oil prices have averaged about $65/barrel. The downside risk is real however, as prices have flirted with breakeven in 3 out of the 10 years. That is why I stress the need to be patient, waiting for an entry point that protects against capital losses. At this time I believe there is adequate support to oil prices to preclude any near term fall out.

Summary
The "official" score has Pioneer Natural Resources Company for the win with a final score of 3-0. I think the overall contest is closer than the score would indicate. Here are the highlights of each discussion.

The Delaware and Midland basins have contrasting qualities between cost and oil production. Pioneer has a more continuous block of acreage allowing it to drill lateral runs that are longer and thus more capital efficient. Pioneer was awarded the point for that reason.
Pioneer has a 75% cash return model plus buybacks. Devon only returns 50% cash plus buybacks. Pioneer was awarded the point because "Cash is King." Readers should not dismiss that Devon's model allows management more flexibility for acquisitions to fund external growth. If you are not solely focused on income as your financial goal this could be useful.
Pioneer's debt levels and metrics are nothing short of phenomenal. An average interest rate of 1.6% was good for the last point in our head to head.
Both companies do an excellent job of rewarding shareholders but Pioneer takes the edge as a total package from a cash perspective. Devon Energy Corporation may be more suited for an investor looking for a combination of cash and growth as more of the profits stay internal to the company. Most importantly, investors should remember it is okay to own both companies for a blended position.

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Startups Are Worried About Paying Employees After SVB Collapse
Yahoo! Finance: Top Stories / 2023-03-10 22:2641


(Bloomberg) -- Startup founders are beginning to worry about whether they'll be able to keep paying employees following the failure of Silicon Valley Bank.

Most Read from Bloomberg

Payroll service provider Rippling notified customers on Friday that some payroll processing had stalled because SVB helped process its payments. The company, a startup itself, switched to JPMorgan Chase, but not soon enough: Paychecks were already "in flight" with SVB and have yet to be paid out — and the firm is still trying to understand what the bank's collapse on Friday will mean for them, Rippling Chief Executive Officer Parker Conrad said in a Twitter post.

Startup founder Brad Hargreaves said some firms may not be able to make payroll next week. And because boards are incredibly sensitive to employing workers they can't pay, he said, "Expect mass layoffs later today, Monday at latest."

Sarika Bajaj, the CEO of early-stage startup Refiberd, said she had been a customer of Silicon Valley Bank for three years and kept most of the company's funds there. Bajaj, who was at the Sand Hill Road branch of SVB in California on Friday, tried to make withdrawals but couldn't and is growing concerned about payroll for her and her two team members.

"I'm sure there are lots of people here with lots and lots of employees," she said. "It's not our reality, but I know it's going to be a lot of people's realities."

More than half of tech companies "keep the lion's share of their cash at SVB," said Greg Martin, founding partner of the investment firm Liquid Stock. "They all need to make payroll early next week."

Martin said he believes the bank is healthier than people think. But the worst-case scenario, he said, is "tens of thousands of people" don't get paid next week.

At least one startup was planning to do layoffs today, but the Silicon Valley Bank situation forestalled those plans because the business, which banked with SVB, no longer had the capital to pay severance, according to a person with knowledge of the matter.

Conversely, other startups were considering doing layoffs because of the SVB situation, because it's illegal to have employees without paying them, this person said. Furloughing was also under consideration, as a potential way to bring employees back on the payroll when funds are received. Startups are frantically discussing their options with lawyers, the person added.

(Updates with detail about a startup delaying layoffs in final paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

Enclosures

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SVB Meltdown Brings Another Blow to Cash-Starved Biotech Industry
Bloomberg / 2023-03-10 22:497


Biotech companies are racing to assess the damage from the failure at SVB Financial Group, the latest issue facing many of the startups in search of cash. 

SVB, which collapsed Friday after a run on assets, plays a large role in financing early-stage life sciences and health-care companies. Venture-backed health companies account for 12% of SVB's $173 billion of deposits and 36% of $168 billion in funds held off balance sheets as of year-end.

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CEO of failed Silicon Valley Bank no longer a director at SF Fed
por Reuters

Investing.com: Stock Market News / 2023-03-10 22:42



© Reuters. FILE PHOTO: Greg Becker, President and CEO at SVB speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2022. REUTERS/Mike Blake
By Michael S. Derby

(Reuters) -The chief executive officer of failed Silicon Valley Bank, Greg Becker, is no longer on the board of directors at the Federal Reserve Bank of San Francisco.

Becker's departure was effective on Friday, a spokesperson for the Federal Reserve said. Earlier on Friday, Silicon Valley Bank (O:) was closed by regulators.

The spokesperson declined to say how Becker exited the San Francisco Fed board. Becker served as a Class A director at the San Francisco Fed, one of three finance executives representing member banks in the San Francisco Fed district.

Each regional bank is overseen by boards comprised of private citizens. In addition to having three directors to represent banks, there are six other directors who present a mix of local businesses and community interests. Three of those directors are selected by the Fed's Board of Governors in Washington, while the remainder are selected in a local process.

San

Silicon Valley Francisco Fed no longer

CEO leaves San features Silicon Valley

Francisco Fed Bank CEO on website

board

The 12 regional Federal Reserve banks are quasi-private institutions overseen by the Fed in Washington. Their respective boards watch over the banks directly and provide advice on governance as well as local economic intelligence.

Most importantly, these boards also lead the process to select new presidents when there are vacancies, although directors from firms regulated by the Fed are not allowed to participate in that process.

The directors of the Fed banks have been in the spotlight in recent years as the central bank has faced criticism that bank directors lacked racial and gender diversity and were too weighted towards the business and banking community. The Fed has been working on expanding who serves in these roles.

The boards have also created issues for the Fed in years past. The New York Fed's board was heavily dominated by bankers at the onset of the global financial crisis and even included the leader of Lehman Brothers, a firm whose failure in the fall of 2008 is widely seen as kicking off the most acute phase of the financial crisis.

In 2019, the Chicago Fed's then board chair resigned her term early as her employer faced legal trouble.

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After Silicon Valley Bank's shutdown, uninsured depositors face tense wait
por Reuters

Investing.com: Stock Market News / 2023-03-10 23:111


© Reuters. People gather outside of the Silicon Valley Bank (SVB) headquarters in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino
By Pete Schroeder

WASHINGTON (Reuters) - Silicon Valley Bank's high level of uninsured deposits helped kick off the run that led to the bank's closing down, and now any of those depositors will need to hold their breath to see if bank regulators can recover enough to make them whole.

Friday's announcement by the Federal Deposit Insurance Corporation that the bank was closed came with few specifics on what will happen to bank customers who held more than the $250,000 per account that is guaranteed by the government.

In prior large bank failures like IndyMac and Washington Mutual, the FDIC found other firms to take on the assets and keep deposits intact. But failing that, uninsured depositors will be left with a portion of whatever funds the FDIC can raise selling off the bank's assets.

SVB Financial Group's Silicon Valley Bank had a relatively high amount of uninsured deposits as it courted tech workers and venture capital firms. The FDIC said on Friday the amount of uninsured deposits at the bank was "undetermined," likely complicated by the rush of bank customers to remove uninsured funds. But data submitted to the FDIC by the bank at the end of 2022 showed that 89% of its $175 billion in deposits were uninsured.

All insured deposits will be accessible in full no later than Monday morning, but the FDIC said uninsured depositors will get a "receivership certificate," and that future dividend payments "may be made" to pay off uninsured funds as the bank's assets are sold. Customers with uninsured deposits were told to call the FDIC.

An SVB spokeswoman referred questions to the FDIC. An FDIC spokeswoman did not respond to a request for comment.

Regulatory experts say account holders with uninsured funds are not typically individuals. Usually, accounts with such high funds are companies that need cash on hand for payroll and other expenses. But Silicon Valley Bank's relatively well-off clientele could be the exception, and the push for full repayment was already coming from some corners.

