Peter Thiel paid staff an extra $1,000 a month if they lived close to the office so they were more likely to work late, book says
Yahoo! Finance: Top Stories / 2023-07-30 20:402

Peter Thiel liked workers to live close to the office, a book says.Marco Bello/Getty Images
Peter Thiel paid staff an extra $1,000 a month if they lived near the office, a former worker said.

The billionaire investor offered it so staff "were more likely to stay late," Michael Gibson wrote.

Gibson made the claim in his book "Paper Belt on Fire: The Fight for Progress in an Age of Ashes."

Peter Thiel offered his staff a monthly bonus of $1,000 if they lived close to the office, according to a former employee of the billionaire investor.

Michael Gibson, a VC investor who worked for Thiel for five years, said in his book "Paper Belt on Fire: The Fight for Progress in an Age of Ashes" that Thiel "lived about 400 yards from the office" in San Francisco and encouraged his employees to live locally too.

Thiel gave workers the bonus so "they were more likely to stay late" and could be around for "a surprise meeting on the weekends," Gibson wrote.

"Employees were granted an extra $1,000 per month in rent if they lived within a half-mile radius of the office," per the title, published by Encounter Books last year.

"It had the added effect that we would all show up to the same watering holes after work to knock off a few drinks and gossip, tell war stories, argue over the jukebox, and have a few laughs. As far as employee benefits go, I always thought this was a wise one."

Gibson co-founded the venture capital fund 1517, which aims to back college dropouts and those who did not study at university.

Similar subsidy schemes were in place at the software company Palantir Technologies, which Thiel co-founded, as well as at Salesforce subsidiary SalesforceIQ, according to reporting by The Guardian.

Thiel is in 217th place on the Bloomberg Billionaires Index with a net worth of $10 billion.

Meta also had deep pockets when it came to offering workers incentives to live near its office. It historically paid "at least $10,000" to Facebook staff if they lived within 10 miles of its headquarters in Menlo Park, Silicon Valley, per The Guardian. It also offered employees with families a one-off payment of at least $15,000 for housing.

While some companies are bringing back such relocation benefits schemes in a bid to get workers to return to the office after the pandemic, others are taking a different approach .

Law firm Davis Polk & Wardwell told its employees that their bonuses could be cut if they're not in the office three days a week, The Wall Street Journal reported.

Recent data from ZipRecruiter showed there were 3.8 million job listings that refer to relocation assistance, up from 2 million posts that mentioned the term in 2020, the Journal reported in April.

ARC Relocation, a firm that helps companies relocate workers, told Insider's Aaron Mok that it's seen a "significant rise" in business since companies started to enforce return-to-office policies.

Thiel and Meta didn't immediately respond to requests for comment from Insider, made outside normal working hours.

Read the original article on Business Insider

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Believe it or not, consumer sentiment is improving
Yahoo! Finance: Top Stories / 2023-07-30 20:402


A version of this post first appeared on TKer.co

Stocks climbed last week with the S&P 500 rising 1.0% to close at 4,582.23. The index is now up 19.3% year to date, up 28.1% from its October 12 closing low of 3,577.03, and down 4.5% from its January 3, 2022 record closing high of 4,796.56.

The market rallied as we were reminded not to underestimate the American consumer.

On Friday, the BEA reported that personal consumption expenditures growth accelerated in June, rising to a record annualized rate of $18.4 trillion.

This matters because consumer spending is the dominant driver of the U.S. economy, with personal consumption expenditures accounting for 68% of GDP.

However, consumer behavior can be complex and nuanced.

For most of the past two years, measures of consumer sentiment have been in the dumps — largely due to inflation manifesting clearly in the rising prices of goods and services.

Yet consumer spending growth has persisted.

The explanation: Consumer finances have been in remarkably good shape thanks to a combination of excess savings and relatively low debt levels. Meanwhile, more consumers have been getting jobs, which means more consumers have been making money. If people have money, they'll spend it.

But no economic or market narrative goes unchanged forever. The consumer tailwinds mentioned above have been showing signs of fading.

The consumer narrative is shifting in a fascinating way
In recent months, we've been watching excess savings shrink, consumer debt levels begin to normalize (i.e, rise from unusually low levels), and job growth cool.

These are developments that might not lead you to assume that consumer sentiment would be improving.

But believe it or not, consumer sentiment is improving.

On Friday, we learned the University of Michigan's Index of Consumer Sentiment in July rose to its highest levels since October 2021.

On Tuesday, we learned the Conference Board's Consumer Confidence Index in July jumped to its highest level since July 2021.

Notably, the Conference Board's survey also found more consumers are saying their financial situation is good and fewer are saying it's bad.

Fortunately, what we're witnessing isn't total madness among consumers.

While some key metrics of financial health have deteriorated in recent months, others have been improving.

Incomes are outpacing inflation
As Renaissance Macro's Neil Dutta has been highlighting for months, real income growth has been positive (i.e., consumers' wage growth is outpacing inflation).

According to BEA data released Friday, real personal income excluding transfer receipts (e.g. Social Security benefits, unemployment insurance benefits, and welfare payments) rose to a record high in June and has been trending higher since December.

This has as much to do with wages rising as it does with inflation cooling.

Earlier this month, we learned the consumer price index in July was up just 3% from a year ago, the lowest print since March 2021.

Among the biggest forces bringing down inflation were energy prices, which were down 16.7% from year-ago levels. Gasoline prices are way down after a brutal 2022.

While policymakers tend to focus on "core" measures of inflation (which exclude volatile components like food and energy prices), headline measures of inflation can have a huge impact on sentiment as they include the prices of goods consumers confront very regularly.

"It is a good thing headline inflation has gone down a bit," Federal Reserve Chair Jerome Powell said on Wednesday (h/t Myles Udland). "I would say that having headline inflation move down that much... will strengthen the broad sense that the public has that inflation is coming down, which will, in turn, we hope, help inflation continue to move down."

And even though job growth has been cooling, there continue to be a lot of signs that the demand for labor remains robust.

This was recently confirmed in The Conference Board's July survey, which showed that "46.9% of consumers said jobs were 'plentiful,' up from 45.4%. 9.7% of consumers said jobs were 'hard to get,' much lower than 12.6% last month."

"Overall, the sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets," University of Michigan's Joanne Hsu said.

The Conference Board noted: "Despite rising interest rates, consumers are more upbeat, likely reflecting lower inflation and a tight labor market."

On the matter of rising interest rates, it's worth remembering that the share of household debt with an adjustable interest rate is low by historical standards.

What to watch
Metrics like excess savings, consumer debt, and debt delinquencies have moved unfavorably in recent months. But none of these developments are signaling that a recession is around the corner. The metrics have only eased from their hottest levels.

But will spending hold up? This will be the key dynamic to watch in the coming months.

It's great that consumer sentiment is on the mend. And it's even better that real incomes are on the rise.

And generally speaking, consumer finances remain very healthy. As Federal Reserve data shows, household debt service payments remain historically low relative to disposable income.

In addition to resilient measures of consumer spending at the aggregate level, anecdotes suggest discretionary spending remains very strong: Royal Caribbean says cruise bookings are surging, Bank of America says Barbie and Oppenheimer have people out and about, and even the Federal Reserve says Taylor Swift concerts are fueling local tourism.

And like consumer behavior, the dynamics of the economy are complex and nuanced. Just because some key metrics are deteriorating doesn't mean the economy is going down. There may be other metrics offsetting these headwinds. You just have to be vigilant and open to the possibility that big narratives can change.

Reviewing the macro crosscurrents
There were a few notable data points and macroeconomic developments from last week to consider:

The Fed hikes rates. On Wednesday, the Federal Reserve tightened monetary policy further by raising its target for the federal funds rate by 25 basis points to a range of 5.25% to 5.5%

From the Fed's monetary policy statement: "In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2% objective."

"I would say what our eyes are telling us is policy has not been restrictive enough for long enough to have its full desired effects," Fed Chair Jerome Powell said in a press conference.

In other words, while inflation rates have cooled significantly in recent months, they remain above target levels. And so the Fed will keep monetary policy tight for a little while.

Inflation is cooling. The personal consumption expenditures (PCE) price index in June was up 3.0% from a year ago, down from the 3.8% increase in May. The core PCE price index — the Federal Reserve's preferred measure of inflation — was up 4.1% during the month after coming in at 4.6% higher in the prior month.

On a month over month basis, the core PCE price index was up 0.2%. If you annualized the rolling three-month and six-month figures, the core PCE price index was up 3.4% and 4.1%, respectively.

The bottom line is that while inflation rates have been trending lower, they continue to be above the Federal Reserve's target rate of 2%.

Labor costs are cooling. The employment cost index in the second quarter was up 4.5% from the prior year, down from 4.9% in the first quarter. On a quarter-over-quarter basis, it was up 1.0% in the second quarter, a deceleration from the 1.2% gain in the first quarter.

From Wells Fargo: "The details of the ECI report are consistent with a labor market that is still tight but is gradually cooling from the scorching heat experienced last year. Compensation growth appears to have turned a corner as labor supply and demand come into better balance."

Unemployment claims tick down. Initial claims for unemployment benefits fell to 221,000 during the week ending July 22, down from 228,000 the week prior. While this is up from the September low of 182,000, it continues to trend at levels associated with economic growth.

The U.S. economy grew. U.S. GDP grew at a healthy 2.4% rate in Q2, according to the BEA's advance estimate (via Notes). During the period, personal consumption increased at a 1.6% clip.

Near-term GDP growth estimates remain positive. The Atlanta Fed's GDPNow model sees real GDP growth climbing at a 3.5% rate in Q3.

Most U.S. states are still growing. From the Philly Fed's State Coincident Indexes report: "Over the past three months, the indexes increased in 49 states and decreased in one, for a three-month diffusion index of 96. Additionally, in the past month, the indexes increased in 43 states, decreased in two states, and remained stable in five, for a one-month diffusion index of 82."

