In a post-Covid world, the emergence of digital kiosk systems has allowed businesses to offer consumers a new tipping option. These high-tech point-of-sales machines are popping up across all sorts of businesses, not just restaurants. 

Consumers are finding more and more tip requests in unusual businesses, such as coffee, deli shops, and even car washes, which has fueled a tipping invasion. 

‘Tipflation’ is a relatively new phenomenon. The culprit behind it is the boom in the use of digital kiosks after the pandemic. 

While consumers have no issue tipping bartenders, servers, doorman, and all the traditional folks working less than minimum wage, adding 18% or even 20% gratuity for a cup of coffee or a sandwich has infuriated some. 

“Suddenly, these screens are at every establishment we encounter. They’re popping up online as well for online orders. And I fear that there is no end,” etiquette expert Thomas Farley told AP News. He considers widespread tipping somewhat of “an invasion.”

AP provided more color on the silent frustration brewing amongst consumers: 

Traditionally, consumers have taken pride in being good tippers at places like restaurants, which typically pay their workers lower than the minimum wage in expectation they’ll make up the difference in tips. But academics who study the topic say many consumers are now feeling irritated by automatic tip requests at coffee shops and other counter service eateries where tipping has not typically been expected, workers make at least the minimum wage and service is usually limited.

“People do not like unsolicited advice,” said Ismail Karabas, a marketing professor at Murray State University who studies tipping. “They don’t like to be asked for things, especially at the wrong time.”

Clarissa Moore, a 35-year-old who works as a supervisor at a utility company in Pennsylvania, said some tip requests have come up in some very odd places, including her mortgage company. 

Typically, she’s happy to leave a gratuity at restaurants, and sometimes at coffee shops and other fast-food places when the service is good. But, Moore said she believes consumers shouldn’t be asked to tip nearly everywhere they go — and it shouldn’t be something that’s expected of them.

“It makes you feel bad. You feel like you have to do it because they’re asking you to do it,” she said. “But then you have to think about the position that puts people in. They’re paying for something that they really don’t want to pay for, or they’re tipping when they really don’t want to tip — or can’t afford to tip — because they don’t want to feel bad.” –AP News

It’s hard to say how bad tiplflation will become before people start boycotting non-traditional places that request tips. And a reminder, the tip means the business incurs a larger processing fee, which implies service workers won’t see all of it. 

Watch Live: President Biden is expected to address the Ukraine conflict in remarks from the White House scheduled for 12 eastern time. It’s likely he’ll formally announce Abrams M1 tanks for Ukrainian forces in a major escalation.

* * *

As expected, Russia is furious over the decision of the United States and Germany to authorize Western-manufactured advanced tanks for Ukrainian forces, calling it “extremely dangerous” and pointing out the unprecedented decision blows past Kremlin “red lines”.

The Russian Embassy in Berlin communicated to the German government that the dangerous move “takes the conflict to a new level of confrontation.” The statement asserted that it “contradicts the statements of German politicians about the unwillingness of the FRG [Federal Republic of Germany] to be drawn into it [the war]. Unfortunately, this happens over and over again.”

According to the latest media statements by US officials, the Pentagon is preparing plans to send approximately 30 M1 Abrams tanks to Ukraine as part of a $400 million deal. While the official White House announcement of the tank transfer is likely imminent, it’s unlikely the tanks will be seen on the battlefield anytime soon.

It takes multiple months to over six months or more to train crews to effectively operate the Abrams. The same could also go for Germany’s Leopard 2 tanks which will be provided. Both are considered sophisticated main battle tanks.

Chancellor Olaf Scholz confirmed his country’s decision to send 14 tanks at a cabinet meeting on Wednesday. Crucially Germany will also allow other countries to send theirs, which is likely to provide the bulk of Leopard tanks. According to the latest from Politico:

Germany and its European partners plan to “quickly” send two Leopard 2 tank battalions to Ukraine — suggesting about 80 vehicles — the government in Berlin announced Wednesday, adding that Germany would provide one company of 14 Leopard 2 A6 tanks “as a first step.”

Other countries likely to send Leopards to the war against Russia include Poland, Spain, Norway and Finland.

Alongside the Abrams, the initial transfers is also expected to include special recovery vehicles which assist in repair of tanks on the battlefield, or else which are capable of removing stalled tanks. 

