Month: January 2023

The $68 billion Blackstone Real Estate Income Trust (BREIT) has failed to stem soaring redemption requests from high-net-worth investors, Blackstone President Jonathan Gray told Financial Times in an interview.

Gray said it was “a little early” to say redemption requests of the nontraded real-estate investment trust were slowing. 

“We have a backlog from November and December,” he said, adding, “I will say the tone of the conversations with our advisers is much improved.”

Perhaps the conversations with advisers improved after Blackstone sent an email to them with talking points to calm their anxious investors. One money we spoke with said the move by Blackstone to send a Q&A sheet to calm clients was ‘unprecedented.’ 

Or maybe the ‘buffet style’ bailout of the nontraded real-estate investment trust by the University of California’s endowment has calmed some investors, but redemption requests have yet to subside. 

Another money manager with clients in BREIT told us after the UC Investments’ move to purchase $4 billion of the real-estate investment trust that “there is no doubt Blackstone needed a ‘name brand’ to placate nervous investors.” 

Since early December, we’ve closely followed the BREIT story and other turmoil to hit the New York investment firm. Recall:

• Blackstone Urges Investment Advisors To ‘Keep Clients Calm’ As It Limits Redemptions Of Commercial REIT
• Another Blackstone Fund Just Hit Redemption Limits
• Blackstone Might Delay New Private Equity Fund After Redemption Panic
• Blackstone’s BREIT Gets $4 Billion ‘Buffett-Style’ Bailout From University Of California

BREIT gives wealthy clients exposure to a portfolio of commercial real estate properties such as apartment buildings, office towers, and warehouses, but how the investment firm structures product on nontradeable markets opens up liquidity risks in periods of economic turmoil. 

The ultimate fear is that money managers with clients in BREIT all ask for their cash back at once. Though that hasn’t happened, Blackstone has had enough redemption requests to implement a redemption cap to prevent a further run. This creates a vicious feedback doom loop of anxiety for investors. 

Authored by Haley Zaremba via OilPrice.com,

• Pakistan faced an almost nationwide power outage on Monday.

• A significant energy shortage is one of the main drivers of the nation’s current economic crisis.

• The energy crisis in Europe has made Pakistan vulnerable to high fuel prices.

The long-awaited winter energy crisis has finally hit…but it wasn’t in Europe after all. On Monday, almost the entirety of Pakistan was left without power when a misguided energy saving strategy by the government backfired. Runaway inflation, a severely weakened currency, and rapidly emptying foreign exchange reserves have left Pakistan on the brink of economic collapse. The country of 230 million people is plagued by overdue energy payments, and was seeking to cut costs by lowering energy use when the plan went off the rails, leaving people across the country without power or water for more than 12 hours.

Pakistani officials had planned to save on energy costs by turning off electricity across the country overnight. Nighttime has the lowest usage hours for energy in Pakistan, where winters are relatively mild. The problem came when technicians tried to reboot the electric system in the morning, and found out that the infrastructure wasn’t capable of booting up the entire nation’s energy grid all at once. Major cities, including the capital city of Islamabad, as well as smaller cities and towns across the country were left in the dark for 15 hours on Monday, lasting into the night. 

“As an economic measure, we temporarily shut down our power generation systems” Sunday night, Energy Minister Khurram Dastgir told local media.

He went on to explain that when engineers tried to turn the systems back on, a “fluctuation in voltage” occurred, which “forced engineers to shut down the power grid” stations altogether.

Millions of people were left without drinking water as electric-powered pumps failed. While some schools and hospitals were able to turn to backup generators, many were left without power entirely throughout the day. Pakistani authorities went as far as deploying additional police at markets around the country as the sun went down, for extra security in the darkness. 

This isn’t the first time that Pakistan has suffered from widespread blackouts. Reporting from the Associated Press noted that Monday’s outage was “ reminiscent of a massive blackout that occurred almost exactly two years ago, in January 2021, attributed at the time to a technical fault in Pakistan’s power generation and distribution system.” This week’s blackout has catalyzed pre-existing nationwide distrust of the government’s tactics and capacities, and stoked fears and outrage about the government’s handling of the nation’s economic crisis. 

A significant energy shortage is one of the main drivers of the nation’s current economic crisis. Pakistan’s high level of dependence on imports of foreign fossil fuels to keep the lights on has left the country “acutely vulnerable to to hikes in global oil and gas prices.” This has led to devastating consequences for the cash-strapped country as the energy war between Europe and Russia has caused widespread market volatility and driven energy costs up to painful levels. 

