Month: February 2022

By Michael Every of Rabobank

It’s Shoe Time!

It’s “shoe time”! The obvious pun on “show time” stems from the UN Security Council debate on the crisis in Ukraine held yesterday. We did not get to see a Russian leader banging his shoe on the desk, but we did get to see:

• The West accuse Russia of threatening Ukraine.
• Russia declare the US has allowed “pure Nazis” to take over Ukraine. This shows Russian historical fears: yet note President Zelensky is Jewish. On said fears, the ‘problematic’ areas of Ukraine for Russia are partly so because of them having been part of the Polish-Lithuanian Commonwealth until 1793, and the country’s border having been shifted westwards after WW2, along with Poland’s. Europe tries to forget this bloody history: the US doesn’t seem to know it.
• Russia warn “If our western partners push Kyiv to sabotage the Minsk agreements, something that Ukraine is…willingly doing, then that might end in the absolute worst way for Ukraine. And not because somebody has destroyed it, but because it would have destroyed itself and Russia has absolutely nothing to do with this.”; and
• The Russian UN delegate then walk out without even hearing what Ukraine had to say.

Against that backdrop it is perhaps no great loss that British PM BYO was unable to take a scheduled call with Russian President Putin because he was too tied up with the release of the Gray Report on No. 10 parties, which pointed out unacceptable leadership behavior, law-breaking, cover-ups, and excessive alcohol consumption. (Which there is no evidence of at all in the UK government, honest…doesn’t the clip remind you of a certain ‘Fast Show’ family with a drinking problem?). PM BYO is off to Ukraine today instead, where the allegations made in the Gray Report are called a normal working Tuesday. French President Macron did manage to hold another call with Putin yesterday: but he isn’t going to Ukraine, and neither are French weapons.

Clearly, geopolitical tensions, like blood alcohol levels, are rising, and the trees that have been climbed look harder and harder to climb down from: anyone hoping this can be achieved needs to first ask if those involved know how to climb much at all.

To underline this key point, Iran nuclear talks are “in the final stretch,” and “can’t go forever,” according to a senior US official, who adds “We will know sooner rather than later whether we are back in the JCPOA…or whether we’re going to have to face a different reality and reality of mounting tensions and crises.” We have heard that before endlessly as Iran has continued to work towards threshold nuclear status. Guess who the US is leaning on to help get a deal over the line? Russia and China. Against that backdrop, the White House has made another geopolitical decision that underlines the clear links between security and trade deals and the less clear links between the US and those who understand the Middle East, at least in the eyes of critics. Specifically, the US is to designate Qatar as a Major Non-NATO Ally (MNNA).

This previously mooted security move is tied to the sudden US scramble to try to find a massive new source of natural gas to pump to Europe should Russian energy supplies be cut off by either war, Russian action, or Western sanctions. Qatar is already home to the largest US naval base in the region. Moreover, one could see it as a statement of intent towards the US security umbrella in this unstable energy-rich focal point.

Except, as this story reiterates, Qatar is hardly pro-US in the broader sphere. It leans pro-Iranian; it has seen such a deep spat with the Saudis and UAE that they considered digging a moat around it; Qatar funds the anti-Western Muslim Brotherhood; it funds Hamas (and there are darker allegations regarding Syria); and it bailed out Turkey even when Ankara was acting in a manner some in the US regarded as detrimental to the long-run stability of NATO.

Moreover, other Middle East powers could be seen as better non-NATO ally candidates, especially if it is a case of ‘them or us’. Jordan, Kuwait, and Bahrain are already in, but Saudi Arabia isn’t – and it is not just building green white elephants while the US is only jawboning about doing so, but is allowing inbound tourism, and even hosting raves, to try and get the White House to notice there is more to it than just cutting up journalists in embassies. The very-Western UAE, which just hosted the Israeli president (another MNNA), is being hit by missile strikes from the Iran-backed Houthis the US removed from their designated terror list as soon as the Biden administration took office, and which they are now tut-tutting for their behavior.  

What is the US plan, presuming there is one? To not fill the Russian energy gap to the EU itself, but get Qatari LNG northwest by tanker? (Note Germany is now talking about building “one or more” new LNG terminals.) Assuming Qatar can fill that growing gap, as Europe’s own gas fields dwindle or are turned off, that involves the need for a calm Middle East? Ah, so logic therefore says the US needs a deal with Qatar’s close neighbor Iran! Except Middle East critics allege an Iran deal would see it try to expand its influence further (see the Houthis, for example); that Sunni powers might push back; and that Israel has made crystal clear it won’t be bound by it regardless. Plus, Iran is openly pro-Russia and China, not America, so why would they help the US out if it hurts Russia? And meanwhile, country after country along the maritime route from Qatar to Europe are shifting closer to Russia, or China, or Iran, or Turkey, not the US.