They're building a lot of factories. From Bloomberg: "Business investment in manufacturing facilities surged to the highest level in records that go back to the late 1950s, according to data published Thursday by the Bureau of Economic Analysis. Spending on factory construction has almost doubled in the past year, after the Biden administration passed laws that provide hundreds of billions of dollars in subsidies and other support for industries like clean energy and semiconductors."

Business survey signals cooling. From S&P Global's July Flash U.S. PMI (via Notes): "July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation. The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter. That's down from a 2% pace signaled by the survey in the second quarter."

Keep in mind that during times of stress, soft data tends to be more exaggerated than actual hard data.

New home sales jump. Sales of newly built homes (via Notes) fell 2.5% in June to an annualized rate of 697,000 units.

Home prices rise. According to the S&P CoreLogic Case-Shiller index (via Notes), home prices rose 1.2% month-over-month in May. From SPDJI's Craig Lazzara: "Home prices in the U.S. began to fall after June 2022, and May's data bolster the case that the final month of the decline was January 2023. Granted, the last four months' price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May's report are consistent with an optimistic view of future months."

Consumer confidence is up. From The Conference Board's July Consumer Confidence report (via Notes): "Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations… Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000."

Labor market confidence improves. From The Conference Board: "46.9% of consumers said jobs were 'plentiful,' up from 45.4%. 9.7% of consumers said jobs were 'hard to get,' much lower than 12.6% last month."

From The Conference Board's Dana Peterson: "Assessments of the present situation rose in July on brighter views of employment conditions, where the spread between consumers saying jobs are 'plentiful' versus 'hard to get' widened further. This likely reflects upbeat feelings about a labor market that continues to outperform."

Consumer spending rises. According to BEA data (via Notes), personal consumption expenditures increased 0.5% month over month in June to a record annual rate of $18.4 trillion.

Card spending growth is positive. From JPMorgan Chase: "As of 23 Jul 2023, our Chase Consumer Card spending data (unadjusted) was 2.9% above the same day last year. Based on the Chase Consumer Card data through 23 Jul 2023, our estimate of the US Census July control measure of retail sales m/m is 0.46%."

Putting it all together
We continue to get evidence that we could see a bullish "Goldilocks" soft landing scenario where inflation cools to manageable levels without the economy having to sink into recession.

The Federal Reserve recently adopted a less hawkish tone, acknowledging on February 1 that "for the first time that the disinflationary process has started." At its June 14 policy meeting, the Fed kept rates unchanged, ending a streak of 10 consecutive rate hikes. While the central bank lifted rates again on July 26, most economists agree that the final rate hike is near.

In any case, inflation still has to come down more before the Fed is comfortable with price levels. So we should expect the central bank to keep monetary policy tight, which means we should be prepared for tight financial conditions (e.g. higher interest rates, tighter lending standards, and lower stock valuations) to linger.

All of this means monetary policy will be unfriendly to markets for the time being, and the risk the economy sinks into a recession will be relatively elevated.

At the same time, we also know that stocks are discounting mechanisms, meaning that prices will have bottomed before the Fed signals a major dovish turn in monetary policy.

Also, it's important to remember that while recession risks may be elevated, consumers are coming from a very strong financial position. Unemployed people are getting jobs. Those with jobs are getting raises. And many still have excess savings to tap into. Indeed, strong spending data confirms this financial resilience. So it's too early to sound the alarm from a consumption perspective.

At this point, any downturn is unlikely to turn into economic calamity given that the financial health of consumers and businesses remains very strong.

And as always, long-term investors should remember that recessions and bear markets are just part of the deal when you enter the stock market with the aim of generating long-term returns. While markets have had a pretty rough couple of years, the long-run outlook for stocks remains positive.

A version of this post first appeared on TKer.co

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Eletricidade: anatomia de um desvio colossal - Expresso

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Eletricidade: anatomia de um desvio colossal


Miguel Prado

Bom dia!


Há mais de uma década, quando Portugal estava no início de uma austera intervenção da troika, correram rios de tinta em torno do "desvio colossal" das contas públicas. Como em 2011 observava o então ministro das Finanças, Vítor Gaspar, estava em causa o trabalho "colossal" com que o Governo se confrontava para cumprir metas orçamentais perante o desvio detetado. Em 2011 não era só na contabilidade do Estado que havia um sinal vermelho. O sistema elétrico suscitava igualmente preocupações, com uma montanha de dívida tarifária pela frente, num setor acusado de viver protegido por rendas excessivas. Uma dúzia de anos depois, o tema da dívida tarifária está praticamente resolvido, mas persistem desafios na gestão do mercado. E um deles é o desvio, também ele colossal, entre as previsões que sustentam as tarifas reguladas de eletricidade e os preços realmente verificados.



É um tema regulatório, eminentemente técnico, mas que, mais cedo ou mais tarde, acaba por nos tocar a todos enquanto consumidores de eletricidade. Uma boa parte da fatura que nos chega a casa todos os meses depende das contas feitas todos os anos pela Entidade Reguladora dos Serviços Energéticos (ERSE), que em outubro apresenta uma proposta tarifária, e em dezembro aprova a sua versão final, para vigorar a partir de janeiro. Para os 950 mil clientes que estão no mercado regulado, a sua fatura é integralmente dependente dos termos aprovados pela ERSE. Para os mais de 5 milhões de famílias que estão no mercado liberalizado, uma parte do que pagam depende do comercializador e da forma como este se aprovisiona de energia, mas outra parcela depende das tarifas de acesso à rede estipuladas pela ERSE.


Há dias, a ERSE anunciou uma invulgar proposta de atualização intercalar das tarifas de acesso, a vigorar a partir de 1 de julho. E a razão, de um modo resumido, é que o ano 2023 está a apresentar uma realidade de preços de energia bem diferente daquela que o regulador assumiu no final de 2022, quando aprovou as tarifas para este ano. É uma diferença de mais de 2 mil milhões de euros (que detalhamos mais abaixo). Mas vale a pena olharmos para o assunto com mais alguma profundidade, para entendermos como são construídos os preços que pagamos pela eletricidade.


Na eletricidade a fatura de cada família tem uma componente fixa (pela potência contratada) e outra variável (pela energia consumida). O que pagamos tem de cobrir o custo da produção de eletricidade, o seu transporte e distribuição até às nossas casas, custos de gestão da rede e as margens de lucro das empresas que atuam nesta cadeia. Se na comercialização as margens são livremente definidas por cada operador (exceto o comercializador de último recurso, como a SU Eletricidade, cuja margem é fixada pela ERSE), no transporte e distribuição os custos são regulados (é a ERSE que define quanto a REN e a E-Redes, em Portugal Continental, têm direito a receber). Na produção é um pouco mais complexo: aí convivem produtores em regime geral, que vendem diariamente a sua energia a preços variáveis em função da oferta e da procura, mas também produtores do regime especial (a maior parte dos quais com a garantia de venda da sua eletricidade a uma tarifa pré-definida, válida por vários anos).


Sucede que todos os anos há uma carteira de clientes regulados (como os da SU Eletricidade) que vai aumentando e diminuindo, da mesma forma que a produção do regime especial também vai oscilando (consoante haja mais ou menos geração renovável coberta por este regime). Cabe à ERSE distribuir alguns destes custos do sistema pelos consumidores de eletricidade nos vários níveis de tensão da rede elétrica (desde os que servem diretamente as indústrias aos que servem as famílias), mas o exercício é complexo. O regulador tem de fazer para o ano seguinte múltiplas projeções: o volume esperado da procura de eletricidade, o volume esperado de produção no regime especial (que inclui parques eólicos, mini-hídricas, algumas centrais solares mais antigas, cogerações, entre outros produtores), e, entre outras variáveis, a evolução esperada do preço grossista da eletricidade.


Um dos elementos cruciais no exercício de preparação das tarifas de eletricidade é este último. A ERSE precisa de projetar um preço de mercado de eletricidade para o ano seguinte, de forma a saber qual o diferencial entre o mercado e o custo da produção do regime especial. E precisa de o fazer porque a regulada SU Eletricidade tem a incumbência de adquirir toda a eletricidade do regime especial e a colocar no mercado ibérico; se o preço médio garantido aos produtores do regime especial for de 100 euros por MWh e o preço de mercado for de 50 euros, a SU incorre num sobrecusto de 50 euros por MWh, que terá de ser recuperado nas tarifas suportadas por todos os consumidores de eletricidade; se o preço de mercado for de 200, a SU obtém um ganho de 100 euros por MWh, que terá de ser devolvido a esses mesmos consumidores.


Desde 2020, com a pandemia, que os mercados de energia entraram numa enorme volatilidade. Primeiro, a queda do consumo fez afundar os preços, dos combustíveis à eletricidade. Em 2021, a recuperação da procura fê-los disparar. Em 2022 a guerra na Ucrânia acentuou a volatilidade. E neste início de 2023 o mundo percebeu que a Europa resolveu bem o desafio de curto prazo que tinha no aprovisionamento de gás: o preço do combustível caiu de forma acentuada, e tem permanecido sem grandes oscilações nos últimos meses. No entanto, o mercado grossista de eletricidade na Península Ibérica continua a ser um carrossel, com uma enorme amplitude de preços da noite para o dia.


É neste cenário que aquilo que já era um quebra-cabeças na vida de um regulador (fazer múltiplas projeções de preços e volumes para o ano seguinte) se transformou numa missão virtualmente impossível (não falhar muito nessas projeções). Vamos aos números.


