Month: February 2023

Florida Governor Ron DeSantis on Monday signed a bill that takes control of a special tax district surrounding Walt Disney World that, as Reuters reports, for half a century allowed Walt Disney Co. to operate with an almost unprecedentedly high degree of autonomy.

The legislation, titled HB 9-B, ends Disney’s self-governing status, establishes a new state-controlled district and imposes a five-member state control board, which is appointed by the governor.

The board will also be confirmed by the state Senate.

“Today is the day the corporate kingdom finally comes to an end,” DeSantis said.

pic.twitter.com/HgAzYN0UYi

— Ron DeSantis (@GovRonDeSantis) February 27, 2023

The Republican governor said during the announcement this morning that:

“Allowing a corporation to control its own government is bad policy, especially when the corporation makes decisions that impact an entire region.”

Florida Ends the Corporate Kingdom https://t.co/N7lJA1BSXb

— Ron DeSantis (@GovRonDeSantis) February 27, 2023

The law also ends Disney’s exemption from state regulatory reviews and codes and it ensures “that Disney will pay its fair share of taxes,” DeSantis’ office said.

DeSantis’ actions come after Disney’s advocacy against Florida’s Parental Rights in Education bill (the so-called “Don’t say gay bill”).

As The Epoch Times’ Dan Berger reports, DeSantis and other speakers who joined him at the podium reviewed a wide range of issues tied into the tussle with the big entertainment company.

Nick Catarano, a long-time and second-generation Disney employee—his uncle went to work there when the park opened in the 1970s—outlined the company’s firing and harassment of employees like himself who didn’t want to get COVID shots or wear masks. He also spoke of his dismay at the shift in Disney’s once-family-friendly content, one that made him proud, to one many families object to.

“Disney has since doubled down and embraced all things woke increasingly making things like sex, gender, race and worse things the core mission of its storytelling. You know, we’ve gone from ‘Cinderella’ and ‘Snow White’ and ‘Pocahontas’ and all these great stories with morals and great characters, and have brought us stuff like ‘Little Demon’ who was the spawn, the child of Satan, as the lead character.”

“We have recently seen the cartoon ‘Proud Family’ on Disney Plus. And that really doesn’t tell the whole truth of what happened in our country. They tried to build a narrative that everything in this country is built on the back of slaves and reparations. And what they’re doing is they’re taking vulnerable children, and they’re indoctrinating them into becoming activists and hating each other.”

Disney has said it won’t resist the new arrangement and will now work with the state, Disney World CEO Jeff Vahle said in a statement.

Authored by Fan Yu via The Epoch Times,

Anyone who watched television during 2022 saw the ubiquitous TV commercials for Grayscale, which manages the world biggest Bitcoin investment fund. Those ads touted Bitcoin as “the future” and should be part of a retiree’s portfolio.

But investors in Grayscale Bitcoin Trust (GBTC) are facing both a problem and an opportunity.

The problem? GBTC trades at a 46 percent discount to its underlying holdings, as of Feb. 24.

This means the per-share value of the fund is 46 percent less than the Bitcoins held in the fund’s portfolio.

No doubt the ongoing legal issues facing Digital Currency Group (DCG), the parent company of Grayscale, is one factor in the large discount.

The opportunity is that if the fund were to trade up to its net asset value—and that is one giant “if”—investors would realize an 84 percent gain.

Non-traded funds such as real estate investment trusts (REITs) and business-development companies pricing below asset value isn’t a new phenomenon. There can be factors such as supply and demand and quality of the underlying asset that could drive this spread. But a discount of up to 50 percent? That’s almost unheard of, and it amounts to around $7 billion of trapped value.

The simple explanation for such a wide spread is investors are concerned about challenges at DCG, a cryptocurrency conglomerate of sort. DCG is backed by none other than SoftBank, which seems to have its hand in a number of failed or failing startups. DCG owns Grayscale, crypto news media CoinDesk, Bitcoin miner Foundry, a small London-based crypto exchange named Luno, and crypto brokerage and lending giant Genesis Capital. The last company, Genesis Capital, is currently under Chapter 11 bankruptcy protection, after its lending arm blew up after last year’s crypto rout and FTX’s collapse.

DCG has been selling its stakes in various investment vehicles run by Grayscale, according to regulatory filings. Despite GBTC and its Ether-focused fund trading below their asset values, DCG presumably has needed to raise cash by all means necessary to support Genesis during bankruptcy. The Financial Times also reported that DCG retained investment bank Lazard to explore a sale of CoinDesk.

A competitor has also targeted Grayscale. Osprey Funds, which also runs several crypto-focused investment funds, sued Grayscale in January for putting out misleading marketing statements to gain market share.

