By Vishwanath Tirupattur of Morgan Stanley

Our 2023 Outlook – What We Debated

This has been our outlook week. We published our year-ahead global economics and strategy outlooks last Sunday, and the more detailed asset class and country-specific outlooks have been streaming out during the week, with more to follow. At Morgan Stanley Research, the outlooks are the culmination of a process involving much deliberation and spirited debate among economists and strategists across all the regions and asset classes we cover. In a highly interconnected world with myriad uncertainties, we are convinced that this collaborative exercise in which we challenge each other’s views is critically important. In last week’s Sunday Start, my colleague Andrew Sheets summarized the outcome of the process – our outlook for 2023 across markets and economies. This week, I will focus on some of the key debates we engaged in during the process.

Unsurprisingly, we spent a lot of time on inflation. Given the many upside surprises to inflation through much of the year, there was understandable skepticism around our forecast that US inflation will show a steady decline. Our economists acknowledged the uncertainty but took some comfort in base effects, normalizing supply chains, and weaker labor markets. They also saw deflation (not just disinflation) in certain core goods such as autos and a reset in medical services prices exerting a steady drag on core inflation. To be clear, our US inflation forecast takes into account that while shelter inflation will slow, it will remain a persistent driver of above-target inflation for a few more quarters.

Our FX strategists changed their bullish stance on USD to neutral, a notably out-of-consensus call. With our outlook debates taking place against the background of a hawkish-sounding post-FOMC press conference at which the Fed chair signaled the policy rate peaking higher than previously thought, this change was vigorously debated. Our strategists argued that a decline in inflation as our economists forecast would limit upside potential for US rates. Furthermore, monetary policy in the US is now in restrictive territory, implying that we will see more downside surprises in individual data points. Also, the outlook for China, while still challenging, appears to be shifting, with a decent chance that the authorities take steps toward ending the Covid-zero policy. This would help to bring greater balance to the global economy, with less upward pressure on the dollar.

Our economists’ base case expectation that the Fed will stop hiking in January led to a discussion of how markets would behave following the end of a hiking cycle. In some cases, the end of a hiking cycle was good for markets over the following 12 months (February 1995) but not in others (May 2000). We noted that the key to the outcome for markets seems to be whether a recession follows the end of a hiking cycle.

While our forecast for the US is a ‘soft landing’ (no recession), our economists pointed out that the landing won’t feel all that soft and the margin for error is small. This makes the risk/reward for US stocks challenging. It is worth highlighting that in both 1995 and 2000 the 10-year US Treasury yield rallied, consistent with what our rates strategists expect by the end of 2023.

There was debate around why we only see high yield default rates rising to ‘long-term average’ levels (4-4.5%), given slower growth and higher borrowing costs. Our credit strategists contended that the modest maturity walls over the next two years, cash on balance sheets, and healthy coverage and leverage ratios will mitigate near-term default pressures. However, they did note the potential for a longer default cycle, as maturities start to matter more in 2024.

Another topic of discussion was our housing strategists’ view that US housing will experience a significant decline in activity (sales, starts, and permits) comparable to the steep declines seen in the aftermath of the GFC, yet only a modest drop in home prices, unlike what we saw post-GFC. The divergence in activity and prices is rooted in the prospect of much lower forced sales through foreclosures due to tight mortgage lending standards post-GFC, the substantial equity in many existing homes, and the lock-in effect of existing mortgages.

The future of the Fed’s quantitative tightening (QT) was also much debated, particularly when it might end and its sequencing with a rate cut. History is really no guide here since we only have one data point to go by. As our chief global economist Seth Carpenter noted, the Fed sees the two policy tools as independent, and stopping QT depends on money market conditions and bank demand for reserves. Thus, QT could end before or after December 2023, when we anticipate gradual rate normalization to start. That said, QT could stop abruptly for two reasons:

1. A recession that forces the Fed to contemplate rate cuts of 100bp or more; or
2. Dysfunctional markets along the lines of March 2020 or the recent episode in the gilt market.