Na sua proposta de tarifas para 2023 a ERSE havia inicialmente estimado, em outubro de 2022, que ao longo deste ano o preço médio da eletricidade no mercado grossista rondaria os 262 euros por megawatt hora (MWh). Em dezembro, na versão final dos tarifários, o preço de referência já tinha baixado para 223 euros por MWh. Era, ainda assim, um valor histórico: nunca antes a ERSE havia assumido para o ano seguinte um custo tão alto de eletricidade no mercado grossista.


Esta projeção do regulador acarretava riscos e benefícios. O benefício principal era que, havendo um enorme diferencial entre o valor de mercado (estimado) da eletricidade e os preços garantidos ao regime especial, esse fosso criava um substancial ganho tarifário (em lugar do sobrecusto que tradicionalmente existia), que resultaria em valores negativos nas tarifas de acesso à rede (TAR). Ou seja, para 2023, a ERSE aprovou TAR negativas: os comercializadores deveriam, nas suas ofertas comerciais, descontar esse valor negativo das redes aos seus custos com a aquisição da energia no mercado. Mas a projeção de 223 euros de preço de mercado assumida pela ERSE implicava também um risco elevado: se o custo médio da eletricidade no mercado ibérico (Mibel) fosse afinal muito inferior, então as tarifas para 2023 teriam um desvio relevante, que mais tarde teria de ser repercutido nos consumidores. E foi o que aconteceu.


Nos primeiros quatro meses do ano o preço médio no Mibel rondou os 92 euros por MWh, menos de metade do pressuposto usado pela ERSE para 2023. Embora tenham passado apenas quatro meses, o desvio é o maior alguma vez registado entre os pressupostos da ERSE e o preço grossista. O levantamento que fizemos para os últimos anos mostra que sempre houve desvios, mas não da magnitude daquele a que estamos a assistir em 2023.


O mercado de futuros, operado pelo Omip, sugere algum agravamento de preços no resto do ano: junho está nos 100 euros por MWh, o terceiro trimestre está nos 112 euros e o quarto trimestre nos 131 euros. Mesmo que se confirmem estes patamares de preço no mercado ibérico, o ano em curso sairá bem abaixo da projeção considerada pela ERSE. Conclusão: as tarifas de acesso de que os consumidores de eletricidade estão a beneficiar (porque negativas) foram sobreestimadas. E foi isso que levou agora a ERSE a propor a revisão excepcional a vigorar a partir de julho, com tarifas de acesso menos negativas no segundo semestre do que as que foram aplicadas na primeira metade do ano.


O efeito prático desta alteração extraordinária promovida pela ERSE está ainda por determinar (mas poderá fazer subir os preços finais das ofertas no mercado liberalizado). A ERSE indica que os custos de interesse económico geral (CIEG), que resultam, em grande medida, de decisões políticas, deverão este ano ser afinal negativos em 2,5 mil milhões de euros, e não no valor negativo de 4,6 mil milhões assumido nas tarifas para 2023. É uma diferença substancial, superior a 2 mil milhões de euros (o equivalente a mais de 300 euros por cada um dos 6,4 milhões de pontos de consumo de eletricidade do país).


O comunicado do regulador sobre o assunto não revela qual o novo valor proposto para as tarifas de acesso. Essa tarifa é atualmente de -0,0958 euros por kilowatt hora (kWh) na componente de energia em tarifa simples. Numa análise publicada há dias no seu perfil no Twitter, Gonçalo Aguiar, especialista na área de energia, calculou, com base nos poucos dados avançados pela ERSE, que a nova tarifa de acesso poderia assumir um valor de -0,0176 euros por kWh (uma outra fonte ouvida pelo Expresso aponta igualmente para um valor próximo dos 2 cêntimos negativos por kWh). Isso significará uma redução da ordem dos 7 cêntimos por kWh no desconto da tarifa de acesso.


Como a ERSE anunciou que os preços do mercado regulado não irão mexer, esta revisão retirará parte da vantagem dos tarifários do mercado liberalizado, que hoje são destacadamente mais baratos (em especial os indexados ao mercado grossista). Aos preços de mercado atuais, os tarifários indexados deverão permanecer competitivos nos próximos meses, mas será preciso esperar por julho para verificar que atualizações ocorrem nos tarifários fixos do mercado livre, e como se comparam entre si e face aos preços regulados.


As próximas semanas implicarão também um delicado exercício tarifário do lado do maior comercializador de eletricidade do país. Afinal, o presidente executivo da EDP, Miguel Stilwell de Andrade, prometeu uma descida de preços a partir de julho. "Vamos seguramente baixar os preços no segundo semestre", declarou o gestor em entrevista ao Expresso. Para quanto? "Vai depender das tarifas de acesso, de eventuais alterações que haja", respondeu Stilwell na entrevista publicada a 21 de abril, parecendo adivinhar o que a ERSE anunciaria uma semana depois. Com tarifas de acesso menos negativas do que as que até agora existiam, qual será a magnitude da descida prometida pela EDP Comercial?


O "desvio colossal" que baralhou as contas do regulador da energia, passados que estão pouco mais de quatro meses depois da aprovação das tarifas de 2023, não é uma questão de fácil resolução. A estrutura e o desenho do sistema português de eletricidade continuam a obrigar a trabalhar com previsões. E assim continuará a ser enquanto houver comercialização de último recurso (regulada) a conviver com o mercado liberalizado, produção de regime especial em paralelo com geração sem preços garantidos e outros fatores que ao longo de décadas marcaram presença na complexa arquitetura tarifária da eletricidade. Um puzzle que fica ainda mais difícil depois de em 2023 o sistema elétrico ter beneficiado de uma injeção extraordinária de verbas do Estado, sem que saibamos se no ano seguinte tal se repetirá.


A dívida tarifária, que em 2015 chegou a ultrapassar os 5 mil milhões de euros, parece hoje um tema bem resolvido em Portugal. O nosso sistema elétrico foi acumulando excedentes tarifários nos últimos anos, conseguindo abater a maior parte do fardo da dívida que vinha de trás. Só em 2023 estão a ser amortizados 830 milhões de euros de dívida tarifária, e chegaremos ao fim do ano com um stock de dívida de 879 milhões. Era pelo menos essa a projeção da ERSE em dezembro. Se 2024 repetisse o perfil de amortização deste ano, chegaríamos a 2025 praticamente sem dívida tarifária na eletricidade. Mas o desvio do corrente ano e a volatilidade que vimos enfrentando no mercado introduzem um ponto de interrogação sobre o momento real de extinção da dívida tarifária.


A complexidade de desenhar tarifas e preços persiste. Há no setor elétrico diferentes perspetivas sobre o desenho ideal do mercado. Há quem defenda mais contratos de longo prazo (ao criarem cash flows previsíveis diminuem o risco dos projetos e o seu custo de financiamento, ao mesmo tempo que proporcionam preços estáveis para o consumidor). Há quem prefira exposição total ao mercado, ganhando mais dinheiro nuns dias e menos noutros. Não é preciso ir muito longe para o ilustrar: a EDP tem há anos a maior parte da sua produção de eletricidade coberta por contratos de longo prazo; a Galp tem preferido expor as suas centrais solares ao mercado (e tem-se dado bem, porque os preços grossistas nos últimos dois anos alcançaram máximos históricos).


Nos próximos anos novos produtores entrarão em cena. Uns com maior apetite pelo risco, outros com a necessidade de garantir preços fixos. Da energia solar à eólica no mar, a concorrência será elevada. As baterias poderão também entrar no jogo para tirar partido das horas de preços loucos. Esta semana, a comunidade Future Energy Leaders Portugal e a Associação Portuguesa da Energia (APE) promoveram um debate sobre as perspetivas das eólicas offshore em Portugal. No evento, o professor universitário João Peças Lopes indicou que as eólicas flutuantes poderão vir a conseguir um custo nivelado de energia em torno dos 50 euros por MWh quando esse mercado (o das torres flutuantes) alcançar massa crítica, isto é, quando alcançar uma capacidade de 20 a 30 gigawatts (GW) globalmente. Esse seria um preço competitivo (é metade do preço ibérico dos futuros para 2024), mas para lá chegarmos é preciso que os projetos saiam do papel e a indústria se materialize. Mas mesmo aí estamos no domínio de elevada incerteza das projeções. Teremos sempre de viver com elas. E com desvios. Sejam eles colossais ou residuais.

DESCODIFICANDO:


VPP. Uma "Virtual Power Plant" é um conjunto de recursos energéticos descentralizados que possam ser agregados virtualmente, por meio de um sistema de controlo digital, para fornecer serviços à rede elétrica. Assim, uma VPP poderá juntar uma série de pequenas instalações fotovoltaicas em casas e fábricas, fazer a gestão remota de sistemas de aquecimento e arrefecimento, bem como gerir um conjunto de baterias e uma frota de veículos elétricos, usando as respetivas potências e a sua energia para fornecer serviços à rede em momentos críticos, funcionando como uma alternativa flexível às convencionais centrais elétricas. As receitas associadas à prestação desses serviços são depois partilhadas entre os proprietários dos vários ativos descentralizados.



E VALE A PENA LER:


É sobre VPP o mais recente estudo do Brattle Group, encomendado pela Google, e que é intitulado "Real Reliability: the value of virtual power". O trabalho conclui que seria economicamente vantajoso os Estados Unidos da América apostarem nestas centrais virtuais para garantirem o equilíbrio do seu sistema elétrico. Lembrando que na última década os EUA instalaram mais de 100 gigawatts (GW) de nova capacidade firme (na sua maior parte centrais a gás, mas também baterias) com um investimento de 120 mil milhões de dólares, a análise do Brattle Group estima que a eventual instalação de 60 GW de VPP poderá proporcionar poupanças de 15 a 35 mil milhões de dólares ao longo de uma década face aos custos que teria a construção de centrais a gás e baterias para garantir a segurança e flexibilidade da rede elétrica.