German foreign minister declares war on Russia pic.twitter.com/C4cAqnZXhD

— Michael Tracey (@mtracey) January 25, 2023

Russian Foreign Minister Sergey Lavrov reiterated that this development shows that Ukraine and the West “has unequivocally stated its desire to inflict a strategic defeat on Russia.” A ministry statement echoed his words in the following:

“There is a hybrid war going on against our country, which Foreign Minister [Sergei] Lavrov spoke about in detail just recently. Arguments about the red lines are a thing of the past,” the foreign ministry told state news agency Tass, in comments translated by Google.

“The United States has unequivocally stated its desire to inflict a strategic defeat on Russia. It is impossible not to notice the reality,” the ministry added, Tass reported.

And separately Putin spokesman Dmitry Peskov underscored the “absurdity” of plan by NATO allies to send tanks. He said in a Wednesday briefing, “now we can only state that there are currently no prospects for entering the diplomatic path.”

“Unfortunately, we see a lot of manifestations of the conviction of a number of politicians, a number of experts, the military and so on, who believe that it is by continuing the war that the security of the continent can be ensured. This is an absurd belief,” Peskov added.

Specifically addressing the US and German tank escalation, he said: “I am convinced that many experts understand the absurdity of this idea too. It’s just that, in terms of technological aspects, this plan is quite a failure, and most importantly, it is a clear overestimation of the potential that it will add to the Armed Forces of Ukraine.”

Short seller Hindenburg Research, best known for publishing a scathing report on EV startup Nikola, which brought down the founder, is pursuing its biggest target yet: India’s richest man. 

Late Tuesday, Hindenburg issued a lengthy report titled “Adani Group – How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History.”

NEW FROM US:

Adani Group – How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate Historyhttps://t.co/JkZFt60V7f

(1/x)

— Hindenburg Research (@HindenburgRes) January 25, 2023

“Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (US $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades,” the report said. 

Gautam Adani, Founder and Chairman of the Adani Group, has soared up the Bloomberg Billionaire’s Index in the past year to become the fourth-wealthiest person in the world. 

Adani “has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period,” the report said. 

Hindenburg noted that Adani Group had already been investigated for corruption, money laundering, and theft of taxpayer funds. They allege the companies are extremely overvalued: “The 7 key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations.”

Hindenburg said it was shorting Adani Group companies through US bonds and non-Indian-traded derivative instruments. They noted their short thesis was developed after speaking with “dozens of individuals, including former senior executives of the Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.” 

Bloomberg provided a quick snapshot of Hindenburg’s main allegations:

• Identified 38 Mauritius shell entities controlled by Adani’s brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
• The offshore shell network seems to be used for earnings manipulation.
• Adani Group has previously been the focus of 4 major government investigations relating to allegations of fraud.
• Adani Enterprises and Adani Total Gas Ltd. appear to be audited by a tiny firm, with no current website, only 4 partners and 11 employees which has audited just one other listed firm.
• The auditor “hardly seems capable of complex audit work” when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.

The seven India-listed companies, which include Adani Enterprises and Adani Transmission, fell between 1% and 8% on Wednesday. Even India’s main equity index slid about 1% S&P BSE Sensex. 

Avinash Gorakshakar, head of research at Profitmart Securities, told Reuters that the slide in Indian stocks was due to a “combination of factors – the report on Adani group stocks, the monthly expiry of January derivatives series and the fading off of the pre-budget rally.” 

Adani Group dismissed the allegations. They accused Hindenburg of ‘sabotage’ ahead of a planned $2.5 billion stock sale on Friday.

“We are shocked that Hindenburg Research has published a report …without making any attempt to contact us or verify the factual matrix,” Jugeshinder Singh, Adani Group’s chief financial officer, said in a statement. He said the short report was full of misinformation and “baseless and discredited allegations.”

Last year, Adani launched a hostile takeover of Indian broadcaster NDTV to build a media empire. The billionaire might use his media outlet to hit back at Hindenburg’s short attack. 

By Peter Tchir of Academy Securities

Someone’s Expense is Someone Else’s Revenue

That is really all I want to say as we start digesting earnings reports, and far more importantly, earnings calls.

It is such a simple and obvious statement, I feel I should apologize for using it, not only as the title of a T-Report, but as the entire message in this T-Report. But, there has been so much pushback on my recession view, on the vision of a “pendulum swinging” right through “soft landing” zone into recession zone, that I felt compelled to come up with my “best” argument.