According to the Asian Development Bank, Pakistan imports “nearly a third of its energy resources in the form of oil, coal, and liquefied natural gas (LNG).” Pakistan’s own Dawn Newspaper slammed the government this week for its ‘self-inflicted’ economic crisis based on “unsustainable energy policies — price and availability — coupled with constant currency volatility,” which it says “have kept the country’s export potential capped.” 

Indeed, experts say that the nation has barely enough left in its coffers for one more month of crucial energy and fuel imports. The International Monetary Fund (IMF) is currently discussing how to mitigate the crisis unfolding in Pakistan, starting with softening some conditions for a proposed $6 billion bailout, which the government fears will only fuel inflation. It would come on the heels of another $1.1 billion in IMF aid given to Islamabad in August. “Since then,” Associated Press reports, “discussions between the two parties have oscillated due to Pakistan’s reluctance to impose new tax measures.”

While there has been no shortage of mismanagement on the part of the Pakistani government, this problem is not just a Pakistani problem. Far from it. Economists and development experts have been warning for months that Europe would not be the real victim of the European energy crisis. Rather, it is the import-dependent and cash-poor countries in the developing world that will suffer the most. The International Energy Agency cautioned that as Europe has managed to stay afloat through a mild winter, for the rest of the world, the crisis is just beginning. Following in Pakistan’s footsteps, oil-importing nations in Africa, Asia and Latin America will be extremely hard-hit, as fuel prices continue to batter their relatively weak currencies.

Views around medicine differ greatly around the world.

As Statista’s Anna Fleck shows, using data from Statista’s Consumer Insights, a greater share of urban respondents in Vietnam (25 percent), Turkey (23 percent) and China (22 percent) would opt for alternative healing methods over conventional medicine than in other countries.

You will find more infographics at Statista

In Finland, for example, alternative forms of medicine are far less popular, with only 8 percent of Finns saying they would pick them if they had the choice.

Of the selected countries, Brits were some of the least open to alternative medicine forms, with only one in ten saying they would choose it.

The United States is a different story, however, with nearly double the share of people picking it.

Alternative medicines include, but are not limited to, practices such as massages, acupuncture, tai chi, herbal medicines and yoga.

By Greg Miller of FreightWaves

The decision by MSC and Maersk — the world’s two largest container lines — to terminate the 2M vessel-sharing alliance was predictable. The bigger surprise will be what happens next.

Will both MSC and Maersk go it alone after 2M ends in January 2025? Will Maersk join another alliance or create a new one? How will this affect the remaining two global alliances: Ocean Alliance and THE Alliance? And how will it affect cargo shipper pricing?

According to Alphaliner, MSC has acquired 271 secondhand ships since August 2020, with capacity of just over 1 million twenty-foot equivalent units. MSC’s recent secondhand acquisitions exceed the entire capacity of HMM, the world’s eighth-largest carrier.

MSC has over 1.8 million TEUs of newbuild capacity on order, more than double the orderbook of any other carrier. Its orderbook capacity is higher than the existing tonnage of Hapag-Lloyd, the world’s fourth-largest shipping line.

“To me, it is obvious that MSC will go on its own,” Alphaliner shipping analyst and Europe editor Stefan Verberckmoes told American Shipper. “It will have enough resources to offer a worldwide network without any partners, which is what it was used to doing before it joined 2M in 2015.

“It is indeed no surprise [that 2M will end],” said Verberckmoes. “That was really a forced marriage, because at that time, economies of scale were very important, everybody wanted to have large vessels, and the only way to fill them was to cooperate. Now times are completely different. MSC is now able to fly on its own wings.”

Sea-Intelligence CEO Alan Murphy said in an interview with American Shipper: “If MSC was going to invest itself out of the alliance, it has done all the right things, through its secondhand purchases and newbuilding expansion.”

Questions on Maersk

In sharp contrast to MSC, Maersk has kept its fleet capacity flat over the past three years. It focused instead on being an end-to-end logistics integrator, seeking to earn more from long-term customers’ logistics spend.

“For Maersk, the question is completely different,” said Verberckmoes. “They have chosen another strategy and not focused on fleet expansion, so if they want to keep the same network they have now, they need to find a replacement. They will have to review their options.”

American Shipper asked Maersk whether it could provide the same level of service coverage and quality to its customers post-2M without a new alliance partner, and whether it was committed to finding an alliance replacement.

