Connect with us

Economics

Finnish Electricity Prices Jump 5x Amid Unseasonably Cold Weather And Worsening Energy Crisis

Finnish Electricity Prices Jump 5x Amid Unseasonably Cold Weather And Worsening Energy Crisis

Finland has succumbed to the energy crisis…

Published

on

This article was originally published by Zero Hedge

Finnish Electricity Prices Jump 5x Amid Unseasonably Cold Weather And Worsening Energy Crisis

Finland has succumbed to the energy crisis as households and businesses early this week paid a mind-numbing €422 per MWh (including taxes), or about five times higher than a year ago, according to data from the Nord Pool electricity exchange.

The Northern European nation bordering Sweden, Norway, and Russia is energy-dependent, meaning it must import high volumes of fossil fuels, such as petroleum and natural gas. Domestic sources of power production include thermal, nuclear, and hydropower plants.

Energy experts told RT News that soaring natural gas prices in Central Europe attributed to skyrocketing power prices. Experts warned of very little relief for Finnish households and businesses who may experience heightened electricity costs until next summer. 

The massive rally in European gas prices is not diminishing anytime soon. On Tuesday, gas price at the Dutch TTF hub, the benchmark gas price for Europe, spiked to €100 per MWh. 

“According to our forecast, the price of electricity will remain high in winter but will start to decline in spring. It is likely that it will not be as high as it is today, but the overall level remains elevated,” Finnish electricity company Fingrid spokesman Mikko Heikkila said. 

“Finland is very dependent on imports. In winter, we need energy from neighboring countries but if the electricity market and domestic electricity production work normally, then next winter there will be enough electricity,” Heikkila said. 

Soaring power prices come as the country’s average temperature will remain well below a 30-year trend line through Dec. 15. 

The country’s heating degree days show power demand will continue to increase as temperatures remain well below average. 

Russia’s Gazprom PJSC, the main supplier of natural gas to Europe, warned Monday that prices would remain elevated in the coming months, offering very little relief for households who heat their homes with gas and power plants that produce energy with it. With the Northern Hemisphere winter just weeks away, it seems as Europe’s energy crisis will worsen. 

Soaring energy inflation and rising food prices are the makings of a ‘winter of discontent’ across Europe. EU politicians beware. 

Tyler Durden
Wed, 12/01/2021 – 02:45

Author: Tyler Durden

Economics

PHI Group, Inc. (OTCMKTS: PHIL) Powerful Reversal Brewing as Co Makes Progress; Acquisition of Kota Energy & Construction, ADE Token & Asia Diamond Exchange

PHI Group, Inc. (OTCMKTS: PHIL) is one of the most talked about stocks on the OTCBB that has a significant global following so excited about the Company…

PHI Group, Inc. (OTCMKTS: PHIL) is one of the most talked about stocks on the OTCBB that has a significant global following so excited about the Company there is even a line of t-shirts with slogans such as $PHILLIONAIRE T-Shirt which is available for sale on Amazon. PHIL is also a staple amongst the top traded stocks on the OTC regularly trading over a billion shares when the stock was over a penny last year. PHIL has a lot of exciting projects under way; the Company is building the Asia Diamond Exchange; a modern bourse to be established in affiliation with the World Federation of Diamond Bourses (WFDB). It will be the first-ever vital rough diamond exchange in Asia, comparable to the diamond exchanges in Antwerp and Dubai (UAE). PHIL also launched an ADE token in South Korea in connection with the ADE. The Company is led by much loved CEO Henry Fahman a seasoned executive who has been the head of 11 different companies including Chairman & President of Providential Securities, Inc., and Resettlement Coordinator at United Nations High Commissioner for Refugees. Mr Fahman continues to accumulate most recently acquiring 400,000,000 shares of PHIL. Mr. Fahman has previously stated his intention of taking PHIL to a U.S. senior exchange like Nasdaq or NYSE in the future. 