"We must make sure all deposits exceeding the FDIC $250k limit are honored," tweeted U.S. Representative Eric Swalwell, a California Democrat. "Banking is about confidence. If depositors lose confidence on the safety of their deposits over 250k then we are in trouble."

Beyond selling off the assets piecemeal, another possible move by the FDIC would be to find another firm to take on all or a portion of the assets. This move is typically preferred by the regulator as a smoother process that ensures depositors are minimally disrupted and usually kept whole. But that process can be lengthy, leaving uninsured depositors in the dark.

"This will likely be similar to the failure of IndyMac Bank in 2008," said Joseph Lynyak, a partner with Dorsey & Whitney who specializes in bank failures. "The FDIC closed that bank but had not already lined up an assuming bank. It took several weeks to find an investor."

"The FDIC is likely negotiating a similar arrangement as we speak, with the result that virtually all assets and liabilities of Silicon Valley Bank will be transferred to the assuming bank in a short period of time."

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Silvergate stock falls Thursday after bank announces voluntary 'wind down'
Yahoo! Finance: Top Stories / 2023-03-09 20:57



Silvergate Capital (SI) stock fell 41% at the open of Thursday's trading day after the bank announced it would wind down operations and liquidate its bank.

Silvergate shares are trading above $3.00, a slight improvement from the open.

Shares of its crypto-friendly peer, Signature Bank (SBNY), were also volatile Thursday morning. They were down more than 8% as of Thursday at 11:30 a.m. New York time.

Silvergate announced its voluntary liquidation and wind down of its business Wednesday after the close.

The total market capitalization for all crypto assets as measured by Coinmarketcap fell below $1 trillion early Thursday morning. It is currently valued at $997 billion, down more than 1% over the past 24 hours.

Bitcoin (BTC-USD) is changing hands below $22,000, 2% lower for the same period.

Silvergate's shutdown raises new doubts about the relationship between traditional banks and the cryptocurrency world, said one observer.

"One of the crypto industry's favorite narratives has always been that it would overwhelm traditional banks by providing superior services," said John Paul Koning, author of the financial blog Moneyness. "Well, crypto has finally overwhelmed its first bank, not because crypto was superior," he added.

Representations of virtual currency bitcoin on top of a U.S. dollar banknote are pictured through broken glass in this illustration taken June 25, 2021. REUTERS/Dado Ruvic/Illustration
But one analyst, Conor Ryder with Kaiko, said Thursday that there is still "glaring" evidence of the need for a crypto-friendly bank. "The next best contender will likely be a smaller bank raising their hand to take on the risk of crypto in search of a wave of new deposits," Kaiko's Ryder added in a research note.

Silvergate's decision to liquidate came one week after it said Silvergate faced business and regulatory challenges causing the company to weigh its "ability to continue as a going concern for the twelve months."

That notice spooked crypto-related firms using the bank such as Coinbase, Paxos, Galaxy Digital and others that chose to distance themselves from Silvergate last Thursday, hastening further withdrawals.

"The Bank's wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets," Silvergate said.

Silvergate Bank, a state-chartered bank, is jointly regulated by the Federal Reserve and the state of California. Its holding company, Silvergate Capital, is also regulated by the Federal Reserve.

California's Department of Financial Protection and Innovation is monitoring the situation according to a statement from its commissioner, Clothilde Hewlett.

The bank added that it intends to repay depositors in full and has hired financial advisors, Centerview Partners LLC, legal advisors, Cravath, Swaine & Moore LLP, and Strategic Risk Associates for "transition project management assistance."

U.S. attorney Damian Williams speaks to the media regarding the indictment of Samuel Bankman-Fried the founder of failed crypto exchange FTX in New York City, U.S., December 13, 2022. REUTERS/David 'Dee' Delgado
Silvergate became a regional bank in 1996, but it wasn't until 2014 that CEO Alan Lane chose for the company to begin servicing crypto clients like the now-bankrupt Genesis.

It carved out a niche for itself by giving banking access to a growing number of crypto startups. Those offerings evolved into the SEN, where 24/7 operating crypto depositors could make U.S. dollar transfers and loans outside traditional banking hours.

Silvergate held $1.8 billion in total deposits and $2 billion in assets at the end of its 2018 fourth quarter. By crypto's peak in 2021, its total deposits and assets had risen to $14.3 billion and $16 billion, respectively.

Following the bankruptcy of crypto exchange FTX, Silvergate's total deposits and assets fell to $6.2 billion and $11.3 billion by the end of last year's fourth quarter.

Like Silvergate, New York-based Signature Bank also attracted a growing number of crypto depositors in recent years with Signet, its own 24/7 USD transfer platform.

Now it is pulling back its crypto exposure. In a mid-quarter update, Signature showed its spot deposit balances through January and February were $826 million lower, driven by a $1.5 billion decline in digital asset deposits as part of a planned reduction announced last November.

JPMorgan's North American equity research team said in a Monday research note that Signature can "thread the needle" on cutting its exposure to the industry's firms.

David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers

Click here for the latest crypto news, updates, values, prices, and more related to Bitcoin, Ethereum, Dogecoin, DeFi and NFTs

Read the latest financial and business news from Yahoo Finance

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Tankers
VLCCs charge towards $100,000 a day
 Sam ChambersMarch 9, 20230 1,491 1 minute read
 Euronav
Tanker watchers are keeping a firm eye on the volatile VLCC markets today, with a $ 100,000-a-day fixture widely anticipated, the first time this landmark has been broken since November.

VLCC fixtures have been on a charge all week, with eco, scrubber-fitted ships fixing at figures pushing above $90,000 a day. Demand from China has been leading rates to new highs each day of the week so far.

Pareto Securities called the $100,000 figure this morning, noting in a report to clients that modern ships with scrubbers are "effectively in three-digit territory" out of the US Gulf.

VLCCs are showing a very strong upside in tonne-miles, according to commodity data platform Vortexa, which has also detected the tightness in the sector, with more laden than ballast VLCCs at present.

"Looking ahead, crude buying from China could be sustained in March as domestic demand continues to increase," Vortexa noted in a recent report. Additionally, China's crude inventories showed a draw last month, indicating increased domestic refining demand. "This could support VLCCs towards China and continue to support crude freight rates in March," Vortexa suggested.

Fearnleys described the VLCC market this week as "frenzied" while Arctic Securities said the sector is sizzling.

"VLCC spot rates are pushing higher with a notable uptick in Atlantic Basin fixture activity this week, especially out of the US Gulf region. In the Middle East market charterers are focusing on late March loadings before attention shifts to April cargoes next week," Jefferies reported in a note to clients.

A sign of the very firm market can be seen out in South Korea, where Euronav's brand new VLCC called Camus has opted to take a dirty cargo on its maiden voyage from Hyundai Samho Heavy Industries, eschewing a high paying diesel cargo as has become common on maiden voyages from Asian yards.


          


Sam Chambers
Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world's oldest newspaper, Lloyd's List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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When The Yield Curve Inverts Over 100bps "A Recession Is Already Underway Or Begins Within 8 Months"
por Tyler Durden

Zero Hedge / 2023-03-08 19:4159
When The Yield Curve Inverts Over 100bps "A Recession Is Already Underway Or Begins Within 8 Months"
Yesterday, the spread between 2- and 10-year yields rose above 1% (and in the past 24 hours yield curve has blown out another 10bps to 110bps) for the first time since 1981, when Paul Volcker was engineering hikes that broke the back of double-digit inflation at the cost of a lengthy recession and millions of unemployed workers.


A similar dynamic is unfolding now, according to Ken Griffin, the chief executive officer and founder of hedge fund giant Citadel. "We have the setup for a recession unfolding" as the Fed responds to inflation, Griffin told Bloomberg in an interview in Palm Beach.

"Every time they take the foot off the brake, or the market perceives they're taking their foot off the brake, and the job's not done, they make their work even harder," Griffin said.

What does the the historical record say?