More in the full note available to pro subscribers.

The cannabis industry has flourished in New York as more than 200 farms last spring received growing permits from the state. Since then, harvest is only now finishing up with hundreds of thousands of pounds of flower but nowhere to sell, according to Bloomberg. 

A report via the Office of Cannabis Management (OCM), which oversees cannabis licenses, reveals stockpiles are quickly building across the farms. Estimates show stockpiles have topped 300,000 pounds, worth a whopping $750 million. 

“If farmers don’t get their harvest into stores soon, that near-billion-dollar revenue will eventually start to dwindle,” said Bloomberg. But how can farmers get their crops to market when the state has yet to approve the opening of dispensaries? 

Modern hippies running growing operations must figure out how to store flower in an environment that’s not just guarded by security 24/7 but also the right temperature and humidity-controlled environment, so the crop doesn’t deteriorate ahead of sale. 

Bloomberg outlined the bottleneck of what’s preventing marijuana from being sold: 

Applicants for one of the initial 150 individual retail licenses and 25 nonprofit licenses expect to hear back from the state any day, but a green light from the OCM is only the beginning of the long process involved in opening a storefront. 

… and OCM has some very serious planning issues. 

Now growers are nervous about their ability to store cannabis for an extended period before it deteriorates: 

“Old cannabis starts to have a brownish glow,” Melany Dobson, chief executive officer of Hudson Cannabis, a 520-acre farm just two hours north of NYC, said.

Dobson said the timeline of when dispensaries open remains “unclear.” 

“We’ve been told again and again that dispensaries will open before the end of the year. I’ve acted as though that’s our single source of proof, so we’re prepared for that,” she added. 

The clock is ticking. If OCM doesn’t approve dispensaries opening in time, farmers could be looking at a significant loss. 

“The goal is to open dispensaries by the end of this year,” said Aaron Ghitelman, a spokesperson for OCM. “We’re still gunning to get the first sales on board” by 2023.

It seems like farmers aren’t holding their breath for OCM. Dobson’s financial model showed revenue would start pouring in around November. She laughed: “Which is this month … so that’s clearly not the case.”

Amid the frenzied scramble to divulge all of FTX’s dirty secrets, including where the fate of those $8 billion in stolen client funds which were handed over to Alameda ahead of the largest crypto exchange bankruptcy in history, there is one topic that the company’s new CEO (and one-time Enron liquidator) John J. Ray wants to keep under wraps: the identity of its creditors (and FTX clients).

Consider the following curious sequence of events that developed over the past week (conveniently summarized by the FT’s Kadhim Shubber): on Monday, FTX said that it will file a list of its top 50 creditors “on or before November 18”).

Just one day later, in John J. Ray’s Affidavit in Support of First Day Motion, FTX revealed that this may be a problem since “the Debtors are unable to create a list of their top 50 creditors that includes customers without access tot he data repositories at issues.”

Fast forward to Saturday when in a surprise twist, the Enron liquidator is now asking the judge to keep the names of the company’s creditors and customers (which we assume have been identified), confidential in order to “protect the estate or any entity in respect of a trade secret or other confidential research, development or commercial information.”

In retrospect, considering that FTX previously estimated that it has over 1 million creditors – which ostensibly includes all clients of the FTX brokerage from the smallest mom and pop investors to massive Chinese money laundering whales – this is probably not all that surprising, although it will be interesting to see how Judge John Dorsey, who is the appointed Delaware Bankruptcy Court judge on the FTX bankruptcy, will rule on November 22, 2022 at 11:00 a.m. (at Courtroom #5 on the 5th floor at 824 North Market Street in Wilmington) when the First Day hearing takes place.

As an aside, since the creditors of FTX also includes FTX clients, one wonders if there is a political push to keep certain names hidden, despite official denials?

