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Atlas Salt: Simple, Environmentally Friendly & Huge Potential Cash Flow

Source: Ron Struthers for Streetwise Reports   09/08/2021

Atlas Salt has a unique project on the west coast of Newfoundland. I would venture…

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This article was originally published by Streetwise Reports

Source: Ron Struthers for Streetwise Reports   09/08/2021

Atlas Salt has a unique project on the west coast of Newfoundland. I would venture to say it is the best risk/reward scenario in the province. Strategically located, the Great Atlantic Salt Project can serve significant North American demand and is uniquely positioned to capture market share from overseas countries with higher shipping costs.

This is a very unique and new story that I have been following for several months. The company did a name change effective September 1 from Red Moon to Atlas Salt to better reflect their business.

Atlas Salt Inc. (TSXV:SALT; OTC:REMRF)     Shares Outstanding: 75 million           Recent Price: CA$0.98

Atlas Salt has a unique project on the west coast of Newfoundland. I would venture to say it is the best risk/reward scenario in the province. Strategically located, the Great Atlantic Salt Project can serve significant North American demand and is uniquely positioned to capture market share from overseas countries with higher shipping costs.

What makes this rare and unique is that it is a massive salt deposit near a major coastal port in Newfoundland with access to Eastern North America. It was already advanced privately and has a 880-million tonne 43-101 resource at 96.9% NaCI, using 95% cut off. The total resources is massive that varies in thickness between 200 and 250 meters. It could have a mine life cut-off of over 100 years.

What is most important to understand is there is no risk with grade, metallurgy, strip ratios, processing and mining methods like mining other metals or materials. A processing plant is not required, you simply scoop material out of the deposit with a salt processor and ship to port. It is more like a salt factory than a mine. These salt projects generate huge cash flow and profits, but very seldom does one ever come to market in a public company.

Management

Atlas Salt's management team has a lot of experience in NFLD and in provincial corporations. They boost one of the top experts in the Salt industry as well.

Patrick Laracy, LL.B., P.Geo, CEO & Director is the founder of the company and has leveraged over $100 million of high risk exploration expenditures through equity and joint venture financings. He is a member of the Professional Engineers and Geoscientists of Newfoundland and Labrador with over 30 years of industry experience in various technical and executive capacities.

Rowland Howe, President & Director is a chartered Engineer with an impressive background in the salt industry. He was with North American Salt since the beginning that later became Compass and went public in 2003. Rowland was Mine General Manager at Goderich in Ontario from 1995-2011 where he led the expansion of the operation to the largest and most productive salt mine in North America. Following this, he was Director of Strategic Projects for Compass Minerals (NYSE: CMP) through 2016. He is currently President of the Goderich Port Management Corporation.

John Anderson, Director, is the founder of multiple start-up companies and a director of Newfoundland-based New Found Gold Corp. (NFG:TSX.V), has 25 years of successful corporate and financial capital market experience. He is currently President of Purplefish Capital Management Ltd., a private investment company focused on the resource sector.

Fraser H. Edison, Director has experience in finance, construction, Oil and Gas, and transportation management. He is currently President and Chairman of the Board of Rutter Inc., Chairman of Newfoundland and Labrador Liquor Corporation, and member of the board and governance committee of Newfoundland and Labrador Hydro.

Highlights:

  • Strong management team with lots of experience in salt and NFLD.

  • Salt deposit is close to sea port, greatly improving economics.

  • High grade deposit, at 96.9% NaCI.

  • Large resource with many decades of supply.

  • Location location, location – can offset oversea imports.

  • Feasibility started to move into production.

  • Planned spin out of their Fischell's Brook Salt dome (renewable energy storage).

Salt Industry

Salt is produced by the following three primary production methods: seawater solar evaporation or inland brines, brine extracted through solution mining, and mined rock salt.