One question history can help answer, is how long this continued deep inversion could last. Here is what DB's Jim Reid found when asking just this question:

If we look at the last 70 years of hiking cycles, we can see that the curve on average flattens from around the first hike to 12 months after. It then stabilizes for 6 months and then starts steepening.
Alternatively, if we look at what happens before a recession, on average the curve hits its most inverted around 3 months prior to a recession before seeing a substantial steepening over the next 12-18 months, especially in the first three months of the recession.


What do DB's rates strategists' think? They expect that by year-end 2023, the 2s10s will uninvert back to +45bps, so some 135bps steeper than current levels. While that sounds a huge move, Reid notes that "it's not too far out of line with what you would expect if there was a recession in H2." To be sure, investors are not currently in a rush to buy the front end though given current inflation risks, and are looking for evidence of labor market weakness or more clarity on fiscal tightening from debt ceiling negotiations before they do. However if and when it happens, the curve can steepen quite quickly if history is to be believed, Reid warns.

How about those historical cases when we saw an inversion as big as today's? Here Reid calculates that on all the previous occasions that the 2s10s has been more than -100bps inverted since data is available from the early 1940s (there are just four of these - 1969, 1979, 1980 and 1981) a recession has either been underway, or has occurred within a maximum of 8 months.

And just to highlight how rare the current inversion truly is, Reid says that there have only been 7-month end closes lower than -100bps in 80 years of available data: "so we are in rarefied air."

Tyler Durden Wed, 03/08/2023 - 13:45

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Larry Summers: US economy may hit an 'air pocket' in coming months
CNN.com - Top Stories / 2023-03-06 17:5616
The US economy may still be running fast and strong, but its risk of suddenly falling into a recession still looms large, despite the Federal Reserve's efforts, former Treasury Secretary Larry Summers warned Monday.

Summers told CNN's Poppy Harlow in an interview that he expects the Fed will have to raise its benchmark interest rate higher than expected and that central bank's "push and push" to combat inflation will soon trigger a downturn.

"The process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past," Summers said.

And for the US economy, it could likely mean a "Wile E. Coyote moment," Summers said, referencing the cartoon canine's relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.

Gravity eventually could win out.

"The economy could hit an air pocket in a few months," he said.


For the past year, the Fed has enacted a series of interest rate hikes aimed at chilling demand and cooling down historically high inflation. In recent months, as the pace of price increases has moderated, the central bank has eased off the gas pedal.

In February, the Fed's policymaking committee approved a quarter-point interest rate hike — its smallest increase in several months.

But in the weeks following that meeting, there was a barrage of surprisingly strong economic data, showing blockbuster job gains, hearty consumer spending and unyielding inflation.

"I don't think there's any question that we do not yet have inflation on a secure glide path anywhere near down to the 2% [Fed target] level," Summers said. "And until the Fed can be confident of that, it's going to have to be tightening rather than easing."

Some Fed members agree.

Federal Reserve Chairman Jerome Powell has cautioned that bringing down inflation will take a "significant period of time," while other Fed leaders have indicated they're open to larger interest rate hikes.

As of Monday, markets are expecting the Fed to make another quarter-point raise: The CME FedWatch Tool is showing a 69.4% probability of such a hike; however, the perceived chances of a half-point increase (at 30.6%) have grown considerably during the past few weeks. One month ago, the probability for a half-point increase was 3.3%, according to the CME FedWatch Tool.

Summers said his best guess would be for the fed funds rate to grow from its current range (4.5% to 4.75%) to 5.5%, but noted he "wouldn't be amazed" if it were to hit 6%, given the uncertainties in the economy.

"Hope for the best but plan for the worst, I think is the right advice," Summers said.

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SAP/Qualtrics: valuation is a victim of market history in the making
Financial Times: Markets / 2023-03-06 19:37



Wheeling and dealing is a lot more fun than takeover integration. That seems to be the lesson from SAP's rollercoaster ride with Qualtrics.

The German software titan first acquired the Utah software start-up in late 2018 for $8bn in cash. On Monday, Qualtrics disclosed that private equity firm Silver Lake had made a $12bn bid in partnership with Canada's largest pension fund.

This would appear more impressive if SAP had not floated a stake in Qualtrics in early 2021 at a $15bn group valuation. Amid the frenzy in growth stocks, Qualtrics at one point boasted a market capitalisation of nearly $30bn.

SAP justified its ownership of Qualtrics with the idea that its massive sales team would sell Qualtrics products to its big established client base. Qualtrics makes software that helps customers create surveys and analyse the resulting data.

Qualtrics grew quickly enough. In 2018, the company recorded $400mn in annual revenue. By 2022, that figure had hit $1.5bn. SAP's efforts to become more cloud-based and lift the valuations of both businesses further have, however, fallen short.

The evolution of Qualtrics' valuation shows how markets have changed their minds about high-growth, low-profit companies. SAP's initial $8bn acquisition valued Qualtrics at roughly 20 times trailing annual revenue. The 2021 IPO was roughly at that same highly elevated price.

Silver Lake is looking to pay well under 10 times trailing annual revenue. As for profits, Qualtrics forecasts an operating margin for 2023 of just 10 per cent. That is on an adjusted basis which suppresses a massive stock-based compensation expense.

SAP is in a position to sell Qualtrics for a higher price than it paid. Securities filings show that SAP also wrung out a $2bn dividend from the start-up.

Still, supplementary cash flows aside, big companies undertake blockbuster M&A to make big strategic leaps. If SAP merely sells after a few years for less than double Qualtrics' purchase price, it should chalk the deal up to experience.

Lex recommends the FT's Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

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Chinese companies choose Switzerland over US and UK to raise money overseas
Financial Times: Markets / 2023-03-06 21:2921


Chinese companies are flocking to Switzerland to raise capital after being discouraged from listing in the US by geopolitical tensions and in Britain by tougher audit standards.

Nine Chinese companies floated in Zurich last year, raising $3.2bn in the European country, according to SIX, the operator of the Swiss stock market. That far outstrips the $470mn they raised in New York, data from Dealogic stated.

Their shift of focus to Switzerland comes in response to months of tensions between Beijing and Washington over standards for Chinese companies on American markets. The US sought greater access to listed companies' financial audits but China resisted, citing a desire to protect state secrets.

Zurich has particularly benefited from the unease as it has less demanding requirements over the transparency of company audits.

Dozens more Chinese companies are looking to use a link set up last year that connects the Shanghai and Shenzhen stock markets with the main market in Zurich, according to bankers and exchange executives.

The "stock connect" scheme, modelled on a similar one with London, allows companies that are listed in one venue to raise capital on the other. Just five other companies floated on the Swiss market in 2022.

"Switzerland is very much at risk of becoming a Chinese market," said one senior executive at a rival exchange, adding that if all the Chinese companies which have announced plans to list go ahead, "then it will be more capital than was raised across all of European IPO volumes last year. You want lots of activity, but you do end up with a lot of risk if the enormous amount of your security comes from one jurisdiction."

So far this year the only listing in Switzerland has been Chinese — Zhejiang HangKe Technology Incorporated Co, which manufactures lithium battery equipment and raised $172mn.

Rather than undertake a full listing, companies using Stock Connect issue global depositary receipts, which represent shares in overseas companies while the issuer holds the underlying shares in its home market.

Valeria Ceccarelli, head of primary markets at SIX, said the surge in Chinese listings "confirms the attractiveness of SIX and the Swiss financial centre as an international hub for companies to raise capital".

For Chinese companies, overseas listings help make it easier to bypass tough domestic capital controls. Companies were raising money to fund their international growth and increase their visibility in Europe, Ceccarelli added.

Recommended

Some Chinese companies are also eyeing Britain, using the London Stock Exchange's Stock Connect programme which has existed since 2019 and led to five issuers raising about $6.5bn.

Two businesses have announced plans to list their shares in the UK so far this year — chemical company Yongtai and manufacturing group Lingyi iTech.

