Category: zerohedge

Authored by Jack Phillips via The Epoch Times,

Officials in Calgary, Canada, said they arrested Artur Pawlowski, a street preacher who allegedly defied local lockdowns, over the weekend.

“Earlier today, police arrested two organizers of a church service who were in violation of a new court order obtained by Alberta Health Services (AHS) in relation to mandatory compliance of public health orders for gatherings,” said the Calgary Police Service in a statement on Saturday.

His brother, David Pawlowski, was also taken into police custody.

Both were charged with allegedly organizing an illegal in-person gathering as well as  “requesting, inciting or inviting others” to join them, according to police.

The force said that Alberta’s provincial government obtained a bench order from a court that applies to “protests, demonstrations and rallies” that imposes “new restrictions on organizers of protests and demonstrations requiring compliance with public health orders including masking, physical distancing and attendance limits.”

“It is important to understand that law enforcement recognizes people’s desire to participate in faith-based gatherings as well as the right to protest. However, as we find ourselves in the midst of a global pandemic, we all must comply with public health orders in order to ensure everyone’s safety and wellbeing,” the police service added.

A video uploaded on Twitter that appeared to show his arrest on a highway included Pawlowski’s voice: “If you are watching this video, it means that they have successfully arrested me.” It included a link to a crowdfunding website for his legal defense.

During the COVID-19 pandemic, the Pawlowski brothers have held gatherings and have denied officials’ entry into their church located in Dover, Calgary, according to reports.

Pawlowski drew headlines several weeks ago after he compared police with the Nazi Gestapo paramilitary forces and fascists.

“And they did it again! Today, the Gestapo Attacked our Church Again! History is being repeated in front of our eyes! Another sad day for Freedom and democracy!” Pawlowski wrote on April 24.

Before that, in a viral clip, he was seen in a video telling officers: “I do not cooperate with Gestapo!”

“I’m not interested in any word that you have to say. I do not cooperate with Gestapo, I do not talk to the Nazis,” Pawlowski told officers on Easter Sunday weekend, adding, “Brown shirts of Adolf Hitler. You are Nazi, Gestapo, communist, fascists! I do not cooperate with Nazis!”

On April 3, Pawlowski was fined $1,200 for allegedly holding a public gathering of more than 15 people at his Street Church, in violation of COVID-19 health orders.

Pawlowski, who emigrated from Poland to Canada in the 1990s, told Fox News in April that Canadian police are engaging in Soviet-like activity during the pandemic. He has also been fined repeatedly for violating public health orders by holding church services.

“I grew up under a communist dictatorship behind the Iron Curtain, under the boot of the Soviets, and I’m telling you that’s no fun at all. It was a disaster,” he said in the interview. “So, it was like a flashback when those police officers showed up at my church. Everything kind of came back to life from my childhood, and the only thing I could do is to fend off the wolves as a shepherd, and I used my voice to get rid of them,” Pawlowski added.

Earlier today, Morgan Stanley’s chief equity strategist Michael Wilson looked at what was likely the highlight of Q1 earnings season, pointing out that “the vaunted FAANMG stocks sold off on terrific 1Q earnings results after an outsized run into the event. This was… a reminder that stocks often peak on good news.”

Not to make a too fine point out of it, suddenly everyone is focusing on the performance of the FAAMG stocks which, after soaring for much of 2020 when they returned 56% and accounted for 7% of the 18% S&P 500 return last year, have gone nowhere in recent months prompting concerns that it’s all downhill from here.

Not surprisingly, FAAMGs were also the topic of the latest weekly note from Goldman’s chief equity strategist David Kostin, who writes that confronted with the prospect of decelerating US economic activity, the bank’s clients are suddenly freaking out about a breakdown in the 5 Generals, and are “asking about the potential for a transition in market leadership” even as “many investors have expressed the view that economic deceleration should support the outperformance of the largest “Big Tech” stocks in the market”, a topic which Goldman analyzed recently and which view the bank supports.

Despite its ringing endorsement of FAAMGs, Kostin admits that one common concern with this thesis relates to the high current market concentration compared with history, to wit: he five largest stocks in the S&P 500 represent 21% of index capitalization, significantly more than the long-term average of 14%, above the 18% at the peak of the Tech bubble in 2000, and only trailing the 25% level reached during mid-2020. This large index weight of the top stocks is important because it serves as a practical headwind to continued appreciation given SEC restrictions on portfolio concentration that limit how much mutual funds can continue to buy them.

Of course, there is a fundamental reason why investors have piled into the FAAMGs, first and foremost, the durability of the revenue streams of these firms during 2020 was in stark contrast with the extreme declines exhibited by many other businesses. Last year, sales for the median S&P 500 company collapsed at its nadir by 7% before partially recovering to post flat full-year growth. In contrast, the five FAAMG stocks collectively grew sales by 18% even at the point of maximum contraction for the economy in 2Q. They grew full-year 2020 revenues by 21% vs. 2019.