Someone’s expense is someone else’s revenue.

Every expense cut, every wage cut, every layoff, takes someone else’ revenue away.

Ultimately, given the circular nature of the economy, that probably circles around to someone else cutting their expense that was at one time your revenue.

We hit on “circularity” In our 2023 Outlook – PAIN and it remains no less important today, than it was then.

Positioning has reverted to being too bullish again (breaking the 200 DMA on the S&P 500 (around 4,000) pulled in a lot of technical traders) and sets us up for more downside.

If the Fed wasn’t battling its own demons, we would have seen policy being developed to catch the economy they pushed over the edge, rather than them jumping up and down on it a few more times like some UFC fighter in a violent rage.

All that and I’m not even yet “max” bearish as I too am afraid of the power of the “soft landing” narrative, which so many are grabbing hold of.

Apologies for such a simplistic T-report, but sometime KISS applies, at least in my own mind.

By Michael Every of Rabobank

Perhaps nobody gets original Star Trek memes anymore, and I am showing my age. Then again, it seems nobody gets original logic anymore, and trying to use any also shows one’s age.

The market continues to price for a dream scenario of inflation having peaked then coming down sharply, but not overshooting to the downside; only the very mildest of recessions by any historical standards; a rise in US unemployment to ease wage pressures and supply-side overheating globally, but again the smallest ever seen in a recession; a near-term US rates peak below 5%, despite repeated Fed calls otherwise, then rapid rate cuts; that the US keeps cutting while the rest of the world hikes; and the rest of the world doesn’t cut rates even more than the US despite net exporting to it, and the historical record that when the US sneezes, everyone else catches cold… at a time when China is still catching Covid.

As a conversation yesterday noted, partly this is due to the relatively good news that has come out in 2023 so far against 2022’s ultra-gloomy backdrop and projections. However, as was also stressed, the range of scenarios ahead is truly broad, and yet the market seems to have settled for a happy median that seems the least likely to transpire.

Spock of course knows a thing or two about probability as well as logic:

• What if unemployment is sticky, and so core services inflation is sticky, and so we see a rates pause, but then they have to go up again in H2 2023?

• What if unemployment surges after a lag like it always has done in a US downturn so far, and we get a recession and deflation as the backdrop to those ‘nice’ rate cuts?

• What if supply-side goods inflation picks up again before services inflation cools? After all, China is reopening, and its appetite for commodities may grow again; the Ukraine war is about to enter a new phase, perhaps disrupting agri-commodity flows, as the US and Germany agree to both send tanks – but Germany is only sending 14(!), the kind of deliberate inaction that still risks a longer, grinding war with more destabilising effects; and won’t energy prices rise as the US Strategic Petroleum Reserve is rebuilt, and far more so if energy demand doesn’t fall back because we don’t have a recession?

• What if current market pricing for rate cuts pushes commodity prices higher as the US dollar falls, and as commodities emerge as a geopolitical/inflation hedge?

• What if the Fed actually wants to see lower asset prices and keeps acting until it does, the inverse of the past pattern?

• What if the US stumbles into recession, but others globally outright crumble?

None of this is being answered substantively by markets, where the possibly correct expectations for any one asset class are not being carried over with any kind of internal logic to all others. Then again, they can’t even get the NYSE to work properly now, so why listen to them anyway?

I don’t know how much more often or how much higher I can raise one eyebrow, original Nimoy-Spock style. (On which note, Nimoy wrote two autobiographies: “I am not Spock” in 1975, and “I am Spock” in 1995.) However, it seems I will have to keep practising as the market keeps indulging in highly illogical and improbable thinking. Indeed, let’s recall some classical logic errors evident almost every day in markets:

1. This is true because it has not yet been proven false.

2. This must be true because if it were false that would be horrible.

3. This is true because people say it’s true.

4. That idea is bad because bad people believe it.

5. This is true because that smart person says it’s true.

6. If this is not 100% true, then it must be 100% false.

7. This happened after that, therefore that caused this.

For one example, global yesterday’s PMIs can be seen as backing a stagflationary view of the world, not a happier outcome. That was not how they were dressed up by markets.