But exchange executives say that a decision by the UK auditor regulator, the Financial Reporting Council, to not deem Chinese audit standards as equivalent to international standards has pushed more companies to Switzerland, which accepts Chinese accounts for depositary receipts.

"Swiss authorities . . . do not waive any audit requirements, but treat Chinese companies the same as other foreign companies under the Swiss Audit Oversight Act," Ceccarelli said.

"At the end, the company decides where to list," she said, adding that the exchange is aware of 20 more Chinese companies that plan to list in Europe through GDRs.

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How Dividend Investors Can Pick the Right Companies
Yahoo! Finance: Top Stories / 2023-03-03 16:401


Investors have been gravitating toward dividend-paying stocks and the mutual funds and exchange-traded funds that buy them. They're betting that if the stock market has another rocky year, it will pay to own stocks that are at least throwing off dividends.

The question is which companies investors can rely on to keep paying dividends.

During the pandemic, just under 200 companies stopped paying dividends to save cash. Over the past three years, many of them have resumed dividend payments—but some haven't, and according to the latest Global Dividend Index from Janus Henderson, overall dividend growth is expected to slow to 2.3% in 2023.

Now, even as the economy continues to emerge from the worst of the pandemic disruptions, persistent inflation and higher interest rates are stressing companies' balance sheets, which can discourage dividend payments. A handful of companies have recently announced plans to cut their dividends.

Max Wasserman, founder and senior portfolio manager at Chicago-based Miramar Capital, says that many of the indefinite pauses and recent cuts to dividends are a result of poor capital-allocation strategies.

"What you're seeing are companies that have increased their payout ratio to such a high extent that any interruption in their business model has put their dividends in jeopardy," Mr. Wasserman says. "Some companies have been stretching their balance sheets to remain dividend 'aristocrats' or to stay on the radar of mutual funds and dividend investors, and it's hit their cash flows. With higher debt costs, inflation and uncertainty, they've made the decision to cut the dividend in response."

Antonio DeSpirito, lead portfolio manager of the BlackRock Equity Dividend portfolios, says the timing of a dividend cut can tell investors about the underlying health of a company. "Work that we have done on this shows that if a business is making an out-of-business-cycle cut, that can be a sign of danger. That usually means there's some long-term secondary issue at a company. The stock is less likely to recover," he says. "If you see a business cut during a downturn, there is a better chance that stock is going to recover."

Look for sustainability
So, what should dividend investors look for in a company? R. Burns McKinney, managing director and senior portfolio manager at Dallas-based NFJ Investment Group, says investors should look at cash flow alongside the company's dividend. It can be tempting to look for the biggest dividends or the highest dividend yields, but cash flow is a metric of sustainability, he says.

Are you bullish on dividend stocks? Why or why not? Join the conversation below.

"The best dividend companies are the ones that have thought it through and have a philosophy behind what they are doing with their dividend," he says. "This should be rooted in current cash flow and their expectations for business growth over time."

Both Messrs. McKinney and Wasserman argue that high-quality dividend payers should raise dividends meaningfully year over year, ideally keeping pace with inflation. Capital-allocation strategies should also account for the possibility of an economic slowdown or recession, they say. For 2023, both expect that high-quality dividend payers will increase payouts despite the pressure on corporate balance sheets from inflation and debt costs.

"The increases may not be sky high," Mr. Wasserman says. "If a company has been raising the dividend by 5%, you might see them do 3% this year. But we expect to see increases, if that's the path they have been on."

A variety of strategies
For fund investors, dividend funds could provide some protection in the current market environment, says Daniel Sotiroff, a senior analyst at Morningstar Research Services, a unit of Morningstar Inc. "When you are focused on companies that are growing the dividend, that tends to mean that these are highly profitable companies. Investing in them can be a defensive investment in times of uncertainty," he says. Last year, dividend funds were down 6.68% on average, compared with a 19.4% decline in the S&P 500 index, according to Morningstar.

Investors can pursue several different strategies with dividend funds. There are funds with a broad scope, such as Invesco Dividend Income Fund (FSTUX), which invests across sectors, in companies including longtime dividend payers like Johnson & Johnson and Bank of America Corp. It has an expense ratio of 0.66%.

Dividend-yield funds invest in companies that pay dividends at a higher rate than a specified benchmark index. Aniket Ullal, head of ETF data and analytics at CFRA Research, says these funds give investors the option of taking more of a sector view, as many of them invest primarily in one or two sectors.

Vanguard offers a dividend-appreciation strategy, through its Vanguard Dividend Appreciation ETF (VIG). The fund tracks the S&P U.S. Dividend Growers Index, which includes only companies with a record of increasing their dividends. The fund holds all of the stocks in the index and has an expense ratio of 0.06%.

"Each of these strategies are going to play different roles in a portfolio," Mr. Ullal says. "There can be a trade-off when you focus on yields, because you increase the concentration risk in a portfolio. Each investor will have to decide if that is worth it to them."

Ms. McCann is a writer in New York. She can be reached at reports@wsj.com.

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Enclosures

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How Russia's War On Ukraine Is Altering Global Crude Oil Trade
por OilPrice.com

Oilprice.com / 2023-03-03 17:045


The conflict between Ukraine and Russia has disrupted crude tanker flows.
Midsize crude tankers have benefited from the disruption, leading to higher profits.
The ban on seaborne imports from Russia has caused an unusual transport pattern for U.S. crude exports.
The Ukraine-Russia war has rerouted crude tanker flows over the past year, equating to higher profits for shipowners. But the upside is not evenly spread. Midsize crude tankers have been the big beneficiaries.

It's not only that Russian crude export terminals can't handle larger tankers. A highly unusual transport pattern for U.S. crude exports has emerged, creating another war-induced headwind for owners of larger tonnage.

VLCCs cannibalize trans-Atlantic trade

Prior to the war, U.S. crude exports to Europe were loaded aboard midsize Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1 million barrels). U.S. crude exports to Asia were loaded aboard very large crude carriers (VLCCs; 2 million barrels).

Europe hiked its crude imports from the U.S. in the wake of the invasion, replacing seaborne imports from Russia, which have been banned since Dec. 5.

Much of Europe's incremental volume from the U.S. has moved aboard VLCCs, not midsize tankers — a transport model that was extremely rare before Russia's invasion of Ukraine. 

"Virtually all the additional [U.S.] sales to Europe were done on VLCCs," wrote Erik Broekhuizen, manager of marine research at Poten & Partners, in a report Friday.

Tanker demand is measured in ton-miles: volume multiplied by distance. If ships switch to shorter routes, it's a negative for demand, and thus, for spot rates.

VLCCs have "cannibalized" the shorter-haul U.S.-Europe business of Aframaxes and Suezmaxes. Simultaneously, China has increased imports from Russia, limiting Chinese demand for longer-haul U.S. exports. Both are negative for VLCC voyage distance.

"The problem is that more VLCCs are arriving in the Atlantic than leaving," said ship brokerage BRS on Monday. "The latest data suggests that 108 VLCCs are currently trading west of Suez and that more are arriving every day, making the Atlantic crude tanker market more competitive.

"Preliminary information suggests that the number of VLCCs transporting U.S. crude to Europe could hit a record over the coming weeks," BRS said.

VLCCs now 'world's largest shuttle tankers'
Changes in crude trade patterns since the war "have benefited the midsize sectors given that the main Russian load ports in the Baltic, the Black Sea and the Far East are all inaccessible to VLCCs," explained Kevin Mackay, CEO of Teekay Tankers (NYSE: TNK), during a conference call Thursday.

Clarksons Securities estimated Monday that spot rates of non-eco-designed VLCCs were $59,700 per day. That's a highly profitable rate, but Suezmaxes — with half the carrying capacity of VLCCs — were earning $65,600 per day.

"VLCCs are now regularly cannibalizing multiple cargoes that would usually be transported on two Suezmaxes or three Aframaxes," said BRS, noting that VLCCs are more competitive than midsized tankers on a dollar-per-ton basis.