The countries with the highest volumes of salt production in 2019 were China (67M tonnes), the U.S. (42M tonnes) and India (29M tonnes), together comprising 46% of global production. These countries were followed by Germany, Australia, Canada, Chile, Mexico, Brazil, Egypt, the Netherlands, France and Turkey, which together accounted for a further 29% (IndexBox estimates).

With COVID-19 lockdowns it is no surprise that In 2020, almost every country experienced a drop in salt production. China was the exception, indicating a 1.7% growth against 2019 figures. In the EU countries, salt extraction decreased by approx. 16%; in the U.S., it fell by 7%, in Canada, by 10%, in Russia, by 12%, and in India, by 3%. Since salt is widely used for the production of chlorine and sodium chloride, the stagnation seen in the chemical industry in 2020 explains this decline in production.

However, when it comes to Atlas Salt, the highway deicing market remains consistent. Demand is mostly affected by weather and with climate change we can expect wild swings in winter weather. Remember the snow storms in Texas last year. De-icing salt is a very specific salt that requires a minimum 95% grade.

Compass Minerals (CMP:NYSE) estimates the consumption of highway deicing salt in North America at about 39 million tonnes per year in an average winter. The consumer and industrial market is approximately 10 million tonnes year.

This graphic is from Compass at the same link. I highlight the two companies in relation to the market. Compass is also in the UK so why it is shown. Compass has great access in the middle area via the great lakes. Atlas will have very good sea access to all of Eastern Canada and Eastern US.

What is more important is supply that comes from South America and the Middle East is far more expensive to ship compared to what Atlas could do. Currently around 8 million tonnes per year are shipped from these distant sources into the Eastern US and Canada. The has been no new mines in North America in the last 20 years.

Atlas has that location, location, location and they have a whack load of salt too (see next 2 graphics). I might also add it is high grade at 96.9% NaCI (de-icing market standard).

On July 7, Atlas engaged SLR Consulting (Canada) Ltd., a global leader in the mining and minerals advisory service, to complete a feasibility study (FS) for the Great Atlantic Salt project. By proceeding from a resource estimate directly to a feasibility study, given the geological nature of this relatively homogeneous and shallow high-grade deposit immediately adjacent to key infrastructure, the goal is to expedite potential development of Great Atlantic to serve the North American road salt market.

Drilling is planned to upgrade the resource but also very interesting will be step out drilling towards the port. With the potential they can start the mine or ramp into the deposit much closer to the port. It is only about four kilometers away as it is. A conveyor is not out of the question either, we will just have to see what the feasibility comes up with. This would all be beneficial to the economics resulting in stronger cash flow.

Atlas is not just a one-trick pony. They have an open pit gypsum mine, just several kilometers away and as shown in the next graphic, the stock has further strong potential with a planned spin out of a salt dome for renewable energy storage. Atlas's Fischell's Brook salt dome also has the same advantage, having potential to be very close to the same seaport.

Financial

Last financial s as of June 30th show $7.6 million cash and no long-term debt. Since then Atlas completed a $1 million financing at 78 cents per unit. Each unit consisted of one common share and one common share purchase warrant, with each whole warrant exercisable at a price of $1.05 for a period of two years following the closing of the offering.

Summary

There has been over $5 billion in acquisitions in the industry over the past two years. For example, in April 2020, Stone Canyon Industries bought out The Kissner Group that controls the Detroit Salt Company for $2 billion. Detroit Salt has a salt mine dating back to the early 1900s at 12841 Sanders St. It’s now a so-called “salt city” about 1,200 feet below the city’s surface and spreading over 100 miles of underground roads, according to the company website.

Mark Demetree of Stone Canyon appears to be reshaping the North American Salt industry and is probably not done. Whether Stone Canyon or not, it would not surprise me if Atlas is bought out within the next 2 years at multiples of the current share price.

The best comparison is Compass Minerals with a market cap of US$2.2 billion and very profitable. They are the largest salt company in North America and run the largest salt mine in the world at Goderich Ontario. I am familiar with this when I lived in Owen Sound and worked for IBM. I have been to the site numerous times many years ago. I never went into the mine but a couple of my friends have. It has been operating since 1959.