A fundraising crypto foundation @_AidForUkraine used @FTX_Official to convert crypto donations into fiat in March. Ukraine’s gov never invested any funds into FTX. The whole narrative that Ukraine allegedly invested in FTX, who donated money to Democrats is nonsense, frankly 🤦‍♂️

— Alex Bornyakov (@abornyakov) November 14, 2022

And then of course, this:

Tangentially, as the FT notes in other recent cryptocurrency bankruptcy cases involving Voyager Digital and Celsius Networks, “a key legal question has been determining whether account holders are unsecured creditors or have a higher priority status in determining who gets recovery payments first. Another question likely to arise is whether account holders who withdrew their money just before the bankruptcy filing are subject to clawbacks.”

And in a separate filing pushed out later on Saturday, FTX published a list of its top unsecured 50 creditors – with all names and addresses redacted – which shows that the largest creditor (or is that FTX customer) had $226 million parked at the company, and that all of the top 10 creditors had over $100 million in debt with FTX.

In total, FTX owed its top 50 creditors a total of $3.1 billion. The full list of the 50 unnamed creditrs can be found here.

In another filing, FTX said the company had 330 workers around the world but was experiencing “extraordinary attrition”, and asked the court’s permission to continue paying remaining employees which were critical to the bankruptcy case.

FTX also disclosed that the new CEO Ray is billing his time at $1,300 an hour and had been paid a $200k retainer fee.

The bankrupt exchange also retained three new executives to assist in the bankruptcy including a chief financial officer.

Authored by Jimmy Song via BitcoinMagazine.com,

Fiat money leads to a degradation of incentives, creating a society motivated only by the consumption of resources and zero value production.

We want nice things. We want to live in a nice house, eat good food and have fulfilling relationships. We want to travel to exotic places, listen to great music and experience fun. We want to build something that lasts, achieve something great and leave a better world for tomorrow.

These are all part of being human, of participating in society and of progressing humanity. Unfortunately, all these things and more get ruined by fiat money. We want nice things, but we can’t have them, and the reason is because of fiat money.

Governments want the power to decree prosperity, fulfillment and progress into existence. They’re like the alchemists of yesteryear, who wanted to turn lead into gold through some formula. Actually — they’re worse. They’re like a five-year-old that thinks by wishing hard enough, that she can fly.

Being the delusional power-drunk politicians that they are, the elites think that by decreeing something to be so, it magically happens. That’s indeed where the word “fiat” comes from. The word literally means “Let there be,” — in Latin and in English, it’s become an adjective to describe creation by decree. This can be most easily seen in Genesis 1:3 in Latin. The phrase there is “fiat lux” which means “let there be light.”

Of course, creation by decree doesn’t quite work like it does in Genesis. If you want a building, you can’t just say, “Let there be a building.” Someone has to dig, pour a foundation, add framing, etc. Decrees don’t really do anything without capital and labor. In the absence of the market forces of supply and demand, decrees require people and resources to be enlisted. In other words, as much as governments would love for reality to be different, a decree by itself doesn’t really do anything. By itself, a decree is about as useless as an old man yelling at the sun. There has to be some coercion involved to fulfill the decree. Fiat decrees are a euphemism for using force and violence.

For buildings, it’s obvious that creation by decree doesn’t do anything. Yet for money, decreeing it into existence seems legit, maybe even compassionate. Keynesian economists see fiat money as something that by itself does something. Of course, they’re wrong and no amount of calling it “debt we owe to ourselves,” changes the fact that it’s theft. That’s about as honest as Enron’s accounting.

The deviousness of fiat money is that it makes government violence look like a market process. Fiat money printing steals from the other holders of the currency and pays people to do the government’s bidding. That theft is hidden and combined with a good dose of Keynesian propaganda, which makes fiat money seem innocuous, perhaps even benevolent.

