Basel IV Rules Are Coming And Will Make Bank Lives Even More Difficult
Following up on the earlier Morgan Stanley note predicting that new regulatory rules will significantly and adversely impact new credit creation and will further tighten bank lending standards, Morgan Stanley analysts expect the Fed to publish new bank-capital rules between late May and early July, followed by a comment period, and ultimately a Final Rule, that would be phased in over time between 2025-27.
They expect implementation of this “Basel III Endgame,” also known as Basel IV, to drive up risk-weighted assets (RWAs) and capital requirements for their US Large-Cap Banks coverage, with the greatest impact on Global Systemically Important Banks (GSIBs).
While the analysts acknowledge that they can’t assess the exact impact until the final rules come out, after triangulating data from numerous Bank for International Settlements publications , they conclude that Common Equity Tier 1 Capital (CET1) ratios in their US GSIB coverage could decrease by a weighted average 0.7% (range 0.5-1.4%) in a more moderate “Scenario 1”…
Separately, and in keeping tabs on the ongoing debt crisis, Morgan Stanley refreshed its analysis of excess capital for our Large Cap Banks and Consumer Finance coverage. 1Q23 excess capital levels versus regulatory minimums at the median bank increased 13% q/q, but at the Money Centers excess capital decreased a median 16%, driven by declines at C and GS.
Bottom line: MS estimates some $153B of excess capital across the group vs. regulatory minimums as of 1Q23. Commentary from this earnings season suggests that managements are shifting into capital build mode as macro risk rises and as regulators are expected to impose tougher capital requirements on the industry.
The president of Thomas Jefferson University may lose his job for liking tweets from Alex Berenson on his personal account. The episode marks a warning against those in mainstream institutions that any deviation from prevailing orthodoxy – no matter how minor – will not be tolerated.
Mark Tykocinski, a Yale trained molecular immunologist, became president of the university in 2022. Last week, a reporter from The Philadelphia Inquirer went through his personal Twitter account which had under 300 followers.
The Inquirer reported that Dr. Tykocinski had liked tweets from Berenson that criticized transgender surgeries for children and the efficacy of mRNA Covd vaccines.
“Two years after their introduction, the mRNAs Covid vaccines have proven to be what we all should have expected,” one tweet from Berenson argued.
“Another in a long line of overhyped, rushed, profit-driven Big Pharma flops with weak long-term efficacy and a lousy side effect profile.”
This constituted a media and academic scandal. The reporter demanded an explanation, and Tykocinski’s colleagues rebuked his transgression. Thomas Jefferson University CEO Joseph G. Cacchione wrote to faculty, employees, and students that Tykocinski “should have known better” than to like those tweets.
Even self-professed defenders of free speech joined the chorus of reprimands. Jonathan Zimmerman is a professor at the Pennsylvania Graduate School of Education and the author of Free Speech: And Why You Should Give a Damn. In 2021, he defended Georgetown Law adjunct professor Sandra Sellers after she was fired for noticing that black students underperformed in her class.
“Georgetown’s official policy on speech says it is ‘committed to free and open inquiry, deliberation and debate in all matters.’ It has now carved out an exception for matters of race, which are essentially closed,” he wrote.
“The lesson [from Georgetown] is clear and unequivocal: Keep your big mouth shut, if you know what’s good for you.”
Now, Zimmerman has discovered his own carve-out – wrongthink related to Covid and juvenile transgender procedures.
“If he liked those tweets because he agrees with Alex Berenson, that is a dagger at the heart of the scientific enterprise,” Zimmerman told the Inquirer.
“There’s no other way to describe it.”
“I have sworn upon the altar of god eternal hostility against every form of tyranny over the mind of man,” then-Vice President Thomas Jefferson wrote in 1800. Now, the university that bears his name has declared hostility against its president for social media wrongthink.
But the attack is not directed at Dr. Tykocinski. It is a warning against anyone in institutions that they must conform to prevailing orthodoxy or risk their professional reputations. They must keep their big mouths shut, in the words of Professor Zimmerman. In this system, career advancement relies on obedience rather than ingenuity. It is no wonder that our ruling class is so banal.
By silencing critics, the powerful aim to achieve authority without accountability. Submission is central to their quest for power, and threatening the livelihoods of freethinkers is a powerful ploy.
Berenson’s reporting and support from public figures like Jay Bhattacharya and Elon Musk may save Dr. Tyconski’s job for now; but going forward, he’ll know the price that he will bear if he deviates from groupthink. He didn’t have to say anything to learn this reality. He didn’t make a post or deliver a speech. All it took was liking a tweet from a journalist.
Free speech is more than a slogan. It must be an operational reality for everyone. It can be closed down by forces other than edicts from government. It can be suppressed also by arbitrary private actions that reflect regime priorities. Ever more workers and especially intellectuals today work in an environment of fear that leads to self-censorship.
There are many ways to skin a cat and many paths toward despotism. Canceling the capacity of competent professionals to dissent against the state-subsidized orthodoxy is one.
