Image: Garry Knight (Flickr)

America’s Cost of ‘Defending Freedom’ in Ukraine: Higher Food and Gas Prices and Increased Risk of Recession

 

This article was republished with permission from   The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  William Hauk, Associate Professor of Economics, University of South Carolina.

 

Americans may be tempted to view the war in Ukraine as an unfortunate, but far away, crisis. As an economist, I know the world is too connected for the U.S. to go unaffected.

On Feb. 22, 2022, President Joe Biden warned Americans that a Russian invasion of Ukraine – and U.S. efforts to thwart or punish it – would come with a price tag.

“Defending freedom will have costs, for us as well and here at home,” Biden said. “We need to be honest about that.” His statement came one day before Russian President Vladimir Putin ordered an attack on targets throughout Ukraine, including western parts of the country.

Now that war has broken out, the biggest costs for the U.S. will likely be in higher prices – on top of what is already the fastest pace of inflation in 40 years.

How much worse inflation could get will depend on how far Putin goes, the severity of the sanctions placed on Russia and how long the crisis lasts. Will Putin cut off oil or gas to Europe? Will the invasion thoroughly disrupt Ukraine’s ability to export food and other products to the rest of the world?

We do know that Russia is one of the world’s biggest energy exporters and Ukraine’s nickname is the “breadbasket of Europe.” And beyond that, the crisis has been rattling markets for months, sending the price of oil and other commodities soaring.

These higher prices will ripple through Europe, of course, but many other countries as well, including the U.S. – which will make the Federal Reserve’s job of fighting inflation a lot harder and pose a bigger threat to the economy.

 

Pain at the Pump

The most obvious costs to Americans will be at the gas pump.

Russia produces approximately 12% of the world’s oil and 17% of its natural gas. That makes it the world’s third-biggest producer of oil and second-largest for gas. It’s also the biggest supplier of natural gas to Europe, which gets nearly half of its supply from Russia.

The risk is that Russia might cut off gas or oil supplies to Europe or other countries that issue sanctions or otherwise condemn its actions in Ukraine.

Europe may face the most immediate effects if some of Russia’s energy supplies are removed from the world market – which is why the U.S. has been trying to assure its allies it can supply them with liquid natural gas to make up for any shortfall. But world petroleum markets tend to be highly integrated, so the U.S. won’t be immune.

The crisis has already driven up the price of oil to the highest level since 2014, when Russia annexed Crimea from Ukraine, pushing up average gasoline prices in the U.S. to over US$3.50 a gallon.

The most serious sanction implemented against Russia so far is Germany’s freeze on the Nord Stream 2 pipeline, which would have carried liquid natural gas from Russia to Western Europe while by-passing Ukraine.

A disruption in one regional market will eventually affect the world market. Since the invasion, crude prices have spiked above $100 and are likely to go even higher.

Higher Prices at the Supermarket

While Russia is a major producer of fuels, Ukraine is a big exporter of food.

Ukraine produces 16% of the world’s corn and 12% of its wheat, as well as being a significant exporter of barley and rye.

While many of Ukraine’s exports go to countries in Europe and Asia, agricultural products, much like oil, tend to trade on increasingly integrated global markets. Again, the implication for U.S. consumers is that while Europe might be affected more immediately in terms of shortages, prices will likely rise everywhere.

U.S. grocery prices were up 7.4% in January from a year earlier. Because demand for food is typically not very sensitive to changes in price – people need to eat no matter the expense – an increase in the cost of food production typically gets passed along to consumers.

 

The Bigger Risk to the U.S. Economy

That brings us to the Federal Reserve.

The U.S. central bank is very worried about the pace of inflation in the U.S. and plans to raise interest rates to fight it. What’s happening in Ukraine could complicate its plans. If the crisis in Ukraine adds to the upward pressure on prices, that can feed inflation and it could force the Fed to take more drastic measures.

Some economists believe the U.S. could soon see 10% inflation – up from 7.5% now – in the case of a full-scale invasion, as we’re witnessing now. The U.S. hasn’t seen inflation that high since October 1981.

If the Fed decides it has to act more forcefully to tame inflation, that would not only raise borrowing costs for companies and consumers – affecting everything from business loans to mortgages and student debt – but could put the economy at risk of a recession.

At the same time, the crisis could have a moderating effect on interest rates. During times of crisis and uncertainty, investors often move their money into the safest assets they can find – in a so-called flight to quality. U.S. government bonds and other dollar-denominated assets are often considered the safest around, and increased demand for these assets could result in lower interest rates.

Ukrainians themselves will of course pay the steepest costs of the Russian invasion, in terms of loss of life, economic costs and potentially the loss of their government. But the conflict, though it may seem far away, will have an impact on people everywhere. And the hit to Americans’ pocketbooks may be nearer than you think.

 

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Biden’s First State of the Union and Possible Impact on Markets

 

President Joe Biden has never given a State of the Union address. He’s heard countless SOTUs, and on Wednesday, April 28, 2021, the eve of his 100th day in office, he did speak before a joint session of Congress. But, this is the first official SOTU and accounting of the country’s state of affairs since February 4, 2020.

A lot has changed, including the President that is giving the address. Some of the market and sector-moving expectations from his Build Back Better initiatives seem to be facing a great deal of pushback recently, many seem to have taken a backseat to other events at home and abroad. Will tonight’s speech revive the focus and elevate the industries most likely to benefit?

Big Changes

Since the last State of the Union, the fear of deflation has reversed, the current state is the U.S. is experiencing its worst inflation in 40 years, with the risk of prolonged price increases now the focus of economists and market participants. 

Inflation isn’t the only thing that has changed. On February 4, 2020, when the last SOTU was given, the novel coronavirus was so “novel” that it was not yet named. It was later in February The World Health Organization (WHO), named the disease Covid19. A few weeks earlier, the U.S. had seen its first case, but it was not yet impacting life in the States.

Energy

There have been trillions approved to be spent on revamping how the U.S. is fueled. These energy initiatives include increased and eventual total reliance on non-fossil fuel forms of energy. Since early 2021, systems have been organized to help develop what is to be the Build Back Better energy initiatives. These plans contrast sharply with two years ago and are now more in-line with initiatives of other developed nations. Now in the early stages, it has left the U.S. vulnerable to shortages during the transition to cleaner fuels. So vulnerable that last year it became necessary for President Biden to ask OPEC+ to pump more oil to fulfill the needs of the U.S. 