According to recent 8k’s PHIL has been successful in raising money to build the planned Asia Diamond Exchange. PHIL signed a loan agreement deed with Neok Financial Incorporated, of United Arab Emirates for a loan program in the amount of $2,000,000,000 which carries a fixed preferred rate of annual interest for thirty-five years, to be repaid on a monthly basis over a period of 420 months. The Company also signed a contract agreement with Haj Finance Group, registered in Oman for a financing program in the amount of $1,500,000,000 which carries a fixed preferred rate of annual interest for thirty-five years with a three-year grace period. The closing of this transaction is to occur after the registration of a Special Purpose Vehicle (SPV) within United Arab Emirates, the signing of the closing documents and the approval of the transfer of funds by the Central Bank of United Arab Emirates (CBUAE). On January 3 PHIL filed a “Profit Corporation Articles of Incorporation” with the Wyoming Secretary of State to incorporate “PHILUX GLOBAL ENERGY, INC.” as a wholly-owned subsidiary of the Company to serve as the holding company for the contemplated acquisition of fifty-point one percent (50.10%) ownership in both Kota Energy Group LLC and Kota Construction LLC, As reported the Company signed a Letter of Intent with KOTA Energy Group LLC and KOTA Construction LLC dated December 08, 2021 to acquire 50.1% of the equity interest of each of these companies which equity interest shall be common equity with economic rights pari-passu with that held by the founders of Sellers. The total purchase price for the transaction will be $64,125,000.

PHI Group, Inc. (OTCMKTS: PHIL) is primarily engaged in mergers and acquisitions, running PHILUX Global Funds, SCA, SICAV-RAIF, a “Reserved Alternative Investment Fund” (“RAIF”) under the laws of Luxembourg, and establishing the Asia Diamond Exchange in Vietnam. Besides, the Company provides corporate finance services, including merger and acquisition advisory and consulting services for client companies through our wholly owned subsidiary PHILUX Capital Advisors, Inc. (formerly PHI Capital Holdings, Inc.)  and invests in selective industries and special situations aiming to potentially create significant long-term value for our shareholders. PHILUX Global Funds intends to include a number of sub-funds for investment in agriculture, renewable energy, real estate, infrastructure, and the Asia Diamond Exchange in Vietnam. 

The Company is currently focused on PHILUX Global Funds, SCA, SICAV-RAIF by launching a number of sub-funds for investment in real estate, renewable energy, infrastructure, agriculture and healthcare and on developing and establishing the Asia Diamond Exchange in Vietnam. In addition, PHILUX Capital Advisors, Inc. (formerly Capital Holdings, Inc.), a wholly owned subsidiary of the Company, continues to provide corporate and project finance services, including merger and acquisition (M&A) advisory and consulting services for U.S. and international companies. Recently, the Company has signed a Memorandum of Agreement to acquire seventy percent ownership in Five-Grain Treasure Spirits Company, Ltd., a baiju distiller in Jilin Province, China. No assurances can be made that the Company will be successful in achieving its plans. 

As of October 12, 2021, the Company owned the following subsidiaries: (1) Asia Diamond Exchange, Inc., a Wyoming corporation (100%), (2) Empire Spirits, Inc., a Nevada corporation (85% – formerly Provimex, Inc.) (3) (4) PHILUX Global Funds SCA, SICAV-RAIF, a Luxembourg Reserved Alternative Investment Fund (100%), (4) PHILUX Capital Advisors, Inc., a Wyoming corporation (100%), (6) PHI Luxembourg Development S.A., a Luxembourg corporation (100%), (7) PHILUX Global General Partners SA, a Luxembourg corporation (100%), (8) PHI Luxembourg Holding SA, a Luxembourg corporation (100%), (9) PHI Vietnam Investment and Development Company Ltd., a Vietnamese limited liability company (100%), (10) Phivitae Healthcare, Inc. (100%), , (11) American Pacific Plastics, Inc., a Wyoming corporation (100%), (12) American Pacific Resources, Inc., a Wyoming corporation (100%), and (5) CO2-1-0 (CARBON) CORP., (51%), which aims to provide a solution in disruptive decentralized new carbon market system using blockchain-crypto technology and IoT which will be empowering environmentally sustainable projects (renewable energy/ waste/ agriculture/ forestry/ etc.) starting in Indonesia, Vietnam, other ASEAN countries, USA, and worldwide. It has a clear and systematic product development roadmap, and the ultimate milestones of the products estimated to be launched in the near future. The solution, methodology, and improved TACCC (transparent, accurate, consistent, complete, and comparable) business process originally introduced by CO2-1-0 (CARBON) will bring full impact to better environment and life of millions. Recently CO2-1-0 (CARBON) Corp.,signed a Memorandum of Understanding (“MOU”) with Solar EVN Ngoc Chau to cooperate in a new disruptive carbon mitigation program through worldwide environmentally sustainable projects. 