Buffett Turns Gloomy: The “Incredible Period” For The US Economy Is Coming To An End
While Warren Buffett’s insights on the economy are traditionally cheerful and uplifting – usually hitting at time of peak pessimism in the form of self-serving NYT op-eds or CNBC vignettes (and usually around the time the Omaha billionaire knows that the government will backstop his TBTF investments, unlike those of pretty much anyone else), on Saturday the head of Berkshire Hathaway had a far more downbeat and gloomy prediction for his own businesses – and the broader economy in general – the good times may be over.
Speaking at Berkshire’s annual general meeting in Omaha, Nebraska, the billionaire investor said he expects earnings at the majority of the conglomerate’s operations to fall this year as the coming economic downturn slows corporate activity further. He made his pessimistic comments even as Berkshire posted an almost 13% gain in operating earnings to $8.07 billion for the first quarter, up from $7.04 billion a year ago.
“The majority of our businesses will report lower earnings this year than last year,” Buffett, 92, said, before crowds of thousands at the event on Saturday according to Bloomberg. During the last six months or so, the “incredible period” for the US economy has been coming to an end, he said.
As Bloomberg notes Berkshire is often viewed as a proxy for economic health owing to the expansive nature of its businesses ranging from railroad to electric utilities and retail. Buffett himself has said Berkshire owes its success to the incredible growth of the US economy over the decades, but his prediction for a slowdown at his firms comes as upheaval at regional banks threatens to curtail lending as inflation and higher rates continue to bite.
Buffett’s long-time business partner Charlie Munger, 99, who joined him on stage, said the more-difficult economic environment will also make it harder for value investors, who typically buy stocks that look cheap compared to the intrinsic value of the businesses.
“Get used to making less,” Munger said.
Despite the broader pessimism, Buffett said he expects earnings at its insurance underwriting operations — which are less correlated to business activity — to improve this year. Berkshire already reported higher earnings at those businesses including auto-insurer Geico, which swung to profitability following six quarters of losses.
Geico posted $703 million in earnings as higher average premiums and lower advertising spending contributed to the gain even as claim frequencies fell, Berkshire said in a statement reporting its earnings Saturday. That revival follows a difficult period for the underwriting business as inflation took its toll on the cost of materials and labor.
Geico has been facing particular pressure from rivals including Progressive, which Buffett has called “well-run,” and Allstate which had long used telematics programs to track drivers and encourage better behavior before Geico introduced the offering. Geico’s profit also helped Berkshire’s insurance underwriting businesses deliver $911 million in profit compared with $167 million a year earlier.
Berkshire previously said it expected Geico to return to operating profitability in 2023, after securing premium rate increases. Still, Geico remains an issue for Berkshire, with top line growth in the quarter of less than 1% that “significantly lags peers,” CFRA analyst Cathy Seifert said.
“I suspect rate hikes being put through to offset claim cost inflation is being met with policy cancellations,” she said. “While the loss of unprofitable policies is not always a bad thing- that’s not usually the policies — and policyholders — that leave.”
Other parts of the conglomerate took a bigger hit, with after-tax earnings from Berkshire Hathaway Energy falling 46.3% from the same time last year amid “lower earnings from the US regulated utilities, other energy businesses and real estate brokerage businesses.” Railroad results were also weaker than expected due to a fall in freight volumes and higher operating expenses, according to Edward Jones analyst Jim Shanahan.
But at one of Berkshire’s best known businesses, Brooks Running Co., Chief Executive Officer Jim Weber was skeptical of a steep consumer downturn.
“With unemployment being so low, it’s hard to be believing we’re going to fall off a cliff into a recession at the consumer level,” Weber said in an interview on Friday ahead of the meeting. “I wonder if this is going to be an asset-value recession.”
Among other topics discussed on Saturday were Buffett’s succession, the banking crisis, the US debt ceiling crisis, the company’s investment in Occidental, Chna’s upcoming invasion of Taiwan and more:
Succession planning: Buffett named Greg Abel, 60, as heir apparent in 2021, and the vice chair for non-insurance operations has had a more pronounced presence ever since. On Saturday, Buffett reaffirmed he was “100% comfortable” with the decision and even indicated a largely business-as-usual transition, for whenever that could be. “Greg understands capital allocation as well as I do. That’s lucky for us,” Buffett said at the meeting in Omaha, Nebraska. “He will make those decisions, I think, very much in the same framework as I would make them. We have laid out that framework now for 30 years.”
Occidental control: One analyst called it the biggest announcement of the day: Berkshire won’t make an offer for full control of Occidental Petroleum Corp., the energy firm it has spent months boosting its wagers on. The comment by Buffett likely helped temper speculation that Berkshire is seeking to own Occidental after winning approval from US regulators last year to acquire as much as 50% of the firm. Buffett didn’t rule out buying more stock of the Houston-based firm, adding it may — or may not — seek further purchases.
