Wall Street Breakfast: Power Chords
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Wall Street Breakfast: Power Chords
Listen on the go! A daily podcast of Wall Street Breakfast will be available by 8:00 a.m. on Seeking Alpha, iTunes, Stitcher and Spotify.
There's a lot of news hitting energy markets, which in turn, is hitting prices. Reports now suggest that OPEC+ is not looking at crude production cuts, while a renewed Iranian nuclear deal could push more barrels on the market. G7 finance ministers will also meet virtually tomorrow, and are expected to endorse a plan to set a cap on the price of Russian oil and commit to finalizing its implementation.
How would the caps work? Details are still being discussed, but they would likely be implemented close to the cost of Russian production, thereby denting Moscow's finances, but still ensuring critical energy flows. To accomplish this, Europe would restrict the availability of transport and insurance services to shippers that agree to observe the price ceiling (~95% of the world's oil tanker fleet is covered by the International Group of P&I Clubs in London and companies based in continental Europe). Another proposal would apply similar caps on Russian gas prices, or limit the usage of U.S. financial services that could also benefit the scheme.
WTI crude fell below $90 a barrel on the news after posting a third monthly decline in August (the longest losing streak since April 2020). The sentiment has also flowed into September, with WTI futures (CL1:COM) down 2% to $87.55/bbl at the time of writing. "Energy traders anticipate a brutal period for global growth," added Edward Moya, senior market analyst at OANDA. "China factory activity remains depressed and another eurozone record-high inflation reading has raised the prospects of much more aggressive ECB tightening that could trigger a severe recession."
A wild card: Markets have priced in a previously announced shutdown of the Nord Stream 1 pipeline, which will be closed over the next 72 hours for maintenance work. However, if Russia prolongs the closure (it has been restricting gas supplies over the past three months), energy prices could spike once again. Many in the industry say that Vladimir Putin is "weaponizing" supplies by creating uncertainty around the limited gas flows, while leveraging his position by adding to the anxiety in Europe. (3 comments)
The shorts appear to be winning the recent battle at Bed Bath & Beyond (BBBY). A drubbing on Wednesday means investors can now buy the stock with the company's famous "20% off" coupon, and things aren't looking any better premarket, with BBBY down another 6% to the $9 level. Shares were already deflating after meme mania pushed them up to the $23 range in mid-August, but they have shaved off nearly $1B in market value over the past two weeks.
The latest: Bed Bath has unveiled a plan to reduce a third of its in-house home goods brands and cut 20% of jobs across corporate and the supply chain. It also announced commitments for more than $500M of new financing, while potentially raising capital by selling as many as 12M new shares. Following a strategic review, it will retain the buybuy BABY banner, but the company will shutter 150 "lower-producing" locations.
"While there is much work ahead, our road map is clear and we're confident that the significant changes we’ve announced today will have a positive impact on our performance,” said interim chief executive Sue Gove, after years of competition from the likes of Target (TGT) and Amazon (AMZN).
Burning through cash: Many of Bed Bath's efforts are aimed at steadying its balance sheet, which ended May with around $100M, compared to $1.1B a year earlier. The retailer also predicts it used up another $325M in cash during Q2, which is closer to the amount analysts forecast the company would use over two quarters. It also means the cash burn over the last half a year was north of $800M, not a great sign especially when BBBY's market cap is now around $760M. (64 comments)
Shares of Nvidia (NVDA) are also under pressure, down 6% in early trading, after warning that U.S. export restrictions on some of its products may hurt sales. According to an 8-K filing, Washington has imposed a new license requirement for any future export to China (including Hong Kong) and Russia of the company's A100 and H100 integrated circuits. The latter is Nvidia's forthcoming flagship chip that was announced earlier this year.
Bigger picture: Chinese organizations are reliant on cost-effective chips from Nvidia and others to carry out advanced artificial intelligence tasks like image and speech recognition. The chips also have military applications, such as scanning satellite imagery for weapons bases or filtering communications for intelligence gathering, and the U.S. government feels the new license requirement will mitigate those risks.
If Nvidia's customers don't want to purchase the company's alternative product offerings, or if the U.S. doesn't grant licenses in a timely manner or denies licenses to significant customers, it could impact the company's outlook for its fiscal third quarter (which includes $400M in potential sales to China). Advanced Micro Devices (AMD) also warned that it received a similar note from the U.S. government, though it doesn't see a material impact.