To Find out the inside Scoop on PHIL Subscribe to Microcapdaily.com Right Now by entering your Email in the box below

PHIL

Asia Diamond Exchange – is a modern bourse to be established in affiliation with the World Federation of Diamond Bourses (WFDB). It will be the first-ever vital rough diamond exchange in Asia, comparable to the diamond exchanges in Antwerp (Belgium) and Dubai (UAE). Located in a Free-Trade Zone in Vietnam near an international airport in the new Global Multi-Commodities Center (“GMCC”) the ADE is a modern bourse to be established in affiliation with the World Federation of Diamond Bourses (WFDB) and fully compliant with the Kimberley attestation process. ADE membership will serve as a mark of distinction, opening doors and allowing access to those active in the diamond trade. The ADE ensures that its members will have the safety of only trading with reputable companies adhering to its compliance guidelines that are bound by a strict code of good business practices and ethics. 

PHIL recently announce the launch of the ADE token in South Korea in connection with the Asia Diamond Exchange. The token is designed to optimize transparency and fair pricing to the diamond industry to provide enhanced benefits to all stakeholders. By validating transactions on a blockchain, there are no chances of counterfeiting or substandard pieces. Consumers will be able to design and purchase custom diamond jewelry and loose gemstones at significantly better prices by using the ADE tokens. The ADE tokens will be deflationary by setting aside profits to purchase and burn tokens as well as systematically continuing the buy-back of PHIL stock on an ongoing basis in the future. International investors may purchase and trade the tokens once they are listed on top exchanges such as Coinbase and Binance. 

Empire Spirits, inc (fomerly Provimex, inc) was originally incorporated as a Nevada corporation on September 23, 2004, Entity Number C25551-4, to engage in international trade. On 9/26/2021, the company changed its name to Empire Spirits, Inc. as the holding company for the acquisition of seventy percent (70%) ownership in Five-Grain Treasure Spirits Company, Ltd., a baiju distiller in Jilin Province, China. PHI Group, Inc., through Empire Spirits, Inc. will provide additional required capital for Five-Grain to fully execute its business plan. The budget for this transaction will be one hundred million U.S. dollars (USD 100,000,000), to be paid in three tranches. The Company will complete the due diligence of Five-Grain before signing a Definitive Agreement for the consummation of this transaction, which is scheduled to close by the end of 2021. Baijiu is a white spirit distilled from sorghum. It is similar to vodka but with a fragrant aroma and taste. It is currently the most consumed spirit in the world. Mainly consumed in China, it is gaining popularity in the rest of the world. Five-Grain specializes in the production and sales of spirits and the development of proprietary spirit production processes. It also possesses a patented technology to grow red sorghum for baiju manufacturing. The patented grain produces superior yield and quality. Five-Grain is a reputable bulk alcohol supplier to some of the largest spirits companies in the world. 

On December 20 PHIL announced it has signed a consulting agreement with Vietnam-based Cat Tuong Agricultural Processing Production Co. Ltd. (“CT Farm”) to assist this enterprise to become a publicly traded company and establish production facilities in the United States of America. According to the agreement, PHI Group, Inc. will be responsible for assisting CT Farm to list on the U.S. Nasdaq Stock Market, acquire farmland to set up production facilities in the Southeast region of the U.S. and secure up to one billion U.S. dollars’ long-term financing for CT Farm to expand and grow the company in the global marketplace. PHI Group, Inc. will receive cash and stock from CT Farm for services rendered in connection with this agreement. 

For more on PHIL Subscribe Right Now!