The company responded: “Maersk will continue to be active in vessel sharing agreements [VSAs]. We are already active in over 40 VSAs in other geographies and we remain open to more targeted VSAs than the broad scope of 2M after the agreement ends in 2025.”

For several reasons, Murphy believes it is unlikely that Maersk will replace MSC with a major carrier in a new alliance, or join an existing alliance. 

“What I think is more likely is that Maersk will do VSAs. You see how they’ve managed to integrate with Zim [NYSE: ZIM], which is not a 2M member, on the Asia-East Coast trade. They can also do slot charters with THE Alliance on some trades and slot charters with Ocean Alliance on others.

“Rather than formally being in an alliance, I think it’s more likely they will focus on the key markets where they can provide end-to-end services and then find [VSA and slot-charter] partners in the other markets.”

Strategies ‘completely at odds’

One difficulty Maersk faces in replacing MSC relates to a core problem with 2M itself. “The strategic focuses of the two shipping lines have been completely at odds with each other,” explained Murphy.

“Maersk has staked everything on being an end-to-end logistics integrator. If you’re focused on the customer experience and end-to-end logistics, ocean transport becomes just a cog in a big machine. That cog just needs to work. You don’t need to necessarily make money on it because you’re making money on end-to-end logistics.

“But MSC’s focus has seemingly been: We need to make money as a vessel operator. That might very well mean blanking [canceling] sailings at a much higher rate and not wasting money on schedule recovery. In some trades where MSC operates independently, it looks more like tramp [unscheduled] than liner service.

“These two strategies have led to friction within the alliance. I wouldn’t say anybody is wrong here. It’s just that they don’t seem to be a good match.”

Maersk is much more focused on the end-to-end integrator model than any other carrier. So, replacing MSC would present Maersk with the same friction yet again.

“Joining another alliance is very unlikely although not impossible,” said Murphy. “But it would just open Maersk up to all of the challenges it already had with MSC.”

Other hurdles to replacing MSC

Several analysts believe that the 2M divorce will ultimately lead to a broader reshuffling of alliances.

Vespucci Maritime’s Lars Jensen — who has been predicting the demise of 2M for months —  said in an online post, “My view is that this is only the beginning of a reshaping of the alliance/VSA constellations, especially on the major east-west trades. In essence, this should be seen as the first domino of many to fall over the next one to two years.”

According to Verberckmoes, “In every alliance breakup, there is always an opening for new perspectives. We have seen in the past that every change in big alliance structures might trigger other changes.”

But Murphy pointed to multiple hurdles, beyond the issue of Maersk’s integrator strategy. 

In the case of 2M, Maersk and MSC were roughly equal-sized partners. Maersk would be the dominant partner of any alliance it joined. “You can bring in a Hyundai [HMM], because they’re tagging along, but to bring in an alliance partner that will now dominate the alliance would be very difficult,” he said.

There’s also the regulatory challenge. Chinese regulators barred the proposed P3 alliance among MSC, Maersk and CMA CGM, prior to the formation of 2M. “Can you disallow P3 but allow the Ocean Alliance plus Maersk? I can’t see that,” said Murphy.

Consultancy Drewry said in a research note on Wednesday, “Competition authorities will probably block any move [by Maersk] to join one of the other two alliances, which are contractually committed beyond the termination of 2M. Ocean Alliance runs to 2027 and THE Alliance to 2030.”

Another possibility is that Maersk could woo away a carrier in one of the two remaining alliances, such as France’s CMA CGM, and create a new alliance. “That’s not impossible, because CMA CGM and Maersk cooperated in the past, prior to P3. But there are a lot of challenges with siphoning off someone like CMA CGM,” said Murphy.

Cycle timing

Yet another complication is cycle timing. “You have to remember that alliances were the consequence of massive oversupply,” said Murphy. Carriers overordered large-size vessels and needed alliances to fill them effectively.

“Alliances come under pressure when things are going really well,” he continued. “There’s probably many a carrier that felt hemmed in and restricted by alliance obligations during the pandemic, because they couldn’t make tactical decisions on their own.

“Are things going to go well for shipping lines over the next two years? Probably not. In my opinion, we’re heading into a repeat of 2015-16, with massive oversupply and freight rates at or below cost. It’s going to be a bad two or three years.