For a second example, in New Zealand we see a Bloomberg headline this morning saying, ‘Kiwi Bonds Surge After NZ CPI’. All well, and good. Except that CPI number was 1.4% q-o-q in Q4, down from 2.2%, but higher than the 1.3% expectation; y-o-y inflation was an unchanged 7.2%, a tick higher than expected; tradeable CPI was 1.4% q-o-q vs. just 0.8% expected, despite lower commodity prices in Q4 already being reversed in 2023 as China reopens; and only non-tradeable CPI was 2 ticks weaker than expected at a still staggering 1.5% q-o-q, so 6% annualised, or three times the RBNZ’s CPI target. Yet the tiny Kiwi bond market indeed surged before someone who has watched original Star Trek started to sell. How many of the above logic errors were made in that early trading and pre-release market consensus call?

For third example, Aussie Q4 CPI was far higher than expected, making a mockery of claims that Down Under inflation is over. Instead, we saw q-o-q CPI hit 1.9%, almost a y-o-y figure, and well above 1.6% consensus. The y-o-y rate hit 7.8%, up from 7.3%, and vs. a 7.6% expectation. More worrying, the trimmed mean was 1.7% q-o-q and 6.9% y-o-y, the weighted median was 1.6% q-o-q and 5.8% y-o-y, and December m-o-m CPI was 8.4% y-o-y vs. a 7.7% market call. Worse, this was all before China reopened, before commodity prices started to push higher again, and before yields dipped, breathing new life into local ‘buy the housing dip’ headlines. But don’t worry, Aussie rates will still peak at a low enough level not to harm the housing market,… right? Perhaps, but it’s both highly illogical and improbable, Captain.

If only I could give markets the Vulcan nerve pinch – but more Aussie data like today will do the job for me, I think.

Oil prices drifted sideways to modestly lower overnight after the notable builds reported by API, as mixed company earnings and weaker business activity spurred concerns about the US economy

While there’s expectation that China’s oil demand will rise after it ditched restrictive Covid rules, there’s still uncertainty about the strength of the rebound.

“After Brent found some resistance just ahead of the $90 mark yesterday, it looks like the market is taking a breather after the rally on Chinese demand optimism,” said Ole Sloth Hansen, head of commodities research at Standard Chartered.

“Products seem to have settled after cracks surged earlier in the week, which had also helped drive crude up. The market will be watching Cushing inventories, due to rising inventories widening the WTI-Brent spread.”

With API drains having stalled, commercial crude stockpiles have swelled by more than 27 million barrels in the prior two weeks. Today’s official data

API

• Crude +3.378mm

• Cushing +3.928mm – biggest build since April 2020

• Gasoline +620k

• Distillates -1.929mm

DOE

• Crude +533k

• Cushing +4.267mm – biggest build since April 2020

• Gasoline +1.763mm

• Distillates -507k

US crude inventories built for a 5th straight week, but only a small 533k barrels (well below API and expectations). However, Cushing stocks soared 4.267mm barrels last week – the biggest build since April 2020 (up 4 weeks in a row). Distillates stocks drew down for the 4th week in a row…

Source: Bloomberg

Total US crude stocks are at their highest since June 2021…

Source: Bloomberg

Cushing stocks are soaring, now at its highest since Dec 2021…

Source: Bloomberg

After a significant drop in the US oil rig count last week, US Crude production remained flat at 12.2mm b/d… we would expect it to fade given the lead from the rig count…

Source: Bloomberg

Notably Bloomberg has seen a change in trend? After years of drawing down inventory of drilled-but-uncompleted (DUC) wells, US oil producers have been increasing DUCs in the past two months.

Oil companies require a minimum number of these to optimize their field operations. However, drawing down DUC inventory lets them avoid incurring drilling costs — which would otherwise push up capital expenditures. If they need to rebuild DUC inventory, it would add to their 2023 capex and weigh on cash flows. However, it would benefit oilfield-service companies by increasing service intensities.

WTI was trading around $79.80 ahead of the official data and rallied on the smaller than expected crude build…

Finally, we note that the unusually large builds we are seeing in Crude (and at Cushing) are due to the contango in the WTI market makes it more attractive to put US crude in storage rather than on the water, and the current pricing structure shows the situation may last until the second half of 2023. As FGE wrote in a note today, contango – where near-term futures are cheaper than those for a later date – combined with the end of SPR releases, has driven down US crude exports in January by about 500k b/d from levels seen in December.