Q1 results show that the FAAMG growth persists. The median S&P 500 stock reported year/year sales growth of 9% and 57% of S&P 500 firms beat consensus sales estimates, with a median positive surprise of 4%. At the same time, the five largest stocks reported aggregate 1Q 2021 sales of $321 billion –a remarkable $24 billion or 8% above consensus – for year/year growth of 41%. For 2022, consensus expects the five stocks will post revenue and EPS growth of 14% and 10%, respectively, compared with 6% and 10% for the median S&P 500 stock.

But according to Goldman it’s not the topline growth that is the most distinguishing aspect of the FAAMG business models, but the amount and share of operating cash flow they devote to driving growth. During 2020, the five FAAMG stocks, spent $128 billion in R&D and another $104 billion on capex, accounting for 22% of the S&P 500 total. FAAMG posted a growth investment ratio of 64% over the last three years vs. 11% for the typical stock. As Goldman puts it, “they are investing their way to superior growth.”

While those are the clearest positives propping up the FAAMGs, they are largely priced in; at the same time there is a list of sizable and growing risks, starting with Biden’s proposed tax reform which would raise both corporate and capital gains tax rates and represent possible sources of risk for the FAAMG stocks. If the Biden corporate tax plan were fully enacted, FAAMG 2022E earnings would decrease by roughly 9% relative to consensus expectations. FAAMGs generate approximately 55% of income abroad. Using a back-of-the-envelope approach, applying the proposed 28% domestic statutory rate and 21% tax rate on foreign income to each portion of FAAMG’s income, their collective effective tax rate would rise by 7% to 24% (vs. +6 pp to 25% for the median S&P 500 stock) and would decrease consensus 2022 FAAMG earnings by 9% (vs. -8% for the S&P 500).

Separately, the FAAMG stocks are also vulnerable to higher capital gains rates. If the capital gains tax rate becomes set to rise in 2022, investors subject to the higher rate may choose to realize some of their substantial capital gains in 2021 at the lower current tax rate. The FAAMG stocks have appreciated by $5 trillion during the last 5 years, accounting for 29% of the S&P 500 market cap increase during that time. Needless to say, if there will be selling, it could be furious.

It doesn’t end there: valuation multiples also pose a risk to the FAAMG stocks. Investor conversations around FAAMG inevitably turn to their valuations. FAAMG trades at a forward P/E of 29x (90th percentile for the top 5 stocks since 1980), compared with 21x for the remaining 495 S&P 500 stocks. This 34% P/E premium for the five largest stocks ranks in the 76th percentile since 1980.

That said, if multiples were to shrink everything would crash, which is why Kostin writes that “the current low level of interest rates and the fast pace of expected growth support the lofty multiples of the FAAMG stocks.” While the nominal 10-year Treasury yield has risen this year, at 1.6% it remains extremely low in historical terms, Kostin also makes some other valuation observations:

Low rates support the valuation of high growth, long duration stocks.FAAMG has an earnings yield gap (E/P less 10Y UST) of 191 bp, above the 40-yearaverage of 144 bp, indicating that the stocks are attractively valued adjusting for thelow level of rates. Valuation on a growth-adjusted basis also looks more reasonable:FAAMG actually trades at a 14% PEG discount to the median S&P 500 stock (1.7xvs. 1.9x).

While all this worked in an ultra low rates environment, rising interest rates represent a potential headwind to FAAMG returns in coming months (incidentally Goldman rates strategists forecast10-year US Treasury yields will rise by 34bps to 1.90% by the end of 2021). Furthermore, all five FAAMG stocks have above-average duration compared with the Russell 1000, meaning they are especially sensitive to moves in long-term interest rates. As yields rose sharply from November through March, FAAMG underperformed the S&P 500 by 7 pp (+21% vs. +14%). A similar period of rising rates in 2H 2021 would likely hamper FAAMG returns.

Putting all this together, Kostin writes that the greatest fundamental risk to the continued market leadership of the five largest companies “appears to be the potential intervention of regulators.” He adds that recent Biden administration appointments “suggest some risk of a stricter regulatory regime and tighter antitrust enforcement.” He has a point: with the exception of MSFT, the other four FAAMG stocks face a laundry list of legal battles and investigations over their market power and competitive practices ranging from commercial litigation to DoJ and FTC antitrust lawsuits to Congressional probes.

Then again, as Kostin concludes, his year-end 2021 S&P 500 index forecasts of 4300 and 4600 at the end of 2022 assume these companies generate sales and earnings in line with consensus expectations, their relative valuations remain stable, and therefore implicitly that antitrust actions have no major impact.

In short, Goldman clients can just relax and keep buying the FAAMG dip.