Rowland Howe was Mine General Manger at Goderich from 1995 to 2011 and led the expansion and modernization of the mine. He joined Atlas Salt as President and Director this year as he knows how big the potential of this is. This gives Atlas very strong expertise in this sector. Patrick Laracy is CEO with over 30 years experience and lives in Newfoundland. John Anderson from New Found Gold is also a director.

SALT has a small market cap of just US$58 million compared to Compass at over US$2 billion, and the Great Atlantic Salt project has the potential to be a Goderich-type asset. Of course more development is required, but SALT has already started their feasibility study. Some drilling is planned as part of the feasibility to potentially expand the deposit closer to port so a decline into the deposit could be a shorter shipping distance to port, perhaps about 3 kilometers.

This YouTube video is a must-view. It will give you an excellent perspective on the industry and company.

On the chart, there is strong support around $0.65 and the stock just bounced off this level. It also just tested first resistance around $1.00. Once that is breached there will probably be a quick test of the $1.35 area.

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Disclosures:
1) Ron Struthers: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Atlas Salt Inc.  
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.  
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.  

( Companies Mentioned: TSXV:SALT; OTC:REMRF  , CMP:NYSE, NFG:TSX.V, )

Economics

Goldman Raises Year-End Oil Price Target To $90

Goldman Raises Year-End Oil Price Target To $90

Just days after Goldman’s head commodity analyst Jeff Currie told Bloomberg TV that the bank…

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Goldman Raises Year-End Oil Price Target To $90

Just days after Goldman's head commodity analyst Jeff Currie told Bloomberg TV that the bank anticipates oil spiking to $90 if the winter is colder than usual, on Sunday afternoon Goldman went ahead and made that its base case and in a note from energy strategist Damien Courvalin, he writes that with Brent prices reaching new highs since October 2018, the bank now forecasts that this rally will continue, "with our year-end Brent forecast of $90/bbl vs. $80/bbl previously."

What tipped the scales is that while Goldman has long held a bullish oil view, "the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above consensus forecast and with global supply remaining short of our below consensus forecasts."

Among the supply factors cited by Goldman is hurricane Ida - the "most bullish hurricane in US history" - which more than offset the ramp-up in OPEC+ production since July with non-OPEC+ non-shale production continuing to disappoint.

Meanwhile, as noted above, on the demand side Goldman cited low hospitalization rates which are leading more countries to re-open, including to international travel in particularly COVID-averse countries in Asia.

Finally, from a seasonal standpoint, Courvalin sees winter demand risks as "further now squarely skewed to the upside" as the global gas shortage will increase oil fired power generation.

From a fundamental standpoint, the current c.4.5 mb/d observable inventory draws are the largest on record, including for global SPRs and oil on water, and follow the longest deficit on record, started in June 2020.

For the oil bears, Goldman does not see this deficit as reversing in coming months as its scale will overwhelm both the willingness and ability for OPEC+ to ramp up, with the shale supply response just starting.

This sets the stage for inventories to fall to their lowest level since 2013 by year-end (after adjusting for pipeline fill), supporting further backwardation in the oil forward curve where positioning remains low.

But what about a production response? While Goldman does expect short-cycle production to respond by 2022 at the bank's higher price forecast, from core-OPEC, Russia and shale, this according to Goldman, will only lay bare the structural nature of the oil market repricing. To be sure, there will likely be a time to be tactically bearish in 2022, especially if a US-Iran deal is eventually reached. The bank's base-case assumption is for such an agreement to be reached in April, leading the bank to then trim its price target to an $80/bbl price forecast in 2Q22-4Q22 (vs. its 4Q21-1Q22 $85/bbl quarterly average forecast). This would, however, remain a tactical call and a likely timespread trade according to Courvalin, with long-dated oil prices poised to reset higher from current levels, especially as the hedging momentum shifts from US producer selling to airline buying (a move which Goldman says to position for with a long Dec-22 Brent and short Dec-22 Brent put trade recommendations).