A newsletter termina aqui, mas pode continuar a seguir o essencial do mundo da energia no Expresso. A próxima edição chega daqui a duas semanas, a 18 de maio. Até lá, pode enviar-me os seus comentários, reparos, críticas e sugestões para mprado@expresso.impresa.pt. Tenha um excelente final de semana!


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Will BRICS Implement A Gold Backed Currency In August?
por Tyler Durden

Zero Hedge / 2023-07-18 01:0864
Will BRICS Implement A Gold Backed Currency In August?
By Jan Nieuwenhuijs of Gainesville Coins

Aside from speculation there hasn't been official confirmation by any BRICS nations that they will either issue a new currency backed by gold or peg their currencies to gold anytime soon. Although it's likely discussions are going on among BRICS nations to create a new currency, no agreement has been reached and policy makers are denying the new currency is soon to be launched. Current talk about a new currency—suggesting a gold standard will be implemented in August at the next BRICS summit—should be treated with skepticism.

Image:
Attention for alliances such as the BRICS (Brazil, Russia, India, China, and South Africa) has increased since February 2022, when Russia invaded Ukraine, the West seized Russia's dollar assets, and global tensions reached a crescendo. The BRICS, among other countries, have an interest in de-dollarization and have become more vocal about it, though easier said than done.

No Confirmation for New BRICS Currency
Based on an item by Russian news agency RT, broadcasted July 7, 2023, several gold commentators became confident that the BRICS will announce a gold standard this August at their next summit in South Africa. In my view, there is a lack of proof for this conclusion.

Let us examine on which grounds RT communicated a gold backed currency is to be introduced by the BRICS—widely interpreted as a new gold standard. Unfortunately, there is not one official BRICS website to verify what is being stated on Russian news outlets, financial blogs, and Twitter. For every summit a new website is launched. On the BRICS 2023 site I can't find confirmation of a new currency so we will have to evaluate the source provided by RT.

RT is banned in the West but has several accounts on Twitter. RT India shared a tweet on July 7 that reads: "BRICS Plans to Introduce New Gold-Backed Currency." Primarily this tweet is what caused a stir about a BRICS gold standard.

#BRICS Plans to Introduce New Gold-Backed Currency

The proposed gold-backed currency will contrast with the credit-backed US dollar, with the decision coming a month ahead of the bloc's summit in Johannesburg.

The growing initiative has more and more nations lining up to join… pic.twitter.com/pCF6y9xvGY

— RT_India (@RT_India_news) July 7, 2023
In the video that accompanies the tweet, the source of RT India appears to be a tweet from July 3 by the Russian Embassy in Kenya. From scrolling through all tweets by the Russian Embassy in Kenya one would think this is an account of an activist, not an embassy. Furthermore, the screenshot of the tweet from the Russian Embassy shown by RT India in their video is edited! The actual tweet, which can be seen below, includes a link to an opinion editorial by US economist Joseph Sullivan for the website Foreign Policy, titled: "A BRICS Currency Could Shake the Dollar's Dominance." This article in Foreign Policy is the source of the Russian Embassy's tweet; the source is not the Russian Embassy itself, which RT India wants you to believe.

The BRICS countries are planning to introduce a new trading currency, which will be backed by gold.
More and more counties recently express desire to join BRICS.https://t.co/lMKTd4FlnT

— Russian Embassy in Kenya/Посольство России в Кении (@russembkenya) July 3, 2023
Sullivan provides two hyperlinks to sources regarding Alexander Babakov, deputy chairman of Russia's State Duma. According to Sullivan, Babakov has stated that Russia "is now spearheading the development of a new currency."

The first link from Sullivan brings us to an article on Coin Telegraph, which links to a piece on India TV, reporting on the Russia-India Business Forum 2023 that was held on March 29 and 30. From India TV (March 30):

Babakov stressed that both nations should work to obtain a new medium for payment and added digital payment could be the "most promising" and "most viable" option for both nations. "New Delhi, Moscow should institute a new economic association with a new shared currency, which could be a digital ruble or the Indian rupee," said Babakov.

"Our goal should be focused on writing new rules in the financial sphere in order to enable the use of an already common currency," he stressed.

"It doesn't matter whether it's a digital ruble, a digital rupee, a digital yuan, or some other currency. But this currency must follow the laws of our respective nations," added the top Russian official. 

There is not a word on gold in the article by India TV.

The second link from Sullivan brings us to the India Times that writes (April 4):

According to reports quoting Russian lawmaker Alexander Babakov, the BRICS nations are in the process of creating a new medium for payments—established on a strategy that "does not defend the dollar or euro." 

Babakov, who is the deputy Chairman of Russia's State Duma, reportedly indicated that the new currency would be secured by gold and other commodities such as rare-earth elements.

The India Times states that "reportedly" a new currency will be established secured by gold and other commodities, though there is no source provided. The RT trail ends there. Any news based on the tweet by RT India is overblown.

Other websites, such as Al Mayadeen and TeleSUR, offer more information about what Babakov has said on the Russia-India Business Forum. From Al Mayadeen (March 30):

"The transition to settlements in national currencies is the first step. The next one is to provide the circulation of digital or any other form of a fundamentally new currency in the nearest future. I think that at the BRICS [leaders' summit], the readiness to realize this project will be announced, such works are underway," Babakov said on the sidelines of the Russian-Indian … Forum.

Babakov further did not dismiss the possibility of the formation of a single BRICS currency. According to him, the currency would be secured not just by gold, but also by other groups of products, including rare-earth elements of the soil.

What Babakov said on the sidelines of the forum doesn't sound like the BRICS will implement a gold standard at the next summit in August. The first step is to trade in national currencies, then a new currency could be created, for which the "readiness to realize [it] … will be announced" at the next summit, Babakov thinks.

Implementing this currency could be years away. One, thinking of announcing to start cooperating doesn't mean much. Second, how Babakov describes the currency is vague and no other BRICS nation has supported his idea publicly. Babakov's currency backed by gold and other commodities is impractical and will need readjustments. Third, a BRICS initiative for "strengthening … economic partnership" "to reduce dependence on the US dollar" was already discussed in 2012 and developments take time.

Russian news agencies RIA Novosti and TASS also reported on Babakov's remarks at the forum on March 30, 2023. From Ria Novosti (Google Translate):

The BRICS countries are working on a new form of currency and can present ideas for its development at the summit of leaders of the association this year in South Africa, said Deputy Chairman of the State Duma Alexander Babakov.

Presenting ideas is not the same as implementing a gold standard. Besides, we don't know how much of this is propaganda. We need official sources from other BRICS members to jump conclusions.

Conclusion
Logically, the Russians advocate any alternative to the dollar as they are restricted from using the Western based international financial infrastructure. On the website of the Kremlin there is a statement from President Putin from June 22, 2022:

We are exploring the possibility of creating an international reserve currency based on the basket of BRICS currencies.

Russia's Finance Minister Anton Siluanov said in May 2023:

The idea of creating a common currency … is floating around and is being discussed. We also have proposals about using digital financial assets supported by real assets, for example gold – stablecoins.

But what's it going to be? A currency backed by commodities, a gold stable coin, or a reserve currency based on a basket of BRICS currencies? According to a video shared by the Hindustan Times, India's External Affairs Minister Subrahmanyam Jaishankar said, on July 3, 2023, none of the above:

There is no idea for a BRICS currency. … Currencies to my mind will remain very much a national issue for a long time to come.

Bloomberg reported on July 5:

The New Development Bank, a financial institution created by the BRICS bloc of emerging markets, doesn't have any immediate plans for the group to create a common currency, its vice president and chief financial officer said. 

"The development of anything alternative is more a medium to long term ambition," he said. "There is no suggestion right now to creates a BRICS currency."

I think it should be clear that neither the Russians nor the BRICS as a whole has a plan worked out for a new currency soon to be introduced, as opposed to what's hyped in the media. Mr. Market didn't believe the RT India item as the gold price didn't budge when it was broadcasted.

As per CFO of the New Development Bank, the BRICS are discussing a common currency for the long term, but I will believe it when its design is finished.

The central banks of Brazil, South Africa, Russia, and India declined to comment on a common BRICS currency over email.

Tyler Durden Mon, 07/17/2023 - 17:40

Enviado do meu Galaxy

Why TotalEnergies' $27 Billion Deal With Iraq Is A Gamechanger
por Simon Watkins

Oilprice.com / 2023-07-18 01:105


The four-pronged megadeal between TotalEnergies and Iraq has received the greenlight after many delays.
The US$27 billion megadeal is set to move into action within four weeks and, if it does, then it will be a game-changer for Iraq.
Most important of the four projects is the completion of the Common Seawater Supply Project.
The long-delayed US$27 billion four-pronged megadeal between France's TotalEnergies and the Federal Government of Iraq has received the final go-ahead from both sides and is due to start within the next four weeks. The huge deal is crucial in enabling Iraq to increase its oil production from around 4.5 million barrels per day (bpd) to perhaps 13 million bpd within five years. It is also critical to Iraq's ability to end its dependence on Iran for gas imports and electricity for its power grid. For the West, the deal is crucial is securing access to Iraq's huge, underdeveloped oil and gas reserves as part of its strategy to find new sources of each to compensate for lost supplies from Russia. It is also vital in reasserting a stake in the central Middle East to counteract the increasing influence of China and Russia there, as analysed in my new book on the new global oil market order. In short, this four-pronged deal with TotalEnergies is a very big thing indeed, which is why all parties involved have pulled out all the stops to either get it across the line or stop it in its tracks, depending on which side they are on.