Winner of the famed Kentucky Derby on May 1st, the thoroughbred Medina Spirit, could have its victory removed after failing a post-race drug test, it was revealed Sunday. The growing scandal included Churchhill Downs taking the dramatic action of immediately suspending Hall of Fame trainer Bob Baffert over suspicions he’s been doping horses for years.

Apparently “horse doping” is pervasive and the sport has lately tried to crack down on such injury-masking & performance-enhancing drugs: “Baffert is a Hall of Fame horse trainer, but five of his horses have fail drug tests in about the past year, while the sport’s leaders have vowed to crack down on horse doping, per AP,” Axios writes.

Specifically the doping allegation stems from an illegal amount of a type of steroid typically used on horses to mitigate pain and swelling called betamethasone. Apparently it was double the limit allowed for the Kentucky Derby.

The controversy is expected to be prolonged given Baffert is challenging the allegation, saying he’ll fight the Churchhill Downs ruling “tooth and nail” – and the fact that a winning horse hasn’t faced disqualification over doping since 1968. He said in a statement, “I got the biggest gut-punch in racing, for something I didn’t do.”

As to whether the title will be stripped altogether, the race organization had this to say:

“Churchill Downs will not tolerate it,” the statement said. “Given the seriousness of the alleged offense, Churchill Downs will immediately suspend Bob Baffert, the trainer of Medina Spirit, from entering any horses at Churchill Downs Racetrack. To be clear, if the findings are upheld, Medina Spirit’s results in the Kentucky Derby will be invalidated and Mandaloun will be declared the winner.“

If a further test confirms the initial drug test results, Medina Spirit will be disqualified, which has many naturally wondering how such a decision would impact betting and settling results. In recent years total gambling on the Kentucky Derby has reached well over $150 million changing hands. 

Medina Spirit, trained by Bob Baffert — the Lance Armstrong of horse racing — won today’s Kentucky Derby. Watching it, all I could think of was the @joedrape⁩ story from 2020 below. So many failed doping tests. So much suspicion. https://t.co/Bqaj4dLYhy

— Juliet Macur (@JulietMacur) May 2, 2021

Partly at issue here is that Baffert’s horses have failed about 30 drug tests in the past four decades, according to The New York Times, resulting in an avalanche of accusations from competitors for decades.  

Winner of the famed Kentucky Derby on May 1st, the thoroughbred Medina Spirit, could have its victory removed after failing a post-race drug test, it was revealed Sunday. The growing scandal included Churchhill Downs taking the dramatic action of immediately suspending Hall of Fame trainer Bob Baffert over suspicions he’s been doping horses for years.

Apparently “horse doping” is pervasive and the sport has lately tried to crack down on such injury-masking & performance-enhancing drugs: “Baffert is a Hall of Fame horse trainer, but five of his horses have fail drug tests in about the past year, while the sport’s leaders have vowed to crack down on horse doping, per AP,” Axios writes.

Specifically the doping allegation stems from an illegal amount of a type of steroid typically used on horses to mitigate pain and swelling called betamethasone. Apparently it was double the limit allowed for the Kentucky Derby.

The controversy is expected to be prolonged given Baffert is challenging the allegation, saying he’ll fight the Churchhill Downs ruling “tooth and nail” – and the fact that a winning horse hasn’t faced disqualification over doping since 1968. He said in a statement, “I got the biggest gut-punch in racing, for something I didn’t do.”

As to whether the title will be stripped altogether, the race organization had this to say:

“Churchill Downs will not tolerate it,” the statement said. “Given the seriousness of the alleged offense, Churchill Downs will immediately suspend Bob Baffert, the trainer of Medina Spirit, from entering any horses at Churchill Downs Racetrack. To be clear, if the findings are upheld, Medina Spirit’s results in the Kentucky Derby will be invalidated and Mandaloun will be declared the winner.“

If a further test confirms the initial drug test results, Medina Spirit will be disqualified, which has many naturally wondering how such a decision would impact betting and settling results. In recent years total gambling on the Kentucky Derby has reached well over $150 million changing hands. 

Medina Spirit, trained by Bob Baffert — the Lance Armstrong of horse racing — won today’s Kentucky Derby. Watching it, all I could think of was the @joedrape⁩ story from 2020 below. So many failed doping tests. So much suspicion. https://t.co/Bqaj4dLYhy

— Juliet Macur (@JulietMacur) May 2, 2021

Partly at issue here is that Baffert’s horses have failed about 30 drug tests in the past four decades, according to The New York Times, resulting in an avalanche of accusations from competitors for decades.  

We already know that minimum wage payers are having trouble recalling workers for their post-Covid plans. And why wouldn’t they? Laid off workers have been making more on unemployment and PPP loans over the last year than they likely ever made working rank-and-file jobs in years past.

But now the hiring drought is starting to hit higher end jobs, like AI talent, the Wall Street Journal notes. 