 

Meanwhile, the lack of long-cycle capex response - here you can thank the green crazy sweeping the world - the quickly diminishing OPEC spare capacity (Goldman expects normalization by early 2022), the inability for shale producers to sustain production growth (given their low reinvestment rate targets) and oil service and carbon cost inflation will all instead point to the need for sustainably higher long-dated oil prices. Remarkably, Goldman now expects the market to return to a structural deficit by 2H23, which leads it to raise its 2023 oil price forecast from $65/bbl to $85/bbl, and the mid-cycle valuation oil price used by Goldman's equity analysts to $70/bbl.

Translation: expect a slew of price hikes on energy stocks in the coming days from Goldman.

Finally, where could Goldman's forecast - which would infuriate the white house as gasoline prices are about to explode higher - be wrong? For what it's worth, the bank sees the greatest risk on the timeline of its bullish view. On the demand side, it would take a potentially new variant that renders vaccine ineffective. Beyond that, however, the bank expects limited downside risk from China, with its economists not expecting a hard landing and with our demand growth forecast driven by DMs and other EMs instead. This leaves near-term risks having to come from the supply side, most notably OPEC+, which next meets on October 4. And while an aggressively faster ramp-up in production by year-end would soften (but not derail) our projected deficit, it would only further delay the shale rebound, which would reinforce the structural nature of the next rally given binding under-investment in oil services by 2023. In addition, a large ramp-up in OPEC+ production would simply fast-forward the decline in global spare capacity to historically low levels, replacing a cyclical tight market with a structural one.

The full report as usual available to pro subscribers in the usual place.

Tyler Durden Sun, 09/26/2021 - 20:36
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Economics

Weekly Market Pulse: Not So Evergrande

US stocks sold off last Monday due to fears over the potential – likely – failure of China Evergrande, a real estate developer that has suddenly discovered…

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US stocks sold off last Monday due to fears over the potential – likely – failure of China Evergrande, a real estate developer that has suddenly discovered the perils of leverage. Well that and the perils of being in an industry not currently favored by Xi Jinping. He has declared that houses are for living in not speculating on and ordered the state controlled banks to lend accordingly. Evergrande is known as a real estate developer and it certainly is but it is also a sprawling company with investments in multiple industries including, of course, an electric car company. Cutting off its financing isn’t just going to affect the Chinese real estate market. And real estate accounts for roughly 70% of household net worth in China so everyone in the country is going to take a hit. But is there a connection to the US or other developed country stock markets?

Real estate represents anywhere from 15 to 25% of the Chinese economy depending on what source you want to believe. The exact number isn’t really important, just suffice it to say that construction is a very large part of China’s economy and speculating on real estate is a national pastime. But the impact of it goes well beyond China. It is well known – according to the news reports I read – that China’s share of global commodity consumption is large and a large part of that goes to the construction industry. I read some research last week that claimed China’s property sector accounted for 20% of global steel and copper output. That sure sounds big and scary – as I’m sure the authors intended – but I would just point out that copper prices are near their all time highs and actually finished higher last week. The general commodity indexes were higher too. If Evergrande’s demise is going to materially impact commodity demand you wouldn’t know it from last week’s action. Maybe China’s commodity consumption isn’t “well known” in the commodity pits.

The doom and gloom crowd spent all of last week trying to convince investors – or themselves – that Evergrande is China’s “Lehman moment”, based on nothing more than the fact that Evergrande and Lehman both involved real estate. And in the case of Lehman that connection was incidental but superficially I guess the comparison made sense. There are certainly banks with exposure to Evergrande but the vast majority of them are Chinese. HSBC has been mentioned as having exposure but they stopped lending on Evergrande properties a few months ago. UBS was said to have exposure but the CEO said last week it was immaterial. Credit Suisse, which seems to be the new Citibank, involved in just about everything that has blown up the last few years, was so happy they avoided this one they almost broke an arm patting themselves on the back. US banks, as best I can tell, have no exposure. There are some junk bond funds with exposure but for the ones I looked at, it was a rounding error. There just doesn’t seem to be much interconnection with the rest of the global financial system and that was reflected in credit default swaps and credit spreads which barely moved on the week. 