Iraq's input into proceedings, which caused the main delays from the original signing of the megadeal in 2021 to now, was not part of a brilliantly interwoven geopolitical strategy aimed at world domination (that was China, with a little help from Russia – more of that in a moment). Instead, it was down to its standard attempts to gouge out as much as possible in the way of commissions – delivered in the form of 'cash compensation payments' made to various front companies - for some senior government people. Suffice it to say here that at one stage Iraq was in the process of re-establishing the omni-toxic Iraqi National Oil Company (INOC), an organisation widely regarded within the oil industry as one of the most corrupt organisations ever created. It quickly became clear that one does not get to become a senior figure in France's leading oil and gas company by being as stupid as seems to be the minimum requirement to secure a senior position in Iraq's Oil Ministry, with TotalEnergies refusing to partner with INOC 'due to the lack of clarity on the legal status of the company'. In layman's terms, the French oil and gas behemoth did not trust INOC as far as it could throw it. In October 2022, then, Iraq's Federal Supreme Court invalidated the decision to re-establish the Iraqi National Oil Company on the basis that several of its founding clauses were in breach of the constitution, and the deal with TotalEnergies was again a realistic prospect. There have been further shenanigans from Iraq aimed at increasing the possibilities for personal enrichment of some key government people involved – the main one being an increase in the government's stake in the projects to varying degrees – but all have been rebuffed by the French firm. As it stands, the agreement is now for the Iraq government (through the Basrah Oil Company) to hold a 30 percent stake in the megadeal. TotalEnergies will hold 45 percent of it, with QatarEnergy holding the remaining 25 percent stake.

According to sources in the U.S.'s and European Union's energy security complexes spoken to exclusively by OilPrice.com on this megadeal, Iraq was emboldened to make such demands of TotalEnergies by elements from China and Russia. Following the recent landmark resumption of relations between Iran - which retains enormous influence over Iraq through political, military and economic proxies - and Saudi Arabia, brokered by China (and Russia to a lesser degree), it was made clear to Iran it should do all it could to stop Western companies doing deals in Iraq. Specifically, the European Union's energy security source exclusively told OilPrice.com, Iran was told by a very high-ranking official from the Kremlin that: "By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis - the end of Western hegemony in the Middle East will become the decisive chapter in the West's final demise". 

This would also play into what China wants from the Middle East in its grand scheme of things, as delineated in its multi-generational power-grab project, 'One Belt, One Road'. What it wants is to turn the region into a large oil and gas station by which it can fuel its economic growth to overtake the U.S. as the number one economic and political superpower by 2030. The three biggest oil and gas reserves in the region belong to Iran, Iraq, and Saudi Arabia, so it wants to control those to begin with, as examined in detail in my new book. For Russia, which already has lots of oil and gas – over which China already has significant control – the objectives in the Middle East are more varied. One objective is to continue to exert influence in several countries that it regards as being key to maintaining some of its hold over the Former Soviet Union states. Another, more recent one, is to use this influence to bolster its position as a partner of note to China. As for the other countries in this soap opera – Iran, and Iraq, and now also more clearly, Saudi Arabia – they are in this new global alliance partly for the economic and political support from China (and to a lesser degree, Russia) and because their political systems are naturally much closer to the authoritarian regimes of China and Russia than they are to the democratic ones of the U.S. and its allies.

Nonetheless, as it stands, the US$27 billion megadeal is set to move into action within four weeks and, if it does, then it will be a game-changer for Iraq. Most important of the four projects is the completion of the Common Seawater Supply Project (CSSP). This is crucial to enabling Iraq to reach its longer-term crude oil production targets of 7 million bpd, and then 9 million bpd and then perhaps 13 million bpd, as also analysed in depth in my latest book on the global oil markets. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimise the longevity and output of fields. The long-delayed plan for the CSSP is that it initially supplies around 6 million bpd of water to at least five southern Basra fields and one in Maysan Province and is then expanded for use in other fields. 

The second of the projects is also a matter of urgent necessity: to collect and refine associated Natural Gas that is currently burned off at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. Initial comments from Iraq's Oil Ministry last year highlighted that the plant involved in this process is expected to produce 300 million cubic feet of gas per day (mcf/d) and double that after a second phase of development. Former Iraqi Oil Minister, Ihsan Abdul Jabbar, also stated last year that the gas produced from this second TotalEnergies project in the south would help Iraq to cut its gas imports from Iran. Successfully capturing associated gas rather than flaring it will also allow Iraq to revive the also long-stalled US$11-billion Nebras petrochemicals project with Shell, which could be completed within five years and would generate estimated profits of up to US$100 billion for Iraq within its 35-year initial contract period.

TotalEnergies already has ongoing experience of working across Iraq, holding a 22.5 percent stake in the Halfaya oil field in Missan province in the south and an 18 percent stake in the Sarsang exploration block in the semi-autonomous region of Kurdistan in the north. This gives it very specific operational experience of working on the ground in Iraq, which would also enable it to increase crude oil output from the Artawi oil field – and this is the third of the four projects to which it is committed. According to earlier comments from Iraq's Oil Ministry, TotalEnergies would help to boost output from the Artawi oilfield to 210,000 bpd of crude oil, up from the current circa-85,000 bpd. The last of the four projects that were to have been undertaken by the French company would be the construction and operation of a 1,000-megawatt solar energy plant in Iraq.

By Simon Watkins for Oilprice.com

More Top Reads From Oilprice.com:

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Big LNG buyers and producers to tighten methane monitoring
Financial Times: Markets / 2023-07-18 01:335
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Japan, the US, the EU, Australia and South Korea are in final talks on the creation of a mechanism for monitoring methane emissions that will bring together some of the world's largest buyers and producers of liquefied natural gas to combat global warming.

People directly involved in the discussions said the public-private initiative would involve setting up a database of real-time methane pollution data on individual LNG projects, a move backers hope will accelerate the reduction of emissions of the potent global warming gas. 

The initiative comes after global fossil fuel industry emissions of methane increased to a near-record in 2022.

This was despite the so-called global methane pledge signed by more than 100 countries at a UN climate summit in 2021. Big emitters including China, Russia and India did not sign the agreement, which was spearheaded by the US and EU. US climate envoy John Kerry, who is in China for climate talks this week, has long pressed Beijing to strengthen its commitment to reducing methane emissions.

The team behind the UN COP28 climate summit in the UAE this year is also making a push for "near-zero" methane emissions in the oil and gas industry by 2030. 

Methane is the main component of natural gas and accounts for about 30 per cent of the global temperature rise since the industrial revolution, with the energy industry making up about a third of human-induced methane emissions, second only to agriculture. The emissions result mainly from flaring — the burning of excess gas — and leakage.

Cutting methane emissions is regarded by scientists as among the cheapest and quickest ways to tackle global climate change, as the gas generates more warming than carbon dioxide but is shorter-lived.

The methane database was proposed by Japan, chair of this year's G7 summit and one of the world's largest importers of LNG. Tokyo has previously been criticised by climate activists for opposing a global agreement for the phaseout of fossil fuels and for continued funding of new overseas gas projects. 

The new initiative — called the "coalition for LNG emission abatement towards net zero" — is set to be announced on Tuesday at an LNG conference in Tokyo co-hosted by the International Energy Agency, the people involved in the discussions said.

Japan's Jera and South Korea's Kogas, two of the world's largest LNG buyers, will ask major producers to provide basic data on emissions such as volume and intensity as well as reduction targets and measures being taken. Participation will be voluntary and the results will be disclosed by the government-backed Japan Organization for Metals and Energy Security, known as Jogmec. 

Recommended

There is already a reporting framework for methane pollution led by the UN Environment Programme's Oil and Gas Methane Partnership 2.0. 

But Japanese officials said the existing database does not provide project-based methane emissions and only company-level total emissions. They said there is also not enough data specific to LNG production and measuring and disclosure methods are too inconsistent.

Tokyo's effort was backed by the European Commission and the US, where Joe Biden's administration has proposed fines on methane leaks as a key part of its battle to cut greenhouse gas emissions. The oil and gas industry has objected to the proposed US rules, which would allow private groups to monitor and report leaks.

Japanese officials are counting on pressure from Jera and Kogas to incentivise LNG suppliers to act. Jogmec also hopes to bring companies on board by promoting projects with the lowest methane emission intensity on its website, while selling Japanese technology to detect or reduce methane leaks.

"We need to use LNG for the foreseeable future so the question is how we can use it cleanly," said an official at Japan's ministry of economy, trade and industry.



Where climate change meets business, markets and politics. Explore the FT's coverage here.

Are you curious about the FT's environmental sustainability commitments? Find out more about our science-based targets here

Enviado do meu Galaxy

NIO: Time To Bail Out
Seeking Alpha: Stock Market Analysis / 2023-06-17 17:041

Bohdan Kucheriavyi
NIO's cash reserves are depleting while the cash burn starts to reach unsustainable levels.
The ongoing price war in the EV industry has already diminished NIO's margins and made it even harder for the business to reach a breakeven point anytime soon.
Given all the challenges that NIO is currently facing, it appears that another capital raise is only a matter of time.
Therefore, it's hard to justify owning NIO's shares for the long term, especially since the business's global ambitions could soon be undermined as well.
Looking for a helping hand in the market? Members of BlackSquare Capital get exclusive ideas and guidance to navigate any climate. Learn More »

Michael Vi

NIO (NYSE:NIO) is in the middle of a crisis, and it seems that it's only a matter of time before the company announces another capital raise. Due to the relatively weak performance in recent months, the company is unlikely to meet its annual production goals this year, while the ongoing price war within the EV industry has already led to the margin contraction and made NIO reach the unsustainable levels of cash burn. Add to all of this the fact that the company's global ambitions could be undermined due to the lack of pricing advantage along with the increase of geopolitical risks, and it becomes obvious that NIO's upside is limited. Therefore, even though its stock could gain some momentum in the short-term due to the improvement of the overall market sentiment, it's hard to justify owning the company's shares for the long-term given all the challenges that the business faces.