“So, it makes no sense to leave an alliance now. But they’re not leaving an alliance now. They’re leaving in two years. It might make sense then. There is an expectation that at some point, [the market] will turn again. I assume that both shipping lines believe that when it does, they will be better positioned outside of an alliance.”

As for Maersk finding a new alliance home, the market outlook is highly uncertain, raising questions about whether other carriers would be willing to play the game of alliance “musical chairs” in the midst of a container shipping recession.

“I think the other alliance [partners] will be cautious about making any major changes now, heading into what is clearly a bear market,” said Murphy.

Bearish or bullish for rates?

Drewry outlined two scenarios in which the end of 2M could lead to lower shipping costs.

In one, an independent MSC faced with rapid fleet growth could “return to its old market-share/low-cost model, which could destabilize the market.”

In another, Drewry speculated that “a radical shake-up of the alliances” while “a remote possibility,” could “lead to carnage in the freight-rate market as new members court shippers over to their new teams.”

But Verberckmoes and Murphy do not see the alliance situation lowering shipping costs.

“I don’t think that alliances have had an impact on price,” said Verberckmoes. “If prices are declining, that means one or two carriers are going for market share, and I don’t think alliance changes have any effect on that. When it comes to rates, it is always the market that decides.”

According to Murphy, “A lot of customers hate alliances and believe them to be the source of all evil in the world. I think a lot of shippers will look at this [the 2M breakup] and think this is good for them.

“That depends on what they mean by ‘good.’ If they mean ‘cheap,’ probably not. In every simulation we’ve done where we look at how you could operate services more independently, with fewer VSAs and fewer alliances, the price goes up.”

He argued that alliances have led to reduced freight costs, in part because members of alliances must compete with each other on price while providing the same ocean service. “In an alliance, you lose all product differentiation on your liner product,” said Murphy. “You’re offering the exact same product — which was a massive driver of very low freight rates pre-pandemic.”

Looked at globally, smoking cigarettes is gradually becoming a thing of the past, but as survey data from Statista Consumer Insights shows, the habit is dying hard in some countries.

As Statista’s Martin Armstrong reports, although aggressive pushes by the tobacco industry in some regions has led to recent rises in use among the population there, ‘last bastions’ of cigarette smoking are still holding on in already established markets.

You will find more infographics at Statista

Russia is one such place, where 46 percent admitted to smoking cigarettes at least occasionally.

In Western Europe, Spanish respondents displayed similarly high levels of use (42 percent), while Germany was also close behind with 40 percent.

Kicking the habit as a nation to a greater degree were Canada and the United Kingdom, where a smaller share said they smoke – yet the proportions here were still at 30 percent.

Authored by Dave DeCamp via AntiWar.com,

Lockheed Martin has said that it’s ready to meet demands for F-16 fighter jets if the US and its allies choose to ship them to Ukraine.

So far, the US and its allies have been hesitant to send fighter jets to Ukraine due to concerns that they could be used to target Russian territory. But the Western powers seem less and less concerned about escalation as the US and Germany have now pledged to send their main battle tanks.

Frank St. John, chief operating officer of Lockheed, told Financial Times that there has been a “lot of conversation about third-party transfer of F-16s,” which would involve European nations armed with the F-16 shipping them to Ukraine.

St. John said Lockheed wasn’t involved in the conversations but was preparing for the eventuality. He said the arms maker was “going to be ramping production on F-16s in Greenville [South Carolina] to get to the place where we will be able to backfill pretty capably any countries that choose to do third-party transfers to help with the current conflict.”

The Netherlands expressed openness to sending its F-16s to Ukraine last week, with the Dutch foreign minister saying it would look at any requests for the aircraft with an “open mind.” Another option could be for former Warsaw pact countries that are now NATO members to send their older Soviet-made MiG fighter jets to Ukraine and replace them with F-16s or other modern Western-made aircraft.

A Ukrainian Air Force spokesman claimed on Tuesday that the US and Ukraine have already determined an aircraft that Washington will provide for Kyiv. The spokesman didn’t specify which one, and there’s been no sign from the American side has agreed to send planes.

Throughout the war, Ukraine has been lobbying for the US to provide F-15 and F-16 fighter jets, which would involve months of training for Ukrainian forces. The US has already pledged weapons systems that require extensive training, including the Patriot missile defense systems and M1 Abrams tanks.