Current pricing shows WTI in contango until mid-2Q, continuing the incentive to store crude rather than export it.

Forward curve shows US crudes returning to backwardation in 3Q, which would remove the incentive to store, but “this is likely a function of the market pricing in higher US crude runs, rather than anticipating a pull on US crudes from outside of the region.”

All of which is leading to higher ‘raw material prices’… and that means higher gas prices at the pump…

Get back to work Mr.Biden!

Authored by Caden Pearson via The Epoch Times,

House Speaker Kevin McCarthy on Tuesday officially rejected Reps. Adam Schiff (D-Calif.) and Eric Swalwell (D-Calif.) for seats on the House Intelligence Committee after House Minority Leader Hakeem Jeffries (D-N.Y.) nominated them on Saturday.

McCarthy has publicly stated that he wants to remove Schiff and Swalwell from the panel, arguing that Schiff has “lied to the American public” and that Swalwell’s past connection to a suspected Chinese spy makes him a security liability.

“I appreciate the loyalty you have to your Democrat colleagues, and I acknowledge your efforts to have two Members of Congress reinstated to the House Permanent Select Committee on Intelligence,” McCarthy wrote in a letter to Jeffries he shared on Twitter. 

“But I cannot put partisan loyalty ahead of national security, and I cannot simply recognize years of service as the sole criteria for membership on this essential committee. Integrity matters more.”

“As such, in order to maintain a standard worthy of this committee’s responsibilities, I am hereby rejecting the appointments of Representative Adam Schiff and Representative Eric Swalwell to serve on the Intelligence Committee,” he continued.

I have rejected the appointments of Adam Schiff and Eric Swalwell for the House Intelligence Committee.

I am committed to returning the @HouseIntel Committee to one of genuine honesty and credibility that regains the trust of the American people. pic.twitter.com/ePxlbanxta

— Kevin McCarthy (@SpeakerMcCarthy) January 25, 2023

McCarthy told Jeffries the panel had been misused during the previous two Congresses, which had “severely undermined its primary national security and oversight missions—ultimately leaving our nation less safe.”

He added that he was committed to returning the panel to “one of genuine honesty and credibility that regains the trust of the American people.”

As speaker, McCarthy has the power to appoint “all select, joint, and conference committees ordered by the House,” according to the rules (pdf) of the House of Representatives. 

The House Intelligence Committee is a permanent select committee; Schiff and Swalwell served on it during the last Congress, with Schiff as chairman.

“Schiff has lied to the American public. He should not be on Intel,” chided McCarthy.

🔥 @SpeakerMcCarthy on Democrat Rep. Adam Schiff: “He can serve on a committee, but he will not serve on Intel because it goes to the national security of America — and I will always put them first. pic.twitter.com/4kZSjd0rPP

— RNC Research (@RNCResearch) January 25, 2023

‘Denial of Seats’

Over the weekend, Jeffries urged McCarthy to accept the return of Schiff and Swalwell to the panel, saying that denying them seats runs counter to the panel’s mission.

“I write today to submit for renomination two eminently qualified legislators to continue their service on the House Permanent Select Committee on Intelligence: Ranking Member Adam Schiff and Representative Eric Swalwell of California,” Jeffries wrote in a letter (pdf) on Jan. 21.

“It is my understanding that you intend to break with the longstanding House tradition of deference to the minority party Intelligence Committee recommendations and deny seats to Ranking Member Schiff and Representative Swalwell,” he continued.

“The denial of seats to duly elected Members of the House Democratic Caucus runs counter to the serious and sober mission of the Intelligence Committee.”

McCarthy indicated his intention to remove the pair in June last year if the GOP won the House, and in interviews with media on Jan. 9, said he’d remove Schiff, Swalwell, and Rep. Ilhan Omar (D-Minn.) from their committee assignments.

“Swalwell can’t get a security clearance in the private sector,” McCarthy told AP and Punchbowl, likely referring to reports that Swalwell was targeted by a suspected Chinese spy.

“I’m not going to give him a government security clearance.”

“The FBI was concerned about putting a Member of Congress on the Intel Committee — that has the rights to see things that others don’t — because of his knowledge and relationship with a Chinese spy.”