Consequently, VLCCs have become "the world's largest shuttle tankers," BRS said.

Lars Barstad, CEO of Frontline (NYSE: FRO), said during a conference call Tuesday, "With the situation around oil being redirected from Russia, you're basically seeing both Aframaxes and Suezmaxes getting drawn into that trade. That's giving VLCCs an opportunity to enter [midsize tanker] markets.

"VLCCs have started trading Suezmax stems [cargoes]. So right now, you're seeing a high number of fixtures where VLCCs are stepping in to what you'd typically call a Suezmax trade — U.S. Gulf to UK Continent [Europe], for example. Various asset classes are eating into each other's business segments."

More 'reverse lightering' in US Gulf
U.S. Gulf ports do not have the water depth to accommodate fully loaded VLCCs. Instead, these cargoes are "reverse lightered." They are loaded first on Aframaxes or Suezmaxes, with the oil then moved to VLCCs via ship-to-ship transfers.

"Since the cannibalization trend arrived in mid-2022, charterers have become better at utilizing infrastructure in the U.S. Gulf," explained BRS. "[They are] part-loading in ports and booking reverse lightering in advance to more efficiently load VLCCs."

BRS also pointed out the increased use of VLCCs for shorter-haul shipments to Europe is tying up more Aframaxes and Suezmaxes in reverse-lightering duties in the U.S. Gulf, another plus for midsize tanker rates.

China favoring Russian crude over US crude
The U.S.-China crude trade, because of its extreme distance, is a key variable in global VLCC demand. It takes seven weeks to travel from the U.S. to China via the Cape of Good Hope at 13 knots.

According to BRS, "Long-haul U.S. crude exports remained relatively flat year on year [in 2022], which, when viewed in the context of the surge in total U.S. crude exports, was viewed as disappointing, especially by VLCC owners."

U.S. crude shipments to China averaged around 200,000 barrels per day last year, in line with 2021 volumes. They have remained at the same level in the first two months of this year.

"Considering the backdrop of steadily rising Chinese crude runs, this suggests that U.S. barrels have been losing out to soaring imports of cut-price Russian barrels," said BRS. (Crude shipments from Russia to China are mainly shipped aboard the so-called "shadow fleet," comprising vessels with opaque ownership that do not trade in Western markets.)

Broekhuizen of Poten is optimistic on U.S.-China crude flows in the remainder of this year. "We expect more crude exports from the U.S. Gulf in 2023, [and] we anticipate that less of the incremental barrels will go to Europe," he said. "This means that more crude may find its way to Asia, especially to China.

"For the VLCC markets, this means more tonnage will likely be employed on the long-haul routes to Asia, boosting ton-mile demand and freight rates. As a result, we expect VLCCs will become less competitive in the trans-Atlantic trade and Suezmaxes and Aframaxes will regain market share."

Earnings roundup
On Tuesday, Frontline reported net income of $240.1 million for the fourth quarter of 2022 versus $19.8 million in Q4 2021. Adjusted earnings of 97 cents per share came in below the consensus estimate of $1.08. The latest period was Frontline's best quarter since Q2 2008.

Frontline owns VLCCs, Suezmaxes, Aframaxes and product tankers. Its spot VLCCs earned an average of $63,200 per day in Q4 2022, nearly four times rates a year ago. The company has 87% of its available VLCC days booked for Q1 2023 at $58,300 per day.

Also on Tuesday, International Seaways reported net income of $218.4 million for Q4 2022 compared to a loss of $34 million in Q4 2021. Adjusted earnings of $4.21 per share came in much higher than the consensus forecast for $3.92. The latest period was the best quarter since the company's listing in 2016.

International Seaway's owns a fleet of VLCCs, Suezmaxes, Aframaxes and product tankers. Its spot VLCCs earned an average of $64,596 per day in the latest quarter, compared to $14,326 per day the year before. It has 83% of its available spot VLCCs days for Q1 2023 booked at $46,600 per day.

By Greg Miller of FreightWaves via Zerohedge.com

More Top Reads From Oilprice.com:

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Explainer: Biotech corn and soy widely used, consumers still wary of GM wheat
por Reuters

Investing.com: Stock Market News / 2023-03-03 19:095


© Reuters. FILE PHOTO: An agricultural worker operates a tractor with a seeder to sow wheat on farmland in Comodoro Py, on the outskirts of Buenos Aires, Argentina June 21, 2022. Picture taken June 21, 2022. REUTERS/Matias Baglietto
By Julie Ingwersen

CHICAGO (Reuters) - Nearly all corn and soybean acres in the world's largest exporting countries are seeded with genetically modified varieties, but that is not the case for wheat, a crop grown primarily for human food.

Biotech varieties of corn and soy, used for animal feed, biofuels and ingredients like cooking oil, were introduced in 1996 and soon came to dominate plantings in the United States as well as Brazil and Argentina, the world's top suppliers.

But genetically modified wheat has never been grown for commercial purposes due to consumer fears that allergens or toxicities could emerge in a staple used worldwide for bread, pasta and pastries.

Now, growing concerns about a possible global food crisis being triggered by climate change and war in Ukraine may be chipping away at opposition.

Argentine biotech company Bioceres is shaking up the status quo by developing wheat genetically modified to better tolerate drought, positioning itself ahead of larger global companies that are still steering clear.

Brazil has become the second country in the world after Argentina to approve the cultivation of genetically modified wheat, after a request from a Bioceres partner.

Because wheat is traded in a global marketplace, the threat of trade disruptions due to GM fears can be significant, as U.S. and Canadian wheat growers know well.

Two decades ago, Monsanto (NYSE:) Co was working to commercialize wheat bred to withstand treatments of its weed-killer Roundup, but the company halted that effort in 2004. International buyers had threatened to boycott U.S. wheat if the product was introduced to the marketplace. Monsanto was purchased by Bayer AG (ETR:) in 2018.

Monsanto's experimental wheat was supposed to have been destroyed or stored securely. However, small patches of Roundup-resistant wheat plants emerged years later in several U.S. states, including Oregon in 2013, Montana in 2014 and Washington in 2016 and 2019 as well as Canada's Alberta province in 2017.

The findings prompted importers, including Japan and South Korea, to suspend imports of North American wheat until they could confirm that no unapproved strains had entered commercial channels.

Attitudes toward genetically modified crops vary around the world. China, a top world buyer of soy and corn, allows GM crops in imported feed grains but only recently began to approve GM varieties for cultivation.

Germany, home to seed giants Bayer (OTC:) and BASF, imports GM soy. But domestic opposition to biotech crops is strong enough that these companies conduct their crop research abroad.

Australia grows and exports GM cotton and canola, and the country in May approved Bioceres' biotech wheat for use in foods.

Mexico, among the largest buyers of U.S. corn, has said it will halt GM corn imports for human consumption, but walked back a deadline to ban the corn for animal feed.

In the United States, some producers and wheat industry leaders have expressed interest in using biotechnology to boost wheat's profitability and appeal to farmers.

In the quarter-century since genetically modified corn and soybeans were introduced, overall U.S. plantings of those crops expanded by 13% and 37%, respectively, while U.S. wheat plantings fell by 37%, hitting the lowest in more than 100 years in 2020, according to U.S. Department of Agriculture data.

The majority of biotech corn and soybean crops are modified for insect resistance and herbicide tolerance, traits that some wheat growers would like to access. Bioceres' drought-tolerant wheat, known as HB4, adds another element to the mix.

Recent disruptions to global wheat supplies have brought a new degree of urgency to the debate over biotech wheat.

Two trade groups, U.S. Wheat Associates and the National Association of Wheat Growers, support "the eventual commercialization" of biotech wheat, according to their websites, provided that plans are implemented to minimize market disruptions.

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Can AMD Stock Break Out as a Big Investor Takes a Stake?
Yahoo! Finance: Top Stories / 2023-03-03 21:39



Chip stocks are in focus on Friday, for more reasons than one.