At the 2020 SOTU, the U.S. was considered “energy independent” and was a net exporter of petroleum. Change to new technologies has its hiccups, but the current state of the U.S. is that we consume more oil than we produce and we’re reliant on other nations. If in his address he believably reassures commitment to alternative fuels and needed infrastructure spending, clean energy market sectors that have been beaten up this year may move in the direction of previous highs. If his economic plan is instead redefined to play down a green focus, further weakness in the alternative fuels sector could follow.

Pandemic

While the last address did not cover Covid19, as it was not a named disease at the time, this address will provide an opportunity for the country to hear an official White House position on whether it expects the steps taken related to the pandemic are expected to be short-lived. These expectations may contribute to how the market opens on Wednesday and behaves.

Russia/Ukraine

The invasion of Ukraine by Russia is on everyone’s minds. The President will have to address this as well as the risks China relations may present. If his talk is too hawkish, this may rattle markets that involve energy. If too weak, investors may lose confidence in his leadership.

Inflation

In a fact sheet provided on February 28th from the White House, it appears that inflation will get a lot of focus in the address. The speech is likely to talk about manufacturing and making more things in America. Also, moving goods around the country more efficiently and developing a stronger supply chain appears to have been added to his economic plan for the U.S. There could even be talk of reducing the deficit and how working family expenses can be lowered. Also likely to be spoken about is promoting competition to help lower prices to help consumers and stave off some inflation. These are things most American consumers listening at home want to hear.

For investors, getting a sense that inflation will not be persistent, that supply chains are not permanently gunking up the economy, and that money will continue to flow out of Washington in a way that builds or rebuilds infrastructure and provides growth capital to infant industries would set a more bullish tone. It’s a tall order, and worth hoping for.

Biden is scheduled to speak at 9 p.m. Eastern.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

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Why 2022 Investing Will Need to be Different

 

Sources

https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/fact-sheet-background-on-president-bidens-remarks-on-the-economy-during-his-first-state-of-the-union-address/

https://www.bls.gov/opub/mlr/2021/beyond-bls/consumer-inflation-during-the-covid-19-pandemic.htm

https://www.wsj.com/articles/some-democrats-push-biden-to-embrace-normalcy-as-covid-19-cases-ease-11644667202

 

Stay up to date. Follow us:

  Image: US Dept. of State (Photo Archive)

Biden’s First State of the Union and Possible Impact on Markets

 

President Joe Biden has never given a State of the Union address. He’s heard countless SOTUs, and on Wednesday, April 28, 2021, the eve of his 100th day in office, he did speak before a joint session of Congress. But, this is the first official SOTU and accounting of the country’s state of affairs since February 4, 2020.

A lot has changed, including the President that is giving the address. Some of the market and sector-moving expectations from his Build Back Better initiatives seem to be facing a great deal of pushback recently, many seem to have taken a backseat to other events at home and abroad. Will tonight’s speech revive the focus and elevate the industries most likely to benefit?

Big Changes

Since the last State of the Union, the fear of deflation has reversed, the current state is the U.S. is experiencing its worst inflation in 40 years, with the risk of prolonged price increases now the focus of economists and market participants. 

Inflation isn’t the only thing that has changed. On February 4, 2020, when the last SOTU was given, the novel coronavirus was so “novel” that it was not yet named. It was later in February The World Health Organization (WHO), named the disease Covid19. A few weeks earlier, the U.S. had seen its first case, but it was not yet impacting life in the States.

Energy

There have been trillions approved to be spent on revamping how the U.S. is fueled. These energy initiatives include increased and eventual total reliance on non-fossil fuel forms of energy. Since early 2021, systems have been organized to help develop what is to be the Build Back Better energy initiatives. These plans contrast sharply with two years ago and are now more in-line with initiatives of other developed nations. Now in the early stages, it has left the U.S. vulnerable to shortages during the transition to cleaner fuels. So vulnerable that last year it became necessary for President Biden to ask OPEC+ to pump more oil to fulfill the needs of the U.S. 

At the 2020 SOTU, the U.S. was considered “energy independent” and was a net exporter of petroleum. Change to new technologies has its hiccups, but the current state of the U.S. is that we consume more oil than we produce and we’re reliant on other nations. If in his address he believably reassures commitment to alternative fuels and needed infrastructure spending, clean energy market sectors that have been beaten up this year may move in the direction of previous highs. If his economic plan is instead redefined to play down a green focus, further weakness in the alternative fuels sector could follow.

Pandemic

While the last address did not cover Covid19, as it was not a named disease at the time, this address will provide an opportunity for the country to hear an official White House position on whether it expects the steps taken related to the pandemic are expected to be short-lived. These expectations may contribute to how the market opens on Wednesday and behaves.

Russia/Ukraine

The invasion of Ukraine by Russia is on everyone’s minds. The President will have to address this as well as the risks China relations may present. If his talk is too hawkish, this may rattle markets that involve energy. If too weak, investors may lose confidence in his leadership.

Inflation

In a fact sheet provided on February 28th from the White House, it appears that inflation will get a lot of focus in the address. The speech is likely to talk about manufacturing and making more things in America. Also, moving goods around the country more efficiently and developing a stronger supply chain appears to have been added to his economic plan for the U.S. There could even be talk of reducing the deficit and how working family expenses can be lowered. Also likely to be spoken about is promoting competition to help lower prices to help consumers and stave off some inflation. These are things most American consumers listening at home want to hear.

For investors, getting a sense that inflation will not be persistent, that supply chains are not permanently gunking up the economy, and that money will continue to flow out of Washington in a way that builds or rebuilds infrastructure and provides growth capital to infant industries would set a more bullish tone. It’s a tall order, and worth hoping for.

Biden is scheduled to speak at 9 p.m. Eastern.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Cryptocurrencies with the Help of DAOs Provide a Means to Support Ukraine’s Efforts

Pros and Cons of a Company Like Berkshire Hathaway in your Portfolio

Is GDP Growth Transitory and Inflation Persistent?

Why 2022 Investing Will Need to be Different

 

Sources

https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/28/fact-sheet-background-on-president-bidens-remarks-on-the-economy-during-his-first-state-of-the-union-address/

https://www.bls.gov/opub/mlr/2021/beyond-bls/consumer-inflation-during-the-covid-19-pandemic.htm

https://www.wsj.com/articles/some-democrats-push-biden-to-embrace-normalcy-as-covid-19-cases-ease-11644667202

 

Stay up to date. Follow us:

  Image Credit: Diverse Stock Photos (Flickr)

Five Essential Commodities that Will be Hit by War in Ukraine

 

The war in Ukraine is threatening further disruption to already stretched supply chains. Ukraine and Russia may only account for a small proportion of the imports of major manufacturing nations like Germany and the US, but they are essential suppliers of raw materials and energy for many crucial supply chains.