Evergrande appears to be mostly a domestic China concern, at least for now. The impact will be seen in Chinese growth figures which were already on the decline. What does that mean for the rest of the world? I don’t know yet but I am old enough to remember the last time the world’s second largest economy popped a real estate bubble. That was Japan in the early 90s and their economy certainly suffered over the next decade but you’d be hard pressed to find a big blowback on the rest of the global economy. Maybe China will be different but I can easily make a case that a Chinese economic slowdown would be beneficial to the rest of the world. Suppose those estimates of commodity consumption are correct and copper and steel prices take a tumble. That probably wouldn’t be pleasant for Chile and Brazil (iron ore) but I’d guess that the rest of the world would welcome cheaper steel and copper. There are plenty of things to worry about right here in the US with political wrangling over the debt ceiling, a possible government shutdown (which I generally take as a positive) and potential tax and spending hikes. I see no need – yet – to start worrying about Xi Jinping’s re-Maoing of the Chinese economy.

For stock investors I think the more important event last week was the rapid rise of the 10 year Treasury yield from Wednesday to Friday. I don’t mean to imply that higher rates mean stocks are going to fall because history says that isn’t the likely outcome. Rising rates are generally associated with rising growth expectations which doesn’t exactly strike fear into stock investor’s hearts. And that is what we saw last week as inflation expectations were unchanged as real rate rose exactly the same as nominal rates. Higher rates will affect which stocks perform well though and we started to see that last week. Higher rates and a steeper yield curve were positive for financials. Energy stocks also had a very good week. In general, I’d expect value stocks to perform better if rates keep rising while growth stocks take a breather.

The move in rates last week came with seemingly no trigger. There was no economic data or other event that should have changed growth expectations. Of course, there really wasn’t any spur for the bond rally of the last 6 months either. But eventually the data caught up with the market and it probably will again. I say probably because markets are not always right, just most of the time. What I think we’re going to see over the next few weeks is the market anticipating the end of the Delta surge and the resumption of the economic re-opening both here and in Europe. Whether it does or not or how long it might last or how far it might go I don’t know. But that investors will try to front run the virus isn’t exactly news. Of course people will try to get ahead of events. 

During the course of an  economic cycle, growth will ebb and flow. We’ve just come through a growth rate slowdown and bond yields now seem to be anticipating a growth rate upturn. I’m not convinced yet and there’s a lot of potential potholes ahead – mostly political – so I’ll continue to classify the environment as slowing growth/strong dollar but that may not last long. One thing I still don’t see is any change in the dollar trend. It is a short term uptrend and I’ve acknowledge that but the long term trend is no trend at all. The dollar index is in the bottom half of the range it’s been in for over 6 years and I don’t know what would change that. The lack of a dollar trend makes our job a bit more difficult and shorter term but we play the hand we’re dealt. 


 

The economic data last week was a little better and better than expected but not significantly so. Housing starts improved as have sales over the last quarter but still well below last year’s peak. Existing home sales are still softening and we’re starting to see some price cuts which is the only thing that is going to have a big impact on sales.

The monthly reading of the CFNAI fell back a bit but the 3 month average moved higher to 0.43, a reading that indicates the economy continues to grow above trend. We had a slowdown but it didn’t amount to much.

 

 

 

This week’s data includes durable goods, personal income and consumption, the Chicago PMI and the ISM manufacturing index. I think the two to keep an eye on are income and consumption. It will be interesting to see if either was impacted by the impending end of extended unemployment benefits.

 

Commodities had a good week which seems curious considering the potential growth impact of Evergrande. But as the title says, maybe it isn’t so Grande. Maybe it is just pequeno. 