It's Getting Worse
Since the start of the year, NIO has been actively engaged in trying to aggressively expand its business, thanks to the increased demand for electric vehicles in China and across the globe. In late March, the company opened its third showroom in Europe, after which it hinted that it was preparing to launch a small new budget EV for the European market next year. At the same time, back at home, it launched the newest version of its budget-friendly crossover ES6 only a few weeks ago, which has an estimated range from 490 km to 625 km. On top of that, there's also an indication that NIO is about to upgrade the batteries of some of its vehicles, which will come from a semi-solid-state battery supplier in the foreseeable future.

However, despite all of those developments, NIO continues to disappoint its shareholders and makes it hard to consider its stock as a solid investment. Just last week, the company revealed its Q1 earnings results which showed that while its revenues were up 7.7% Y/Y to $1.55 billion, they were nevertheless below the street estimates. At the same time, its non-GAAP EPADS were -$0.36 per share, while the business itself barely managed to meet its quarterly delivery target by delivering 31,041 EVs during the three-month period.

What's worse is that the situation is unlikely to significantly improve in the following months. For Q2, NIO already expects its revenue to be in the range of $1.27 billion to $1.36 billion, which is a decrease of between 15.1% Y/Y and 9% Y/Y. On top of that, it also expects to deliver 23,000 to 25,000 vehicles during the second quarter, which also represents a decrease of between 8.2% and 0.2% in comparison to the year before.

Considering that in April and May NIO already delivered 6658 and 6155 vehicles, respectively, it means that in June alone it needs to deliver at least 10,187 EVs to meet its minimum target for the quarter. While the company could get an additional boost in sales thanks to the recent launch of ES6, there's still a decent chance that NIO could fail to reach its targets given its relatively weak performance in the last two months.

In addition to all of this, in late 2022 NIO's CEO indirectly hinted that he expects the company's sales to be over 200,000 in 2023, while the business's CFO later in March in an interview to Bloomberg said that he's confident that they'll be able to sell 250,000 EVs this year. Considering NIO's relatively weak performance in the first half of the current year, I find it hard to believe that the company will be able to produce over ~140,000 vehicles in the second half of 2023 to reach the goal of delivering even 200,000 EVs.

What's worse is that on top of expecting a decrease in revenues and deliveries in Q2, the company's margins are likely to continue to decrease even more due to the ongoing price war in the EV market. In Q1, NIO's vehicle margins already decreased to 5.1% from 18.1% a year ago, and given the company's latest decision to cut prices for all of its models by $4000, there is every reason to believe that the bottom-line performance would suffer even more in the following quarters. At the same time, by ending the free battery swapping program there's a risk that customers would be incentivized to purchase vehicles of the company's competitors as it would make even less sense to acquire NIO's EVs when one of the most important and popular features is no longer free.

Therefore, as the ongoing price war has no end in sight, and it becomes even harder for the business to stop the cash burn due to the declining margins and increasing expenses, it would be safe to assume that later this year NIO would be prompted to execute another capital raise to stay afloat. Back in 2021, NIO has already executed a $2 billion ATM offering which diluted its shareholders but also increased its liquidity from $6.7 billion in Q3'21 to $8.3 billion in Q4'21. However, after nearly two years after that capital raise the business is still significantly unprofitable and the expected relatively weak performance in the following months along with the increase in competition will make it hard for NIO to reach a breakeven point anytime soon. At the end of Q1'23, the company already had only $4.8 billion in cash reserves and as those reserves dwindle while profits are not expected in the following years, a capital raise appears to be only a matter of time.

Global Ambitions Ruined?
Another issue that NIO currently faces is the inability to properly compete on a global stage. Recently, the company's CEO has indicated that NIO has the ambition to take on the German-based legacy automaker Volkswagen (OTCPK:VWAGY) in its own market by launching a new electric model in Europe at a price of under €30,000. However, NIO is more than likely to face several major challenges that could undermine its European endeavors in the foreseeable future.

First of all, the company plans to produce new models for European consumers back in China in a factory that's currently under a construction. As such, there is every reason to believe that NIO won't have a major pricing power in the European region, since higher shipping costs along with the vulnerability of long-distance supply chains would make it higher for the business to successfully compete with legacy brands that have production facilities in Europe. This is one of the reasons why Tesla (TSLA) has been actively diversifying its supply chains and opened the factory in Berlin last year to have better pricing power in the region.

Add to all of this the fact that NIO's vehicle margins are already thin and are on a decline due to the price war, and it becomes even harder to believe that the company will be able to successfully compete with the well-established names without burning even more cash than today. There's also no guarantee that European consumers would be interested in purchasing NIO's cars in the first place. In Q1, the company sold only 328 of its cars in Europe, while in Q2 so far it sold only 287 of its vehicles there. Volkswagen on the other hand has been selling over 60,000 EVs in Europe each quarter in the last few quarters. Considering this, it's hard to see how NIO plans to establish a solid ground in the region given all the challenges that it currently faces, while at the same time, the potential worsening of the Sino-European relations would make it even harder for the company to aggressively expand in the region in the following years.

What's worse is that NIO hasn't been able to successfully penetrate Europe so far, and yet there are already plans to enter the United States market in 2025. In my opinion, this plan is mostly wishful thinking due to the fierce competition in the region along with the lack of any production facility there as well. In addition, the worsening of Sino-American relations would make it even harder for any Chinese brand to penetrate the U.S. market in the foreseeable future. NIO has already experienced the impact of the ongoing trade war as the implementation of the American export restrictions on chips last year has likely negatively affected its data center infrastructure which was run on Nvidia's (NVDA) A100 GPUs. While Nvidia managed to get around the restrictions by offering a cut-down version of A100 GPUs for the Chinese market, a potential Sino-American confrontation in the future makes it hard to believe that NIO would be able to establish a solid presence in the United States in the future. Add to all of this the fact that there's still a risk that NIO's shares could be delisted from American exchanges due to the issues with audits of Chinese-based firms, and it becomes obvious that the company's global ambitions could be ruined at any moment.

The Bottom Line
Given all the challenges that NIO faces, it's hard to justify the company's current $15 billion market cap. There are already questions about whether the company's global expansion is sustainable in the long-term, while the ongoing price war in the EV industry would make it even harder for the automaker to stop the cash burn and become profitable. The street currently believes that NIO could reach a breakeven point in 2026, but a potential further margin contraction along with the potential inability to reach its delivery targets for this year could make those expectations sound too optimistic. As such, I believe that there's no point in even bothering to invest in the company at this stage as capital raise is likely around the corner given the unsustainable cash burn levels.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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Event-driven portfolio strategies for the changing geopolitical landscape
My passion for investing started when I was studying at a Ukrainian high school. It was at that time when I took a small loan from my parents and opened a brokerage account to learn in practice what's it like to own and trade stocks of real businesses. After high school, I enrolled at the university to study international relations and at the same time landed a job as a proprietary trader in a local prop firm.
It was there that I started to combine my academic knowledge with a passion for investing to build an all-weather portfolio that could overcome periods of constant economic and political uncertainty. Given the systemic shocks that have been happening to Ukraine in the last decade, I saw firsthand what's it like to live in an environment where there's too much unpredictability and no guarantee that your endeavors won't fail. Despite this, I managed to show strong returns and since 2015 have been sharing some of my ideas here on Seeking Alpha.

Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Bohdan Kucheriavyi and/or BlackSquare Capital is/are not a financial/investment advisor, broker, or dealer. He's/It's/They're solely sharing personal experience and opinion; therefore, all strategies, tips, suggestions, and recommendations shared are solely for informational purposes. There are risks associated with investing in securities. Investing in stocks, bonds, options, exchange-traded funds, mutual funds, and money market funds involves the risk of loss. Loss of principal is possible. Some high-risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including greater volatility and political, economic, and currency risks and differences in accounting methods. A security's or a firm's past investment performance is not a guarantee or predictor of future investment performance.

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: Another Nvidia board member unloads stock, this time to the tune of $21 million
MarketWatch.com - Top Stories / 2023-06-17 18:1536


Another Nvidia Corp. board member recently unloaded tens of millions of dollars worth of stock amid the sharp move higher in the chip maker's shares.

Tench Coxe, who has served on Nvidia's NVDA, +0.09% board since 1993, dumped 50,000 shares of Nvidia Wednesday, according to a filing with the Securities and Exchange Commission made public Friday. He sold at an average price of $422.1544, meaning he pocketed upwards of $21 million from the move.

Coxe previously disclosed a May 26 sale of 100,000 Nvidia shares at an average price of $379. He made $37.9 million in that earlier transaction.

He joins Harvey Jones, a fellow longtime board member, who disclosed the sale of about $48 million worth of Nvidia shares earlier this week. Jones made that sale on Tuesday, adding to a $28 million sale that he conducted earlier in June.

See also: AMD is chasing down Nvidia in AI, but one analyst worries the company is 'somewhat late'

The two directors sold stock this week amid a huge year-to-date rally that has lifted the semiconductor giant's shares 192% as of Friday's close. Nvidia is now worth more than $1 trillion.

See more: Nvidia officially closes in $1 trillion territory, becoming seventh U.S. company to hit market-cap milestone

Coxe, formerly a managing director of Sutter Hill Ventures, continues to be heavily invested in Nvidia. The shares he sold Wednesday were owned by his trust, and he still has about 3.3 million shares through that trust. He also has 4,578 shares that he owns directly, along with more than 685,000 shares that he holds through a profit-sharing plan retirement trust, according to Friday's filing.

FactSet lists Coxe as the third largest insider owner of Nvidia shares, behind Chief Executive Jensen Huang and board member Mark Stevens.

Nvidia declined to comment when asked if the company or Coxe had comment on this week's transaction.

More from MarketWatch: Intel's stock rocks best week in nearly 14 years as analyst notes a 'material AI opportunity'

Though the two longtime directors appear to be using the recent run up as an opportunity to cash out of some of their sizable Nvidia holdings, the stock continues to win praise on Wall Street. Morgan Stanley's Joseph Moore just dubbed the shares his new "top pick" in the semiconductor space, with the latest surge no obstacle to his increasingly upbeat view.