Though the economic consequences of a war that threatens the lives and livelihoods of many Ukrainians will always be secondary to the looming humanitarian crisis, here are five areas likely to see trouble ahead:

 

Energy

Many European countries are heavily dependent on Russian energy, particularly gas, through several vital pipelines, and this may have colored their approach to the crisis. Russian gas reliance has been suggested as the reason Europe has been reluctant to remove Russia from the international payments system SWIFT, for example, though it’s worth pointing out that the Germans have indefinitely suspended new Baltic gas pipeline Nord Stream 2.

While a complete suspension of Russian gas flows is unlikely at the moment, even small disruptions will have a significant impact. Global gas reserves are low due to the pandemic and energy prices are already rising sharply, impacting consumers and industry.

With gas an essential input to many supply chains, disruptions to such a fundamental supply will have widespread economic consequences. When gas prices first surged in autumn of 2021, for instance, fertilizer plants in the UK shut down as high energy cost made production untenable. This led to shortages of carbon dioxide, which is essential for everything from medical procedures to keeping food fresh. Such consequences are likely to magnify with rising oil and gas prices.

 

 Food

Global food prices already rose sharply during 2021 due to everything from higher energy prices to environmental awareness. Food producers are likely to come under further pressure as prices of key inputs rise now.

Russia and Ukraine together account for more than a quarter of global wheat exports, while Ukraine alone makes up almost half of the exports of sunflower oil. Both are key commodities used in many food products. If harvesting and processing is hindered in a war-torn Ukraine, or exports are blocked, importers will struggle to replace supplies.

Some countries are particularly dependent on grain from Russia and Ukraine. For example, Turkey and Egypt rely on them for almost 70% of their wheat imports. Ukraine is also the top supplier of corn to China.

 

Wheat prices (US$/bushel)

 

 

Stepping up production in other parts of the world could help to reduce the impact of interruptions to food supplies. However, Russia is also a main supplier of key ingredients for fertilizers, so trade sanctions could affect production elsewhere. Meanwhile, we can also expect diversions to trade flows: China has already said it will begin importing Russian wheat, for instance.

 

Transport

With global transport already severely disrupted in the aftermath of the pandemic, a war could create further problems. The transport modes likely to be affected are ocean shipping and rail freight.

Since 2011, regular rail freight links between China and Europe have been established. Recently, the 50,000th train made the journey. While rail carries only a small proportion of the total freight between Asia and Europe, it has played a vital role during recent transport disruptions and is growing steadily.

Trains are now being rerouted away from Ukraine, and rail freight experts are currently optimistic that disruptions will be kept to a minimum. However, countries like Lithuania are expecting to see their rail traffic severely affected by sanctions against Russia.

Even prior to the invasion, ship owners started to avoid Black Sea shipping routes, and insurance providers demanded notification of any such voyages. Although container shipping in the Black Sea is a relatively niche market on the global scale, one of the largest container terminals is Odessa. If this is cut off by Russian forces, the effects on Ukrainian imports and exports could be considerable, with potentially drastic humanitarian consequences.

Rising oil prices due to the war are a worry to shipping more generally. Freight rates are already extremely high and could rise even further.

There is also a worry that cyber-attacks could target global supply chains. As trade is highly dependent on online information exchange, this could have far-reaching consequences if key shipping lines or infrastructure are targeted. The ripple effects from a supply chain cyber-attack can be enormous.

 

Metals

Russia and Ukraine lead the global production of metals such as nickel, copper and iron. They are also largely involved in the export and manufacture of other essential raw materials like neon, palladium and platinum.

Fears of sanctions on Russia have increased the price of these metals. With palladium, for example, the current trading price of almost US$2,700 per ounce, up over 80% since mid-December. Palladium is used for everything from automotive exhaust systems and mobile phones to dental fillings. The prices of nickel and copper, which are used in manufacturing and building respectively, have also also been soaring.

The aerospace industries of the US, Europe and Britain also depend on supplies of titanium from Russia. Boeing and Airbus have already approached alternative suppliers. However, the market share and product base of leading Russian supplier VSMPO-AVISMA make it impossible to fully diversify away from it, with some of the aerospace manufacturers having signed long-term supply contracts up to 2028.

For all these materials, we can expect disruptions and potential shortages, threatening to lead to increased prices for many products and services.

 

Microchips

Shortages of microchips were a major problem throughout 2021. Some analysts had been predicting that this problem would ease in 2022, but recent developments might dampen such optimism.

As part of the sanctions towards Russia, the US has been threatening to cut off Russia’s supply of microchips. But this rings hollow when Russia and Ukraine are such key exporters of neon, palladium and platinum, all of which are critical for microchip production.

About 90% of neon, which is used for chip lithography, originates from Russia, and 60% of this is purified by one company in Odessa. Alternative sources will require long-term investments prior to being able to supply the global market.

Chip manufacturers currently hold an excess of two to four weeks’ additional inventory, but any prolonged supply disruption caused by military action in Ukraine will severely impact the production of semiconductors and products dependent on them, including cars.

 

This article was republished with permission from   The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  Sarah Schiffling, Senior Lecturer in Supply Chain Management, Liverpool John Moores University and Nikolaos Valantasis Kanellos, Lecturer in Logistics, Technological University Dublin.

 

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The Latest GDP Growth Number Should Squelch All Stagflation Conversation

 

The just-released 4Q GDP numbers should put on hold, at least for now, any conversation suggesting stagflation is imminent. While the stock market has been racking up consecutive red days, the economy is growing quite rapidly.  This eliminates half of the stagflation debate. The other half, however, seems to be firmly in place. Here’s why the GDP trend is excellent news and the stagflation forecast is unlikely.

Stagflation 

Source: Dictionary.com

 

The term stagflation was first used in the ’70s to describe an environment where the economy is effectively “stuck in the mud.” The wheels are spinning, but it isn’t going anyplace, and the driver, in this case, the Fed) applies the gas pedal, the more costs that are likely to rack up without any forward motion. Using the more refined definition from Dictionary.com, let’s look at two numbers related to the economic numbers released today (2/24/22).

The definition mentions employment and business activity. The Department of Labor reported the seasonally adjusted initial unemployment claims was 232,000. This is a 17,000 decrease from the previous week. The 4-week moving average is 236,250, which is a decrease of 7,250 from the previous week’s.  This is just one employment indicator, but it is the most recent and it is a positive indicator of economic health.