US and European stocks were up last week while the rest of the world was down. Is that because a China slowdown is good for the US and Europe and bad for Asia and Emerging markets more generally? Maybe but I think I’ll wait for more evidence on that front before making any big pronouncements.

Value outperformed last week across all market caps.

 

As I said above financials and energy led last week. Of equal importance I think is that real estate and utilities – both rate sensitive – lagged the field. If rates keep rising, that seems likely to continue as well. 

 

The 10 year Treasury yield bottomed in March 2020 around 40 basis points. It rose and then fell back to about 50 basis points in August of last year. It rose too far, too fast (1.75%) and the last six months has been nothing but a correction of that trend. Now, it appears rates are resuming their rise. How far will they go? Assuming the Delta end/re-re-opening narrative takes hold and there are no surprises along the way – some very large assumptions – my inner trader says about 1.85% as a first target. But that’s just an extrapolation so I wouldn’t place any big bets on it. What most investors should know is that rates are in an uptrend because the economy continues to recover from COVID. We had a growth rate slowdown and so far that’s all it was. And the market says it is ending. I’ll take that over all the breathless Evergrande articles any day.

Joe Calhoun

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Economics

As Margins Begin To Slide, Will Corporations Choose To Defend Profits Or Absorb Transitory Shocks

As Margins Begin To Slide, Will Corporations Choose To Defend Profits Or Absorb Transitory Shocks

Having spent much of the summer warning…

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As Margins Begin To Slide, Will Corporations Choose To Defend Profits Or Absorb Transitory Shocks

Having spent much of the summer warning that as a result of surging labor costs, commodity prices and generally "transitory hyperinflation", corporate margins would tumble (which in the view of Morgan Stanley would lead to a 10% correction), three weeks ago we warned that we are about to see a surge in profit warnings as the realization that the current unprecedented ascent in prices is going to be anything but transitory.

Sure enough, shortly after we noted that "Profit Warnings Are Coming Fast And Furious As Q3 Profits Brace For Big Hit" it wasn't until Nike and FedEx's dismal outlooks that the world finally paid attention to the coming stagflationary wave.

As we reported last week, Fedex tumbled after it reported that not only did it miss Q1 earnings - just hours after announcing it was raising prices at the fastest pace in decades - but also slashed guidance, warning about sharply higher labor costs and operating expenses.Picking up on this, earlier today Nordea also chimed in saying that "FedEx adjusted down expectations and cited being 35% understaffed in various parts of the supply chain as an important reason why. This is not good!" Yes... after the fact.

We won't waste our readers' time on why margins are set to plunge, and drag profits along with them absent a continued surge in revenues - we have discussed that extensively in the past few months - but we will highlight a recent note from SocGen's Andrew Lapthorne who cuts through the noise and says that corporates now have to make a decision: defend high margins or absorb "transitory" shocks.

As Lapthorne writes last week, while the rest of the world's attention turns to China, his charts focused on corporate profitability given the concerns about rising costs, supply disruption and now higher energy costs. According to the SocGen strategist, reported EBIT growth in the US has jumped by over 30% and over 55% in Europe, a remarkable surge which has been accompanied by a sharp increase in profit margins as sales growth has easily outstripped the growth in costs. Indeed, as noted recently, US profit margins hit an all all-time high in Q2, leading to a substantial uplift in profit margins to all-time highs.

Why the focus on margins and profitability? As Lapthorne explains, "profit margins act as shock absorbers. If businesses can absorb price shocks and business disruption into their P&L instead of passing the problems onto customers then logic has it that short-term profitability would be hit, but bigger issues, such as the need for policy tightening, is reduced."

And while on aggregate profit margins are healthy enough - for now - to absorb some temporary pain, it will be interesting to see what path the corporates take: to defend margins and risk inflation taking hold, or allow profits suffer for a while?

Tyler Durden Sun, 09/26/2021 - 17:30
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