To drum up interest, companies are now sponsoring award programs and scouting software development contests in the hunt for data scientists and other AI professionals. 

Peter Krensky, director, analyst on Gartner Inc.’s business analytics and data science team, told the Journal: “You’ve got to be creative about finding people that care about more than just money.”

And while base salary for these workers is generally $120,000, companies are now offering up to $170,000 or more to entice talent. Companies have turned to recruiters and internship programs to find talent, but Krensky says that’s “not enough” given today’s competition. 

“There were 37,000 AI job postings in the first quarter of this year, up more than 45% from the fourth quarter of 2020,” the Journal reported.

Among those seeking talent are companies like J.P. Morgan, who is looking for “hundreds” of AI researchers and scientists (totally normal for a bank). The bank says it has recruited through deep relationships with computer science programs at universities. In 2018, the bank hired Carnegie Mellon University’s head of machine learning as its head of AI research. 

She now runs an award program that recognizes university faculty and Ph.D. students. The awards come with financial support and can also recognize “highly talented” post-graduate work. The banks says it has hired “several” award recipients. 

Carol Juel, executive vice president and chief information officer at Synchrony Financial, told the Journal that her bank has also increased AI hiring over the last 3 years. The bank has hosted “datathons” at the University of Illinois, partnering with the school’s statistics department and providing software training and tools to help students “think like data scientists”. 

“You have to go to where the talent is,” Juel said. 

We’re certain that’s why businesses are also watching other AI contests, like those run by Google’s Kaggle, to see who can solve complex problems for cash prizes. It likely makes the transition to doing such work for a living – for both the candidate and the business – much easier. 

Authored by Alex Kimani via OilPrice.com,

“Dark energy is not only terribly important for astronomy, it’s the central problem for physics. It’s been the bone in our throat for a long time.”

– Steven Weinberg, Nobel Laureate, University of Texas at Austin.

More than three years into its quest to solve the nature of dark energy and illuminate the origin, evolution, and fate of our universe, the Hobby-Eberly Telescope Dark Energy Experiment (HETDEX) project remains on track to complete the largest map of the cosmos ever.

HEDTEX, a project by Penn State University scientists, aims to create a three-dimensional map of 2.5 million galaxies that will yield valuable insights into the byzantine puzzle of why the expansion of the universe is speeding up over time, a property attributed to the so-called dark energy.

But first things first, what exactly is dark energy?

Dark energy in an expanding universe

Source: NASA.org

The observable universe consists of three known components: normal matter, dark matter, and dark energy. Dark energy is the most abundant at 68%, with dark energy making up another 27% of the universe while ordinary matter constitutes just 5%.

Today, there is consensus among astronomers that the universe we inhabit is expanding despite the presence of gravity, and that its expansion is accelerating, giving rise to the notion of a repulsive force that astronomers have dubbed ‘dark energy,’ though the concept has only been around for a little more than 20 years. Generally, astronomers and astrophysicists assign the prefix ‘dark’ to concepts they have little or no clue about.

Dark energy is the name given to the mysterious force that’s causing the rate of expansion of our universe to accelerate, rather than to slow down and go out in a Big Crunch as it ages. That’s contrary to what one might expect from a universe that was birthed by an event like the Big Bang. 

Back in 1917 when Albert Einstein came up with the general theory of relativity that laid the foundations of the Big Bang and the universe as a whole, he and most leading scientists were convinced that the cosmos was static and non-expanding. Einstein introduced the Cosmological Constant to help explain why the universe was not collapsing under the attractive force of gravity.

It wasn’t until 12 years later when Edwin Hubble discovered that the universe is in fact expanding, with galaxies farther away from our planet moving away faster than those that are closer. The model of a static universe was finally abandoned, forcing Einstein to quickly modify his theories and come up with two new distinct models of the expanding universe, both of them without the cosmological constant, just a year later.

However, it would be decades later–1998 to be precise–before astronomers discovered that the universe was dominated by dark energy and not normal matter as earlier thought.

Solving dark energy

More than two decades after the discovery of dark energy, astronomers remain in the dark regarding what it’s all about.

However, several theories have been advanced to attempt to explain dark energy.

Ironically, Einstein’s previously abandoned cosmological constant is one of the frontrunners, which modern-day physicists describe as vacuum energy.

“The vacuum in physics is not a state of nothing. It’s a place where particles and antiparticles are continuously created and destroyed. The energy produced in this perpetual cycle could exert an outward-pushing force on space itself, causing its expansion, initiated in the big bang, to accelerate,” says Penn State University Associate Professor of Astronomy and Astrophysics, Donghui Jeong.

But here’s the rub with the concept of vacuum energy: The theoretical calculations of vacuum energy diverge from actual observations by a factor of as much as 10120.

Clearly this is a massive discrepancy that could necessitate a reworking of the current theory. 

Another possibility: Einstein’s theory of gravity is wrong from the get-go hence leading to erroneous conclusions.