Banking Turmoil: Buffett and Munger were so sure they’d be questions about the recent banking turmoil that they jokily brought placards bearing the accounting classifications spotlighted during the upheaval. One was labeled “available for sale,” while the other read “held to maturity.” Striking a more serious note, Buffett faulted the executives in charge of the failed banks, arguing they should be held accountable for mistakes that were hiding in “plain sight.” He also called out “messed up” incentives in banking regulation, as well as poor messaging by regulators, politicians and the press to the American public about the upheaval. Buffett pointed to First Republic Bank, the insolvent bank which last weekend was acquired by JPMorgan after it collapsed after offering jumbo, non-government-backed mortgages at fixed rates that were interest-only for 10 years in some cases — which Buffett called “a crazy proposition.”… “It was doing it in plain sight and the world ignored it ‘til it blew up,” Buffett said.
Debt Ceiling: As lawmakers race to resolve a standoff around the US debt ceiling, Buffett said he couldn’t see how Washington would allow the US to default on its debt, an outcome that would tip the financial system into turmoil. Investors and politicians are zeroing in on whether or not the US government can avoid crashing into its statutory debt ceiling and a potentially catastrophic technical default that could follow. Despite the impasse, Buffett reiterated his belief in America as an “incredible society” with “everything going for us.” Given the choice, he would still want to be born in the US, he said.
Geopolitics, Taiwan: In Q4 Buffett slashed his holding of Taiwan Semi just months after disclosing a major stake in a quick reversal that spooked investors. Buffett said Saturday the company was one of the best managed and most important in the world, but that he didn’t like the location — a reference to Taiwan amid rising tensions between the island and China. Buffett and Munger emphasized the need for smooth relations between the US and China and urged increased trade. While the two will be competitive, they will always need to judge “how far you can push the other guy without them reacting wrong,” Buffett said.
Separately, Berkshire topped up its cash pile, ending the quarter with $130.6 billion, a $2 billion increase from the $128.6 billion at the end of the year. This means that Berkshire stands to make a bonanza from interest income as the Fed keeps hiking rates: “Our investment income is going to be a lot larger this year than last year, and that’s built in,” Buffett said at the annual meeting.
The company was also a net seller of equities for the second quarter in a row, pocketing $10.4 billion in net stock sales ($13.3 billion gross) after deducting purchases of $2.9 billion.
Finally, Berkshire bought back $4.4 billion of stock, an increase from the same period last year, as Bekrshire confronted turbulent markets that offered fewer of the blockbuster deals he’s renowned for. Berkshire has turned toward buybacks more often as valuations in public markets had made it more challenging for Buffett to identify promising acquisitions.
Georgia Passes Law To Crack Down On ‘Far-Left’ Prosecutors Who Are Soft On Crime
As of Friday, Georgia will no longer cater to “far-left prosecutors” who are soft on crime, after Republican Governor Brian Kemp signed a bill into law establishing the Prosecuting Attorneys Qualifications Commission (PACQ), part of a broader GOP thrust to get tougher on crime and make communities safer, the Epoch Times reports.
“My No. 1 priority is public safety across our state,” said Kemp, whose office described the commission as a “valuable oversight mechanism” that ensures the duties of state officials are fulfilled.
The Commission will be comprised of eight members, six of whom will be current or former prosecutors, and two other lawyers, who will oversee district attorneys and solicitors general.
“The creation of the PACQ will help hold prosecutors driven by out-of-touch politics than commitment to their responsibilities accountable and make our communities safer,” said Kemp.
The new commission has the authority to investigate alleged misconduct by district attorneys and solicitors-general and discipline or remove them entirely if they meet the conditions for removal, which include “willful and persistent failure to carry out statutory duties” and conduct that is “prejudicial to the administration of justice.”
Republicans across the country have pushed measures to rein in progressive prosecutors who they see as being soft on criminals by declining to prosecute certain crimes. -Epoch Times
“As hardworking law enforcement officers routinely put their lives on the line to investigate, confront, and arrest criminal offenders, I won’t stand idly by as they’re met with resistance from rogue or incompetent prosecutors who refuse to uphold the law,”” said Kemp.
State Democrats unsurprisingly opposed the law, arguing that the Republican legislative majority was looking for ways to impose its will on Democratic voters.
“I strongly oppose an excessive and unnecessary commission as district attorneys are already held accountable under existing laws and through the current democratic process of holding election,” said Deborah Gonzalez, Democratic district attorney for Athens-Clarke and Oconee counties, who has declined to prosecute drug crimes involving marijuana.
Republicans go after “rogue” prosecutors
Georgia’s new commission comes amid a fight by Republicans against “rogue” district attorneys, often funded directly or indirectly by billionaire agent of chaos, George Soros.
“The inability to ensure public safety and protect communities is occurring at every level of state government,” Reps. Steve Scalise (R-La.) and Scott Fitzgerald (R-Wis.) wrote in an op-ed. “By cracking down on rogue prosecutors who favor criminals over victims, we can ensure that no one else is put in harm’s way as a result of Democrats’ negligence.”
According to former President Donald Trump, “Soros prosecutors appear to be engaging in selective enforcement based on illegal racial discrimination” in major Democratic strongholds such as Chicago, San Francisco, and Los Angeles.
Trump has vowed to target Soros prosecutors if he’s elected president again in 2024, and has vowed to “overhaul” the Department of Justice.
“They are Marxist in many cases,” said Trump, who pledged to appoint around 100 US attorneys who are the “polar opposite” of the “Soros district attorneys and others being appointed around the United States.”