In a sense, fiat money is less violent than other forms of fiat rule. But that’s like saying mobsters that give you a chance to pay them off are less violent than street thugs.

Dictators use obvious violence to compel their citizens to fulfill the desires of the dictator. Forced conscription, war and poverty are common in these societies, and theirs is a miserable existence with little human freedom to speak of. Fiat rule is terrible for humanity as can be clearly seen in how backwards the Soviet Union was or how backwards North Korea is now. Progress is very hard in a society built on slave labor.

Fiat money, by contrast, at least looks voluntary. Yet in many ways, it’s still very harmful to civilization. Fiat money is more like organized crime, which makes everything seem voluntary.

FIAT MONEY RUINS INCENTIVES

Fiat money ruins many market incentives. The reason is because there’s a special buyer in the market that has much less price sensitivity. That buyer, of course, is the fiat money creator. They can and do print money for all sorts of reasons — some benevolent (welfare for the poor), others not (military buildup). They spend like drunken sailors who just found pirate treasure.

The problem with a buyer like the government is that someone always sits in the middle. It’s not the “government” per se, that actually buys a fighter jet or an office building. There’s always someone that acts as an agent of the government that does this buying. The agent works on behalf of the government to procure various goods and services and the government entrusts the agent with the authority to spend on its behalf.

Unfortunately, this arrangement is ripe for abuse. The agents are essentially spending other peoples’ money for other peoples’ gain, so they aren’t incentivized to trade very efficiently. Their incentives are as skewed as the Leaning Tower of Pisa.

When we are buying and selling in the market with our own money for our own benefit, we do complicated economic analyses to figure out whether we’ll benefit enough from the good or service to be willing to part with our money. Thus, we’ll be price sensitive and attempt to get the most value for the money we pay.

For a government bureaucrat that’s in charge of procurement, however, getting value for the money is not their priority. They are incentivized to spend in a way that’s for their own benefit and not the governments’. This doesn’t have to be in obvious ways as with bribes. They can spend much less time examining the goods and services, or buy from people that they like. The result is generally a bad trade where the agent gets some small benefit at a much larger expense to the government. In a sound money economy, the government would fire such people — but in a fiat money economy, the government doesn’t care as much since money is abundant and they’re not price-sensitive. You can do that when there’s a cookie jar that you can always steal from.

So in the final math, the agent benefits at the expense of everyone else. These people are what we call rent seekers. They don’t add any benefit but still get paid. And it’s not just government bureaucrats. If you are an investment banker that takes extremely leveraged bets, you are a rent seeker, too. Generally, they get to keep the profits when their investments win, but get bailed out when their investments lose. They, too, don’t add anything and leech off of society. What’s worse, these are supposed to be some of the most talented and driven people in society. Instead of building things that would benefit civilization, they’re engaged in grand larceny! Of course, they’re not the only ones guilty of rent-seeking theft. Sadly, most jobs in a fiat money society have a huge rent-seeking component.

One rule of thumb that we’ll get to later in this article about how to tell if something is rent seeking is by seeing how much of the job is political and not value-adding. The more politics involved, the more rent seeking there generally is.

Rent-seeking jobs cheat the system and when people have the incentive to cheat, many will. You only need to look at online gaming to know that. Cheating is attractive because it’s a lot easier than doing hard work and if the cheating is normalized, as it is today, there’s little moral impediment. We’ve all become that soccer player that pretends to be in pain to influence the referee.

Rent seeking is understandable since creating a good or service that the market wants is not only hard, but it’s very fickle. What you produce today is an innovation away from becoming obsolete. Rent-seeking positions, even with less compensation, are nevertheless more desirable because of their certainty. Is it any wonder that rent-seeking positions are so sought after?

Think about how many people want to become investment bankers, venture capitalists or politicians. They’re way more profitable than providing a good or service, require way less effort and have lots more certainty.

Fiat money incentives are more broke than Sam Bankman-Fried.