PHIL is one of the most talked about stocks on the OTCBB that has a significant global following so excited about the Company there is even a line of t-shirts with slogans such as $PHILLIONAIRE T-Shirt which is available for sale on Amazon. PHIL is also a staple amongst the top traded stocks on the OTC regularly trading over a billion shares when the stock was over a penny last year. PHIL has a lot of exciting projects under way; the Company is building the Asia Diamond Exchange; a modern bourse to be established in affiliation with the World Federation of Diamond Bourses (WFDB). It will be the first-ever vital rough diamond exchange in Asia, comparable to the diamond exchanges in Antwerp and Dubai (UAE). PHIL also launched an ADE token in South Korea in connection with the ADE. The Company is led by much loved CEO Henry Fahman a seasoned executive who has been the head of 11 different companies including Chairman & President of Providential Securities, Inc., and Resettlement Coordinator at United Nations High Commissioner for Refugees. Mr Fahman continues to accumulate most recently acquiring 400,000,000 shares of PHIL. Mr. Fahman has previously stated his intention of taking PHIL to a U.S. senior exchange like Nasdaq or NYSE in the future. According to recent 8k’s PHIL has been successful in raising money to build the planned Asia Diamond Exchange. PHIL signed a loan agreement deed with Neok Financial Incorporated, of United Arab Emirates for a loan program in the amount of $2,000,000,000 which carries a fixed preferred rate of annual interest for thirty-five years, to be repaid on a monthly basis over a period of 420 months. The Company also signed a contract agreement with Haj Finance Group, registered in Oman for a financing program in the amount of $1,500,000,000 which carries a fixed preferred rate of annual interest for thirty-five years with a three-year grace period. The closing of this transaction is to occur after the registration of a Special Purpose Vehicle (SPV) within United Arab Emirates, the signing of the closing documents and the approval of the transfer of funds by the Central Bank of United Arab Emirates (CBUAE). On January 3 PHIL filed a “Profit Corporation Articles of Incorporation” with the Wyoming Secretary of State to incorporate “PHILUX GLOBAL ENERGY, INC.” as a wholly-owned subsidiary of the Company to serve as the holding company for the contemplated acquisition of fifty-point one percent (50.10%) ownership in both Kota Energy Group LLC and Kota Construction LLC, As reported the Company signed a Letter of Intent with KOTA Energy Group LLC and KOTA Construction LLC dated December 08, 2021 to acquire 50.1% of the equity interest of each of these companies which equity interest shall be common equity with economic rights pari-passu with that held by the founders of Sellers. The total purchase price for the transaction will be $64,125,000. We will be updating on PHIL so make sure you Subscribe to Microcapdaily so you know what’s going on with PHIL.

Sign Up now for our 100% FREE Penny Stock Newsletter


Disclosure: we hold no position in PHIL either long or short and we have not been compensated for this article.

The post PHI Group, Inc. (OTCMKTS: PHIL) Powerful Reversal Brewing as Co Makes Progress; Acquisition of Kota Energy & Construction, ADE Token & Asia Diamond Exchange first appeared on Micro Cap Daily.

commodities
central bank
deflationary
nyse
nasdaq
otc
diamond

Author: Boe Rimes

Continue Reading

Economics

Virginia’s New AG Fires Civil Rights Division, Will Start Prosecuting Cases Dropped By ‘Social Justice’ DAs

Virginia’s New AG Fires Civil Rights Division, Will Start Prosecuting Cases Dropped By ‘Social Justice’ DAs

Within hours of taking office,…

Virginia’s New AG Fires Civil Rights Division, Will Start Prosecuting Cases Dropped By ‘Social Justice’ DAs

Within hours of taking office, Virginia’s newly sworn-in Attorney General Jason Miyares (R) cleaned house – firing dozens of lawyers, including those in the Civil Rights division – and announcing investigations into the Virginia Parole Board and Loudon County Public Schools.

I’ve been told incoming AG @JasonMiyaresVA just FIRED the entire civil rights division in the Attorney General’s office,” tweeted VA State Senator Louise Lucas.

According to the Richmond Times-Dispatch, Miyares notified around 30 staff members they’re being let go – including 17 attorneys and 13 staff members. The attorneys include the solicitor general, Herring’s deputies, and reportedly Helen Hardiman – an assistant AG who worked on housing discrimination.

Miyares, who will take over Democratic AG Mark Herring, campaigned on a promise to pursue legislation that would enable state AGs to circumvent “social justice” attorneys who refuse to vigorously prosecute crimes. As Fox News noted in November, “Under current law, the AG’s office can prosecute a case on behalf of a commonwealth’s attorney – Virginia’s version of a district attorney (DA) – so long as the DA requests it.”