On Thursday, a progressive prosecutor who was notoriously funded by far-left billionaire George Soros announced her resignation, after months of bipartisan pressure to do so.
Fox News reports that Kim Gardner, the Circuit Attorney for St. Louis, announced that her resignation will be effective June 1st. Gardner was one of the first prosecutors in the country to be bankrolled by Soros, who has since expanded his efforts to other major cities across the country. She was first elected in 2016 and re-elected in 2020, largely due to Soros’ financial backing. Prior to her resignation announcement, she had declared her intention to run for a third term in 2024.
There were approximately 10,000 energy projects in April designed to produce more than 2,000 gigawatts (GW) of collective power waiting for permits from federal and state agencies to connect to electric grids across the United States.
The problem is, that is nearly twice the collective electricity output of the 1,250 GW now being produced by all the nation’s power plants, most of which were built to generate power using fossil fuels.
Therefore, two bottlenecks are looming—more power is trying to squeeze into an inadequate grid and coal-fired plants are being retired faster than new plants using renewable energy sources such as wind and solar are being built to replace them.
“The United States is heading for a reliability crisis,” Federal Energy Regulatory Commission (FERC) Commissioner Mark Christie warned on May 4 in a hearing before the Senate Energy & Natural Resources Committee.
“I do not use the term ‘crisis’ for melodrama, but because it is an accurate description of what we are facing,” Christie said. “I think anyone would regard an increasing threat of system-wide, extensive power outages as a crisis.”
Committee chair Sen. Joe Manchin (D-W.V.) and ranking Republican Sen. John Barrasso (R-Wyo.) agreed, with both identifying the same culprit in an “impending, but avoidable, reliability crisis” that confronts the nation’s electricity grid.
The “premature fossil retirements” amid increasing demand for power are a result of President Joe Biden’s green energy initiatives in 2021’s Bipartisan Infrastructure Law (BIL) and 2022’s Inflation Reduction Act (IRA) that incentivize investments in renewable energy.
The incentives have proven effective in inducing investor interest—maybe too successful with projects being proposed and approved sooner than expected and faster than the grid’s transmission capacity is expanding.
The Biden administration is “trying to force a dramatic increase in electrical demand” through the BIL and IRA, Manchin said, which will foster disruptions in transmission as old plants are retired and new ones come online.
“We do have to address climate change but this transition is happening too fast,” he said, noting he and House Republicans have filed bills that address transmission. “I hope we can sit down and negotiate in good faith and put politics aside.”
Natural Gas Shunted Aside
Barrasso blasted the Biden administration for contributing to the pending energy transmission bottleneck by discouraging natural gas pipeline development, citing an April U.S. Energy Information Agency (EIA) report that documented the least amount of pipeline was built in 2022 than any time since such record-keeping began in 1995.
Without restoring “balance” in the nation’s energy equation that includes coal, natural gas, and oil, “energy prices will skyrocket, grid reliability will degrade, and families all across the country will suffer,” Barrasso said.
Christie was one of the four FERC commissioners to address the Senate committee during a hearing on the agency’s $520 million fiscal year 2024 budget request, but few questions posed by senators during the session directly addressed the proposed spending plan.
Under the Federal Power Act, Natural Gas Act, and Interstate Commerce Act, among other legislative and administrative actions, FERC is responsible for managing the nation’s electrical grid.
More than 5,200 megawatts (MW) of oil, coal, and nuclear power plant energy generation were “retired” between 2013 and 2022, and another 5,000 MW of coal- and oil-fired generation could be retiring in coming years, according to the U.S. Energy Information Agency (EIA).
Coal-fired plants that generate more than 200,568 MW of energy plan to shut down by 2029 because of “continued competition from natural gas and renewable resources” and higher operating costs associated with older, less efficient coal-fired generators, the EIA reported in November 2022.
It said an average of 9,450 MW of coal-fired electricity was retired annually between 2012 and 2021. U.S. coal-fired plant retirements totaled 11,778 MW of capacity in 2022. That trend is expected to continue at least through 2029 when, the EIA projects, 23 percent of the remaining 200,568 GW of coal-fired energy will go offline.
Michigan, Texas, Indiana, and Tennessee will see the most “coal-fired capacity retirements” through 2029, accounting for a combined 42 percent of energy generation in those four states that will need to be replaced.
Natural gas is also leaving the grid faster than it is being replaced. In November, FERC anticipated 107 units of “high-probability” natural gas units totaling 17,062 MW capacity would go online by September 2025. Over that same time span, however, 130 units totaling 17,489 MW of natural gas power will go offline.
By September 2025, FERC anticipates that the amount of electricity produced by renewable energies will grow from about a quarter of the nation’s power generation to one-third of “available, installed generating capacity.”
Utility-scale solar and wind generating capacity would expand from 17.37 percent of domestic capacity to 23.24 percent by September 2025, with solar and wind accounting for 11.23 percent and 12.01 percent, respectively, according to FERC.
While the sharp increase in FERC’s three-year forecast for wind and solar, coupled with coal-fired plant retirements and the “apparent peaking of natural gas” as a source of electrical generation applauded by renewable energy proponents, even those who support the shift to renewables are raising alarm about the timing of a transition that is happening faster than government capacity to plan and regulate.