FIAT MONEY RUINS MERITOCRACY

The existence of so many rent-seeking positions means that a large part of the economy does not run on normal supply-demand market forces. Even the possibility of rent seeking means that goods and services need to account for a tilting of the playing field. Fiat money ruins meritocracy.

In a normal market system, the best products win. Not the most politically-connected products. Not the products that employ the most people. The best products win because they satisfy the needs and wants of more people. Fiat money changes the equation by adding politics.

When the government can print money, the people that benefit the most are the people that get access to that money first. This is called the Cantillon Effect and it’s the reason why rich people get richer without adding much, if anything. So how does the government determine who gets access to the money? As with everything government related, decisions on who gets what money is determined through politics. And when the money printer is political, everything else becomes political. Politics is a cancer that spreads through the entire market.

The “haves” in a fiat money economy tend to be the ones that are good political players. They know how to get newly printed money directed toward them and they have a large advantage over those that don’t. Politically savvy companies will do better than the non-politically savvy companies that make better products. Thus, surviving companies in a fiat money economy are very politically savvy. It’s no wonder so many companies seem to be led by politicians rather than entrepreneurs, especially as these companies age.

Thus, politically savvy incumbents have a tremendous advantage in a fiat money economy. They will saddle newcomers with regulatory costs and get subsidized by newly printed money, ossifying their position. The marketplace will be filled with older, worse goods and newer, better goods will never come to market given these unfair advantages. The incumbents get to play CalvinBall and change the rules whenever they’re losing.

Labor unions, zombie companies and old politicians are all indicators that institutions last way beyond their usefulness to society. They all use political means to make up for their lack in fulfilling market desires. The decrepit and the dying never die to make room for the innovative. Politics stifles entrepreneurialism and creativity. It is a cancer that destroys the good cells that keep the body alive.

Merit, in other words, has been overtaken by politics everywhere.

FIAT MONEY RUINS PROGRESS

The ubiquity of politics over merit means that it’s become harder than ever for civilization to improve. Better stuff doesn’t necessarily win and markets tilt toward the political. Fiat money protects the existing politically connected players against the newer, more dynamic players from gaining market share.

Hence, fiat money ruins progress. Civilization ossifies because the incumbent players have way more power to stop new players. The incumbents often will put up huge regulatory moats, under-price newer competitors through fiat subsidization, hire away the best employees with fiat money or as a last gasp, just buy out the new players altogether. All of these strategies work through access to newly printed money. The zombies survive by eating brains.

We should have nuclear powered everything right now, but that technology is completely stifled by regulation. Government can enforce this mandate through fiat money. Oil, natural gas and coal continue to dominate because we don’t make scientific progress on other ways to provide better energy. Technologies like wind and solar get government backing because they’re politically popular, despite their clear inferiority in variance, energy density and portability. We’re going backwards in energy.

The Luddites win in a fiat monetary system because fiat money and political considerations essentially force everything to stay the same. It’s profoundly conservative in that the old and decrepit are saved at the expense of the new and meritorious. If that sounds familiar, it should. That’s the exact math that was used to justify the lockdowns of the past few years.

We can see this dynamic in the airline industry. The time to travel from New York to London is worse now than it was 50 years ago. We can also see this dynamic in dishwashers. A dishwasher 50 years ago could clean a full load in under one hour. It now takes more than 3 hours. Regulations protect incumbents and put politics as a priority over merit. The result is that civilization doesn’t progress.

Instead, fiat money has regressed civilization. The nuclear engineers of yesteryear are working on React.js apps and scammy Web3 products because that’s where the money is. The inventors of yesteryear are investment bankers creating high-frequency trading systems. The incentives are broken — merit is no longer a consideration, so is it any wonder we’re regressing as a civilization?

We peaked as a civilization in 1969 when we landed a man on the moon. Everything since then hasn’t pushed humanity forward, but turned it inward. At best, it’s preserved what we already have. At worst, it’s destroying humanity’s progress.