The U.S. Gross Domestic Product (GDP), while a lagging indicator, is the most all-encompassing measure of economic activity. It’s an actual measure of all goods and services produced within the U.S. borders. The report showed the U.S. grew 7% in the 4th quarter. This is a large number and does more than just make up for the one (significantly) down quarter in 2020. The GDP is now trending at a slightly accelerated pace than the previous five years.  At almost any other
time in market history, the stock market would have celebrated with a
substantially up day.

Lately, the market looks for bad news. Granted, today the negative news (Russia invades Ukraine) was the focus.

 

 

Inflation

As indicated in the below graph, using CPI as a measure, we see inflation is running well above the Federal Reserve’s stated 2% target. It is doing this whether food and energy are included in the measure or not.

The graph demonstrates just how rampant inflation has been since the second quarter of 2021. And it has been accelerating. In the past, an inflation trend like this would cause the Fed to move the overnight lending rate to a level much closer to the pace of inflation. The current stated Fed Funds target is 0.00% to 0.25%. At almost any other time in market history, the stock market might view the Fed as careless, and the bond market would have already been priced to have a positive real yield (yield net of inflation).

One reason this hasn’t happened is the Fed is exercising “yield curve control” which is keeping the bond market from increasing the price of borrowing. 

 

 

If it’s not Stagflation, What is it?

With 7% growth and jobs plentiful, the current economic situation doesn’t meet the basic definition of stagflation. Yet, one of the most widely followed leading indicators, the stock market, tells us there is something just around the corner to worry about.  Weakness in the equity markets is not just a leading indicator, it is also a driver of corporate and consumer behavior. When an individual or entity feels wealthy and has easy access to capital, economic activity thrives, when financial means are diminished by lower stock market prices, activity slows.

It may be that the markets are aware that the Fed, although it hasn’t changed the overnight lending rate, is dramatically reducing the still ongoing stimulus (tapering purchases of public market securities). Billions of dollars that have been entering the fixed income markets each month, billions that held rates down and provided new capital to the economy will no longer be available.  And, perhaps what has continued to fuel 7% GDP growth, job growth, and yes even partially responsible for inflation, will now slow growth.

While this is not stagflation, it puts the Fed in a position where it has to choose a battle. Fight inflation by stunting economic growth, or keep the proverbial punch bowl out and not worry about the potential hangover (more inflation).

 

Take-Away

The cost of borrowing is climbing as the Federal Reserve prepares to raise overnight bank lending rates for the first time in four years. Inflation has soared to a 40-year high. Meanwhile, ongoing shortages of labor and supplies have handcuffed the ability of businesses to produce enough goods and services to meet customer demand. Even though production is being stymied, GDP is roaring at 7%.

The markets are trading off and it isn’t all because of the unsettled Russia Ukraine situation. Higher energy prices, after all have the same impact on the economy as raising rates does (higher cost of capital).

This isn’t a stagflation scenario, yet the markets are spooked. Does the combined wisdom of the stock market participants know something? This remains to be seen. While the U.S. economy continues to show solid fundamentals for growth, it is faced with increasing headwinds from significant, less overt, policy tightening (bond purchase taper).

 

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The Various Ways to Allocate into “War Investments”

 

Sources

https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20220331.pdf

https://data.bls.gov/pdq/SurveyOutputServlet

 

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How Cryptocurrencies, Gold, and Oil Trade When Political Tensions Rise

 

Cryptocurrency prices have moved down and gold has moved up as investors are weighing bitcoin and its crypto peers against traditional “safe haven” assets. At the moment, the preference is still with the assets that own the longer track record rather than the “newcomers. The reason for investor reallocation is the potential for military conflict among two countries that provide many natural resources to their region and around the globe. This has also caused oil, uranium, and other natural resources to strengthen.

What Has Been Affected?

Bitcoin has been trading in the $37k area (down 10% from a week earlier) while gold is up near 3% over the same period. Crude has been volatile, reaching as high as $98 per barrel but is currently relatively flat on the week at $92.50 per barrel. The overall stock market, for its part, has been trending lower.

Investors across asset classes have been focused on the possibility of a Russian invasion into Ukraine for a month. This is because Russia has been amassing troops along the countries shared border to show disapproval that Ukraine is being considered as a potential member of NATO. Ukraine’s large size now serves as a big buffer between NATO forces and Russia. The most recent jolt to these tensions and asset prices occurred as Russian lawmakers today authorized President Putin to use military force outside the country (February 22). The U.S. and some European leaders have informed an invasion is currently underway, the unanimous approval by lawmakers in Moscow suggests the situation may intensify.

Many had expected bitcoin and other digital assets to trade independently from equity and other financial markets. This may one day become the case, but the move now is still into the most traditional “safe havens.” While many reason that cryptocurrencies should be a “safe haven” play, like gold or even more secure than precious metals, cryptocurrency reactions have shown themselves to be more correlated with risk-sensitive equities such as tech stocks. Cryptos have been in decline so far this year as interest rates have been rising and political tensions within countries and between countries have become tenser. 

 

Oil

By the Summer of 2021, Russia became the second-largest exporter of oil to the U.S. after Canada. Post-pandemic consumption has been rising to pre-pandemic levels and the U.S. production is still well behind the country’s usage.  

U.S. imports of crude and refined petroleum products from its sometimes adversary surged 23% in May last year to 844,000 barrels a day from the prior month. This is when Russia took the number two spot from Mexico.

Gold

Gold reached its highest level in nearly nine months after the Russian lawmaker vote, before it pulled back. Investors are watching developments in the crisis between the two countries and even listening to reactions of other countries that may be drawn into a conflict.

Spot gold is hovering around $1,900 per ounce by, having hit its highest since June 1 at $1,913.89.

 

Take-Away

A reallocation based on political tensions has taught investors that cryptocurrencies don’t offer the safe haven protection of other assets. The move from crypto and equities to gold and even U.S. Treasuries has traditionally been the play. In this case oil is benefitting from other factors which have caused many to expect an even more pronounced reaction. In the past, as the extent of tensions becomes more predictable, investors tend to move back to the perceived riskier assets to benefit from the dip.

 

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Sources

https://apnews.com/article/russia-ukraine-business-europe-russia-vladimir-putin-46cef648807d0e3c2bac9793ad9022a6

https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

https://www.coindesk.com/markets/2022/02/22/bitcoin-in-stasis-near-37k-gold-extends-gains-as-russia-starts-ukraine-invasion/

https://en.as.com/en/2022/02/16/latest_news/1645020978_604758.html.

https://www.bloomberg.com/news/articles/2021-08-04/russia-captures-no-2-rank-among-foreign-oil-suppliers-to-u-s

 

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  Image Credit: Brenda Gottsabend (Flickr)

Americans Are Returning to the Labor Force at a Quickening Rate – Do They Just Really Need the Work?