First, Broadcom  (AVGO) - Get Free Report is trading to new 2023 highs as the company reported better-than-expected earnings and strong guidance.

Second, Advanced Micro Devices  (AMD) - Get Free Report is in focus as Dan Loeb's Third Point reportedly has a passive stake in the firm.

While we've seen a lot of activist noise in stocks like Salesforce  (CRM) - Get Free Report, that doesn't appear to be the case with Loeb and AMD.

Don't Miss: Salesforce Stock Rips on Earnings. Here's the Trade

But the stock certainly enjoyed an afternoon rally on Thursday when Loeb's position was reported..

AMD stock promptly rallied almost 5% from before the news broke into the close. Of course, it helped that the S&P 500 also enjoyed a nice rally into yesterday's close.

As we look at AMD stock now, the stock is up 1% on the day. Could a larger breakout be brewing?

Trading AMD Stock

Daily chart of Advanced Micro Devices stock.

Chart courtesy of TrendSpider.com

Above is the daily chart, which I want to use to highlight some of the smaller levels before turning our attention to the weekly chart below.

Notice on the daily chart how AMD has given up almost all its post-earnings gains, yet found support in the $76.50 to $78 area, which was pre-earnings resistance?

Don't Miss: Will Snowflake Stock Keep Melting? Here's Where Key Support Is

That type of action is constructive, as it gives buyers clarity on the company's recent quarter, yet provides a dip to buy on a better risk/reward proposition.


Weekly chart of Advanced Micro Devices stock.

Chart courtesy of TrendSpider.com

When we zoom out to the weekly chart, the setup becomes clearer. AMD stock is putting in an inside week after a very controlled pullback down to the aforementioned $76.50 to $78 area.

In this zone, we also find the 10-week and 200-week moving averages. How convenient.

Bulls would love to see AMD stock rotate over this week's high (near $81) and make a run toward $84. If the stock makes a run back toward the recent high, $89 is in play.

Above that could trigger a much larger breakout back toward $100.

On the downside, be cognizant of the gap-fill level and 50-day moving average near $75. A break of these measures — in addition to all of those mentioned above — would create an inside-weekly-down rotation and suggests that traders use caution in the short term. 

Enclosures

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Mark Zuckerberg Quietly Buries the Metaverse
por Luc Olinga

The Street: Stock Market / 2023-03-02 15:2922
The CEO of social-media giant Meta has sworn by AI, popularized by the chatbot ChatGPT.

There will be no press release, no big announcement, as he would have to acknowledge that he was wrong.

But make no mistake: Mark Zuckerberg just buried the metaverse. The metaverse is dead. 

The metaverse was supposed to be the Next Big Thing for the social-media tycoon, who in 2021 went so far as to rename his empire -- created from Facebook, Instagram and WhatsApp -- as Meta Platforms. 

Simply put, the metaverse is an immersive virtual world in which we are supposed to interact with each other using specialized glasses and virtual-reality headsets. 

It was the future of technology, according to Zuckerberg, whom Tesla CEO Elon Musk dubbed "Zuck the Fourteenth" in an apparent nod to the French king Louis the XIV, famous for his hubris and excess.

Meta Creates a Top-Level AI Team
For those who doubted the company's devotion to the idea, Meta has invested billions of dollars in this massively hyped project -- to the chagrin of company shareholders.

In 2021 and 2022, Reality Labs, the division housing metaverse projects, recorded a cumulative loss of nearly $24 billion, including $13.7 billion just last year.

The losses will ease significantly in coming months because the metaverse is over.

Zuckerberg has just held the funeral by turning to the next big shiny thing, namely artificial intelligence.

"We're creating a new top-level product group at Meta focused on generative AI to turbocharge our work in this area," Zuckerberg said in a Feb. 27 post on Facebook.

"We're starting by pulling together a lot of the teams working on generative AI across the company into one group focused on building delightful experiences around this technology. ...

"In the short term, we'll focus on building creative and expressive tools," he wrote. "Over the longer term, we'll focus on developing AI personas that can help people in a variety of ways."

The legacy of the metaverse remains because Meta will continue to develop remnants of this virtual world, such as headsets, but it will be more for a target audience, such as videogamers and the crypto world.

Credit to Zuckerberg: He spares himself humiliation by surreptitiously and deftly redirecting the attention of his critics to AI, which most experts consider a true technological revolution.

The uses for consumers and businesses are indisputable: ChatGPT, the most visible expression of the AI breakthrough, has completely changed internet search. Now, we'll get human-like responses to queries. For companies, repetitive and boring tasks can now be carried out efficiently using chatbots.

The Metaverse Was a Fling
We are also getting closer to AGI, or artificial general intelligence, which means highly autonomous systems that emulate and outperform humans at most economically valuable work. 

Basically, the paradigm shift expected since the internet revolution is here. Zuckerberg understands this and has immediately pivoted.

If he is not a pioneer as often as he was, the tech tycoon still reacts very quickly to new ideas and trends. He always adapts and gives the impression that he is immediately on the trail.

Zuckerberg knows how to capture the spirit of the times. This is his strength and it allows him today to bury the metaverse on the sly.

"About 80% of our investments - a little more -- go towards the core business, what we call our family of apps, so that's Facebook, Instagram, WhatsApp, Messenger, and the ads business associated with that. Then a little less than 20% of our investment goes towards Reality Labs," the CEO told The New York Times Dealbook conference last November.

Coincidence or not: on the same day Zuckerberg made this statement, the OpenAI startup unveiled the ChatGPT chatbot, which has completely convinced millions of consumers that AI is already part of their daily lives and will, in the future, almost dominate their interactions with tech.

From now on, don't talk about the metaverse to Zuckerberg anymore. 

It was an affair that lasted enough time for him to find a new conquest.

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Artificial intelligence is reaching behind newspaper paywalls
Economist/Business & Finance / 2023-03-02 15:336
Business | Big tech v the news
Publishers long accused tech firms of profiting from their content. Now they have a point
Mar 2nd 2023
There was big news in Canada last week—but if you were in Canada itself you may have missed it. On February 22nd it emerged that Google was blocking access to news content, in a five-week trial affecting about 4% of users in the country. The measure comes as Canada's Senate considers a bill that would force big internet companies to pay publishers for displaying links to their stories. Google says it may simply block them instead; Canada's government says the search engine's actions amount to intimidation.

It is the latest episode in a worldwide dispute between new media and old. News organisations, which in the past two decades have seen most of their advertising revenue disappear online, accuse search engines and social networks of profiting from content that is not theirs. Google and Facebook, which have come in for most of the flak, retort that they merely display links and a few lines of text, rather than articles themselves, and that by doing so they drive traffic to publishers (who in any case can opt out if they choose). Facebook estimates that it sends 1.9bn clicks a year to Canadian media, publicity it values at C$230m ($170m).

The online platforms' arguments have mostly fallen on deaf ears. Cheered on by their domestic press, governments in countries including Australia, Britain and Spain have passed or proposed laws aiming to squeeze money out of Silicon Valley and into local media companies. Australia's law, passed in 2021, prodded tech firms to make payments to Australian media reportedly worth about A$200m ($135m) in the scheme's first year.

To ward off similar legislation elsewhere, Google and Facebook have set up mechanisms for funnelling "support" to media companies. Google's "News Showcase" will spend about $1bn in 2020-23 on licensing content from more than 2,000 news organisations in more than 20 countries. Facebook's News Tab (in which The Economist has participated) does something similar, but has lately been scaled back. Unlike Google, Facebook can live without news, which makes up only 3% of what users see in their feed.

The laws have sometimes had the feel of a shakedown of the wealthy foreign tech firms by governments. But developments in the search business mean that the publishers' complaints seem increasingly justified. Search engines have been getting better at displaying information without referring visitors to external sources. Ask Google the size of Canada's population and it simply tells you that it was 38m in 2021 (followed by its usual list of suggested websites). About a quarter of desktop Google searches now end with no onward clicks, according to Semrush, an online marketing company.