What’s worse, all this rent seeking has inflamed the entitlement mindset. Having good political connections, these rent seekers think they are entitled to these negative-sum positions. Nothing is more toxic to progress than people whose incentives are to keep things from getting better. Fiat money changes productive people into entitled brats.

FIAT MONEY IS PROFOUNDLY CONSERVATIVE

Bad incentives are at the core of fiat money. If you can steal instead of work, most people will steal — and they can, through politics. Politics, unfortunately, is a negative-sum game and that means regression for civilization. Like war, politics is about consuming accumulated capital.

Fiat money redistributes wealth so that the incumbents can stick around.

There’s little room for new ideas or new goods or new products because the incumbents have so much political clout.

Indeed, we’ve reached a tipping point where there’s more rent seekers than there are productive people creating stuff. How many people work email jobs? How many people even work? Way too many people are happy with an XBox, a mattress and pizza delivery. Do these people benefit society in any way? It’s no wonder so many people are so depressed.

The politicization and zombification of the economy has had real consequences in how society functions. Building codes make new forms of housing very difficult to build. Airline regulations make new designs completely illegal. Nuclear regulations make different, more efficient forms of energy really expensive.

Ancient industries, companies long past their expiration date suck productivity out of the economy. They provide little value, but continue getting subsidized through fiat money. Industries like oil, trains, airlines and cars have all become zombies and are protected from extinction through fiat money. Heck, even some electronics producers, and software companies, which are relatively new to the economy, are zombies at this point. The zombies are winning.

And the zombification is accelerating. Facebook probably transitioned from producer to rent seeker much more quickly, than, say, IBM.

Sadly, this is the reality of fiat money. The producers at a certain point turn into rent seekers as they politicize. The zombies soon start outnumbering the normal people and everything goes downhill.

BITCOIN FIXES THIS

The good news is that Bitcoin fixes these incentives. Removing fiat money means the normal market process of supply and demand and prices can work. Politics takes much less of a role and the zombification of the economy reverses. Civilization can progress again. Bitcoin is the antidote and the great hope for reversing the decline.

Unfortunately, we have about 100 years of rot to clear out and that’s going to take some time. The people most embedded in the current system, the Cantillon winners, such as Ivy League business school graduates, rich old people and bureaucrats of all types, are the least likely to convert to Bitcoin and will fight tooth and nail to preserve their positions. These people are not going away quietly and you can already see that they’re making their own bid to further zombify with CBDCs.

Thankfully, Bitcoin has the advantage of time on its side. The Cantillon losers, such as young people, citizens of developing countries and actual producers of goods and services will inevitably turn toward the much fairer system in Bitcoin. The zombies will be consuming themselves.

Welcome to the revolution. Now go save civilization.

British Prime Minister Rishi Sunak on Saturday made his first visit to Ukraine since taking office, visiting the capital to announce a major new UK-provided anti-air defense package while meeting with President Volodymyr Zelensky.

Crucially Sunak vowed that the UK will support Ukraine until it has “won”. He told a news conference alongside Zelensky, “I am here today to say that the U.K. will continue to stand with you… until Ukraine has won the peace and security it needs and deserves.”

“It is deeply humbling to be with you in your country today. The courage of the Ukrainian people is an inspiration to the world,” Sunak added.

The prime minister said the new package is worth £50 million ($60 million) and includes “125 anti-aircraft guns and technology to counter deadly Iranian-supplied drones, including dozens of radars and anti-drone electronic warfare capability.”

Earlier last week British Defence Secretary Ben Wallace unveiled that 1,000 new air-defense missiles will be sent to Ukrainian forces. It’s expected that the West will continue focusing on sending advanced anti-air missiles given Russia has lately ramped up large-scale air attacks on Ukraine’s energy infrastructure. 