See what I mean about not being able to climb, or at least climb down? It’s enough to make you not just want to bang your shoe on the table, but to hurl it at someone in a D.C. think-tank. To put the boot in, you know who else was listed as a MNNA last year? Afghanistan.

I would imagine at this stage readers are either frustrated or exhausted, or both. Welcome to my world! The key implications for markets are this though:

• Geopolitics is getting messier by the day, with far larger volatility implied across markets.
• The US dollar is going to hold up well structurally regardless. Indeed, if you want to read a sensible think-tank report that underlines arguments made here for years, make it “Ukraine and Dollar Weaponization”. In short, even if the US drops a financial nuke on Russia it will push the greenback higher in the near term. Longer term is a different argument – but really means long.

Cyclically, the strong dollar argument is less clear. Indeed, at the sideshow of the Fed, Bostic was forced to walk back his 50bp March hike threat after the market threw shoes at him. As I was saying yesterday, it’s one thing to pretend you have a plan and talk tough. It’s another to actually know what’s going on and to have earned respect.

On which note, today is the RBA meeting, against the backdrop of a 0.8% m/m increase in house prices and a 4.4% jump in home loans vs. -0.4% consensus – although retail sales fell 4.4% as everyone saved for that mortgage. (Yes, the housing ‘wealth effect’ only works if you borrow against it, not if you have to defer all other spending to afford one.) The expectation is the RBA will drop QE –to what kind of chaos this time?– and the market also looking for signals over how long it will be until the inevitable first U-turn rate hike is made.

Another day in the ongoing Russia-Ukraine standoff and another US weapons shipment has arrived in Kiev, despite all sides continuing to push for a diplomatic solution and the avoidance of military conflict.

On Tuesday Ukraine Defense Minister Oleksii Reznikov announced his country has received as new shipment of “500 tons of defense equipment” from the United States. “The day hasn’t passed yet and we’re unloading the 6th bird from our friends from the U.S.! 84 tons of ammunition arrived in Kyiv!” he wrote on Twitter.

We vastly prefer the path of dialogue and diplomacy, but we will continue to provide Ukraine the defensive assistance needed to defend against Russia’s massive military force assembled on its borders. We #StandWithUkraine https://t.co/XRDq2gB7N0

— U.S. Embassy Kyiv (@USEmbassyKyiv) February 1, 2022

The US Embassy in Kyiv in a vaguely threatening carrot and stick style tweet responded with the following aimed at Moscow: “we vastly prefer the path of dialogue and diplomacy, but we will continue to provide Ukraine the defensive assistance needed to defend against Russia’s massive military force assembled on its borders.”

In a later statement, the embassy posted the following: “We know Russian efforts to destabilize Ukraine are part of their playbook. We’ve all seen it before, and we should expect to see more. We applaud the vigilance of Ukraine’s law enforcement and security services at this critical time.”

The accusatory statement linked to a report wherein a Ukrainian government official alleged a Russian plot to foment a riot in the center of Kiev using up to 5,000 agent provocateurs on the ground. Officials suggested the ‘false flag’ scenario would be geared destabilizing the government in favor of installing pro-Kremlin leadership.

Also on Tuesday US Secretary of State Antony Blinken is holding a key phone call with his Russian counterpart Foreign Minister Sergey Lavrov Tuesday. “We expect the Secretary will have an opportunity to speak by phone with Foreign Minister Lavrov tomorrow morning,” the State Department had said Monday.

So far it appears Russia has yet to respond to last week’s hand delivered official Washington response to Moscow’s security demands of NATO. According to Russian media, “Claims from US officials that Moscow has responded to America’s proposals on de-escalation in Ukraine are inaccurate, the Russian Ministry of Foreign Affairs has announced. It confirmed that the two sides are in talks about security in Europe but denied that a formal answer had been given.”

“The Americans are using Ukraine against Russia so openly and cynically that the Kiev regime itself is now scared.” pic.twitter.com/mBYj5eMvPU

— Clint Ehrlich (@ClintEhrlich) January 31, 2022

Meanwhile, the White House says it’s put together a “specific sanctions packages” that would target Putin’s inner circle as well as key oligarchs in the event Russia invaded Ukraine.

“The individuals we’ve identified are near the inner circle of the Kremlin and play a role in government decision-making or, at a minimum, are complicit in the Kremlin’s destabilizing behavior,” White House press secretary Psaki said Monday, noting that “many of these invidious are particularly vulnerable targets because of their deep and financial ties with the West.”

Authored by Jack Phillips via The Epoch Times,

House Republicans are challenging the Centers for Disease Control and Prevention (CDC)’s COVID-19 guidelines for children, including mask requirements in school.