Nonetheless, the cosmological constant in the form of vacuum energy remains the leading candidate that explains dark energy.

HETDEX ambition

Obviously, mapping 2.5 million galaxies is no mean undertaking and requires quite a bit of elbow grease. This is not made any easier by the fact that whereas other comparable studies measure the universe’s expansion using distant supernovae or a phenomenon known as gravitational lensing, HETDEX is focused on sound waves from the big bang, called baryonic acoustic oscillations. 

Luckily, HETDEX has secured more than $40 million in funding and a set of more than 150 spectrographs called VIRUS (Visible Integral-Field Replicable Unit Spectrographs), that gathers light from far-away galaxies into an array of some 35,000 optical fibers where it is split into its component wavelengths.

Another perk: HETDEX is the first probe to try to do a whole lot of spectroscopy and then figure out what they will see by observing broad swaths of sky instead of specific, predetermined objects, meaning they will end up collecting an insane amount of data. Who knows, that treasure trove might yield unexpected insights that might help mankind in its quest to eventually colonize the universe.

Just in case the US didn’t already have a “transitory hyperinflation” problem, gasoline futures soared more than 4% – and are likely to jump much more – late on Sunday after the Colonial Pipeline announced that while some smaller lateral lines between terminals and delivery points are now operational, its mainlines (Lines 1, 2, 3 and 4) remain offline since late Friday after the company suffered a crippling cyberattack that affected its key IT systems.

Colonial operates Line 1 for gasoline and Line 2 for diesel and jet fuel from Pasadena, Texas, some 15 miles from the nation’s largest refineries, to Greensboro, North Carolina, at a combined 2.5 million barrels a day. They merge at Greensboro to feed a line carrying about 900,000 barrels a day into New York Harbor, and other East Coast pipelines.

Colonial said that it is “in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations.” Full statement below:

Update — Sunday, May 9, 5:10 p.m.

On May 7, Colonial Pipeline Company learned it was the victim of a cybersecurity attack and has since determined that the incident involved ransomware. Quickly after learning of the attack, Colonial proactively took certain systems offline to contain the threat. These actions temporarily halted all pipeline operations and affected some of our IT systems, which we are actively in the process of restoring.

Leading, third-party cybersecurity experts were also immediately engaged after discovering the issue and launched an investigation into the nature and scope of this incident. We have remained in contact with law enforcement and other federal agencies, including the Department of Energy who is leading the Federal Government response.

Maintaining the operational security of our pipeline, in addition to safely bringing our systems back online, remain our highest priorities. Over the past 48 hours, Colonial Pipeline personnel have taken additional precautionary measures to help further monitor and protect the safety and security of its pipeline.

The Colonial Pipeline operations team is developing a system restart plan. While our mainlines (Lines 1, 2, 3 and 4) remain offline, some smaller lateral lines between terminals and delivery points are now operational. We are in the process of restoring service to other laterals and will bring our full system back online only when we believe it is safe to do so, and in full compliance with the approval of all federal regulations.

At this time, our primary focus continues to be the safe and efficient restoration of service to our pipeline system, while minimizing disruption to our customers and all those who rely on Colonial Pipeline. We appreciate the patience and outpouring of support we have received from others throughout the industry.

Meanwhile, downstream customers, which includes pretty much the entire Eastern seaboard, are starting to freak out as they face a new week without the primary source of gasoline supply for hundreds of millions of customers.

In response to the news, gasoline futures jumped 4% to $2.21 a gallon, approaching the highest since 2014. WTI and Brent both spiked more than 1%, while other products such as diesel and jet fuel are also likely to jump.

Should Colonial be unable to bring its main pipeline back online, which as a reminder were hacked by a ransomware group called DarkSide, according to Allan Liska, senior threat analyst at cybersecurity firm Recorded Future, there is no telling how high gasoline prices will soar as Colonial supplies nearly half the east coast gasoline.

On Friday, the national average stood at $2.96 a gallon Friday, according to auto club AAA, and with national gasoline inventories ample, the pump price wasn’t expected to tick much higher until Memorial Day at the end of May, which is traditionally viewed as the start of the U.S. summer driving season. However, it now appears that we can add gas to the list of items that have seen prices soar. Gasoline last bested the $3 average in October 2014.

Price increases in road fuel may stoke even more worries about inflation as commodities from oil to lumber to corn skyrocket with the world’s major economies emerging from pandemic restrictions. The oil industry was gearing up to meet what is expected to be a surge in fuel demand as newly vaccinated Americans take to the roadways and skies this summer. The downed Colonial Pipeline is a key artery for gasoline, diesel and jet fuel produced by oil refiners on the U.S. Gulf Coast and major metropolitan areas between Atlanta and New York.