 

The U.S. economy surprised analysts by adding 467,000 jobs in January, overcoming omicron concerns and continuing a long streak of gains, the Bureau of Labor Statistics reported on Feb. 4, 2022.

Yet at the same time, the unemployment rate ticked up a notch, from 3.9% to 4%.

Confused? Shouldn’t a large increase in jobs drive joblessness lower?

Usually, the main culprit behind these types of conflicting results is an increase in the number of people rejoining the labor market. I believe that must be the case here – and recent data show a clear trend in this direction – even though the BLS has adjusted its latest data in a way that makes it harder to see what’s going on or make historical comparisons.

 

 

The share of working-age Americans either in work or looking for work – known as the labor participation rate – dropped steeply at the beginning of the pandemic.

But there are signs that labor participation may finally be turning around. From a low of 60.2% in April 2020, it has slowly risen since. And the latest report showed it reached 62.2% in December and January, the highest since the depths of the pandemic in mid-2020. The 2.2 percentage point gain since April 2020 may not seem huge, but it equates to about 5.8 million people rejoining the workforce.

 

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Christopher Decker, Professor of Economics, University of Nebraska Omaha.

 

As an economist who has been following the labor market closely for the past year, I think people are being both encouraged and forced back into looking for work. My interpretation of the evidence suggests that those who quit and held off getting back into the labor force are now finding job opportunities that are too valuable to pass up.

For one thing, wages continue to increase – they grew rapidly in January 2022, with average hourly wages up 5.6% from a year earlier.

At the same time, it appears that many businesses are responding to workers’ desires for some flexibility in scheduling and a better work/life balance.

Greater job flexibility can be seen in the jump in the number of Americans working remotely. The number of employees working from home because of the pandemic increased to 15.4% of the workforce in January, as the omicron variant spread and staffers were given the option to work from home.

But it isn’t just employer-driven factors behind the increase in labor participation.

For those without a job and stable income, personal resources can get depleted over time. Some people who left the workforce early on in the pandemic may have been able to get by and cover essential spending such as housing and groceries by relying on personal savings, support from family members or generous pandemic-related government benefits.

Those resources are not infinite, however. The number of long-term unemployed Americans declined in January, following a trend observed throughout 2021, suggesting that a growing number are returning to the workforce.

Moreover, the cost of living is soaring at the fastest pace in 40 years. And for households that had been relying on a single income during the pandemic, the problem is made worse by the fact that wages are lagging behind, putting pressure on families.

In other words, job holdouts might not be able out hold out much longer if inflation continues to outpace wage increases.

 

 

But even with the recent uptick in the labor participation rate, the U.S. economy still has a long way to go before the ongoing labor shortages hammering companies end and the job markets return to pre-pandemic levels.

 

 

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Americans Are Returning to the Labor Force at a Quickening Rate – Do They Just Really Need the Work?

 

The U.S. economy surprised analysts by adding 467,000 jobs in January, overcoming omicron concerns and continuing a long streak of gains, the Bureau of Labor Statistics reported on Feb. 4, 2022.

Yet at the same time, the unemployment rate ticked up a notch, from 3.9% to 4%.

Confused? Shouldn’t a large increase in jobs drive joblessness lower?

Usually, the main culprit behind these types of conflicting results is an increase in the number of people rejoining the labor market. I believe that must be the case here – and recent data show a clear trend in this direction – even though the BLS has adjusted its latest data in a way that makes it harder to see what’s going on or make historical comparisons.

 

 

The share of working-age Americans either in work or looking for work – known as the labor participation rate – dropped steeply at the beginning of the pandemic.

But there are signs that labor participation may finally be turning around. From a low of 60.2% in April 2020, it has slowly risen since. And the latest report showed it reached 62.2% in December and January, the highest since the depths of the pandemic in mid-2020. The 2.2 percentage point gain since April 2020 may not seem huge, but it equates to about 5.8 million people rejoining the workforce.

 

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Christopher Decker, Professor of Economics, University of Nebraska Omaha.

 

As an economist who has been following the labor market closely for the past year, I think people are being both encouraged and forced back into looking for work. My interpretation of the evidence suggests that those who quit and held off getting back into the labor force are now finding job opportunities that are too valuable to pass up.

For one thing, wages continue to increase – they grew rapidly in January 2022, with average hourly wages up 5.6% from a year earlier.

At the same time, it appears that many businesses are responding to workers’ desires for some flexibility in scheduling and a better work/life balance.

Greater job flexibility can be seen in the jump in the number of Americans working remotely. The number of employees working from home because of the pandemic increased to 15.4% of the workforce in January, as the omicron variant spread and staffers were given the option to work from home.

But it isn’t just employer-driven factors behind the increase in labor participation.

For those without a job and stable income, personal resources can get depleted over time. Some people who left the workforce early on in the pandemic may have been able to get by and cover essential spending such as housing and groceries by relying on personal savings, support from family members or generous pandemic-related government benefits.

Those resources are not infinite, however. The number of long-term unemployed Americans declined in January, following a trend observed throughout 2021, suggesting that a growing number are returning to the workforce.

Moreover, the cost of living is soaring at the fastest pace in 40 years. And for households that had been relying on a single income during the pandemic, the problem is made worse by the fact that wages are lagging behind, putting pressure on families.

In other words, job holdouts might not be able out hold out much longer if inflation continues to outpace wage increases.

 

 

But even with the recent uptick in the labor participation rate, the U.S. economy still has a long way to go before the ongoing labor shortages hammering companies end and the job markets return to pre-pandemic levels.

 

 

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  Image Credit: Fabricio Trujillo (Pexels)

How Raising Interest Rates Curbs Inflation – and What Could Possibly Go Wrong

 

After about three decades of relatively low inflation, consumer prices are skyrocketing again.

The price of gasoline, for example, was up 40% in January 2022 from a year earlier, while used cars and trucks jumped 41%, according to data released on Feb. 10, 2022. Other categories experiencing high inflation include hotels, eggs, and fats and oils, up 24%, 13% and 11%, respectively. On average, prices climbed about 7.5%, the fastest pace of inflation since 1982.

It’s part of the mandated job of the U.S. Federal Reserve to prevent inflation from getting out of hand – and lowering it back to its preferred pace of about 2%.

To do that, the Fed has signaled it plans to raise interest rates several times this year – perhaps as many as five – beginning in March. And January’s faster-than-expected inflation figures suggest it may have to accelerate its overall timetable.