Go deeper: Recent reports stated that the Biden administration was reviewing new export sanctions on China, which involved chip equipment tools that could be used for making semiconductor advancements. The Commerce Department is also trying to figure out how to ban exports of tools that are sent to factories of Semiconductor Manufacturing International Corp. (OTCQX:SMICY), or SMIC, to prevent them from creating semiconductors at the 14-nanometer node and smaller. (107 comments)
Weeks after 'Big Short' investor Michael Burry said the "market silliness" is back, famed fund manager Jeremy Grantham has issued a warning to "prepare for an epic finale" to the market cycle. He argues that the current "superbubble" in asset prices hasn't deflated yet and appears to be dangerously close to its "final act." Some have compared Grantham and Burry to "a broken clock" that is right twice a day, especially since they have been issuing "superbubble" warnings since the pandemic began, but the two have made serious money off bubbles in Japan in the late 1980s, the dot-com era and the U.S. housing market crash in 2008.
Quote: "One of those features is the bear-market rally after the initial derating stage of the decline but before the economy has clearly begun to deteriorate, as it always has when superbubbles burst," Grantham wrote in a fresh research note. "This, in all three previous cases, recovered over half the market's initial losses, luring unwary investors back just in time for the market to turn down again, only more viciously, and the economy to weaken. This summer's rally has so far perfectly fit the pattern."
"My bet is that we're going to have a fairly tough time of it economically and financially before this is washed through the system. What I don't know is: Does that get out of hand like it did in the '30s, is it pretty well contained as it was in 2000, or is it somewhere in the middle? The U.S. stock market remains very expensive and an increase in inflation like the one this year has always hurt multiples, although more slowly than normal this time. But now the fundamentals have also started to deteriorate enormously and surprisingly: Between COVID in China, war in Europe, food and energy crises, record fiscal tightening, and more, the outlook is far grimmer than could have been foreseen in January."
Outlook: Despite the warnings, an aggressive Fed tightening cycle and worries about the economy, most American retirement savers haven't made changes to their portfolios. Only 5% of 401(k) and 403(b) investors shifted their asset allocations during the second quarter, according to Fidelity Investments, and the majority of those investors only made one switch to more conservative assets. Set it and forget it? Don't time the market? (84 comments)
Today's Markets
In Asia, Japan -1.5%. Hong Kong -1.8%. China -0.5%. India -1.3%.
In Europe, at midday, London -1.5%. Paris -1.5%. Frankfurt -1.4%.
Futures at 6:30, Dow -0.6%. S&P -0.7%. Nasdaq -1.1%. Crude -2.2% to $87.55. Gold -0.8% to $1711.90. Bitcoin -1.8% to $19,993.
Ten-year Treasury Yield +7 bps to 3.20%
Today's Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
3:30 PM Fed's Bostic Speech
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
Pfizer (PFE), Moderna (MRNA) win FDA nod for updated COVID boosters.
Snap (SNAP) logs best trading day since May on focused restructuring.
Report: Disney (DIS) is considering an Amazon-like membership program.
DC Attorney General sues Michael Saylor, MicroStrategy (MSTR) over taxes.
Nutanix (NTNX) jumps 20% postmarket on earnings beat, bright outlook.
3M (MMM) to eliminate jobs as part of broad cost-cutting push - Bloomberg.
Toyota (TM) investing $5.6B in EV battery production in U.S. and Japan.
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Comments (62)
What a week so far, and the excitement concerning the Market's has just started, much excitement coming forth yet.Cheers.
Markets will be fun to watch tomorrow.Ciao
Yes, the worst is yet to come, as I have been stating this selloff was coming forth on WSB for quite some time now, all looks to be coming to fruition, and keep an eye on the foreign market's also, as this snowballs throughout the global community, as dire straits prevail for all and in particular, keep a very, very close eye on Chinas market and economic situation, as if they selloff all hell breaks loose imo throughout.
Many analysts are currently coming out of the woodwork predicting / forecasting doom and gloom scenarios now at a more intense pace as of late, but I had been adamant about my forecasting concerning the markets, housing market crash and the imminent Global financial meltdown and currency reset coming forth in time, as time is on our side mm-hmmm.
Invest wisely my friends during these very, very trying times.DOW 15K-20K coming forth? Me thinks very likely.Ciao
Let the chips fall...
They're still pointing towards the price level of $75-$80 bbl for oil, or possibly even under $75 bbl oil coming forth, as $70 bbl bottom likely.
Then they signal a rise back up towards new highs after the drop has cycled out.Adding to my energy sector on significant drops of 5%-10% during volatility.
Just as I'm currently doing with my precious metal's portfolio of investments.
Awaiting the Global financial meltdown, and currency reset thereafter.
Buying opportunities are an advantage for those willing.Cheers.
No end in sight of what's likely coming forth, much pain for all.Cheers and best regards Ishi.
Too funny, as Cali goes, so goes the rest of the country. NOT!!Cheers.