Much of the hearing focused on interim FERC Chair Willie Phillips, named by Biden in January to succeed Richard Glick, a Democrat criticized by Senate Republicans and Manchin for imposing new guidelines on natural gas projects and incorporating pipeline emissions in permitting reviews.
Machin addressed the pile-on of new greenhouse gas regulations imposed by the Biden administration as “simply staggering” during the May 4 hearing.
Biden originally nominated Glick for another term but in November Manchin said he was “uncomfortable” with the renomination and would not hold a required confirmation hearing before his committee.
Machin endorsed Phillips as chair in a Jan. 3 statement that called him “a supremely qualified and reasonable person” who “understands the need to balance affordability and reliability.”
Barrasso said he also backs Phillips’s confirmation as FERC chair, praising him for “resetting the agenda to bring forward discussions for action” with an “emphasis on energy availability and affordability.”
While he doesn’t always agree with him, Barrasso told Phillips, “Under your leadership, the commission has made great progress since you took over just a couple of months ago.”
Phillips, who was District of Columbia Public Service Commission Chair from 2018 to 2021, has served as a FERC commissioner since December 2021.
A regulatory attorney, he has been criticized by Public Citizen and other consumer groups as too accommodating to utilities, primarily from his stint as counsel for the North American Electric Reliability Corp, a public-private entity that assists FERC in grid development.
With Phillips serving as chair, the five-seat FERC commission is down one member and evenly split between Democrats and Republicans. A fifth commission nominee has not been put forward by the administration.
Phillips and Allison Clements are the commission’s two Democrats with Christie and James Danly as its two Republicans. All addressed the Senate panel on May 4.
The Electric Power Supply Association and Interstate Natural Gas Association of America are among industry groups raising fears that the 2–2 deadlock can delay projects, including the transmission of zero-emissions electricity into the utility grid, efforts to bolster climate-weather resiliency, and the warding off of cyber-attacks.
Phillips said one of the first things he did as FERC chair was clearly reiterate the agency’s reason for existing.
“It is our responsibility to ensure that rates for the wholesale sale and transmission of electricity, as well as the transportation of oil and natural gas by pipeline, in interstate commerce are just and reasonable,” he said in his testimony.
FERC is also responsible for permitting and regulating energy infrastructure—plants and transmission lines—and that includes “interstate natural gas pipelines” and “facilities for exporting or importing Liquified Natural Gas.”
Phillips said that after clarifying FERC’s mission, he sent forth three priorities: reliability, electric transmission, and environmental justice.
“I am happy to report that, in a few short months, we have made substantial progress on all three fronts,” he told the panel.
Reliability “is—and always must be—job number one” for the commission when the nation faces “unprecedented challenges to the grid’s reliability,” Phillips said.
“Foreign and domestic actors are testing our cyber defenses every day. Physical threats to the grid are on the rise. And extreme weather of all kinds is threatening power to customers across the country,” he said.
Among the steps in addressing cyber security is the January finalization of a rule that requires the North American Electric Reliability Corporation (NERC) to develop “enhanced cybersecurity standards,” Phillips said.
NERC, a not-for-profit public-private regulatory entity provides FERC with reliability and security assessments of grid integration from Canada to northern Mexico.
In February, Phillips said, the FERC Commission updated and enhanced winter preparedness measures recommended by NERC “designed to help prevent a repeat of the grid impacts we saw” in 2021 winter storms, especially in Texas.
The commission in March approved new reliability standards to “further protect our electric system supply chain from hostile actors,” he said, adding in April it “issued yet another final rule,” this time implementing the requirement in [BIL] to establish incentives to induce cybersecurity investments.
“These actions represent the ‘blocking and tackling’ that is absolutely necessary to ensure that our electric grid remains secure, reliable, and resilient,” Phillips said.
FERC’s second priority under his leadership is transmission, he said.
Transmission “is, in itself, a reliability imperative,” Phillips said, calling transmission “the key that can unlock the potential of so many of the energy security measures” in the BIL and IRA.
Phillips said FERC has several “rule-making” priorities it wants to implement in the coming year to enhance transmission.
“First, my highest priority in the near term is to finalize a proposed rule that will greatly improve our processes for interconnecting new electric generating resources, reducing the time it takes to bring those resources online,” he said.
“In addition,” Phillips added, “we are working to finalize a second proposed rule on how to plan and pay for badly needed regional electric transmission facilities.”
A third proposed transmission-related rule would provide the FERC commission with the “backstop siting authority” accorded it under the BIL.
Philips said his third priority as FERC chair is environmental justice.
“For me, this is personal,” he told the Senate panel, recalling growing up in “an environmental justice community in Alabama” where he experienced “firsthand what it means for a community to bear more than its fair share of pollution and the other costs of industrial development.”
He balanced that experience with recognizing “the benefits that investment can provide to historically underserved communities” in the form of jobs, tax revenues, and the community benefits of economic development.