Led by House Minority Whip Steve Scalise (R-La.), the lawmakers penned a letter to CDC Director Rochelle Walensky calling on her to roll back recommendations that children wear masks, citing the harms to mental health.

Their letter asks Walensky to hold a briefing with Republicans on the House Oversight Committee by Feb. 7 to explain why the CDC continues to recommend mask-wearing in schools.

“There is no question, as we enter the third year of this pandemic, CDC’s guidelines and policies have failed to factor in—let alone prioritize—children’s social, emotional, and educational development,” the GOP lawmakers wrote in their letter. “In fact, CDC is undermining its own credibility as it continues to jeopardize an entire generation’s development.”

They further noted that teenagers and younger children “are experiencing a mental health crisis of historic proportions” amid pandemic restrictions, citing a recent U.S. Surgeon General warning that “suicide attempts have risen sharply for adolescents.”

The GOP House members also targeted mask guidelines for children aged 2 and older by saying they are hindering childhood development and don’t align with mask requirements elsewhere.

The letter further noted that the European Centre for Disease Prevention and Control recommends against primary school children wearing masks in class, and they added that the World Health Organization (WHO) says that children under 6 shouldn’t be required to wear them, either.

“Many of America’s peer nations around the world—including the U.K., Ireland, all of Scandinavia, France, the Netherlands, Switzerland, and Italy—have exempted children, with varying age cutoffs, from wearing masks in classrooms with no evidence of an uptick in school outbreaks in those countries relative to schools in the U.S.,” they further argued.

Throughout the pandemic, a number of studies have shown that children have an exceptionally low risk of dying or developing severe disease from COVID-19, the disease caused by the CCP (Chinese Communist Party) virus, as compared with other age groups. Data suggest that individuals who are elderly and have preexisting conditions are most at risk from the virus.

Currently, California, Delaware, Hawaii, Illinois, Nevada, New Mexico, New York, Oregon, and Washington require most individuals to wear masks in indoor public places with some caveats. However, many states last year eased or eliminated mask orders, while 11 states have not imposed mandates at any point during the COVID-19 pandemic.

The Epoch Times has contacted the CDC for comment.

In a time when tech stocks are crashing, the FAAMG “generals” are in danger of keeling over, and most stocks are on the cusp of or deep inside a bear market, one sector has been a shining light (of green) in an otherwise dismal (and red) landscape: energy.

… and no major company has benefited more from the energy renaissance than Exxon, which earlier today reported blockbuster earnings, solid guidance and threw in a $10 billion buyback to boot.

Unlike its comp Chevron which whiffed last week, Exxon released knockout Q4 earning, when it reported a fourth-quarter profit of $8.87 billion, the largest since 2014, while aggressive spending cuts helped the oil giant fully capitalize on surging energy demand and prices which allowed the top U.S. oil producer to swim in cash thanks to Biden’s “green” agenda which has been a disaster for the US consumer but a gift for US energy producers. As a result, the company generated the highest cash from operations since 2012 and distributed a whopping $15 billion to shareholders in 2021. The company slashed spending after demand cratered two years ago with earnings in recent quarters jumping above prior levels. The results come a day after Exxon disclosed yet another belt-tightening move, this time involving shuttering its corporate headquarters in suburban Dallas and consolidating those offices near Houston.

To be sure, and as the company’s earnings and soaring stock price confirm, whatever Exxon is doing is working:

• Earnings have soared to $23 billion, thanks to bottom-line savings of $2 billion.
• CapEx was contained to just $17 billion, far below historical levels.
• The company’s oil breakeven price is down to just $41, meaning with oil well over $80/bbl, Exxon is swimming in profits
• The company’s cash from operations soared to $48 billion, the highest in almost a decade
• Debt was reduced by a record $20 billion
• And while the dividend rose again in 2021, the big highlight from today’s report was the announcement of a new $10 billion buyback program.

Taking a closer look at the company’s Q4 earnings, Exxon reported Q4 revenue of $84.97 billion, beating expectations of $76.67BN by more than $10 billion! It reported adjusted EPS of $2.05, above analysts forecast of $1.93 as operating profit in oil and gas production soared. In the same quarter a year ago, Exxon posted an adjusted profit of just three cents a share. Some more details from the quarter:

• Chemical prime product sales 6,701 kt, +0.9% y/y, estimate 6,692
• Downstream petroleum product sales 5,391 kbd, +12% y/y, estimate 5,291
• Production 3,816 KOEBD, estimate 3,740
• Crude oil, NGL, bitumen and synthetic oil production 2,385 KBD, estimate 2,362
• Natural gas production 8,584 MCFD, estimate 8,486
• Refinery throughput 4,118 KBD, estimate 4,046
• Total revenues & other income $84.97 billion, +83% y/y, estimate $74.67 billion

Natural gas sales provided the primary boost to fourth-quarter results as Exxon and other suppliers reaped hefty returns amid fuel shortages across Europe and parts of Asia. Escalating oil prices also proved a boon to the Western world’s largest crude explorer.