I was laughing also as I watched Gov Newsome on the local news station. What is even more funny, is the millions of people out there who voted for this exact scenario and are told NOT to live in the 21st century.
Crazy destructive measures and policies will last only for so long, and just maybe our God above is wanting it to happen this way to open their eyes throughout mmm-hmmm.Ciao
I like this man's thinking, as its in line with what I've been preaching here on WSB for some time.
Jeremy Grantham says, "the worst is yet to come amid 'super bubble' cycle."Indeed, the worst is yet to come forth as the economic situation throughout the Global community intensifies as inflation runs rampant in many countries and will likely get much worse, leading to hyperinflation, recession and then depression for many economies throughout the Globe.Market crashes throughout? Me thinks, yes eventually.Ciao
I disagree. As he's cleansing the country of the corrupted $ launderers, biolabs and Nazi child traffickers. And that puppet leadership which was installed by the CIA who does the U.S. bidding, until he can't any longer, as his days are numbered imo.
Viva V. Putin!!Cheers.
died on Thursday after falling from a hospital window in Moscow, two sources familiar with the situation said, becoming the latest in a series of businessmen to meet with sudden unexplained deaths.Gatorade is entering the energy drink category with a caffeinated spin-off called Fast Twitch. No sugar and no carbonation. Fast Twitch seems to be a pre-workout option. This is "Breaking News" on CNBC. Slow day, I guess.A facility described by Danish energy firm Orsted as the “world’s biggest offshore wind farm” is now fully operational, with its 165 turbines set to help power in excess of 1.4 million U.K. homes. Hornsea 2 has a capacity of more than 1.3 gigawatts and stretches across an area of 462 square kilometers — more than half the size of New York City. Hornsea 2 uses Siemens Gamesa
turbines with blades measuring 81 meters, or more than 265 feet.More as Mr. Market charts his course for the day.Peace and progress.
wind (138)
nuclear (95)
conventional hydro (80)
solar (66)
other (76)Retired capacity: Of the 15.1 GW of electric generating capacity that U.S. operators plan to retire during 2022, more than half (8.8 GW) was retired in the first half of the year. Coal-fired power plants will account for 76% of the retirements this year, followed by natural gas (12%) and nuclear (9%). The largest U.S. coal power plant retirements in 2022 include the 1,305 MW William H. Zimmer plant in Ohio, which retired in May, and the 1,205 MW Morgantown Generating Station in Maryland, which retired in June. In addition, the 769 MW Palisades nuclear power facility in Michigan retired in June.Operating capacity: Wind generation accounts for the largest share, 34%, of the 15.1 GW of capacity that came online in the United States during the first half of 2022, followed by natural gas, solar, and battery storage. More than 40% of the wind capacity added so far in 2022 is located in Texas, 2.2 GW of the 5.2 GW wind total. The largest renewable projects that came online in the first six months of 2022 include the 999 MW Traverse Wind Project in Oklahoma, the 492 MW Maverick Creek Wind in Texas, and the 440 MW solar and battery storage project at Slate Hybrid in California.Planned capacity: Developers and project planners report plans to add 29.4 GW of new capacity in the United States in the second half of 2022. Nearly half of that planned capacity is from solar (13.6 GW), followed by wind (6.0 GW). As in previous years, many projects plan to come online in December because of tax incentives.Respondents to our survey currently plan to add 3.7 GW less solar capacity in 2022 than what they had expected at the beginning of the year. Pandemic-related challenges in supply chains and a U.S. Department of Commerce tariff investigation are likely causes for this decrease."
Sanctions backfired, as the EU and others are paying higher prices economically throughout, and the inflationary pains inflicted on their citizens is beginning to rile the locals as the higher prices on energy and other essentials skyrocket even higher, and this as the U.S. $ heads towards potential all -time highs, the U.S. will be exporting our inflation once other foreign currencies devalue and become weaker, and the EU is at risk. Their prices will continue climbing for goods / products and essentials.
Economic disaster is inflicting the EU currently, as Russia continues to survive sanctions, how ironic indeed.Ciao
Look what some Europeans are suffering through.www.zerohedge.com/...
"Inflation has exploded all over the world but all I read around here is that it's the current administration's fault."Not sure that anyone has said that the inflation in OTHER countries is the current US administration's fault ( even as there is such a concept as "exporting our inflation" since the USD is the world's reserve currency but let's say that effect is small relative to each countries' own destructive policies ). But it would be equally foolish to say that because there is inflation in other countries that our own domestic policies aren't affecting us adversely here. Time to retire this flawed line of reasoning of spreading the blame globally because it is squid-like rhetoric which desires to lump everyone in the same boat so that everyone is equally "hidden".
For comparison the Irish ratepayers were charged ~ $1,000 per megawatt hour.