Artificial intelligence (AI) promises to improve this capability dramatically. Google's AI helper, Bard, is still under wraps. But its rival, incorporated into Microsoft's Bing search engine, is already resolving queries. Ask the old Bing for a summary of Canada's last election results and it points to sites including CBC News and the Globe and Mail. Ask the new Bing and it gives a decent account by itself (along with footnoted links to sources). AI assistants can even reach behind paywalls. A user trying to find the New York Times's recipe for macaroni and cheese will be stopped by a demand for payment and subscription. But ask Bing's AI and it serves up a paraphrased version of the whole recipe, complete with a licking-lips emoji.

The search companies admit they are still finding their way with new technology, which is mostly not yet on general release. That is unlikely to satisfy publishers' lawyers. The chief counsel at one large media company argues that AI-search companies should be made to license the content they regurgitate, just as Spotify has to pay record labels to play their songs. AI's use of others' material is "the copyright question of our times", he says. For years the complaints of publishers against platforms have rung somewhat hollow. Now they have a real story on their hands. ■

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This article appeared in the Business section of the print edition under the headline "Breaking news"

Business March 4th 2023
How the titans of tech investing are staying warm over the VC winter
Investors are going nuts for ChatGPT-ish artificial intelligence
Foreign investors are being snagged by India's tax net
Artificial intelligence is reaching behind newspaper paywalls
The uses and abuses of hype
Lessons from Novo Nordisk on the stampede for obesity drugs

From the March 4th 2023 edition
Discover stories from this section and more in the list of contents

Explore the edition
Reuse this content
More from Business

Foreign investors are being snagged by India's tax net
Indian startups will suffer


The uses and abuses of hype
How excitement can help and hinder entrepreneurs


Lessons from Novo Nordisk on the stampede for obesity drugs
Dos and don'ts on how to handle a gold rush

Enviado do meu Galaxy

The uses and abuses of hype
Economist/Business & Finance / 2023-03-02 15:335
Business | Bartleby
How excitement can help and hinder entrepreneurs
Mar 2nd 2023
Hype and absurdity go together. As excitement about the next big thing builds, people fall over themselves to get on board. A year and a half ago, the metaverse was the future. Companies appointed chief metaverse officers, and futurologists burbled about web 3.0. The idea has not gone away. Colombia held its first court case in the metaverse last month (imagine a video game called Wii Justice and you get the picture). But the excitement has evaporated, at least for now. Microsoft disbanded its industrial metaverse team last month; the career prospects of chief metaverse officers are more virtual than even they would like.

Other technologies have suffered the same reversal. There was a point when it was deeply fashionable to rave about the blockchain, crypto and non-fungible tokens. Now the attention of users, investors and managers is firmly fixed on artificial intelligence (AI). Since ChatGPT, an AI chatbot, was made available to the public at the end of November, it has generated another wave of hype. Over 100m people have asked it to rewrite IKEA furniture instructions in iambic pentameter or something equally vital; venture-capital funds are pouring money into AI startups; established firms are rushing to explain how they will use the technology to do everything from customer service to coding.

Hype need not end in disappointment. Some technologies are less speculative than others; the metaverse is still largely notional, for example, whereas AI is an established field. Even when bubbles burst, they can leave world-changing companies behind. The hype cycle, popularised by Gartner, a consultancy, is real. In essence, it describes a period of uncontrolled enthusiasm for a new idea followed by a backlash.

That makes hype bittersweet for entrepreneurs. Excitement can help unlock funding and attract users. Some think of hype as a public good, vital in enabling new technologies to get going. But it can also lead to problems. The question is how to manage hype for the best.

An obvious temptation for entrepreneurs is to take advantage of the hype by making wild—even deceitful—promises. A paper from 2021 by Paul Momtaz of UCLA Anderson School of Management looked at the once-faddish field of initial coin offerings (icos), in which new cryptocurrencies are issued directly to the public. Mr Momtaz found that not only did issuers systematically overplay their tokens' prospects but that investors fell for it. Exaggerated claims raised more money in less time than accurate ones. ICOs are far less hyped these days, but the opportunity to trick investors apparently remains: over 100 new cryptocurrencies have been created that have ChatGPT in their name.

Wilful exaggeration might be a perfectly logical strategy if entrepreneurs are raising money once. But if they want to build a business, tap capital in repeated funding rounds or maintain a close relationship with investors and users, hype might become a liability. Some dangers are obvious: disappointment and damaged credibility if things do not turn out as well as promised. Other dangers are more subtle: being too associated with a specific technology can reduce the room that startups have to pivot to a new product or business model.

So hype calls for care. A recent paper by Danielle Logue of University of Technology Sydney and Matthew Grimes of Judge Business School looked at the different paths taken by a number of social-investment stockmarkets that were set up in 2013 as the buzz over impact investing grew. The authors contrast the glitzier approach of an exchange in London, which attracted high-profile endorsements, promised a financial revolution and subsequently collapsed, with its more successful Canadian peer, which has relied more on expert advice and incrementalism.

The pros and cons of hype have also been apparent in the short public life of ChatGPT. Hype helped make it the fastest-growing consumer technology in history. But the flaws in the technology now attract as much attention. Microsoft, which has integrated a souped-up version of the chatbot into its Bing search engine, has restricted access to the new version and set limits on how many questions users can ask it in a row (an idea well worth adopting in all meetings). As Mr Grimes points out, entrepreneurs who are pushing entirely new products are expected to distort reality without overinflating expectations. How they handle hype can help determine whether they can pull off this difficult balancing act. ■

Read more from Bartleby, our columnist on management and work:
Unshowy competence brings drawbacks as well as benefits (Feb 23rd)
Why it's time to get shot of coffee meetings at work (Feb 16th)
The pitfalls of loving your job a little too much (Feb 9th)

To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter.

This article appeared in the Business section of the print edition under the headline "The uses and abuses of hype"

Business March 4th 2023
How the titans of tech investing are staying warm over the VC winter
Investors are going nuts for ChatGPT-ish artificial intelligence
Foreign investors are being snagged by India's tax net
Artificial intelligence is reaching behind newspaper paywalls
The uses and abuses of hype
Lessons from Novo Nordisk on the stampede for obesity drugs

From the March 4th 2023 edition
Discover stories from this section and more in the list of contents

Explore the edition
Reuse this content
More from Business

Foreign investors are being snagged by India's tax net
Indian startups will suffer


Artificial intelligence is reaching behind newspaper paywalls
Publishers long accused tech firms of profiting from their content. Now they have a point


Lessons from Novo Nordisk on the stampede for obesity drugs
Dos and don'ts on how to handle a gold rush

Enviado do meu Galaxy

New drugs could spell an end to the world's obesity epidemic | Leaders
The Economist Print edition / 2023-03-02 22:052
A new type of drug is generating excitement among the rich and the beautiful. Just a jab a week, and the weight falls off. Elon Musk swears by it; influencers sing its praises on TikTok; suddenly slimmer Hollywood starlets deny they have taken it. But the latest weight-loss drugs are no mere cosmetic enhancements. Their biggest beneficiaries will be not celebrities in Los Angeles or Miami but billions of ordinary people around the world whose weight has made them unhealthy.

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Treatments for weight loss have long ranged from the well-meaning and ineffective to the downright dodgy. The new class of drugs, called glp-1 receptor agonists, seems actually to work. Semaglutide, developed by Novo Nordisk, a Danish pharmaceutical firm, has been shown in clinical trials to lead to weight loss of about 15%. It is already being sold under the brand name Wegovy in America, Denmark and Norway and will soon be available in other countries; Ozempic, a lower-dose version, is a diabetes drug that is also being used "off label" for weight loss. A rival glp-1 drug, made by Eli Lilly, an American firm, is due to come on sale later this year and is more effective still. Analysts think the market for glp-1 drugs could reach $150bn by 2031, not far off the market for cancer drugs today. Some think they could become as common as beta blockers or statins.