—@SpeakerMcCarthy on rejecting Democrat Eric Swalwell from the Intel Committee. pic.twitter.com/voUBDAzFsV

— RNC Research (@RNCResearch) January 25, 2023

Precedent Disputed

According to House rules, no more than 13 members of the same party can be on a panel. Typically, the speaker of the House has given the minority leader the power to choose members for the panel, but this time, McCarthy has not done so, claiming that Democrats set this precedent in the past.

“The Democrats have created a new thing where they’re picking and choosing who can be on committees,” McCarthy told Breitbart News on Jan. 9.

“Never in the history [of Congress] have you had the majority tell the minority who can be on committee. But this new standard, which these Democrats have voted for—if Eric Swalwell cannot get a security clearance in the private sector, there is no reason why he should be given one to be on Intel or Homeland Security. He will not be serving there.”

Jeffries addressed this reasoning in his Jan. 21 letter, arguing that the two Republican members were removed from their committee assignments by a bipartisan vote in the House for “directly inciting violence against their colleagues.”

“This action was taken by both Democrats and Republicans given the seriousness of the conduct involved, particularly in the aftermath of a violent insurrection and attack on the Capitol,” Jeffries wrote.

“It does not serve as precedent or justification for the removal of Representatives Schiff and Swalwell, given that they have never exhibited violent thoughts or behavior.”

In 2021, the House voted to remove Reps. Marjorie Taylor Greene (R-Ga.) and Paul Gosar (R-Ariz.) from their committee assignments because of social media posts they had made that were considered controversial.

Nancy Pelosi (D-Calif.), then-speaker, also rejected McCarthy’s nominations of Reps. Jim Jordan (R-Ohio) and Jim Banks (R-Ind.) for the Jan. 6 Committee, prompting McCarthy, then-minority leader, to withdraw the rest of his nominations in protest.

In his letter, Jeffries did not mention that dispute but said he believed there was a lack of consistency, as Rep. George Santos (R-N.Y.), who recently faced criticism for misrepresenting his education and work experience, has been given positions on two committees. Jeffries wrote that this inconsistency “risks undermining the spirit of bipartisan cooperation that is so desperately needed in Congress.”

Schiff, Swalwell and Omar said in a statement that McCarthy “capitulated to the right wing of his caucus” and “struck a corrupt bargain in his desperate, and nearly failed, attempt to win” the Speakership.

“Despite these efforts, McCarthy won’t be successful. We will continue to speak out against extremism and doggedly defend our democracy.”

Boeing reported an unexpected loss to end 2022 as the planemaker grappled continued to grapple with high costs that threaten to slow further its already moribund recovery. The aerospace giant reported an adjusted EPS loss of $1.75 in the fourth quarter, missing estimates of a 26c profit on revenue of just under $20 billion, roughly in line (but below) the average estimate compiled by Bloomberg.

Here are the Q4 details:

• Loss per share $1.75, Adjusted loss per share $1.06; missing estimate +0.26
  • Revenue $19.98 billion, missing estimate $20.01 billion
  • Commercial Airplanes revenue $9.22 billion, beating estimate $9.1 billion
  • Defense, Space & Security revenue $6.18 billion, +5.4% y/y, missing estimate $6.27 billion
  • Global Services revenue $4.57 billion, beating estimate $4.54 billion
  • Boeing Capital revenue $49 million, missing estimate $66.9 million
• Operating cash flow $3.46 billion vs. $716 million y/y, beating estimate $3.32 billion
  • Commercial airplanes oper loss $626 million, -86% y/y, worse than estimate loss $177.3 million
  • Defense, space & security oper earnings $112 million vs. loss $255 million y/y, missing estimate $307.1 million
  • Global services oper earnings $634 million, missing estimate $717.3 million
  • Boeing Capital operating earnings $15 million, missing estimate $31.7 million
• Adjusted free cash flow $3.13 billion, beating estimate $2.89 billion
• Backlog $404 billion

“While we have made meaningful progress, challenges remain and we have more work ahead to drive stability in our operations and within the supply chain,” Boeing Chief Executive Officer Dave Calhoun said in a separate memo to employees. “This will be another important year for us as we look to steadily increase our production rates, further improve performance, progress in our development programs and deliver on our commitments.”

The disappointing Q4 results underscore the work Boeing still has to do to return its factories to full gear and fully capitalize on soaring demand for air travel. The US aviation titan has already endured a difficult few years marked by the grounding of the cash-cow 737 Max and Covid-19 pandemic, before recent signs of recovery.