 

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It was written by and represents the thoughts of Rodney Ramcharan, Associate Professor of Finance and Business Economics, University of Southern California.

 

Will this Work? If So, Why?

I’m an economist who has been studying how monetary policy affects the economy for decades while working at the Federal Reserve, the International Monetary Fund and now the University of Southern California. I believe the answer to the first question is most likely yes – but it will come at a cost. Let me explain why.

 

Higher Rates Reduce Demand

The Federal Reserve controls the federal funds rate, often referred to as its target rate.

This is the interest rate that banks use to make overnight loans to each other. Banks borrow money – sometimes from each other – to make loans to consumers and businesses. So when the Fed raises its target rate, it raises the cost of borrowing for banks that need funds to lend out or meet their regulatory requirements.

Banks naturally pass on these higher costs to consumers and businesses. This means that if the Fed raises its federal funds rate by 25 basis points, or 0.25 percentage point, consumers and businesses will also have to pay more to borrow money – just how much more depends on many factors, including the maturity of the loan and how much profit the bank wants to make.

This higher cost of borrowing, in turn, dampens demand and economic activity. For example, if a car loan becomes more expensive, maybe you’ll decide now is not the right time to buy that new convertible or pickup truck you had your eye on. Or perhaps a business will become less likely to invest in a new factory – and hire additional workers – if the interest it would pay on a loan to finance it goes up.

This is the cost to the economy when the Fed raises interest rates.

 

And Reduced Demand Lowers Inflation

At the same time, this is exactly what slows the pace of inflation. Prices for goods and services typically go up when demand for them rises. But when it becomes more expensive to borrow, there’s less demand for goods and services throughout the economy. Prices may not necessarily go down, but their rate of inflation will usually decline.

To see an example of how this works, consider a used car dealership, where the pace of inflation has been exceptionally high throughout the pandemic. Let’s assume for the moment that the dealer has a fixed inventory of 100 cars on its lot. If the overall cost of buying one of those cars goes up – because the interest rate on the loan needed to finance one rises – then demand will drop as fewer consumers show up on the lot. In order to sell more cars, the dealer will likely have to cut prices to entice buyers.

In addition, the dealer faces higher borrowing costs, not to mention tighter profit margins after reducing prices, which means perhaps it couldn’t afford to hire all the workers it had planned to, or even has to lay off some employees. As a result, fewer people may be able to even afford the down payment, further reducing demand for cars.

Now imagine it’s not just one dealer seeing a drop in demand but an entire US$24 trillion economy. Even small increases in interest rates can have ripple effects that significantly slow down economic activity, limiting the ability of companies to raise prices.

 

The Risks of Raising Rates Too Quickly

But our example assumes a fixed supply. As we’ve seen, the global economy has been dealing with massive supply chain disruptions and shortages. And these problems have driven up production costs in other parts of the world.

If high U.S. inflation stems mainly from these higher production costs and low inventories, then the Fed might have to raise interest rates by a great deal to contain inflation. And the higher and faster the Fed has to raise rates, the more harmful it will be to the economy.

In keeping with our car example, if the price of computer chips – a critical input in cars these days – is increasing sharply primarily because of new pandemic-related lockdowns in Asia, then carmakers will have to pass on these higher prices to consumers in the form of higher car prices, regardless of interest rates.

In this case, the Fed might then have to dramatically raise interest rates and reduce demand substantially to slow the pace of inflation. At this point, no one really knows how high interest rates might need to climb in order to get inflation back down to around 2%.

 

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Analyst Sees Evidence these Sectors are Just Beginning to Benefit from Reduced Mandates

 

Has the door finally been kicked open on the post-pandemic trade?

While investors are watching inflation numbers and interest rates, there is an underlying story that could be very meaningful to the services and hospitality sectors. New York just announced it is lifting much of its indoor mask mandate as it joins a growing list of states that are speeding toward allowing individual choice. The impact of ever more consumers venturing out to restaurants, bowling alleys, vacation destinations, bars, etc., and then opening their wallets, may finally be creating an oversized opportunity. As the covid trade is seen unwinding and the post covid possibilities are presenting themselves, spending will shift, and so should investments.

In a research note released by Bank of America’s economist, Anna Zhou writes that credit card spending overall has seen “a noticeable uptick in the last two weeks.” Card spending was up 20.2% above the levels recorded the same week (ending Feb. 5) of 2020 and up 12.3% compared with the same week in 2021. Zhou reports this spending included an “across the board improvement in spending for airlines, lodging, entertainment services, and restaurants. Within the categories, entertainment spending climbed from 20% below the 2020 level to just 5% below. Restaurants and bars rose from 10% above 2020 levels to 18% above. The note indicated that gyms are also seeing improvements and any sector that benefits from older Americans with reduced fears for their safety could see increased traffic. 

The data and insights offer an indication that the rotation toward the industries mentioned by Zhou may be in for a boom period regardless of how the rest of the market behaves. As the last months of winter play out, people are likely to escalate their playtime in ways they have been prevented from for two full years.

There are hundreds of stocks in B of A’s category list. Below are four interesting companies that are each unique to their categories and may belong on your watchlist.

Travelzoo (Nasdaq Global: TZOO)  is a media company that provides travel, entertainment, and local deals to its 30 million members worldwide. The company distributes travel “deals” through its Travelzoo website, newsletters, and smartphone apps. In addition, it provides travel content to third-party websites and media outlets. The company benefits from over 2,000 travel-related advertisers including airlines, hotels, cruise lines, vacation packages, tour operators, attractions, rental car companies, restaurants, spas, and tourism-related companies.  

Read the most recent Noble Capital Markets research
on TZOO including price targets.

Bowlero Corp. (NYSE: BOWL) is the worldwide leader in bowling entertainment. With more than 300 bowling centers across North America, Bowlero Corp. serves more than 26 million guests each year through a family of brands that includes Bowlero, Bowlmor Lanes, and AMF. Bowlero Corp. is also home to the Professional Bowlers Association, which it acquired in 2019. BOWL is the completed SPAC of Isos Acquisition Corp.

Read the most recent Noble Capital Markets research
on BOWL including price targets.

RCI Hospitality Holdings, Inc. (Nasdaq: RICK) through its subsidiaries, owns and operates gentlemen’s clubs and sports bars/restaurants within two segments Nightclubs and Bombshells. It also operates a communications company serving adult nightclubs and the adult retail products industry. The Company operates approximately 48 establishments that offer live adult entertainment, and/or restaurant and bar operations.