“It all comes down to the duration of the disruption. If it lasts longer, it’s likely to result in some location dislocations — shortage of oil products in the East Coast, abundance in the Gulf region. That will support New York product prices and might attract more oil products from abroad,” said Giovanni Staunovo, commodity analyst at UBS Group AG.

According to Bloomberg, traders are already seeking vessels to deliver gasoline that would have otherwise been shipped on the Colonial system. Some tankers are being secured to temporarily store gasoline in the U.S. Gulf in the event of a prolonged shutdown, they said.

There is some good news: the terminus of the pipeline, New York, was well stocked with fuel ahead of the attack and could weather the upset if missing fuel is replaced or the line restarts quickly. East Coast gasoline stockpiles at the end of April were near five-year seasonal averages. Of course, a lenghty shutdown would mean gasoline shortage the likes of which were last seen in the 1970s…

… which would be poetic justice since price are already soaring at a pace that appears set to surpass America’s hyperinflationary period which ended with the Volcker Fed hiking rates to 20% in 1980.

Authored by James Rickards via The Daily Reckoning,

What do you think is America’s most serious geopolitical challenge – China, Russia, Iran, maybe North Korea?

None of the above, apparently. According to President Biden’s Director of National Intelligence, Avril Haines, climate change needs to be “at the center” of countries’ national security and foreign policy.

Well, Treasury Secretary Janet Yellen will be doing her best to make sure the crusade against climate change gets plenty of funding.

Yellen has called for a “whole-of-economy” approach to fighting climate change — which essentially means massive subsidies to finance so-called green energies and discourage fossil fuel production.

In other words, climate alarmism is the official position of the Biden administration.

Where’s the Science?

Alarmism has no basis in observable science. It’s all the result of climate models, which have been consistently wrong about warming because they reflect the biases of their programmers.

Garbage in, garbage out.

They’re kind of like the climate’s version of the Fed’s economic models. They’re always wrong, and not by a little.

If you listen to the climate alarmists, they’ll tell you we only have a few years to save the planet. If we don’t eliminate CO2 emissions quickly, the planet will warm, sea levels will rise, storms will intensify, cities will be inundated, and lives will be lost to starvation, disease and dehydration.

Every one of those claims is empirically false, but that doesn’t stop the global power elite from trying to shut down the oil and gas industries and replace power generation with solar, wind and hydropower or so-called renewable sources.

The War Against Plants

Here are the facts: The best evidence is that the planet is not warming, but it may be cooling under the influence of a periodic minimum in solar flare activity and increased volcanic activity (the two may actually be related), which creates an atmospheric ash layer that cuts down on sun intensity.

Sea levels may be rising slightly, but the tempo is about 7 inches in the next 100 years. That’s hardly cause for alarm considering that sea levels rose 400 feet since the end of the last ice age, and humans adapted just fine.

CO2 is a trace gas that makes up just 0.04% of the atmosphere (400 parts per million) and doesn’t have a major impact as far as science can tell, except that it is essential for plant nourishment.

Based upon recent studies, a doubling of carbon dioxide would likely result in a temperature increase of only about 1.5 degrees Celsius. That’s hardly a crisis.

There is some danger that if CO2 levels are reduced too much, plant life may suffer. The reason hurricanes are producing more property damage is not because the storms are more intense – peak intensity in the past hundred years was in the 1940s – it’s because fools with federally subsidized flood insurance are building mansions on sand bars where they don’t belong and the mansions get blown away in predictable storms.

The Polar Bears Are Getting Fat

Remember when the same climate alarmists said in 1988 that the New York City subways would be flooded by 2010? Never happened. The polar bears are also doing just fine.

Recent reports show the polar bear population is thriving, and one report showed that polar bear obesity is an emerging problem because the bears have so much to eat.

Yet, the claims of the alarmists are even worse than junk science. Even further, the “solution” to these non-problems doesn’t work either. Simply put, solar and wind power cannot replace oil and gas in producing electricity to supply the grid.

This is because solar and wind are unreliable. When the wind doesn’t blow and the sun doesn’t shine (which is often in most places), there is no power output at all.

The only way to overcome the reliability problem is with immensely expensive batteries. And battery production itself uses up enormous amounts of electricity, poisonous chemicals, and metals, creating disposal problems.

Electric Vehicles Aren’t So Green

Solar and wind can be supplemented by oil and gas (and nuclear power), but they cannot replace them due to unreliability and the expense of batteries.

And do you think you’re going green by driving an electric car? Well, research by the Swedish Environment Institute reveals that up to 17.5 tons of carbon dioxide go into producing an electric battery.

If you keep the car for 10 years or longer, the battery will have to be replaced, meaning another 17.5 tons of carbon dioxide.

And electric charging stations largely depend on fossil fuels to generate electricity.

In comparison, a standard internal combustion engine might produce about 45 tons of carbon dioxide after 160,000 miles, about 16 years of use on average.