On the other hand, Boeing made good on a cash-flow recovery promised by executives, generating $3.1 billion in the quarter thanks to a late-year flurry of jet deliveries. That was better than the $2.89 billion Wall Street had expected for the period, and lifted the company to its first positive cash flow on an annual basis since 2018. Boeing had burned through more than $28 billion over the three-year stretch before the 2022 rebound.

The free cash flow in 2022 was a welcome change, and while total debt was unchanged around $57BN, net debt declined thanks to a nearly $3 billion increase in cash and marketable securities to $17.2BN.

The planemaker said that it was starting to step up jet deliveries and chip away at its growing stockpile of hundreds of already-built Max, 787 Dreamliners and 777X jetliners. Boeing has been hobbled by shortages of critical components such as engines and too few trained workers on its production lines.

Increasing deliveries bolsters cash, although Boeing also faces the added expense of bringing the aircraft out of storage and making repairs so they meet the latest airworthiness standards, according to George Ferguson, an analyst with Bloomberg Intelligence. He estimated that the company had 229 undelivered Max in its storage lots as of December.

“When you start delivering airplanes that have already been built, obviously it turbocharges cash flow because you didn’t have to spend cash to build the airplane,” Ferguson said of Boeing’s cash surge in an interview before the earnings report. “But you have to spend some to get it out of inventory – before you can grab all that cash.”

As Bloomberg adds, airlines have been snapping up new jets as they emerge from Covid, and Boeing’s 737 Max has an opportunity to make headway against a rival Airbus SE model that’s largely sold out until 2029. But the US planemaker has been slow to crank up work in its factories as it contends with shortages of engines, particularly for its 737 Max, and supplier hiccups for everything from computer chips to lavatories.

Some more comments and context from the Q4 results, courtesy of Bloomberg:

• CEO: Demand Across Our Portfolio Is Strong
• 737 Program Stabilizing Production Rate at 31 Per Month
• 787 Program Continues at A Low Production Rate
• To Ramp 737 Production to 50/MO in 2025/2026 Timeframe
• Plans to Ramp 787 Program to 5/Month in Late 2023
• Total Co. Backlog at Quarter-End $404B
• Plans to Ramp 787 Production up to 10/Month in ‘25/’26
• Total Backlog Including Over 4,500 Commercial Airplanes
• Generates Positive Fcf for Year for First Time Since ‘18

Looking ahead, Boeing kept its financial objective unchanged, centered around a goal of $10BN in free cash flow in 2025/26.

The company forecast adjusted free cash flow of $3.0 billion to $5.0 billion, in line with the consensus estimate of $4.01 billion. It also sees operating cash flow $4.5 billion to $6.5 billion, which also is in line with the estimate of $5.54 billion.

There is more in the company’s Q4 presentation and press release.

The shares fell more than 3% as of 8:30 a.m. before the start of regular trading (when the NYSE may or may not have another freak out). The stock traded at $206, roughly where it traded a year ago. Through Tuesday’s close, Boeing’s stock had risen 11% this year.

Calhoun and CFO Brian West are expected to provide an update on the status of the undelivered jets, efforts to stem defense program losses and discuss another potential earnings catalyst — China’s reopening travel market — during an earnings conference call later Wednesday morning. The bulls will be hoping that Boeing won’t pull another Microsoft then.

U.S. oil refining margins, also known as the 3-2-1 crack spread, jumped to a three-month high on Tuesday — and that’s an indication the country faces an ongoing product shortage that might lead to higher gasoline and diesel prices at the pump. 

The 3-2-1 crack spread is a great indicator to gauge fuel product tightness. High spreads indicate gasoline, diesel, jet fuel, and other petroleum products are in short supply, while low spreads mean an abundance of supply. Spread direction is also important — if rising, it would mean fuel inventories are declining. 

The simple calculation of refining margins is for every three barrels of crude oil the refinery processes — it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.

On Tuesday, the crack spread hit a three-month high of $42 a barrel. For some context, the five-year January average is $15.56.  

Reuters pointed out that refinery outages exacerbate fuel supply tightness. 

A diesel producing unit at PBF Energy’s (PBF.N) Chalmette, Louisiana, refinery was shut following a fire on Saturday. It could be out for at least a month. Exxon Mobil (XOM.N) said Monday it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.