Read the most recent Noble Capital Markets research
on Rick including price targets.

FAT Brands (NASDAQ: FAT) is a leading global franchising company that acquires, markets, and develops fast-casual, quick-service, casual dining, and polished casual dining concepts around the world. The Company currently owns 17 restaurant brands: Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli’s, Twin Peaks, Great American Cookies, Hot Dog on a Stick, Buffalo’s Cafe & Express, Hurricane Grill & Wings, Pretzelmaker, Elevation Burger, Native Grill & Wings, Yalla Mediterranean and Ponderosa and Bonanza Steakhouses, and franchises over 2,300 units worldwide.

Read the most recent Noble Capital Markets research on
FAT including price targets.

Take-Away

It’s impossible to know if this wave of consumers that feel more comfortable stepping from their homes will grow or if another surprise will cause them to be hesitant to treat themselves to a night of entertainment, dinner, or recreation. However, the trend toward opening the doors appears stronger than it has been since the start of lockdowns.

Bank of America economist Anna Zhou included in her note, “Overall, we expect consumers to further unleash their spending power in the coming months as the services sector continues to reopen.”

 

Paul Hoffman

Managing Editor, Channelchek

 

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Sources

https://www.npr.org/2022/02/09/1079555193/new-york-new-jersey-end-mask-mandate-ending

https://www.barrons.com/articles/as-omicron-fades-services-spending-surges-as-americans-venture-back-out-51644516197

https://channelchek.vercel.app/aux/(expanded:check-channels)

 

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	Image Credit: Joe Penniston (Flickr)

A Nudge to Resume Economic Activity

 

Peter Dizikes | MIT News Office

In these pandemic-affected times, concern about Covid-19 can make it hard to know when to take part in “normal,” prepandemic activities. That may be especially true this winter, with the Omicron virus variant spreading and its severity still being studied.

But even at times during the pandemic when cases have been falling, there is often uncertainty about which activities are most ready for resumption. To some extent, people may form judgments about this based on social cues. If a lot of your neighbors start going to restaurants again, does it make you more likely to avoid restaurants, knowing they might be more crowded? Or might it signal that dining out is becoming safer?

A field experiment of citizens in the city of Zhengzhou, China, conducted by an MIT research team in the spring of 2020, shows that people tend to have the latter reaction. When study respondents were informed that their neighbors were going out to restaurants, the proportion of participants also doing so increased by 12 percentage points, or 37 percent. The primary factor inducing this change appears to be evolving risk preferences: Perhaps paradoxically, people considered the activity to be safer knowing their neighbors were partaking in it.

Given improving conditions, knowing what other people in a social network are doing could thus be a useful signal. At any rate, the study suggests that many people do have the tendency to increase activity, not decrease it, when informed that others are themselves increasing activity.

“When we implemented our experiment, [Zhengzhou] had zero Covid cases,” says MIT Professor Siqi Zheng, part of the research team and co-author a new paper detailing the study’s results. “The city government had loosened the lockdown measures and dining out services were allowed to reopen. However, most people were reluctant to resume economic activities, perhaps because they were not sure whether it was really safe or not.”

Zheng adds, “We felt that in [some] uncertain times, such information might be particularly valuable: If others think it’s safe to go out, then maybe I should feel safe. To be sure, we were also prepared for the opposite reaction, that people would hunker down and try to avoid crowds.”

Instead, “The intervention motivated individuals to resume patronizing restaurants,” says Juan Palacios, a postdoc at the Center for Real Estate and the Sustainable Urbanization Lab (SUL), and another co-author of the paper. “When individuals learned that their neighbors were planning to go out, they followed suit.”

As such, the researchers regard the experiment as a possible low-cost intervention governments could pursue, to help ramp up consumer activity when merited by improving conditions during the pandemic.

The paper, “Encouraging the resumption of economic activity after COVID-19: Evidence from a large scale filed experiment in China,” was published online today in Proceedings
of the National Academy of Sciences.

The paper’s authors are Yuchen Chai, a researcher at SUL; Yichun Fan, a PhD candidate in MIT’s Department of Urban Studies and Planning (DUSP) and researcher at SUL; Palacios; David Rand, the Erwin H. Schell Professor and Professor of Management Science and Brain and Cognitive Sciences at MIT; Weizeng Sun of the Central University of Finance and Economics, in Beijing; Jianghao Wang, an associate professor at the Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Science, in Beijing; Erez Yoeli, a research scientist at the MIT Sloan School of Management; and Zheng, who is the Samuel Tak Lee Champion Professor of Urban and Real Estate Sustainability at MIT and faculty director of the MIT Center for Real Estate and SUL.

To conduct the study, the researchers worked with 622 participants from Zhengzhou for several weeks in the spring of 2020, soon after China’s initial Covid-19 lockdown was lifted. All participants were asked to state their belief, on a weekly basis, about the percentage of their neighbors who were planning to go to restaurants that weekend. They also downloaded an app, designed for the study, that tracked their whereabouts using GPS data.

One half of the group received an additional piece of information: The actual percentage of their neighbors who were planning to dine out on any given weekend, the kind of fact social scientists call a “descriptive norm.” This percentage was derived from a separate survey conducted in the same location.

By comparing the weekend activities of the two groups, the researchers found people in the group that learned the real percentage of neighbors dining out would, in turn, go to restaurants considerably more often.

“We use a descriptive norm experimental design, a well-established method in psychology,” Rand says. “Given that the nudge is relatively simple to implement and practically free, we think it might come in handy for others trying to promote reopening.”

In another facet of the study, the researchers were also able to determine that the decision-making of participants was heavily based around risk perceptions. The scholars conducted the same experiment to see if participants would also be more willing to go to public parks — but found the intervention made virtually no difference in behavior, in that case, because people already regarded public park visits as a safe activity.

Other scholars say the findings are a useful contribution to the growing literature on public behavior and risk perception during the shifting cycles of the Covid-19 pandemic.

“This work is both timely and important, especially because the Omicron variant is creating additional uncertainty and hesitation amongst the public worldwide,” says Noah Goldstein, a professor of management and organizations at the University of California Los Angeles’ Anderson School of Management. If vaccines and other measures can ultimately bring an end to the pandemic, governments and businesses may seek solutions to encourage people to resume activity that is vital to people’s livelihoods and to the economy in general, he says. “The researchers’ messaging intervention provides such a solution, one that is both inexpensive and very scalable.”

As the researchers acknowledge in the paper, the study was “run in just one setting at a very particular moment in time,” so caution “needs to be taken when generalizing our results to other cultures and time periods.” It is also possible that the varying availability of vaccines, which first reached the public several months after the spring of 2020, may alter risk perceptions as well.