“Grayscale has made materially false and misleading statements in its advertising and promotion … that turning its Bitcoin asset management services into access to a Bitcoin ETF was a foregone conclusion, when it knew that access was never likely to happen,” the complaint, filed in the Connecticut Superior Court, alleges.

Clearly, these financial and competitive difficulties at parent company DCG is not lost on GBTC investors which contribute to the giant discount.

Let’s examine the last point in the Osprey complaint, as it’s an important factor in GBTC trading below its fair value.

GBTC is not an exchange-traded fund (ETF). It also holds actual Bitcoins. There are Bitcoin-focused ETFs, such as the ProShares Bitcoin Strategy Fund, but all of them invest in Bitcoin futures, not Bitcoin itself. Futures are regulated by the Commodities and Futures Trading Commission (CFTC) in the United States.

Grayscale (and many other asset managers) has tried to convert its GBTC fund to an ETF for years, without success. The U.S. Securities and Exchange Commission (SEC) has rejected every single application so far. The SEC argues that, unlike futures, the spot Bitcoin is unregulated and the market is ripe with manipulation and potential fraud.

To Grayscale, the best way to eliminate this massive discount is to convert to an ETF. And it sued the SEC to force its hand, with oral arguments set to begin in Washington, D.C., in early March. If successful, it may be a pathway to unlock the approximate $7 billion.

In the meantime, institutional and activist investors are circling Grayscale.

One group of investors, called RedeemGBTC, wants the fund manager to reduce its 2 percent management fee, which is calculated on the underlying Bitcoin holdings, not the discounted share price, which inflates the fees earned by Grayscale.

Hedge Fund Fir Tree filed a lawsuit against Grayscale in December alleging mismanagement and severe conflicts of interest. The fund believes that Grayscale and DCG have very little incentive to act in the best interest of investors because they are earning lucrative fees that aren’t affected by the discount to fair value.

Will the $7 billion of value ever be unlocked and returned to shareholders? Or will Grayscale be remembered as another high-profile failed crypto venture?

One month ago, when discussing the “perfect storm” hitting the US auto market, we showed that according to Fitch “More Americans Can’t Afford Their Car Payments Than During The Peak Of Financial Crisis“…

… which was to be expected: after all the latest consumer credit report from the Fed revealed an exponential spike in the amount of new car loans, which increased by more than $2,000 in one quarter, from just over $38,000 (a record), to $40,155 (a new record).

And yet something just didn’t click: if so many subprime Americans were saddled with record amounts of auto loans – on average more than $40K – where were the defaults? After all, the average loan rate for new car loans just hit a 13 year high and will soon rise to the highest level this centiry.

Well, after a lengthy period in which nothing seemed to happen, suddenly the dominoes are starting to fall, and as Bloomberg reports, used car retailer and subprime auto loan lender, American Car Center, told employees the business was closing its doors, just one day after the company had hoped to pull off a funding Hail Mary by selling a $222 million bond (it failed).

According to Bloomberg, the used car retailer, which targets consumers regardless of their credit history (and thus targets almost entirely subprime borrowers who can’t get a loan elsewhere), said in an email to employees on Friday the firm was ceasing all operations, closing its headquarters in Memphis, Tennessee, and that all employees would be terminated by the end of the business day, the people said. It employed about 288 people at its headquarters.

The closure email came a day after the company sent another message to staff saying management and advisors had been working with lenders to improve liquidity and continue operations. American Car Center, which has more than 40 dealerships across 10 states, is owned by York Capital’s private equity group.

The long overdue collapse – the first of many – comes as more Americans are starting to fall behind on their car payments, and the distress cycle is rapidly accelerating.

Think of it as the infamous New Century domino that signaled the collapse of subprime housing… only for cars.

Just before the announcement, American Car Center shelved a bond deal backed by subprime loans citing market conditions despite investors placing orders for the debt. It wasn’t clear why ACC backed down in the last moment as the alternative was liquidation. However, since many more auto subprime lenders will now follow in ACC’s footsteps, we are confident the answer will emerge. 

Meanwhile, we can’t help but be amused by the mindblowing divergence in Wall Street mental models, where on one hand speculation that used car pries are somehow surging has sent risk assets lower driven by fears of a rebound in inflation (remember that spike in the Manheim used car price index?), while on the other companies like ACC and Carvana are either liquidating or on the verge of doing so, simply because the used car auto segment has completely imploded.

Authored by Charles Hugh Smith via OfTwoMinds blog,

The decay in quality reveals that the collapse of the neoliberal-hyper-financialization-hyper-globalization model has already occurred.

I’ve often addressed the dismaying decline of quality over the past 30+ years, for example, The “Crapification” of the U.S. Economy Is Now Complete (February 9, 2022).