During his visit to Lockheed Martin’s Troy, Alabama plant, Joe Biden pushed for approval of his proposed $33 billion military aid package to Ukraine by claiming Ukrainians were naming their children “Javelin” and “Javelina” after the anti-tank missile the plant manufactured. pic.twitter.com/zNPiKRjSrw

— Max Blumenthal (@MaxBlumenthal) May 4, 2022

Lockheed Martin has benefited greatly from the war in Ukraine as many of its weapons systems are now in high demand, including the HIMARS rocket systems and Javelin anti-tank missiles. President Biden showed his appreciation for the arms maker last May when he visited a Lockheed Martin plant producing Javelins and said, “thank you, thank you, thank you.”

Authored by Alex Kimani via OilPrice.com,

• The energy crisis in Europe has changed the public opinion in Germany on nuclear power.

• The German Green Party and Social Democrats have long supported a move away from nuclear energy.

• Nuclear energy is seen as a preferable energy source to a fall back to burning coal.

For decades, Germany has maintained a love-hate relationship with nuclear power. Currently, Germany has three existing nuclear reactors that produce ~6% of the country’s power supply, a far cry from the 1990s when 19 nuclear power plants produced about a third of the country’s electricity supply. 

The genesis of the current state of affairs can be traced back to 1998 when a new center-left government consisting of the Greens party and Social Democrats started demanding that the country moves away from nuclear power, a long-held objective of the Greens. The Greens became prominent in the 1980s after they started rallying against the dangers of nuclear energy and nuclear weapons against the backdrop of the Cold War. Indeed, the last new nuclear plants to be built in Germany date back to 2002 after which plans were put in place to phase out all existing plants over the next few decades.

However, the tide turned again in 2010 after a coalition of the liberal Free Democratic Party and the conservative Christian Democrats rose to power and extended the use of nuclear energy in Germany by up to 14 years. But alas, the newfound love for nuclear power was not to last: a year later, explosions and meltdowns at the Fukushima nuclear power plant in Japan soured the public’s mood on nuclear power and forced Germany to do another about-face on this policy. Berlin then returned to the original plan for a nuclear phaseout by the end of 2022.

But Russia’s war in Ukraine is forcing a rethink of energy security not only in Germany but also by the entire continent. Up until last year, Germany and Russia were major energy partners, with the latter providing the country with the majority of its oil and natural gas. But Russia’s war has led to Europe and Germany scrambling for alternative supplies as winter  looms. Germany is now rethinking its nuclear phaseout strategy, and the public is falling in line.

“We will need more electric power in the future. That’s a fact. And 6% can be a lot to miss when there is nothing new [to replace it]. We’d be losing 6% when we really will need more,” German Chancellor Olaf Scholz has told Deutsche Welle. Previously, the majority of the public was in favor of the nuclear phaseout in the aftermath of the Fukushima disaster; now over 80% are in favor of extending the lifespan of Germany’s existing nuclear reactors.

Nuclear energy is seen as a preferable energy source to a fall back to burning coal.  According to Dutch-based anti-nuclear group WISE, nuclear plants produce 117 grams of CO2 emissions per kilowatt-hour, much lower compared to burning lignite which emits over 1,000 grams of CO2 per kilowatt-hour.

Back To Coal

But limiting greenhouse gas emissions is hardly  a top priority for energy-starved Europe. According to a report by the Observer Research Foundation, energy supply disruptions triggered by Russia’s war on Ukraine took LNG prices even higher leaving coal as the only option for dispatchable and affordable power in much of Europe, including the tough markets of Western Europe and North America that have explicit policies to phase out coal.

According to the Washington Post, coal mines and power plants that closed 10 years ago have begun to be repaired in Germany. In what industry observers have dubbed a “spring” for Germany’s coal-fired power plants, the country is expected to burn at least 100,000 tons of coal per month by winter. That’s a big U-turn considering that Germany’s goal had been to phase out all coal-generated electricity by 2038.

Other European countries such as Austria, Poland, the Netherlands and Greece have also started restarting coal plants.

Meanwhile, China’s coal imports have been surging as power generators increased purchases to provide for peak summer electricity demand. China has the largest number of operational coal power plants with 3,037 while Germany, the largest economy in the EU has 63.

The situation has led to soaring global coal consumption that could reach levels we haven’t seen in a decade, though there will be a limit to growth considering that investment in any new coal-powered plants has stalled. But that only makes the coal market tighter, pushing the energy source into an outperforming category. 

Thermal coal, which is the variety used to generate power, has seen a 170% rise in price since the end of 2021–most of those gains made following Russia’s invasion of Ukraine.