“We do recognize that it won’t always work as well as it did for us,” Yoeli says. “It’s probably best to try it in settings where people are really unsure about the safe course of action.” Still, he adds, “The simplicity and generic aspect of this intervention allows policymakers to use our design and implement it in their communities, across the world.”

 

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Fed Tightening Causes Hedge Fund Manager to Consider SPACs a “Best Idea for 2022”

 

Investments that are less understood tend to trade at a discount. As investors come to understand them, and how to value them, the market becomes deeper and more liquid. Knowing that there will be a buyer or a seller to take the other side of a trade is worth quite a bit. Boaz Weinstein is the Founder and chief investment officer of the hedge fund Saba Capital. He believes that SPACs are still misunderstood and undervalued. Boaz also has told Bloomberg that these stocks may be a good sector to consider as the Fed tightens.

Mr. Weinstein gained recognition in the early and mid-2000s when he worked at Deutsche Bank. He is especially known for his credit default swap trading strategies.

At a “Best Ideas for 2022” webinar hosted by Saba on Friday (January 28) Boaz explained that he believes, “SPACs are misunderstood because they’re fixed-income products.”  He explained, special purpose acquisition companies, or SPACS, were popular early in 2021 but their popularity faded as regulators began to scrutinize aspects of their structure.

An attractive part of SPACs structure, Weinstein argues, is they can be bond-like and earn interest on behalf of the owners pre-merger. Another aspect of SPACS is that they are sold with warrants that can have interesting returns either if they’re sold immediately or if the company rises in value.

The IPO and SPAC market doesn’t have the significant tailwinds they benefitted from with their popularity a year ago. According to Bloomberg, the Saba CIO has invested in more than 400 SPACs since October 2021. Weinstein has been investing in SPACs for more than a decade, holding about 7% of the market in 2006, when it was valued at $15 billion. Today, the market is more than 10 times as big as it was 15 years ago, Weinstein estimates he holds about 1% of it.

While analysts debated whether inflation is transitory or persistent, the Saba CIO explained at a Robinhood Investor Conference held last year, “If you were going to buy a 5-year bond because a 75 basis point yield was enough to excite you or a 10-year at 1.45%, you’re taking significant risk that inflation is not transitory or that people fear that it’s not transitory.” Weinstein said warned higher inflation erodes the value of fixed-income investments. Meanwhile, SPACs often trade at a discount to the escrow and earnings on the assets held in trust on behalf of the investors.

 

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Sources

https://www.bloomberg.com/news/articles/2022-01-28/saba-s-weinstein-recommends-spacs-cds-as-fed-tightens

https://www.barrons.com/articles/spacs-boaz-weinstein-hedge-funds-investing-51624308161

http://ill.mbc.mybluehost.me/our-strategies/#spacs

 

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Could Telsa’s Robots Permanently Eliminate Labor Shortages?

 

Motivational experts tell us that if you have a goal you want to achieve, write it down, then it becomes better defined and “real.” They also tell us, if you tell others what you’re going to achieve, you’ll be even more likely to succeed. Elon Musk does this. He announces plans to provide something dramatic, like a Cybertruck, fully self-driving car, a colony on Mars, or a robot, years in advance; then he provides ongoing updates. Tesla’s earnings call this week provided him an opportunity to update us on the importance and status of the robot project.

 

Optimus

Optimus (Latin for “best”) is the “code-name” given to this  project at Telsa. Developing a robot to do dangerous, boring, or repetitive tasks would, in the mind of Tesla’s founder, revolutionize the economy, he believes there would not be labor shortages.   “If you think about the economy, it is — the foundation of the economy is labor,” he said. “Capital equipment is distilled labor. So what happens if you don’t actually have a labor shortage? I’m not sure what an economy even means at that point. That’s what Optimus is about, so [it’s] very important.”

Musk said Wednesday (January 26) he expects the Tesla-Bot could take years to come to market and perhaps will never become fully realized. The goal is to create a machine that can do what can now only be carried out by humans. While advances over the years in robotics have allowed a reduction in workers, there are still limitations with current machines that use existing technology.  Many more tasks will be done by robots in the future.

Elon the Showman

The Optimus robot project is the most recent example of Musk announcing his goals publicly, and with typical fanfare and showmanship. In addition to keeping himself on task, his announcing exciting Tesla (or SpaceX) products, envisioned for years into the future, helps to energize employees, excite customers, and of course, attract investors.

 

An Interesting Four-Year-Old Elon Musk Quote from The Boring Company Website The rumor that I’m secretly creating a zombie apocalypse to generate demand for flamethrowers is completely false — — Elon Musk (@elonmusk) January 28, 2018

 

The goals that Musk has in the past set out for any one of his companies, like building EVs for the masses, or reusable space-bound rockets, often require innovation that has not even been fully envisioned. For this reason, he often falls behind on many announced projects. Consumers and investors awaiting products have grown accustomed to delays that often last years. One of many examples of this was the “Autonomy Day” event in April 2019, Musk said the company would have one million autonomous “robotaxis” on the road in 2020. If you’re still waiting for a robotaxi to take you to the airport, you are many more years away from the experience.

About Optimus

The “Tesla Bot” is the “most important product” that Tesla is developing this year, said Tesla’s CEO on Wednesday’s fourth-quarter earnings call. This places it on the priority list ahead of the Cybertruck, Robotaxi, and other vehicles, including the Semi and the new Roadster. The Tesla Bot, “[it] has the potential to be more significant than the vehicle business over time.”

Take-Away

One thing that can be learned from one of the richest people in the world is how to stay motivated. The other is that failing to meet a goal, timeline, or even follow all the way through is not always important for success. Not unlike investing, where not every trade is a winner, and some securities need to be culled ahead of expectations, running an innovative business does not mean every project is a winner. Some projects need to veer in another direction because of unexpected circumstances, others halted, and others need an even higher priority than originally planned. It is presumed that the next generation of robots will help manufacturing businesses like Tesla. For this reason, a Tesla-Bot is doubly important to the company’s founder.

Paul Hoffman

Managing Editor, Channelchek

 

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Social Skills Would Benefit Physical Skills in Robotics

 

Sources

https://www.inc.com/peter-economy/this-is-way-you-need-to-write-down-your-goals-for-faster-success.html.

https://news.yahoo.com/tesla-optimus-robot-probably-wont-be-a-big-profit-driver-wall-street-thinks-173528019.html).

https://www.boringcompany.com/not-a-flamethrower

 

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