Nvidia is "the cleanest story in AI hardware" and should command "more consideration from investors looking for AI exposure, even if the current valuation construct and YTD [year-to-date] stock return already reflect expectations that are higher than secondary or tertiary players," Moore wrote Friday, as he boosted his price target on the stock to $500 from $450.

Shares of Nvidia closed Friday at $426.92.

Don't miss: How will AI affect stocks of semiconductor companies? Here are the 18 expected to grow their sales most quickly.

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Why Blink Charging, EVgo, and ChargePoint Stocks All Crashed Today
por newsfeedback@fool.com (Rich Smith)

The Motley Fool / 2023-06-09 21:575


Call it the charge-pocalypse: On Friday morning, shares of three of the biggest publicly traded companies engaged in the business of operating electric car charging networks tumbled in unison. As of 1 p.m. ET, Blink Charging (BLNK -10.64%) stock is down 10.2%, rival ChargePoint Holdings (CHPT -13.21%) is losing 13.5%, and EVgo (EVGO -11.72%) is leading the pack lower with a 13.7% loss.

You can blame Tesla for all of this.

Oh, and Ford, General Motors, and ... potentially Stellantis as well.

So what
Ford and Tesla got the ball rolling (downhill for Blink, EVgo, and ChargePoint) late last month, when Ford announced it is tying up with Tesla to make the charging cords on Ford electric vehicles compatible with Tesla's North American Charging Standard (NACS) cables -- and that Tesla will open its Supercharger network of charging stations to owners of Ford EVs.  

Last night, GM followed suit, announcing it will make its own EVs compatible with NACS beginning in 2025, and that Tesla's 12,000 Superchargers will be open to GM EV owners in early 2024 (using adapters).  

So what does this mean for investors in other companies offering charging services -- specifically, Blink, EVgo and ChargePoint? In a note covered on The Fly this morning, Bank of America analyst Alex Vrabel argues that ChargePoint, at least, should be largely unaffected by Ford and GM joining forces with Tesla. ChargePoint's own DC Fast charging business, says the analyst, focuses on fleet vehicles rather than widely dispersed charging stations servicing individuals.

Morgan Stanley's Adam Jonas isn't as sanguine, however, calling Ford and GM's move "profoundly significant," and implying that it portends Ford and GM outsourcing charging infrastructure to Tesla -- and even preferring Tesla's chargers over those of rival charging firms'.

For what it's worth, RBC's Tom Narayan agrees that Tesla's chargers seem to be the wave of the future and predicts that before too long, Stellantis will announce that it, too, is allying with Tesla on EV charging.

Now what
At the very least, if Ford and GM (and maybe Stellantis) tie up firmly with Tesla, this diminishes the chances that other, pure-play charging companies will succeed in securing similar alliances -- or at least in securing exclusive alliances with the Big Three automakers. That's a big mark against these still-money-losing companies' growth prospects and could postpone the date when they're expected to turn profitable.

When you consider that, according to data from S&P Global Market Intelligence, most analysts weren't expecting to see EVgo or ChargePoint turn a profit before 2027, or Blink to turn profitable before 2028 -- and that these estimates came out before the Big Three started tying up with Tesla -- well, now that they've chosen their favorite partner, investors have to buckle up for the prospect that profits will take even longer to emerge.

Seems to me that's a pretty good reason for investors to be selling these charging stocks today.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has positions in Stellantis. The Motley Fool has positions in and recommends Bank of America and Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

Enviado do meu Galaxy

Boost for Europe's EV makers after Portuguese lithium mine given environmental nod
Financial Times: Commodities / 2023-05-31 11:1611


Europe's electric car industry received a significant fillip in its efforts to secure raw material supplies after Portuguese authorities gave a green-light to what will be one of the continent's first large-scale lithium mines.

London-listed Savannah Resources said on Wednesday that the Portuguese regulator has issued a positive declaration of environmental impact for its Barroso lithium mine, which has a target of producing enough lithium for 500,000 electric cars a year.

Demand for lithium in Europe is predicted to surge fourfold to account for a quarter of global demand by 2030, but the region at present produces less than 1 per cent of the world's supply, according to Benchmark Mineral Intelligence.

Obtaining permits has been a key issue holding Europe back from developing a battery raw material supply chain. The Savannah project was viewed as a test of whether the region might be about to overcome its recent history of opposition to mining.

"This is an extremely important step forward, not only in the development of the project but also in the development of the lithium raw material industry in Portugal," said Dale Ferguson, chief executive of Savannah.

United in Defense of Covas do Barroso, a local community group that opposes the project, said it "condemns" the decision and was "baffled" by its acceptance given the potentially "devastating" ecological, environmental and socio-economic impacts.

Savannah's shares rose 22 per cent on Wednesday following the decision.

The company first submitted its environmental impact assessment three years ago. The regulator's decision allows it to proceed with economic studies and take the final licensing steps over the next year. It is aiming for first production before mid-2026.

Under the terms of the decision, it must meet certain conditions such as limiting the removal of vegetation to certain months of the year.

The Barroso mine is aiming to produce 200,000 tonnes of spodumene concentrate from lithium-containing rock, which will be upgraded to battery-grade lithium at a refinery that Savannah hopes will be located in Portugal.

The EU Critical Raw Materials Act, which was unveiled in March, set out the European Commission's aim to simplify permitting processes for mining companies and reduce the region's reliance on China and other nations for key EV and green power minerals such as lithium, cobalt and graphite.

China controls 56 per cent of lithium processing, with much of the rest taking place in Chile.

Europe is seeking to change that through local projects including two refinery developments led by a consortium of Swedish battery company Northvolt and Portuguese energy company Galp and another that includes Portugal's largest chemicals company Bondalti.

Last year, the Serbian government revoked Rio Tinto's licences to mine lithium at the $2.4bn Jadar mine in Serbia — the largest planned lithium mine in Europe — after months of widespread protests.

Separately on Wednesday, lithium start-up Vulcan announced it would supply one of Stellantis's French carmaking plants with geothermal energy in the hope of extracting lithium in the process. Vulcan's technology involves pumping lithium to the surface via geothermal wells.

Additional reporting by Patricia Nilsson

This article has been corrected to say that Northvolt is a Swedish rather than Norwegian battery company.

Enviado do meu Galaxy

Institutional allocations in the primary market for corporate bonds - ScienceDirect

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Journal of Financial Economics
Volume 137, Issue 2, August 2020, Pages 470-490
Institutional allocations in the primary market for corporate bonds☆
Author links open overlay panelStanislava Nikolova, Liying Wang, Juan (Julie) Wu
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https://doi.org/10.1016/j.jfineco.2020.02.007
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Abstract
Using 2002–2014 insurer transactions, we provide the first empirical evidence on underwriters' allocation practices in the primary market for corporate bonds. Since bonds are often underpriced, allocations generate for investors an estimated $41 billion of first-day profits. These profits increase with proxies for investors' information production during the bookbuilding process and, more strongly, with investors' prior trading with underwriters. Information production has a larger impact when asymmetric information is higher, while prior trading has a larger impact when the issuer-underwriter agency problem is more severe. When there is more competition for allocations, prior trading further increases an insurer's first-day profits.

Introduction
Following the 2007–2009 financial crisis, US corporate bond offerings have become increasingly oversubscribed yet remain underpriced. Although the average underpricing per offering is low, because bond offerings are frequent and large, the first-day profits to primary market investors can be substantial. During our 2002–2014 sample period, we estimate these profits to be $41 billion. Since newly issued bonds account for 17.5% of the corporate bond market's capitalization in this time period, access to first-day profits from underpriced offerings can significantly boost corporate bond investors' performance.2

While prior studies have documented the existence and determinants of underpricing in corporate bond offerings, there is surprisingly little research on how first-day profits from underpriced offerings are allocated among potential primary market investors.3 In contrast, a large body of literature examines underwriter allocation practices in the market for initial public offerings (IPOs) of equity.4 Researchers' focus on equity IPOs to the exclusion of bond offerings is surprising for at least three reasons. First, issuance activity in the corporate bond market is significantly larger than that in the equity market. During our 2002–2014 sample period, underwriters placed $8.757 trillion of corporate bond offerings compared to only $0.745 trillion of equity IPOs and $1.807 trillion of seasoned equity offerings.5 Second, investors have increasingly complained about limited access to the primary market for corporate bonds, claiming that "allocations always come down to favours," which has triggered a Securities and Exchange Commission (SEC) investigation into the allocation practices of some of the largest corporate bond underwriters.6 Finally, the lack of pre-offering public information about private firms and the fact that equity IPOs are a one-time event in a firm's history have made it difficult for equity IPO studies to empirically investigate the cross-sectional implications of theories of underwriter favoritism (e.g., Jenkinson, Ljungqvist, 2001, Lowry, Michaely, Volkova, 2017). The richness of corporate bond issuers' data and the differences between stock and bond markets present a unique opportunity to overcome these data limitations.