Like Boris Johnson before him, Sunak heaped enthusiastic praise on his Ukrainian counterpart. “In years to come we’ll tell our grandchildren of your story, how proud and sovereign people stood up in the face of an appalling onslaught, how you fought, how you sacrificed, how you prevailed,” said Sunak.

Zelensky said that during the visit the two discussed “European and Ukrainian energy security” as well as contiued defense cooperation. Zelensky later said on Twitter, “With friends like you by our side, we are confident in our victory.”

This comes amid reports that Moscow offered the possibility of a “short truce” – which Zelensky said he has rejected. Ukraine is meanwhile celebrating its retaking of Kherson after a largescale Russian withdrawal there amid the Ukraine counteroffensive. 

Authored by Zachary Stieber via The Epoch Times,

Five people were killed and another 18, including the suspect, were injured in a shooting at an LGBTQ nightclub in Colorado, according to police officials.

The first call on the shooting came in just before midnight on Nov. 19, Lt. Pamela Castro with the Colorado Springs Police Department told reporters near the establishment, which is called Club Q.

The suspect was taken into custody and is being treated at local hospitals, as are the other injured, Castro said. The severity of the injuries vary and the number of dead could increase.

The motive for the shooting is under investigation, police said.

The suspect was not identified by name, age, or sex, and officials would not say how the suspect became injured. The suspect has not yet been charged.

Police planned to share more details during an 8 a.m. press conference.

Club Q said on its Facebook page that it was “devastated by the senseless attack on our community.”

“Our pray[er]s and thoughts are with all the victims and their families and friends. We thank the quick reactions of heroic customers that subdued the gunman and ended this hate attack,” the club said.

Club Q was holding several drag events on Sunday, including a Drag Brunch and a Drag showtime starting at 8 p.m. “We’re celebrating Transgender Day of Remembrance with a variety of gender identities and performance styles!” the club had said in a promotional message.

Hospitals were working with authorities to notify family members of those who were injured in the shooting.

Most of the people who were not injured had been allowed to leave the club.

Authorities would not say whether surveillance video captured the shooting. They asked for cellphone video from witnesses.

Fire officials said that nearly a dozen ambulances were utilized to rush victims to the hospitals. Because of how many victims there were, some ambulances transported multiple victims at once.

“Unfortunately these are events we do train for, as far as what we call a ‘mass casualty,’ so that is why we had such a big response,” said Colorado Springs Fire Captain Mike Smaldino told reporters. “Working with the police, we were able to get everybody transported out of here in a pretty quick manner and get them to the hospital, where they have a better chance for their injuries.”

As we noted in June, Europe seized a record amount of cocaine in 2020 – in which Belgium saw the greatest amount intercepted of any country, followed by The Netherlands, and Spain.

This year, Belgian customs agents have seized so much blow – particularly at the Antwerp port – that it’s overloading their incinerators, according to local outlet VRT News.

Last year, 90 tonnes of cocaine were seized at the port of Antwerp alone, a figure which is likely to surpass 100 tonnes before the end of 2022.

Drugs seized by Belgian officials are destroyed in specially licensed incinerators which are kept at undisclosed locations to thwart criminals seeking to stage a raid at one of the sites.

The Federal Justice Minister Vincent Van Quickenborne (Flemish liberal) told VRT News that drugs that are seized are closely monitored “The storage of the batches of cocaine seized is the responsibility of the customs service. These batches are of course closely monitored by the police, customs and other services. They do everything necessary to limit the security risk. However, there has been something of a bottleneck as there have been so many seizures and also because just one incinerator was in use. Moreover, you cannot burn these batches in bulk, in one go, in large quantities as this would cause issues with the filters at the incineration plant.”  -VRT

“We have already found some new capacity where several tonnes of cocaine have already been destroyed,” Van Quickenborne told VRT.

“We have also held talks with the Mayor of Antwerp and with my colleague Zuhal Demir (The Flemish Environment Minister, nationalist) who is responsible for incinerators, to see if we can find additional capacity. These talks are going well.”