George Soros-backed commonwealth’s attorneys are not doing their jobs,” said Miyares in May 2021 comments to the Arlington County Republican Committee.

Liberal billionaire George Soros has repeatedly poured thousands into prosecutor’s races in Virginia. In 2019, Soros provided a significant cash infusion to three winning progressive candidates, Parisa Dehghani-Tafti in Arlington County (nearly $1 million from Soros); Buta Biberaj in Loudon County ($850,000 from Soros); and Steve Descano in Fairfax County ($600,000 from Soros). Soros spent about $200,000 in a prosecutor’s race in Norfolk this year. His candidate went on to win the race. -Fox News

When reached for comment, Miyares spokesperson Victoria LaCivita said: “During the campaign, it was made clear that now Attorney General-elect Miyares and Attorney General Herring have very different visions for the office,” adding “We are restructuring the office, as every incoming AG has done in the past.”

In a Saturday statement just houtrs after Miyares and GOP Gov. Glenn Younkin were sworn in, he explained why he launched the investigations into the parole board and the school district.

“One of the reasons Virginians get so fed up with government is the lack of transparency – and that’s a big issue here,” he wrote. “The Virginia Parole Board broke the law when they let out murders, rapists, and cop killers early on their sentences without notifying the victims. Loudoun Country Public Schools covered up a sexual assault on school grounds for political gain, leading to an additional assault of a young girl.”

Loudoun County became a focal point in Youngkin’s gubernatorial race against former Virginia Gov. Terry McAuliffe following the arrest of a 14-year-old male high school student, who identifies as nonbinary, who has been found guilty of raping a female student in a school bathroom. That student was transferred to another school where he allegedly raped another student and the district has been accused of covering up the crime which resulted in one of the alleged victim’s parents being arrested at a school board meeting. The offending student has been placed on the sex offenders registry for life as part of his sentence. –Fox News

Meanwhile, within hours of his inauguration, Governor Glenn Youngkin signed 11 executive actions – including lifting the mask mandate in Virginia schools, and “ending divisive concepts, including critical race theory, in public education.”

As Terri Wu via the Epoch Times reports:

He also signed an executive directive rescinding the vaccine mandate for all state employees.

The 55-year-old former business executive, in his inauguration speech at Richmond, emphasized a “common path forward” with “our deep and abiding respect for individual freedom.” Youngkin vowed to strengthen and renew the “spirit of Virginia” associated with the history of the state as the home of American democracy. He credited Virginians with the spirit of tenacity, grit, and resilience.

Youngkin said he was “ready to lead and serve, starting on day one,” and it would start in the classroom to get Virginia’s children “career and college ready.” The crowd of an estimated size of 6,000 burst into a loud cheer upon hearing from Youngkin that he would “remove politics from the classroom.”

“Virginia is open for business,” Youngkin promised to create 400,000 new jobs and 10,000 new startups in the four years of his administration by reducing regulations and increasing job-related training.

According to him, residents of the commonwealth will see the “largest tax rebate in Virginia’s history.” In addition, he promised to “fully fund” and “return respect to” law enforcement.

‘Hope’ and ‘Optimism’

Voters echoed the sentiment of “hope” and “optimism” highlighted in Youngkin’s speech.

“I’m excited because we have somebody in here who’s willing to fight like we do, just on a higher level,” said Shirley Green, a public relations specialist, while waiting to join the inauguration ceremony. Improving the school system was the first step she wanted the new administration to take. And she was “optimistic” that the Youngkin administration would deliver their campaign promise because of their “humility” and “passion for Virginians.”

Green grew up as a Democrat in the District of Columbia metropolitan area but became a conservative 13 years ago. She said she had found the Democratic Party having a different vision than “working for the people.”

Shirley Green at the public entrance to the Capitol Square in Richmond, Va., on Jan. 15, 2022. (Terri Wu/The Epoch Times)

“I feel great. It’s a great day for Virginia,” said Joe. He and his wife attended the inauguration ceremony in “Youngkin vests,” the same style of fleece vests Youngkin often wore on his campaign trail. The couple owns a local safety business and prefers not to disclose their names. The previous Virginia administration “didn’t always take in consideration of the people” in its decision-making, said the wife.