Remarkably, the company’s earnings were negative a year ago, and have soared to $23 billion in 2021, with the surge in oil prices contributing to $15.9 billion of this increase.

Even more stunning was the company’s cash flow:, which exploded by $48.1 billion in 2021 – the highest since 2012 – courtesy of surging oil prices. The company used this to pay down $20 billion in debt, reducing the debt-to-capital ratio to just 21%, and spend $15 billion on shareholder distributions.

Last but not least, is Exxon’s remarkable reduction in oil breakeven prices which is now just $41, and for budgeting purposes (needed to cover capital program and dividends, it drops as low as $35).

And having survived the period of turmoil since covid, the company is now looking to capture market share, announcing that it will boost spending on new oil wells and other projects by as much as 45%, projecting capex between $21-24 billion, narrowing the range from the previous guideline of spending between $20-25 billion.

CEO Darren Woods’ decision to reverse course on a pre-pandemic growth plan and hold capital spending at historically low levels means high commodity prices are translating directly into massive cash flow.

Hilariously, Exxon’s remarkable recovery would not have been possible without the sheer idiocy that is Biden’s “green” agenda and the ESG hypocrisy. So thank you “greens” for making Exxon one of the best creators of wealth in the past two years.

While some observers have raised concerns about Exxon’s long-term commitment to fossil fuels, in the near term the company is profitably harvesting older reserves and replacing them with high-margin barrels from new discoveries in places such as Guyana.

Exxon stock jumped premarket on the blowout earnings, rising as high as $77.50, the highest level since mid-2019. XOM shares have risen more than 20% this year, capping an almost 50% advance in 2021 for the best annual performance in at least four decades. We expect the stock to be trading in the triple digits in a quarter or two.

Authored by Steve Watson via Summit News,

CBS News addressed the ongoing targeting of Joe Rogan for censorship, suggesting that the podcast host is killing people by spreading COVID misinformation.

While claiming that they are in favour of free speech, the talking heads on CBS Mornings declared Rogan’s show to be “dangerous.”

“You have a First Amendment right to say what you want. You don’t have a First Amendment right to appear on a platform as large as Spotify, that’s the issue,” said one of the script readers.

After flashing up a graph showing rates of unvaccinated hospitalisations (figures grossly distorted by the lack of distinction between people admitted WITH and DUE to COVID) the gaggle agreed that the virus is a “life and death issue,” urging that Rogan should be silenced.

One of the bunch argued that you can’t just ‘turn off’ Rogan’s show because too many people won’t do that, they will continue to listen, suggesting that the only course of action is to completely silence Rogan.

Watch:

Watch as ‘CBS Mornings’ suggest Joe Rogan is killing people via his podcast when talking about Covid, implying he’s responsible for their deaths.

They add they SUPPORT free speech & the First Amendment — just not for Rogan to have *A* platform, calling his show “dangerous.” pic.twitter.com/dzONwcPhVh

— Curtis Houck (@CurtisHouck) January 31, 2022

CBS and the rest of the media (sponsored by Pfizer in many instances) are pumping out the exact same narrative regarding Rogan, while declaring that their own few thousand viewers are “more enlightened” than the millions that Rogan regularly pulls in, trouncing the ratings of even the most popular TV news outputs.

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On Monday, high-tech greenhouse startup AppHarvest plunged as much as 23% to $2.66, a 52-week low after reporting worsening preliminary 2021 financial results and farm delays. 

The company expects a full-year net loss between $170-$172.5M, including fourth-quarter non-cash goodwill and an intangible impairment charge of around $60M. FY21 revenues are estimated at $8.9-$9.1M, higher than the company’s guidance of $7-$9M. Adjusted EBITDA loss is forecasted to be between $69.3-$72.5M, compared with $70-$75M.

One of the main drivers for share decline today was delays at two indoor verticle farms. The first was at an indoor facility that grows salad greens and another for tomatoes, and both won’t be fully operational until the end of the year. The company said last August that both facilities would be operational by the midpoint of the year. 

The Kentucky-based vertical farm company grows vegetables in futuristic greenhouses that yield up to 30x more crops per acre than traditional outdoor farming. Operational delays and money-losing operations have resulted in the share price cratering at least 88% from the IPO price. 

Short sellers have piled into the stock on deteriorating fundamentals, with 15.3 million shares short over the last year. The short-interest ratio is about 11.532. 

AppHarvest has routinely boasted about food entrepreneur and icon Martha Stewart and Impossible Foods Chief Financial Officer David Lee joining the company’s board. However, touting celebrities has yet to boost the share price.