The drugs could not have arrived at a better time. In 2020 two-fifths of the world's population were overweight or obese. By 2035, says the World Obesity Federation, an ngo, that figure could swell to more than half, with a staggering 4bn people overweight or obese. People everywhere are getting fatter. The populations putting on pounds the fastest are not in the rich West but in countries like Egypt, Mexico and Saudi Arabia.

These trends are alarming because obesity causes a host of health problems, including diabetes, heart disease and high blood pressure, as well as dozens of illnesses such as stroke, gout and various cancers. Carrying extra weight made people more likely to die of covid-19. And then there is the misery that comes from the stigma associated with being fat, which affects children in schools and playgrounds most cruelly of all.

The consequences of obesity for the public purse and the wider economy are large. According to modelling by academics the annual cost to the world economy of excess weight could reach $4trn by 2035 (2.9% of global gdp, up from 2.2% in 2019). That includes both spending on health care and working time lost to illness and premature deaths tied to obesity.

The world's expanding waistlines are not a sign of the moral failure of the billions who are overweight, but the result of biology. The genes that were vital to helping humans survive winters and famine still help the body cling on to its weight today. The superabundance of hard-to-resist processed foods in recent decades has brought greater convenience and lower costs, but also triggered overeating just as lifestyles became more sedentary. Once the fat is on, the body fights any attempt to diet away more than a little of its total weight. Despite the $250bn that consumers around the world spent on dieting and weight loss last year, the battle to get slim was largely being lost.

The new obesity drugs arrived by serendipity, after treatments meant for diabetics were observed to cause weight loss. Semaglutide mimics the release of hormones that stimulate a feeling of fullness and reduce the appetite. They also switch off the powerful urge to eat that lurks inside the brain, waiting to ambush even the keenest dieter.

With the jabs already in high demand, investors are nearly as giddy as newly slim users. The market capitalisation of Novo Nordisk, the firm at the front of the gold rush, has doubled in two years, to $326bn, making it the second-most-valuable listed drugmaker in the world. Analysts expect half of obese Americans who seek help to be on glp-1 drugs by the turn of the decade. But, as with any new medicine that holds so much promise for so many, there are uncertainties. Two big ones will be safety and affordability.

Consider safety first. The newness of these drugs means that their long-term consequences are not yet known. For the lower-dose forms prescribed for diabetes, the side-effects, such as vomiting and diarrhoea, have been mild. But others could crop up as the drugs are used more widely and at higher doses. Animal studies have shown a higher incidence of thyroid cancer, and semaglutide is associated with a rare pancreatitis. Little is known about the effects of using them during or just before pregnancy. All this will require careful analysis through controlled longitudinal studies.

Understanding these risks will be important, because many patients who take the drugs may need them for the rest of their lives. As with ditching a diet, stopping a high dose of semaglutide is associated with much of the lost weight piling back on. Some people even gain more weight than they lost in the first place.

Another preoccupation for policymakers is cost. In America the bill for Wegovy runs at around $1,300 a month; for Ozempic about $900. Judged by such prices, lifelong prescriptions look forbiddingly expensive. The longer view, however, is more encouraging. In time, companies may strike deals with governments and health providers to cover the whole population, ensuring high volumes in return for low prices. The prospect of profits is already luring competition and spurring innovation. Amgen, AstraZeneca and Pfizer are all working on rival drugs; Novo Nordisk has a full pipeline of follow-on drugs. Further ahead still, patents will expire, enabling the development of lower-priced generics.

The shape of things to come
What to do in the meantime? Governments must ensure that those who most need the drugs get them, leaving those taking them for cosmetic purposes to pay out of their own pockets. The long-term effects must be carefully studied. States should keep pressing other anti-obesity measures, such as exercise, healthy eating and better food labelling, which may help prevent people from getting fat in the first place. But spare a moment to celebrate, too. These new drugs mean that the world's fight against flab may eventually be won. ■

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Enviado do meu Galaxy

Business | The world this week
The Economist Print edition / 2023-03-02 22:05

Goldman Sachs held an investors' day, its first in three years, amid grumbling from shareholders about the direction of the bank after a slump in profit last year. David Solomon, its chief executive, raised the possibility of selling parts of its lossmaking consumer services after it has finished scaling back the division. It has become clear "that we lacked certain competitive advantages" in the business, he said. Markets were left unimpressed by the presentation. Goldman's share price fell after the event.

Tesla held its first ever investor day, at which Elon Musk outlined part three of his "Master Plan" for the company. Senior executives also took part and said an electric car for the mass market was in the works, which is essential for Tesla's sales ambitions. But the lack of detail about the new model disappointed investors.

Tesla also confirmed that it is building its first factory in Mexico, in Monterrey. It is the latest carmaker to invest in making electric vehicles in Mexico; in February BMW said it would expand production and build a factory to assemble batteries. Mexico is benefiting from the huge green subsidies in America's Inflation Reduction Act, $34bn of which is earmarked for smoothing the supply chain for EVs.

The euro zone's annual inflation rate remained virtually unchanged in February at 8.5%, though the reading was higher than the 8.2% that economists had expected. Core inflation, which strips out volatile food and energy prices, increased to 5.6%. Inflation also rose in the currency bloc's two biggest economies, Germany and France, adding to pressure on the European Central Bank to continue raising interest rates.

A measure of factory activity in China grew at its fastest rate in a decade, suggesting that the economy is bouncing back from covid-19 lockdowns and other restrictions. The official purchasing managers' index for manufacturing registered 52.6 for February, up from 50.1 in January (a reading over 50 means manufacturing is growing). The news triggered a rally in Hong Kong's stockmarket.

America's three main stockmarkets declined in February. The S&P 500 was down by 2.6% and the NASDAQ composite by 1.1%. Both indices are still up for the year. The Dow Jones Industrial Average fell by 4.2% in February; it has dropped by over 1% so far this year.

Sorting out the greenwashing
The European Commission announced that an agreement had been reached on its proposed standard for EU green bonds. Companies that want to promote their bonds as climate-friendly will have to ensure that the investments meet strict sustainability requirements. It is not yet clear what the penalties will be if companies' bonds don't meet the new standards.

Sweden's economy shrank by 0.9% in the last three months of 2022 compared with the previous quarter. The country is expected to fall into recession this year as soaring prices and higher interest rates knock consumer spending. House prices are falling sharply. Finland's economy did fall into recession in the fourth quarter, contracting by 0.6% after a 0.1% decline in the third quarter.

An accounting charge on stock-based compensation caused Zoom to report its first quarterly loss since 2018. The video-conference company's revenue grew by just 4%, year on year. A year earlier sales were still growing by 20%.


The share price of Beyond Meat fell back, having rallied after it produced better forecasts for the year than expected. Its stock is up by 38% since the start of 2023, even though revenue fell by 20% in the fourth quarter, year on year, and it made another net loss. Sales for the alternative-meat industry were butchered last year, in part because fake meat hasn't lived up to the hype of being as tasty as the real thing.

Ocado reported another big annual loss. Revenue from its online-groceries business in Britain fell. It had more customers but they put fewer items in their baskets: 46 on average, down from 52 in 2021.

International Airlines Group, the owner of British Airways, made its first annual operating profit since the start of the pandemic: €1.3bn ($1.4bn). Passenger revenue soared to €19.5bn from €5.8bn in 2021. IAG expects profit to climb.

Come fly with me
Cathay Pacific began giving away free return flights to Hong Kong to residents of South-East Asia as part of the city's campaign to lure back tourists after lockdown. The government is making 500,000 tickets available. Cathay is providing 80,000. Hong Kong's main airline has had a turbulent few years, from being ensnared in pro-democracy politics to coming close to collapse amid covid restrictions. But business is taking off again. Cathay flew 1m passengers in January, up by 4,000%, year on year.

Enviado do meu Galaxy