I have attributed this to:

1) hyper-globalization, which pushes manufacturers to buy the cheapest components to lower costs. The failure of any one poorly made component renders the entire device useless junk which is dumped in the landfill.

2) Planned obsolescence as the corporate strategy to boost profits in an economy where everyone already has everything. By reducing the quality, product failure is accelerated, and the hapless consumer is forced to replace a device every few years that 30 years ago would have provided decades of trouble-free service.

3) Consumers have been trained to consume, no matter how poor the quality. Tossing stuff in the landfill is wonderful because this gives us another excuse to go shopping.

4) Since global production and distribution is dominated by rapacious cartels and quasi-monopolies, they don’t care about the terminal decay of the quality of their product/service. They know we’re going to buy their low-quality rubbish anyway because we have no choice, and they know the quality of “competing” (hahaha) products is equally abysmal.

Longtime correspondent Bart D., who coined the term Landfill Economy, pointed out a fifth source of decaying quality: resource depletion. It’s not just hyper-globalization / corporate profiteering driven cost reductions at the expense of durability; it’s also the increasing cost and difficulty of obtaining quality materials and components at any price.

Here are Bart’s comments on “stainless steel”:

“I found, what was for me, the most profound evidence of the ascendancy of the Fraud Economy that underpins the Landfill Economy.

I found it in the term and substance ‘stainless steel.’

I own some old and by the standards of the day in the 1970’s ‘cheap’ stainless steel knives and cutlery. I use a few of these pieces as garden tools. They lay around in the dirt and weather 24-7 and 365 days a year. They are used for purposes never intended by their manufacturers, uses that they would classify as abuse. And I can pick these items out of the dirt, rinse them under a tap and they come up looking like new. They are shiny, silver and have no sign of rust.

And I also own some ‘quality’ stainless steel items that were manufactured in the last 5 years in China. They were not priced in the ‘Cheap and Nasty’ bracket.

These items do nothing more than live in a kitchen or out under the pergola and get wet with clean water.

With Plain water.

And they rust.

Prolifically.

So it seems that since the 1970s, we have managed to figure out how to make Fraud Stainless at a price point above actual stainless (inflation adjusted).

I have come to realise that we are now a VERY long way past ‘Peak Quality’ and Peak quality of life. And we seem to accept this degradation as normal.

We are now living in a comprehensive illusion of what is quality. I’m starting to wonder if there are any products being produced today that are genuinely superior to those produced 30+ years ago.

Advertising tells us that products are ‘Premium,’ but 40 years ago products with similar or superior specifications were produced as ‘cheap.’ Todays standard grade products would be regarded as Defective in the economy of pre-1990s.

Why is this happening? Almost certainly it’s a product of resource depletion and substitution of superior and fit-for-purpose materials with inferior and faulty materials.

I have seen this also in copper pipe and road bitumen. The pre-90s versions of these products were durable and fit for purpose … whatever watered down substitutes we use now are defective grade products that degrade quickly even under normal working conditions.

I wonder how far quality can degrade before our economic model fails?

Maybe we’re just arriving at the point of failure now?”

Thank you, Bart, for illuminating how stainless steel is now stainless steal: an ersatz simulation that is pure fraud and theft. Claiming that a product that corrodes within months is actually “stainless steel” is fraud, and given that consumers are paying premium prices for this fraudulent product, it is also blatant theft: the consumer is paying a premium price for a product which is known by its manufacturer and distributor to be defective / not the high-quality material that was promised.

Tossing all the low-quality goods in the landfill and replacing them with even lower quality goods is now the global model of “growth.” But since very few of the discarded goods have recyclable materials that are actually recycled, this waste is growth model runs into limits of materials availability and cost: when even low quality becomes too costly, the bottom 80% of consumers can no longer afford to buy replacements.

As I explain in my recenty books Self-Reliance in the 21st Century and Global Crisis, National Renewal, once the economies of scale of mass production are lost, production is shut down as it is no longer profitable / viable at lower run-rates / capacity utilization.

Which brings us to Bart’s projection of what happens on the downside of Peak Quality: when the system can no longer replace all the low-quality goods dumped in the landfill with equivalent quantities of low-quality replacements at affordable prices, the entire waste is growth model collapses.

The decay in quality reveals that the collapse of the neoliberal-hyper-financialization-hyper-globalization model has already occurred. We’re simply waiting for the second stage, where it’s not just the production of quality goods that collapses: the production of even low-quality goods tumbles off the cliff as economies of scale are no longer enough to keep production profitable.

Stainless steal won’t survive impact. Fraud and theft eventually catch up with economies which have made them the centerpieces of “prosperity.”