“Education is the number one concern,” she said, adding that parents among their employees and employees at their client organizations—Republicans, independents, and Democrats—voted for Youngkin “because of their concerns for their families.”

Aiden Sheahan and Alyson Bucker with the University of Virginia were among a group of five college students and graduates who also attended the ceremony. They made phone calls and door-to-door visits for the Youngkin campaign. Sheahan said he saw “a lot of optimism” during the campaign; people had hopes that many things, including jobs, the standard of living, and policies, would change with the new governor.

The group described the new Lieutenant Governor Winsome Sears, a black American who immigrated from Jamaica, as “confident” and “powerful.”

“She doesn’t use her skin color, her circumstances, or her identity to promote herself. She used her accomplishments, rather than something she cannot control, to promote herself,” added Matthew Carpenter, a recent college graduate from Longwood University in Farmville, Virginia.

Challenges from Day One

The former executive who campaigned as a political outsider will face challenges working with a state legislature with divided party control, and some priorities facing deadlocks.

The General Assembly session began on Jan. 12, with a newly empowered Republican majority (52–48) in the State House, and a Senate where Democrats still hold a 21–19 majority.

In the next 60 days, lawmakers will review and adopt a two-year state budget proposed by former Governor Ralph Northam on Dec. 16. Youngkin has already said “the recognition of the need for tax cuts is understated” in Northam’s plan.

The new Speaker of the House Todd Gilbert announced education, inflation, and public safety as Virginia House GOP’s agenda for 2022. By comparison, House Democrats’ “top priority is to protect the advances they made against Republican efforts to roll them back,” in three key areas: supporting public schools, keeping families healthy, and ensuring economic security for all.

With a Democrat-controlled House and Senate in the past two years, former Democratic Governor Northam signed into law in 2020 a series of liberal measures, including increased gun control, lifting abortion restrictions, and relaxed voter requirements.

“I think we have a Governor-elect who is going to come in and do something about some of our school problems, introduce our freedoms, and be more protective of law enforcement. And I think that gives us a lot of hope,” veteran Republican State Senator Steve Newman told ABC13 a day before the inauguration.

An inaugural parade followed the ceremony. On Sunday, the three-day events will close with an open house at the governor’s mansion. Along with Youngkin, Winsome Sears was sworn in on Saturday as the Lieutenant Governor and Jason Miyares as the Attorney General. Sears will hold the tie-breaking vote in the State Senate.

Tyler Durden
Sat, 01/15/2022 – 20:00

Author: Tyler Durden

Continue Reading

Economics

How Goldman Is Convincing Its Clients Not To Freak Out About Fed Rate Hikes

How Goldman Is Convincing Its Clients Not To Freak Out About Fed Rate Hikes

Rate hikes are now just right around the corner and traders are…

How Goldman Is Convincing Its Clients Not To Freak Out About Fed Rate Hikes

Rate hikes are now just right around the corner and traders are freaking out, but not so fast according to Goldman.

Following the FOMC meeting in mid-December, and especially last week’s FOMC minutes and the subsequent jawboning by various Fed officials,, it has become clear that the Fed will not only double the pace of tapering but also signaled three hikes in 2022. As a result, virtually all sell-side economists – even stern holdouts such as Morgan Stanley and Bank of America – have raised their forecast from three hikes in 2022 to four – with the first hike now expected to occur in March. Their forecast reflects the greater sense of urgency on behalf of FOMC participants towards quelling inflation, which rose to a four-decade high of 7% as measured by the latest year/year CPI. Why this urgency? Because as one can imagine, Biden was very clear in what Powell’s mandate was when he was renominated: “crush inflation as it is crushing my approval ratings”, because as BofA’s Michael Hartnett noted on Friday, “US inflation is up from 1.4% to 7.0%, while Biden’s approval rating is down from 56% to 42% past 12 months.”

But why is the Fed rushing to hike when a growing chorus of economists now agrees with us that the Fed is hiking right into a recession (or alternatively, hiking to create a recession) an observation that was validated by Friday’s dismal retail sales data… and even without validation, the endgame is clear: as David Rosenberg noted recently, every time the US has had 5%+ inflation, it ended in recession.