In this study we provide the first empirical evidence on corporate bond underwriters' allocation practices. Using 2002–2014 data from insurers' regulatory filings with the National Association of Insurance Commissioners (NAIC), we shed light on the determinants of profitable allocations in a long time-series and a broad cross-section of 5,341 investment-grade (IG) offerings brought to the market by 76 lead underwriters. Since regulations in the US do not require public disclosure of primary market allocations, prior studies of US equity IPOs either use small samples of proprietary data or infer allocations from institutional quarterly holdings disclosures.7 Instead, we use a novel approach that relies on the detailed information about each trade in the NAIC data to determine the primary market allocation of a corporate bond offering to an insurer. Specifically, we identify as an allocation an insurer's purchase of a bond on the offering date at the offering price from the offering's underwriters.8

We analyze insurers' corporate bond allocations to understand why underwriters favor certain investors with larger first-day profits. Equity IPO studies argue that this happens mainly for reasons related to asymmetric information, as in bookbuilding theories, and agency problems, as in the profit-sharing view.9 Under bookbuilding theories, underwriters collect pre-market demand information from investors during the bookbuilding process. Because underwriters both set the offering price and determine allocations, they can reward investors' information production with larger first-day profits (e.g., Benveniste, Spindt, 1989, Benveniste, Wilhelm, 1990, Spatt, Srivastava, 1991, Sherman, Titman, 2002). Under the profit-sharing view, underwriters underprice the offering more than necessary and then distribute the resultant first-day profits to their best clients (Loughran and Ritter, 2002).

Our analyses of corporate bond allocations to insurers produce several new findings. First, insurers purchase a significant amount of newly issued bonds in the secondary market and do so at a price higher than the price they could have paid had they been allocated the bonds in the primary market. On average, insurers acquire 18% of the par value of IG bonds through primary market allocations but then obtain an additional 12% (or 8% if we exclude insurers already allocated the bonds in the primary market) through secondary market purchases within 90 days of the offering. This comes at a significant cost, as the price paid by insurers in the secondary market is higher than that paid in the primary market. On average, the secondary market price within 90 days of the offering is 31 basis points (bps) higher than the offering price.

Second, we show that both information production and a trading relationship with an offering's underwriters are rewarded with more profitable allocations, though the economic impact of the latter is significantly larger. In particular, insurers with more expertise in bonds similar to the one being offered, measured as the percent of their prior-year holdings in the same industry, receive more of the offering's first-day profits. To the extent that an insurer's industry expertise is related to its information contribution during the bookbuilding process, this finding suggests a link between information production and profitable allocations. Even more importantly, insurers with a stronger trading relationship with an offering's underwriters, measured as the percent of the lead underwriters' prior-year trading volume that comes from the insurers, receive more profitable allocations. In terms of economic significance, a one standard deviation increase in an insurer's prior trading with the underwriters increases its average first-day profits by an estimated $0.8 million per year. This impact is five times that of a one standard deviation increase in our proxy for information production. Unobservable time-invariant insurer characteristics are not responsible for our findings, which are robust to the inclusion of insurer fixed effects. Excluding the most active insurer traders, the largest bond offerings, or offerings brought to the market on a compressed timeline also leaves our conclusions unchanged. Furthermore, underwriter-by-underwriter regressions reveal considerable consistency in the importance of prior trading for larger first-day profits across the biggest corporate bond underwriters.

Third, we provide evidence of cross-sectional variation in the association between investors' first-day profits and their information production and trading relationship with underwriters. This has been difficult to do for equity IPOs because finding convincing ex ante proxies for asymmetric information and agency problems in that setting has been challenging. Using corporate bond data, we are able to show that in offerings characterized by more asymmetric information between underwriters and investors, the importance of information production for obtaining more profitable allocations increases. When underwriters lack underwriting experience in the industry of the new offering, or when they are not core dealers in the secondary market, they allocate more of the first-day profits to investors who produce more information. The relation between information production and profitable allocations is also stronger when the issuer's existing bonds are less actively traded or are traded at widely divergent prices and when the issuer's equity is private. We also show that investors' trading relationship with an offering's underwriters contributes less to first-day profits when the agency problem between issuers and underwriters is less severe. When an offering is of a frequent corporate bond issuer, the association between investors' prior trading and profitable allocations is weaker. This suggests that underwriters' desire to win corporate bond issuers' repeated underwriting business may temper the severity of the issuer-underwriter agency problem.

Finally, we show that when competition for allocations is high, insurers can secure even larger first-day profits through a stronger trading relationship with the underwriters. We use two approaches to identify offerings with high competition for allocations. The first approach focuses on offerings that help insurers "reach for yield," which Becker and Ivashina (2015) show to be in high demand by insurers because of capital regulations. The second approach assumes that offerings characterized by larger secondary market purchases soon after issuance are more sought after by insurers in the primary market. We show that in offerings with high competition for allocations, an insurer's trading relationship with the underwriters further increases its first-day profits, while more information production does not. This suggests that, when competition for corporate bond allocations is high, underwriters prioritize even more the interests of their most important clients over those of other primary market investors.

Several reasons might explain why, in our setting, information production appears as a less important determinant of profitable allocations than a trading relationship with the underwriters. We focus on newly issued bonds that carry a credit rating, which is an independent third-party assessment of the bond's risk. In addition, 72% of bonds in our sample are issued by public firms with equity market information already available, and 96% are issued by repeat borrowers in the public debt markets. These features of the corporate bond offerings in our sample likely make information production by primary market investors less important to underwriters and less rewarded through profitable allocations. This contrasts with the importance of information production in the underwriting process for equity IPOs, which are characterized by high levels of information asymmetry (e.g., Lowry, Schwert, 2004, Hoberg, 2007, Hanley, Hoberg, 2010, Lowry, Officer, Schwert, 2010).

By providing the first large-sample evidence on institutional allocations in corporate bond offerings, our study contributes to the literature in two important ways. It adds to research on whether and why underwriters systematically favor some primary market investors. Equity IPO studies argue that underwriter favoritism is related to asymmetric information and agency problems. We show that the same two drivers are at play in the corporate bond market, though the latter appears to dominate. Furthermore, exploiting the richness of corporate bond issuers' data and the differences between equity and debt markets, we are able to overcome some of the data limitations of equity IPO studies and provide new evidence on the cross-sectional implications of the bookbuilding and profit-sharing theories of underwriter favoritism.

We also add to the literature on the benefits of a trading relationship in the corporate bond market. O'Hara et al. (2018) examine the execution quality of secondary market corporate bond trades and find that insurers receive better prices when they have a stronger trading relationship with bond dealers. Hendershott et al. (2017) show that large insurers have larger trading networks and thus pay lower transaction costs in the secondary bond market. We complement these studies by showing that the trading relationship between investors and underwriters benefits investors in the primary market as well through more profitable allocations.

Section snippets
Institutional background and hypothesis development
In this section, we first describe the underwriting process for corporate bonds. We then develop our two hypotheses as to why underwriters choose to allocate certain offerings to some investors and not others.

Data
In this section, we describe our data sources, main variable definitions, and sample construction. We then present sample summary statistics.

Primary market allocations versus secondary market purchases
To better understand insurers' buying activity in newly issued IG bonds, we begin our analysis with a univariate comparison of insurers' primary market allocations and secondary market purchases. To do so, we identify in the NAIC data any purchases that do not meet our definition of a primary market allocation and are made within 30, 60, or 90 days of a bond's offering date. For each offering, we then aggregate the par value bought and average the price paid, separately for primary market

Determinants of first-day profits
To shed light on why some insurers are able to access newly issued bonds through the primary market while others are not, in this section we investigate the drivers of corporate bond underwriters' allocation practices. In particular, we examine whether an insurer's first-day profits from an offering are related to that insurer's potential information production and trading relationship with the offering's underwriters by testing the hypotheses detailed in Section 2.25

First-day profits and underwriter-investor asymmetric information
Our results so far suggest that for the average corporate bond offering, the effect of investors' trading relationship on profitable allocations is empirically stronger than that of their information production. This may reflect the fact that the information investors provide during the bookbuilding process cannot be directly observed and as a result may be more problematic to measure than their trading relationship with the underwriters. However, if our proxy does reflect information

First-day profits and the issuer-underwriter agency problem
In this section we investigate the potential cross-sectional differences in the impact of trading relationship on first-day profits. While equity IPOs are a one-time event in a firm's history, many firms issue bonds repeatedly over time.36

First-day profits and competition for allocations
When an offering is oversubscribed and more investors compete for an allocation, underwriters have more discretion when distributing the first-day profits from the offering among primary market investors. We expect that our information production and trading relationship proxies should have an even stronger impact on investors' first-day profits when competition for allocations is high.

We use two approaches to classify offerings as characterized by high competition for allocations among

Individual underwriter analysis
In this section, we investigate whether our finding that an insurer's trading relationship with an offering's underwriters dominates its information production as a determinant of first-day profits is consistent across underwriters. We focus on the ten underwriters with the largest number of offerings in the sample for two reasons. First, for each of these ten underwriters, we have a sufficient number of observations to reliably estimate the marginal effect of InfoProd and TrdRel. Second, since

Conclusion
In this paper we provide the first empirical evidence on the allocation practices of corporate bond underwriters. We use a comprehensive data set of insurer trades to identify insurers' primary market allocations of investment-grade corporate bonds issued during the 2002–2014 period. Since these bonds are underpriced by an average of 32 bps, being allocated the bonds in the primary market provides insurers with large first-day profits. We explore the cross-sectional variation within insurers to

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We thank William Schwert (the editor), an anonymous referee, Vladimir Atanasov, Jennie Bai, Bo Becker, Allen Berger, Carole Comerton-Forde, Mark Flannery, Ioannis Floros, Carole Gresse, Kathleen Hanley, Jean Helwege, Jerry Hoberg, Jan Jindra, Alexander Ng, Christo Pirinsky, Jay Ritter, Michael Schwert, Pei Shao, Yoshiki Shimizu, Yuehua Tang, Donghang Zhang, and participants in the 2018 Fixed Income and Financial Institutions Conference, 2018 FMA Conference, 2019 Women in Microstructure Meeting, 2019 FMA European Conference, 2019 NFA Conference, and seminars at the Australian National University, American University, Babson College, Ludwig-Maximilians-Universität München, Securities and Exchange Commission, University of Florida, University of Melbourne, University of Nebraska-Lincoln, University of New South Wales, University of South Carolina, University of Wisconsin-Milwaukee, and Wichita State University for insightful feedback that has substantially improved this paper.

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