New Podcast: Turmoil Ahead As We Enter The New Era Of ‘Scarcity’ (53 min)

*  *  *

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.  Read the first chapter for free (PDF)

Become a $1/month patron of my work via patreon.com.

Gautam Adani was once the world’s seventh-richest person, but a short-seller attack triggered a massive wave of selling in Adani Group stocks last month. The Indian tycoon has since lost $80 billion in personal wealth, slipping to No.30 on the Bloomberg billionaire index. 

Adani’s empire, which spans from seaports to airports, commodities, energy, cement, and data centers, can’t catch a break as the fallout from Hindenburg Research’s short report forced the asset management unit of JPMorgan Chase & Co. to dump Adani stocks from its ESG portfolios, Bloomberg reported.

JPM’s Adani purge from ESG funds was revealed through data analysis of the investment firm’s funds: 

The JPMorgan Global Emerging Markets Research Enhanced Index Equity ESG UCITS ETF (ticker: JREM LN) offloaded more than 70,000 shares in cement manufacturer ACC Ltd., exiting a stake it’s held since May 2021, according to a data review by Bloomberg that looked at movements following the Jan. 24 publication of the Hindenburg report.

 A second fund, the JPMorgan AC Asia Pacific ex Japan Research Enhanced Index Equity ESG UCITS ETF (ticker: JREA LN), sold the roughly 1,350 shares it had held in the company since July last year, the data show. The moves mean JPMorgan, which had held 0.04% in ACC, now has no further exposure to any parts of the Adani conglomerate via ESG funds, according to Bloomberg data.

Meanwhile, BlackRock Inc. and the investment unit of Deutsche Bank AG, DWS Group, have yet to make any moves with their Adani stakes in ESG funds. 

A DWS spokesperson told Bloomberg that regarding its MSCI-tracking ETFs, “no proprietary DWS ESG assessment is used.” MSCI told Bloomberg that a review of its ESG index “will be implemented” at the end of March. The index firm has yet to alter Adani ESG ratings. 

Both JPM funds are registered as Article 8 under European rules. This means they must “promote” ESG goals. Bloomberg noted JPM still holds Adani stocks in non-ESG funds. 

Adani stocks are becoming too toxic for some funds to hold, having lost $154 billion in combined market cap since the damning report of alleged fraud and market manipulation last month. Adani Group lawyers have rejected the allegations.  

Tim Buckley, director at Australian think tank Climate Energy Finance, told Bloomberg that the losses are an “absolute failure” on regulators and index providers. He said regulators need to monitor for “the biggest systemic risks, and to me, one of the big systemic risks is the index funds and the lack of clarity and regulatory definition.” 

Most of Adani’s stocks fell on Monday, led by a 10% decline in Adani Enterprises. 

Adani bonds in distressed territory. 

… and Indian stocks (S&P BSE Sensex) hit a four-month low. 

The continued selling came as Adani Group embarked on an investor roadshow to regain the confidence of institutional investors. Gautam Adani is expected to meet with investors at the Barclays Plc office in Hong Kong on Tuesday and Wednesday. 

By Simon White, Bloomberg Markets Live reporter and strategist

Inflation pressures and financial-stability risks will likely prompt the BOJ to pull back on its bond-buying policy sooner than expected, boosting the yen.

Kazuo Ueda, nominee for the next BOJ governor, made clear he is not planning to reverse course on the central bank’s easing program, in remarks made today to the parliamentary hearing as part of the confirmation process. Nonetheless, he may end up having to do just that as inflation rises and the BOJ impedes smooth market functioning in the JGB market.

Both core and headline inflation in Japan have raced higher to multi-decade highs. The expectation is that this is temporary, but inflation that remains elevated for an extended period of time can become persistent and endemic. In Japan, longer-term inflation expectations of households and businesses have risen sharply, risking becoming unanchored.

The BOJ continues to buy bonds to keep the 10y yield under 0.5%, but this is becoming increasingly futile as other yields around the 10y point are pulled higher, leaving the 10y JGB’s yield looking anomalous.

Furthermore, the BOJ itself appears to be uncomfortable that it now owns half the JGB market. Since that threshold was crossed, there has been a rapid rise in loans it makes to commercial banks, indirectly encouraging them to use the proceeds to buy government or corporate debt.

Liquidity conditions in the JGB market are already deteriorating, and pressure is at risk of intensifying as US and global yields show signs they are beginning to factor in a greater premium for a world where inflation is a feature, not just a bug.

USDJPY has rallied since Ueda’s nomination was announced. This is partly due to the rise in the dollar, but it is mainly a result of a weaker yen.

This leaves USDJPY vulnerable to resuming its selloff, as the BOJ ultimately has to renege on its easing policy sooner than Ueda infers, or the market expects.