“Having seen both sides, it is my goal as chairman to do all that we reasonably can to ensure that environmental justice communities affected by the commission’s decisions do not bear too great a share of the burdens or too small a share of the benefits that new energy infrastructure can provide,” Phillips said.
Tucker And Elon? Carlson Plots Next Moves – But Only If Fox Lets Him Out Of 2025 Contract
Former Fox News host Tucker Carlson is rallying forces to convince Fox to let him out of his contract so that he can work for, or launch, another network, Axios reports, citing sources close to Carlson – who apparently “knows where a lot of bodies are buried, and is ready to start drawing a map,” said one source who wasn’t authorized to speak publicly.
The network currently holds a contract which expires in January 2025 – after the next US election. To work on the contract dispute, Carlson has retained high-powered Hollywood lawyer Bryan Freedman, who told Axios: “The idea that anyone is going to silence Tucker and prevent him from speaking to his audience is beyond preposterous.”
According to the report, “Carlson allies with big platforms are prepared to attack Fox for trying to keep him on the shelf.”
Why it matters: Tucker vs. Fox could reshape the conservative news world. Fox, which has seen its ratings plunge in Carlson’s slot since he was let go 13 days ago, wants to sideline him by paying him $20 million a year not to work.
We’re told Carlson has been contacted by outlets — including the right-wing Rumble and Newsmax — that offered to pay him more than his Fox contract. -Axios
And in a blurb that could send shockwaves through the media landscape, Axios reports that Carlson and Elon Musk have discussed working together, however there are no specifics to report.
The former Fox host is also looking into building a direct-to-consumer media outlet through which his millions of fans could pay to watch him – something his predecessor, Bill O’Reilly, has successfully employed.
See you soon?
48 hours after Fox booted Carlson, he tweeted a video discussing the ills of the industry, ending with “See you soon.”
One close Carlson friend told Axios of the media titan’s allies: “They’re coming to him and saying: ‘Do you want me to hit Fox?’
To which Carlson has been saying “No. I want to get this done quiet and clean.”
In a signof what could be coming, Megyn Kelly hit her former employer for its post-Carlson ratings by tweeting a reference to conservative attacks on Bud Light: “My audience is calling them #Foxweiser.” -Axios
That said, “Now, we’re going from peacetime to Defcon 1,” according to the friend. “His team is preparing for war. He wants his freedom.“
Thousands cheered King Charles III with ‘God Save The King” as his gilded carriage passed through London. The coronation had all of the pomp and circumstance that people expected from the fifth longest monarchy in history (Japan is the longest).
The ceremony included one time-honored tradition that some of us could have done without: the arrest of peaceful protesters. It was all part of “Operation Golden Orb” and follows a long, unbroken British tradition of quashing free speech.
London’s Metropolitan Police made 52 arrests during the coronation, including many anti-monarchy protesters who were wearing yellow T-shirts and shouting “Not My King.”
They were members of Republic, an anti-monarchy group that fails to see the need for a royal family.
The group said that they were not told the reason for their arrests and that police “would figure it out” later. If the group wanted to make a statement against the monarchy, it has succeeded. The group posted on Twitter, commenting: “So much for the right to peaceful protest.”
— Alliance of European Republican Movements (@AERMorg) May 6, 2023
Commander Karen Findlay defended the arrest and said, while the police respects free speech, a peaceful protest can become unlawful.
“This depends on the context. The coronation is a once in a generation event and that is a key consideration in our assessment. A protest involving large numbers has gone ahead today with police knowledge and no intervention.”
It is a statement that is quintessentially British. It lacks any discernible objective standard. It depends entirely on the view of the “context” by authorities on whether to allow free speech to occur.
Previously, the police announced that “our tolerance for any disruption, whether through protest or otherwise, will be low,. We will deal robustly with anyone intent on undermining this celebration.”
“Undermining this celebration.” It is a line best delivered with a haughty accent and a harrumph.
The fact is that Great Britain never had a free speech tradition analogous to our own. Free speech was not guaranteed in the celebrated Magna Carta. The country has long relied (as in other areas) on the benign and beneficent judgment of its government.
That lack of clarity and structural protections has allowed the government to exercise ill-defined powers for centuries against dissenting voices. It has also contributed to the rapid erosion of free speech in recent years.
We recently discussed the call of a minister for the jailing of social media heads whose companies refused to carryout censorship.
It appears one of those toxic ideologies is the belief of a democratic government without a monarchy. It is a telling moment for a country that often justifies the royal family as a harmless tradition since the King has little power in the actual governing of the nation. Indeed, many seem to speak of the royal family like virtual Disney “cast members” who are good for tourism. However, those characters become a tad less lovable when dozens are being arrested in the background.
It is all summed up by the words on the family’s coat of arms: Dieu et mon droit: “God and my right.” As shown in these arrests, that “my” part is still exclusive and literal when it comes to free speech.
No, I’m not talking about virtual reality or our efforts to use and understand AI chatbots. I’m talking about markets.
Video games let you do things extremely fast. You can conquer the world or play a single NFL season in a couple of days. Anything is possible and it happens quickly so you can do it over and over again.
This week saw two such examples:
We started with the recession theme gaining traction and ended up believing in the “soft landing” scenario. WTI was the poster child of this fast paced “game” dropping from $77 to $68 (and finishing at $71).