The ongoing refinery maintenance season could be much lengthier than usual, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott knocked out some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has remained offline since the storm.

Also, the number of refinery overhauls is double the amount this spring. Many of these overhauls were postponed due to the pandemic. Some are due to record-high margins driving increased profitability for oil companies. 

There are at least 15 oil refineries plan maintenance ranging from two to 11 weeks through May, tallies by Reuters and refining intelligence firm IIR Energy show. By mid-February, U.S. refiners will drop some 1.4 million barrels per day of processing capacity, double the five-year average. 

“A lot of plants didn’t want to shut down last year when margins were strong, but they have to get this work done,” said John Auers, refining analyst with Refined Fuels Analytics.

Nine U.S. refineries operated by Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, and BP will shutter some of their fuel-producing units this spring, according to IIR and Reuters sources.

All of the outages and planned overhauls are going to make it difficult for refiners to catch up with demand as inventories are relative to historical levels. 

“If we aren’t hearing the alarm bells, it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well,” Bloomberg Opinion’s Javier Blas said. 

According to AAA data, gasoline and diesel prices at the pump are starting to move higher after months of declines following the rise in the 3:2:1 crack spread. 

And the ‘raw materials’ for the refining process are rising rapidly…

Perhaps the victory lap was a little premature? 

Since June, the average gas price has fallen by $1.60 – saving American families with two cars $170 a month.

— The White House (@WhiteHouse) January 23, 2023

Mission Accomplished 2.0?

Authored by Greg Orman via RealClear Wire,

Last week, CBS “Face the Nation” host Margaret Brennan asked Democratic Rep. Dan Goldman why President Biden would dispatch his personal attorney, who didn’t have proper security clearance, to his Delaware home to search for classified documents. Presumably, Brennan believed that when searching for classified documents, one should have the credentials to actually read them. Brennan’s focus on who was reviewing Biden’s papers touched on a potentially interesting line of inquiry. The question hanging in the air, however, relates to the discovery that started this whole process: Why would lawyers be “packing up” Biden’s office in the Penn Biden Center in the first place?

Not unlike other politicians, Joe Biden has done a terrific job of turning political success into a financial windfall. But someone who considered himself “middle-class Joe” for decades should realize the wastefulness of having lawyers perform a task that a trusted intern or aid could perform. As many big-time East Coast lawyers now routinely charge $1,000 an hour, it’s an awfully expensive packing crew – unless the intent wasn’t truly to “pack” but rather to purge. 

The timing here is suspicious as well. Apparently, this moving crew was at Biden’s University of Pennsylvania office a week before midterm elections that were widely anticipated to turn control of the House over to the Republicans. As Republicans had signaled that they were going to be spending considerable time wearing out the subpoena powers of various House committees to investigate Biden and his family, it would be an auspicious time to get rid of anything damaging. By using lawyers to carry out the document purge, Biden would be able to attach attorney-client privilege to their efforts, thereby avoiding damaging testimony about the contents of any shredded documents.

To be clear, there’s nothing illegal about getting rid of musty records in the absence of a valid document retention request. The Biden administration made it clear that it would not consider any such request valid until the new Congress was sworn in and the various committee chair gavels handed out. In a response to document requests made in December from Reps. Jim Jordan and James Comer, an administration lawyer responded, “Congress has not delegated such authority to individual members of Congress who are not committee chairmen, and the House has not done so under its current Rules.” In short, you’ll have to start over. Biden was effectively setting a hard deadline for when document purges go from being propitious to being illegal.

Unfortunately for the president, the attorneys tasked with shutting down his University of Pennsylvania office stumbled across top secret government documents and understood the consequences. Had they not made those discoveries, we likely would have never heard of these high-priced packers.

Republicans, including Donald Trump, have been quick to point out the timing of the initial discovery and the lack of prompt public disclosure. They believe the midterm elections might have been more favorable to Republicans if it was clear that Trump wasn’t the only one potentially breaking the law. Maybe. But the timing and process does lead to questions about what more the current president might have to hide.

For now, President Biden wants us to take him at his word that this whole classified documents mess is nothing more than an honest mistake. As he says, “There’s no there, there.” That may be true, but the activities that preceded the classified document discoveries raise different questions. From a man who campaigned on elevating the standards at the White House, this is disappointing to say the least.