But the Biden administration seems determined to push the Green New Deal anyway, despite all the costs and little benefit.

Get ready for higher energy costs, power outages, death and damage from cold spells, and possible lines at the gasoline pump. The Green New Deal is a policy fiasco in the making that will take us back to the 1970s.

ESG Investing

Of course, many corporations are fully on board with the environmental agenda because it means subsidies and tax breaks if they adopt the right policies.

Have you heard about ESG investing?

If not, you soon will. ESG stands for Environmental, Social and Governance, which are the three factors business managers and investment advisors are implored to take into account when making business and asset allocation decisions.

Prior to ESG, managers were only accountable for corporate profits (which could be based on a wide array of factors, including good personnel policies and good community relations), and investment managers were only accountable for consistent high risk-adjusted returns.

Making the environment better, improving society and ensuring good governance outside the boardroom was considered to be the job of government, civil society or not-for-profit entities. Companies were all about the bottom line. Not anymore.

Because of their wealth, scope and influence, companies have been hijacked by the power elite and ideologues to carry water for a host of social programs and causes from public housing and education to climate change.

They’re going from shareholder capitalism — which places the shareholders as number one — to “stakeholder” capitalism — which takes the broader community into consideration.

Maybe that’s good overall, maybe it’s not. Regardless, what one thinks of this evolution in the purpose of a corporation is irrelevant; it’s happening, and investors need to take it into account because it can be extremely profitable.

Might as Well Profit From It All

Assets under management in ESG funds are now over $2 trillion, more than the largest sovereign wealth funds. These funds and large asset managers such as BlackRock are scouring the corporate landscape for companies that meet their ESG investment criteria.

Since there is a scarcity of attractive ESG companies relative to the funds chasing ESG investments, the stocks of good candidates are likely to outperform. Funds are also putting pressure on corporate management to conform existing corporate practices to ESG measurements or face shareholder revolts.

Since the ESG target companies are overwhelmingly green (in areas of solar and wind power, recycling and efficient construction), investors may find even better opportunities in blue projects involving water recycling, irrigation, and cutting-edge vertical farming.

Again, whether you agree with the new model or not is irrelevant. It’s happening anyway.

These trends are just beginning, so there’s still time for investors to jump on the red-hot green and blue bandwagon and put their portfolios in the black.

Solar, wind, batteries, nuclear, tidal power, among others, provide carbon-free electricity. But their generation is usually immediately absorbed into the power grid for use or stored in lithium-ion batteries. Large-scale energy hoarding is expensive, and quite frankly, with base metal prices skyrocketing, maybe unattainable unless the Biden administration allocates billions of dollars to upgrade the grid. 

Toronto-based Hydrostor has found a solution to storing power on the grid that doesn’t involve batteries but instead stores energy in the form of compressed air in underground chambers. 

California is becoming the new site for two new compressed-air energy storage plants that “will soon rival the world’s largest non-hydroelectric facilities and hold up to 10 gigawatt-hours of energy,” said Popular Mechanics. 

Compressed air is part of a growing type of energy storage to stabilize the grid. Here’s how Hydrostor’s: A-CAES technology works:

A-CAES uses surplus electricity from the grid or renewable sources to run an air compressor. The compressed air is then stored in a big underground tank until energy is needed, at which point it’s released through a turbine to generate electricity that’s fed back into the grid.

Rather than vent the heat generated as the air is compressed, Hydrostor’s system captures that heat and stores it in a separate thermal storage tank, then uses it to reheat the air as it’s fed in to the turbine stage, which increases the efficiency of the system. This could prove to be key; compressed air storage systems have typically offered round-trip efficiencies between 40-52 percent, and Quartz is reporting more like 60 percent for this system.

Hydrostor’s A-CAES also makes use of a closed-loop reservoir to maintain the system at a constant pressure during operation. The storage cavern is partially filled with water and as the compressed air is piped in, the water is forced into a separate compensation reservoir. Later, when the air is needed, the water is pumped back into the air storage cavern, pushing the air out towards the turbine. – New Atlas 

Hydrostor provides three-minute of how the technology works. 

Hydrostor has two major projects in active development – one in southern Kern County and one in Central California, creating a more practical way to store energy on the grid than costly batteries. 

“Hydrostor’s patented and commercially proven A-CAES technology provides 8-12+ hours of energy storage, versus the 1-4 hours that current battery technologies can feasibly provide,” Hydrostor said. 

When it comes to longevity, a compressed air energy storage plant has a lifespan of more than 50 years, far outpacing battery farms, like Elon Musk’s Tesla Powerpacks. 

… and to be clear – all this talk about net-zero carbon emissions talk in the next couple of decades is just a guess by policymakers. 