Apparently, we had (and fixed) a banking crisis this week. We did that in a week for the second time this year! While banking stocks ended the week down, there were some eye-popping moves to the upside on Friday.
I’m not incredibly bearish. I’ve been moderately bearish and despite Friday’s strength, the S&P 500 closed down almost 1% and the Nasdaq 100 was fractionally positive. I’m loath to bring up this next topic, but I feel obligated to do so.
I HATE the Big Short
This is ground that we’ve covered before, but between what is going on and my thoughts on Mommy, Where Do Bond Losses Come From, I felt that it was time to reiterate some long-running themes. The bond loss piece we published on Thursday is worth a read if you missed it.
I HATED the Big Short. I like Michael Lewis a lot. Liar’s Poker is still my first recommendation for anyone thinking about working on Wall Street (with the number of veterans reaching out to Academy Securities, we’ve likely bumped up sales). This has nothing to do with Michael Lewis, but everything to do with how the story was told.
It took me a few years to even crack the book open. I lived through the crisis trading CDS indices at the time (IG, HY, XO (what a beast), and LCDX). We traded with many in the mortgage market as people were trading ABX (“blowing up the world” fame) against the other markets. Some of the biggest mortgage players were big components in the CDS indices (WAMU, Countrywide Financial, etc.). So, the tickers and the trading were forever seared in my mind (not in a good way) and I was reluctant to read the book.
I finally fought my way through the book and have only one complaint, but it is a big complaint. The book made it sound like only a couple of people figured out the “problem”. For the record, I still cannot bring myself to watch the movie despite being told it is really good.
Very few identified the problem, found the best way to execute the bet (AAA ABX), had the staying power to be in the trade when it started to crack, AND had the conviction to stay in the trade throughout various powerful rallies.
The story took years to play out. Investors had been bearish on this segment of the market as early as 2005 and there was no better example of “early equals wrong” in financial markets than those trades. 2006 saw more people get bearish. Early 2007 created even more bears (and an inordinate number of “why ABX is cheap” teach-ins by Wall Street). So it wasn’t that only one or two people figured something out, many figured it out too early, which I think is a useful lesson in this “video game” environment that we are trading in!
The first big cracks in the mortgage backed market started in 2007. Yet, after some serious Fed intervention, stocks hit new highs in October. Then things cracked again, with CDX IG almost breaking 200 in the days before Bear was bought by JPM. And yes, you guessed it, we went back to very tight levels on credit in the summer of 2008. Lehman was in the autumn of 2008 and was just one of many pivotal events that fall. The stock market didn’t bottom until March 2009!
While the “Lehman Moment” might be useful (Lehman Was NOT a Moment), the process was long and created plenty of opportunities to make and lose money in every direction.
The main takeaway is that the market treated things as “solved” multiple times during those years, only to find out that they really weren’t solved (or that we had moved on to some other issue, more often than not triggered by one of the earlier problems).
I’m Not as Bearish as the Paragraph Might Make It Seem
I’ve been sitting at a -4 (on a scale of -10 to 10) on equities for about a month (S&P 500 up 0.76% in that time, Nasdaq 100 up 1.5%) and only this week did I downgrade credit risk from neutral to -4.
If anything, despite the prior section, I’m tempted to nudge my risk appetite closer to neutral (or even positive).
The two things that I liked about this week:
Good news was good on Friday. The Jobs data was “good news” from an economic standpoint as discussed on Friday. The 2-year yield jumped 13 bps (from 3.79% to 3.92%, which used to be a big move in 2-year yields). The market, rightfully so, believed that the data could push the Fed to think about a hike in June rather than being done or cutting.
Earnings are almost done and discretionary buybacks are ramping up. The buybacks are one very powerful tool against the headwinds of QT. With many stocks well off their highs, there should be strong use of buybacks, even in this higher-yield environment.
I did not like the fact that chatter about investigating short trading in bank stocks on Thursday/Friday contributed to the strength. My experience through the GFC and the European Debt Crisis is that banning shorts tended to have very limited impact and made things worse if and when there was another round of weakness (as there would be no “short covering” bid).
Bottom Line
I’m being stubborn by not budging on my equity/credit rating. I probably should be nudging it closer to neutral, but I cannot bring myself there.
Beyond that, some “vague notion” that I have is percolating into something that could be a plausible tail risk event. I’m still toying with how it could play out, but “bond losses” due to forced selling, the over eagerness to claim victory over each crisis, and the increasingly dismissive attitude towards the uber bears (who have had a few recent victories) are crystalizing into some sort of tail risk.
That tail risk, while still nebulous, is lurking somewhere in the bond market. As discussed in “where do bond losses come from”, the debt ceiling (however chaotic it becomes, including the risk of failing to pay some debt on time) has the potential to be a catalyst. We could see, for a variety of reasons, bond selling outpacing bond demand too quickly, which could cascade into other assets. Again, I haven’t latched onto that scenario, but it is what I’m thinking about a lot right now. Also, at least so far, the chatbots haven’t identified it, so there might still be the need for human thought.