The incinerators are made available by appointment only. “The more cocaine you seize, the more time you need. And there is a lot of cocaine,” explained Van Quickenborne, who added that customs officials are negotiating with Environment Minister Zuhal Demir, who is in charge of the incinerators, and that the talks are “going well.”

According to a representative of FPS Finance, the parent agency of Belgium’s customs service, “The rapid destruction of confiscated goods is an ongoing challenge,” adding “Due to the technical limitation of the licensed incinerators and environmental standards, we have to use several incinerators.“

Flemish Public Waste Agency OVAM says it’s scouring the country for additional incinerator capacity.

By Julianna Geiger of OilPrice.com

European refiners now seem to have more crude oil than they need – with the early panic about Russia’s dwindling oil exports – and the world’s subsequent oil shortage – proving to be overblown.

Crude oil traders have pointed to Europe’s ability to source crude oil from Latin America, the Middle East, and the United States as the main cause for European refiners breathing a sigh of relief.

Asia, too, has scooped up less crude oil than analysts were predicting, thanks to China’s never-ending battle to obtain the elusive zero-covid goal.

Europe’s imports of Latin American crude have averaged 313,000 bpd so far this year, up from 132,000 Refinitiv Eikon data shows. In July, the average was well above that, at 600,000 bpd. From the United States, Europe has taken 1.1 million bpd on average this year, compared with just 800,000 bpd last year. Europe’s Iraqi oil imports are 20% higher from July-November compared to the same period last year.

The supply overages are weighing on prices. Brent prices have slumped nearly $9 per barrel since this time last week. One European crude oil trader told Reuters that European refiners “seem to have overbought in November and December, probably because of fears around Urals.” In addition to these fears causing panic purchases, weeks-long strikes at French refineries and a rash of refinery maintenance also curbed the call for crude oil in Europe as runs slowed.

Traders and refiners increased their purchases over this summer, anticipating shortages stemming from Europe’s ban on imports of Russian crude oil.

That ban is set to go into effect on December 5. Until then, Europe will likely have no issues with obtaining enough crude oil.

Post-December 5, however, could be a different story.

By Tsvetana Paraskova of OilPrice.com

The French electricity grid is at higher risk of strained power supplies in January 2023 than previously estimated due to lower nuclear power generation, France’s power grid operator RTE said in its latest winter preparedness analysis on Friday.

Delays in routine maintenance work at France’s nuclear power stations will lead to a slightly lower nuclear availability this winter than expected back in September, the grid operator said. This raises the risk of a power supply crunch in January, RTE said.

The main uncertainties in France’s power supply are gas supply, the energy situation in neighboring countries, demand, and the rate of restarting of French nuclear reactors, the operator noted.

Nuclear power generation in France has suffered setbacks this year, and currently, just over 50% of the French nuclear power fleet is available. 

Early this month, power giant EDF revised down its estimate for the 2022 French nuclear output to 275-285 TWh, compared to the previous estimate of 280-300 TWh. This lowered estimate takes into account the impact of strikes on maintenance schedules in the autumn of 2022, as well as outage extensions at four nuclear reactors involved in the program of inspections and repairs related to the stress corrosion phenomenon, EDF said in a statement.

France, traditionally a net exporter of electricity, even became a net importer of electricity in the first half of 2022 due to the issues at its nuclear power plants. 

After a drought in the summer, water levels at hydropower reservoirs are back up to normal for this time of the year, while very high gas storage levels in France and the rest of Europe mean that French gas-powered electricity supply will not be threatened this winter, the operator said. 

RTE stressed that under no circumstances does France run a risk of a “blackout”, that is, a total loss of control of the electricity system.

During periods of strained supply, France could avoid outages by reducing consumption by between 1% and 5% in the base-case scenario, and by up to 15% in the worst-case scenario, RTE said.