As excerpted from the latest letter by Eric Peters, CIO of One River Asset Management

Late and Awkward: “The March 2020 downturn resembled a natural disaster rather than a recession that cleansed imbalances,” said Marcel, our head of research, discussing economic cycles. “This was most evident in the goods sector. The global PMI survey fell from 50.3 in Jan 2020 to 39.6 in April, then fully recovered by July. It is equally evident in the finer details of today’s global good sector. US delivery times are currently equivalent to the period of the 1970s oil embargo. The supply-side of the economy is constrained and pushing on demand will merely crowd it out with higher prices. This is the root of an inflationary impulse.”

The High Debt Dance: “It is worth reflecting on the stylized facts of high debt countries,” continued Marcel. “Living standards go down in phases of high government debt. Per capita GDP declines 0.3% per annum on average. The path to then normalize government debt has two distinct regimes”:

1. Orthodoxy – a long period of moderate primary surpluses with moderate inflation (Belgium 1993, Canada 1995), and
2. Inflationary – disregard of fiscal, proactive inflationary pursuit (Germany 1918).

“The important point is that moderate inflation outcomes always coincide with taut fiscal policy. And we are not there now. Not even close.”

Monetary/Fiscal Interaction: “The way forward will almost surely include macro prudential policies to regulate credit,” explained Marcel. “We are seeing this in New Zealand, where home prices are now mandated as part of price stability. The US historic example is a useful marker. Post WWII, the Federal Reserve was responsible for intervening to buy bonds if prices fell below par. This capped nominal interest rates, with the T-Bill at 0.375% and the long-term bond at 2.50%. Regulation Q capped rates on various types of bank deposits that, in turn, constrained banking competition and private credit activity. These are the types of policies that can emerge in conjunction with extraordinary Fed accommodation.”

Exchange Rates: “Given widespread concern about competitive devaluations, the overriding objective of postwar US exchange rate policy was the maintenance of a fixed par value of the dollar as established by the Bretton Woods agreement,” said Marcel, continuing to provide historical context for what is unfolding today to help us position portfolios for tomorrow. “Moreover, given that there were relatively few revaluations or devaluations of foreign currencies against gold, the overall system ensured fairly stable exchange rates during that high-debt postwar episode.”

Balance of Payments: “There were few external imbalances in those historic periods, which is very different from today,” he said. “Thus, external imbalances are rarely part of today’s conversation on inflation dynamics as there are no historic norms to rely upon. Consider the US balance of payments (BOP) in the 1960s: gross trade and financial flows were 11% of GDP. Gold was the nominal anchor. The USD was too rich, a BOP deficit emerged, a drawdown of gold followed (it was transferred to foreigners), which pressured for policy orthodoxy. The net financial balance to be closed was just 0.5% of GDP in 1960 – tiny. Today, trade and financial flows are 40% of GDP (nearly 4x the 1960s level). The nominal anchor today is no longer gold, but rather US policy credibility.”

Moving Off the Gold Standard: “Policy makers were aware that the end of the US dollar tether to gold would threaten reserve status. The ‘substitution account’ is something that was considered by the IMF and the NY Fed and would have allowed a controlled reserve diversification into a basket of currencies, thereby preventing USD fire sales. It was not needed for two reasons. First, the US brokered the beginning of petrodollars in 1974. Second, policy moved rapidly to orthodoxy with rapid rate hikes in the early 1980s.”

Orthodoxy and EM: “US policy orthodoxy reinforced the central role of the US dollar through the emerging market debt strains that followed. The Latin American debt crisis in the early 1980s saw an increase in USD debt to $327bln in 1982 from $29bln in 1978. The Asia crisis that began in the Summer of 1997 yielded a similar outcome for different reasons. The successive crises terrified emerging market governments and they responded by accumulating an unprecedented quantity of US dollar reserve assets. It was a golden period for the US and the dollar. Large and growing external imbalances didn’t matter.”

Unprecedented US External Imbalance: “This sets the table for a very different external position today. The US net international liability is 65% of GDP and rising. It was less than 10% of GDP in 2007. It was a surplus in the early 1970s when the world fretted about the US dollar standing as a reserve currency. There are two broad ways to cleanse today’s imbalance – fiscal/monetary orthodoxy with a very deep domestic recession or inflation to revalue assets and devalue liabilities. This is precisely why there is scant domestic focus on today’s imbalances – a weaker dollar is the cure, and scares nobody. It is the foreigners who are growing nervous.”

Blind Spots: “I focus on balance sheet imbalances precisely because the setup we observe today has no good precedent and is therefore absent from the data sets that most investors rely upon when considering the future,” said Marcel, tying it all together. “There are interconnected domestic policy and political choices that will be made as the global system is increasingly drawn toward a rebalance. But it is not just foreign official reserve managers who are nervous players in this game – private foreign portfolio managers have large US equity holdings and have ‘hot money’ characteristics. And this set up produces an inherent non-linear, reflexive dynamic with a range of possible market outcomes that reside well beyond consensus expectations.”