On rates, we are rangebound for now. 3.55% on 10s seems to be a buy, while 3.30% seems like a sell. There might be some tail risk to either side, but it isn’t obvious to me unless some geopolitical event occurs, which would more likely create a flight to safety trade.
On the front-end, the market got ahead of itself and continues to be too optimistic that the Fed will enter cutting mode. I don’t like the 2-year here, as it should be yielding more, and therefore believe that 2s vs 10s will get more inverted. However, that trade was briefly crushed this week (before the recession was avoided on Friday).
With a high degree of certainty, I’d advise issuers to issue sooner rather than later. Summer is fast approaching on what has been a tiring start to the year for most asset managers and the debt ceiling (amongst other things) creates some uncertainty.
And while both the issues facing the banking system and recession risk were “resolved” this week, we don’t live in a video game or a book. This is why I am unchanged on my risk outlook. This weekend, maybe I will guide the Bills to a Super Bowl in Madden or I’ll enjoy the nice weather and play golf (something chatbots can’t do by the way).
Wagner Chief Says Moscow Agreed To More Arms After Threats To Quit Bakhmut
Exactly one week ago Wagner chief Yevgeny Prigozhin first threatened that he and his men would withdraw from the strategic city of Bakhmut, where Russia appears close to victory given it controls at least 90% of the city, if the Russian defense ministry didn’t immediately supply all the arms needed to keep up the offensive.
“I am appealing to Sergei Shoigu with a request to issue ammunition immediately,” he said at the time in reference to Russia’s defense minister. “Now if this is refused … I deem it necessary to inform the commander-in-chief about the existing problems, and to make a decision regarding the feasibility of continuing to station units in the settlement of Bakhmut, given the current shortage of ammunition,” Prigozhin warned in video statements. He had cited “useless and unjustified” losses due to lack of regular supplies.
On Friday he followed by narrowing his threat, setting a withdrawal date of May 10 if the necessary arms and ammo didn’t come through. It was a surprising move given it was a very direct and open challenge to the top military leadership of Russia. Likely, President Putin himself was forced to “decide” on who to back in the spat: Prigozhin and his frontline Wagner fighters, or the regular chain of command.
But in a new audio clip posted to Telegram on Sunday, Prigozhin announced he received overnight notification that he’ll be getting all the ammunition needed. The Washington Post reports of his words:
“We are promised to be given ammunition and weapons as much as we need to continue further actions,” Prigozhin said, adding that he had been granted the power to fight “as we see fit.”
The internal feud over military tactics in Bakhmut, which Russian forces have been trying to seize since last year, is a flash point in the broader rift with Moscow’s defense ministry that has played out in increasingly public view over recent months.
Prigozhin had already threatened to quit Bakhmut before – but if this happened it would be a huge blow to the Russian advance in Donetsk to overall war objectives. There’s growing speculation that this rift has sparked elite infighting within the halls of the Kremlin.
He has repeatedly charged the regular military command with “betraying” his fighters by withholding ammunition in the ongoing spat which became public with the Russian seizure of Soledar. A Wagner statement at the time declared victory over the city for itself, but controversially didn’t acknowledge the role of the regular military. The infighting has increasingly been out in the open since then, and is no doubt somewhat of an embarrassment while facing down NATO and the Western allies.
The whole episode shows that indeed Prigozhin is a very powerful individual when it comes to Kremlin influence. Clearly he still has Putin’s ear as he is the proverbial horse being backed as the fight for Bakhmut is in its end phase. This even after he posted the below rant which called out the defense minister and top armed forces commander by names:
Wagner PMC’s Prigozhin has lost it. Hard not to interpret this as a declaration of war against Russia’s Defence Minister Shoigu and Armed Forces Chief Gerasimov. Yesterday, Wind of Change mentioned that FSB resources are being diverted to prevent a coup. pic.twitter.com/MvMs3el5YG
Russia appears to be scrambling to deliver total victory in Bakhmut before Russia’s ‘Victory Day’ celebrations on May 9, but that could still prove a tall order as the ferocity of the remnant Ukrainian defenses hasn’t let up. Prigozhin now says Russia holds 95% of the city.
Twitter CEO Elon Musk on Saturday questioned why the media misrepresents “the real situation” when it comes to interracial violence “to such an extreme degree.”
Odd, why would the media misrepresent the real situation to such an extreme degree?
The media’s lies are getting innocent people killed and may be inciting more anti-white violence than ever.
Interracial murders against whites have reached extreme highs in FBI data in states with high black populations.
Throughout the south, about half of murder offenders against non-hispanic whites in 2021 were black or hispanic, an unprecedented fraction for as long as data exist. pic.twitter.com/iUn5uhQZD6
If you want to check this yourself you can use the online EZASHR tool to generate racial crosstabs but it’s less detailed and only goes up to 2020. But you can still see the interracial share of violence increasing over the past decade.https://t.co/RhQ6H1j5lD
Whereas Twitter was used in the past to incite anti-white hatred, Twitter under Musk is actually countering hate hoaxes and disinformation, including the media’s lies about Jordan Neely.
The significance of Musk’s Twitter takeover could be monumental.