Well, according to Goldman’s David Kostin, the unprecedented strength of the labor market has made the Fed more sensitive to high inflation and less sensitive to slowing growth. Alongside rising inflation, the Fed has also cited strong employment data as a catalyst for earlier liftoff and balance sheet reduction. The unemployment rate now stands at 3.9%, falling slightly below the FOMC’s 4.0% median estimate of its long-term level (although looking ahead, Kostin notes that surveys of workers and businesses indicate wage growth is expected to slow to about 4% this year).

To be sure, the market already reflects this and real and nominal rates have both jumped in anticipation of the upcoming tightening cycle. Since the December FOMC meeting, the 10-year US Treasury yield has surged by 26 bp to 1.77%. Consistent with historical experience, equities have struggled amid this rapid rise in yields, and the fastest-growing and longest-duration pockets of the market – i.e., the biggest bubbles such as profiless tech names, the ARKK ETFs, SPACs and so on – have de-rated most.

As a quick aside, perhaps the main reason for the equity puke in the past two weeks is not so much the jump in absolute yield in the past month, but the speed of the move. As Goldman showed in a separate report earlier this week (also available to professional subs), regardless of the level of interest rates, equities react poorly to sharp changes in the interest rate environment, and the past week has been no exception: “Historically, equity prices have declined when interest rates rose by two standard deviations or more. This is true for both nominal and real interest rates across both weekly and monthly periods. The two standard deviation threshold was exceeded on both horizons last week, and the accompanying equity weakness followed the usual historical pattern.”

But while that may explain short-term moves, surely higher rates will lead to longer-term weakness no matter what. And while the answer is yes, the next table shows the sensitivity of the S&P 500 forward P/E multiple to various interest rate and ERP scenarios. Goldman’s interest rate strategists forecast a continued rise in real interest rates that will lift the nominal 10-year Treasury yield to 2% by year-end 2022 (more below), however they also expect the ERP to compress modestly from current levels as the pandemic recovery continues and economic policy uncertainty surrounding potential reconciliation legislation passes. In this base case scenario, the S&P 500 P/E multiple would remain roughly flat this year, allowing earnings growth to lift the index price level. But, if the ERP were to rise to its 10-year median and the Treasury yield rises to 2.25%, the P/E multiple would compress by roughly 15% to 17x, and not even Goldman can spin that as positive.

In any case, as Kostin writes in his latest Weekly Kickstart, market pricing and client conversations indicate investors are braced for a string of hikes in 2022, and as a result, questions from Goldman clients during the past two weeks “have focused on the relationship between equities and interest rates, indicating that the hawkish FOMC pivot is being actively assessed by equity investors.” Moreover, the overnight index swap (OIS) market is currently pricing 3.6 rate hikes in 2022 and 2.6 in 2023, just below the 4 and 3 hikes, respectively, that Goldman forecasts (spoiler alert: the total number of rate hikes will be far less once stocks crash).

And this is where Goldman enters the bullish spin cycle, because the bank makes much more money when its clients buy (only to sell in the future), than selling now. So to ease client concerns that the bottom is about to fall off the market, Kostin writes that “historically” (because clearly we have had many “historical examples” when the Fed’s balance sheet was 45% of US GDP), the S&P 500 index has been resilient around the start of Fed hiking cycles, noting that “although the index has returned -6% on average during the three months following the first hike of recent cycles, the weakness has been short-lived as returns average +5% during the six months following the first hike.” Moreover, as Goldman shows in exhibit 3, the S&P 500 P/E is typically flat during the 12 months around the first hike.

Drilling down into segments, Goldman notes that cyclical sectors and Value stocks outperform around the first Fed hike. The reason: the start of Fed hiking cycles (usually) tends to coincide with a strong economy, which can help to lift cyclical sectors (Materials, Industrials, Energy). However, this time around it is starting as the economy is rapidly slowing yet inflation remains stubborn due to supply-chain blockages, and as such anything Goldman suggests you should do, please ignore it.

Which is probably also true for factors. According to Kostin, at the factor level, Value stocks tend to outperform in the months before and after the first hike: “High quality factors (e.g., high margins, strong balance sheets) underperform in the strong economic environment preceding hikes and outperform in the months following the initial rate increase. Growth is the worst performing factor in the 6 months around the first hike.” Here too, we would flip this 180 degrees because the Fed is now hiking to effectively start a recession (or as the US is already en route to one), so what one should be selling is value while buying growth ahead of the next rate cuts/QE which are now just a matter of time.

Next, Kostin brings out the heavy artillery and urges his skittish clients to consider that “surprisingly” equities have historically performed well alongside rising expectations for Fed hikes. Here, the bank examines the six-month periods since 2004 when OIS pricing of the 5-year-ahead fed funds rate increased by 25 bps, excluding episodes when the Fed was cutting rates.

During these episodes, nominal 10Y yields typically rose by 52 bps with roughly even contributions from real yields and breakevens. Despite this, the S&P 500 returned 9% (vs. its unconditional 6-month average of 5%). Higher earnings expectations drove these rallies as increases in fed funds pricing usually coincided with improving expectations for economic growth. However, as we have repeatedly warned and as even Kostin concedes, “the current inflation-led hiking cycle may prove more challenging for equities.” We are not sure this will boost the confidence level of Goldman clients who are on the fence to just BTFD…

After the initial stage, when markets price more eventual rate hikes, cyclical sectors typically outperform while bond proxies lagged according to Goldman. Industrials, Consumer Discretionary, and Materials outperform the S&P 500 on average during these episodes, with financials especially sensitive to the long-term interest rate outlook and also outperforming. Meanwhile, bond proxy sectors such as Utilities and Consumer Staples underperformed sharply.

As noted above, value has typically outperformed alongside rising market expectations for Fed hiking, but only in cases when the the hiking cycle was led by growth expectations, not to crush inflation, so this time one can argue that everything will be flipped. And while traditionally, small-caps also outperformed, as “quality” factors underperformed, the recent weakness in small-caps confirms that this is anything but an ordinary rate hike cycle.

Curiously, even in his bullish pitch to clients, Kostin – perhaps hoping to preserve some credibility- admits that this is not a typical rate hike cycle, and the recent hawkish pivot has been driven not by “improving growth expectations but by inflation risks” yet even so Goldman’s economists expect growth to remain above-trend in 2022 because, of course, what else can they do: start sounding like Zero Hedge and admit that the Fed is hiking into a recession.

And indeed, Kostin admits that “fading expectations for fiscal stimulus and the hit from Omicron have led our economists to downgrade their growth outlook in recent weeks” however – perhaps unwilling to piss off Biden too much – they still forecast 3.4% GDP growth this year, a stepdown from the 5-6% pace in 2021 but still above their 1.75% estimate of trend growth. Translation: the US will be in a recession by the midterms, courtesy of the Fed.

So after all that, if Goldman clients aren’t running for the hills, maybe the will BTFD after all, and for them, Kostin writes that investors “should balance their exposures to Growth and Value” as Goldman’s rates strategists expect yields will continue to rise, a dynamic that should support Value over Growth, unless of course we enter stagflation at which point all is lost (incidentally, as noted last week, Goldman expects nominal 10-year yield to hit 2.0% by year-end 2022 (with real rates rising to -0.70% almost where they are now) and 2.3% by the end of 2023).

From a growth perspective, Goldman economists expect the waning of the Omicron wave to lift GDP growth from 2% in 1Q to 3% in 2Q, supporting Value stocks. But they expect growth will slow to a 2% pace by 4Q 2022, the type of environment that generally supports Growth stocks. Translation: yes, growth stocks are getting crushed now, but as soon as the current whisper of a recession/stagflation becomes a chorus, watch as “growth stocks” (i.e., the bubble/bitcoin baskets) explode higher and surpass their previous all-time highs.

In short, Goldman’s current recommended sector overweights reflect a barbell of Growth and Value:

  • Info Tech remains the bank’s long-standing overweight due to its secular growth and strong profit margins.
  • Financials should benefit from rising interest rates
  • Health Care combines secular growth qualities with a deep relative valuation discount.

Finally, from a thematic perspective, Goldman continues to recommend investors own highly profitable growth stocks relative to growth stocks with low or no profitability. To this, all we can add is that with low growth stocks having been absolutely nuked by now, the highest convexity when the recessionary turn comes, will be precisely in the no profitability growth sector, which will double in no time once the coming recession/easing cycle becomes the dominant narrative.

Tyler Durden
Sat, 01/15/2022 – 19:00







Author: Tyler Durden

Continue Reading

Trending