Thursday 02/02/23

1. In MACRO & OIL NEWS, the Fed raises US interest rates and we take a closer look at the EU vs US subsidies situation, how the IMF has a history of getting forecasts wrong and a few challenges facing Shell and BP
2. In EMPLOYMENT, CONSUMER & RETAIL TRENDS, US workers return to office, there are headcount reductions at PayPal, FedEx and Rivian while in the UK we see mortgage overpayments, weaker property prices and the ongoing battle in UK supermarkets
3. In TECH NEWS, US chipmaker plans to build a semiconductor plant in Germany, Intel cuts back and OpenAI offers a new subscription plan while Meta has a good day, YouTube takes on TikTok and Darktrace tries to fend of scepticism
4. In INDIVIDUAL COMPANY NEWS, Adani calls off its share sale and Peloton pedals towards recovery
5. AND FINALLY, I bring you a new discovery (for me, anyway!)…

So the Fed hikes, the EU/US/subsidies things continues and we look at how 💩 the IMF can be while Shell and BP face issues…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

US Federal Reserve eases pace of base rate rises as economy begins to cool (The Times, Mehreen Khan) shows that the Fed raised interest rates by 0.25%, as widely expected. The Federal Funds Rate (the official name of the main US interest rate everyone is interested in) is now at its highest level since 2007 at 4.75% (it’s actually in a range, but I won’t confuse matters here! The 4.75% rate is the one that everyone will point to 👍). US stocks jump after Fed announces smaller rate rise (Financial Times, Nicholas Megaw and George Steer) reflects the effect of the rise (even though everyone and their dog expected it) as US stocks closed trading yesterday at their highest level since last summer. As I’ve said before, the 0.25% rise is notable because it is smaller than the previous 0.5% and 0.75% increments we have become accustomed to. Stocks went up because investors are interpreting this smaller rise as a sign that the economy is making progress towards taming inflation. Fed chief Jerome Powell said that more rises are to be expected as the battle isn’t over yet!

Can the EU keep up with the US on green subsidies? (Financial Times, Sam Fleming, Alice Hancock and Javier Espinoza) is an interesting read that debates whether the EU can realistically match the attractive subsidies that America is offering to green industries in its Inflation Reduction Act. This is an excellent article – but quite long. The short version is that America is kicking ass with its subsidies at the moment and the EU is currently faffing around with a response that is dividing the bloc. * SO WHAT? * Something clearly needs to be done here – and quickly – because Europe is way behind on this currently. The longer it takes to come up with a solution, the higher the risk becomes of Europe losing companies to America that it really should be keeping hold of!

You are probably aware by now that I am always poking fun (and scepticism) at economists and their economic forecasts no matter what organisation they work for 😁! But just in case you think I’ve been deeply scarred by some terrible economic forecasting nightmare in the past, have a look at this: Why the IMF could be forced to eat ‘humble pie’ again (Daily Telegraph, Eir Nolsøe and Szu Ping Chan). This article has a little look back at the history of 💩 forecasting – particularly with regard to the IMF’s form in terms of accuracy about the UK economy. Most recently, for instance, the IMF predicted UK GDP growth of 3.2% in 2022 (which it subsequently revised up to 3.6% in October) but earlier this week it said UK GDP growth was 4.1%! Mind you, it’s not just the IMF that

📢 It’s Thursday, so it’s time for the one hour weekly Zoom call for SILVER and GOLD subscribers! Click HERE to access the joining details. *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• Should Tesco have bought Paperchase? How can Tesco fight off the march of the German discounters?
• Will there be an EV price war? Who would win if there was?

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

gets it wrong – the Office for Budget Responsibility also has form and it actually admitted the other day that it had been too gloomy on its predictions because it had underestimated the effect of the tight labour market on economic growth. The IMF previously predicted recession post Brexit (which never happened) and preached spending instead of austerity in the years following the financial crisis (but the IMF also got that spectacularly wrong as well – to the extent that it felt it had to apologise to then-chancellor George Osborne for criticising him so harshly). * SO WHAT? * The problem is that too many people take these forecasts too seriously and that policies are based on them. To be fair to the forecasters, it is a tricky job full of unknowns, but getting it so wrong so often doesn’t help those whose lives and livelihoods depend on such “experts”. It’s why they get paid the big bucks surely 😁.

In oil news, there was bad news for Shell in Shell hit with damages claim by 11,000 Nigerians in UK High Court (Financial Times, Tom Wilson) as over 11,000 residents in Nigeria’s Niger Delta are seeking compensation for causing environmental damage. Two communities in the region say that oil spills have contaminated drinking water, reduced air quality and decimated farm land and fishing stocks. * SO WHAT? * The claims are expected to go to trial next year as the number of cases being brought against Shell for its negative impact on the environment continue to pile up. This could get very expensive as it could set a precedent…

Shell’s actual spending on renewables is fraction of what it claims, group alleges (The Guardian, Oliver Milman) highlights claims by activist group Global Witness that Shell has misleadingly overstated how much money it is spending on renewable energy. It is also suggesting that it should be investigated and potentially fined for its actions by a regulator such as the US Securities and Exchange Commission (SEC). Rather hilariously, Shell’s most recent annual report boasted about putting 12% of its capex into a division called Renewables and Energy Solutions – but Global Witness said that only 1.5% of its capex had gone into developing actual renewables! * SO WHAT? * If proved correct, this shows that greenwashing isn’t just something investment houses do – it’s also something that oil firms do as well! This should not come as a surprise – it’s just like all the 🐂💩 tobacco companies come out with about striving towards a world without cigarettes. My 🍑rse.

Meanwhile, BP to cut back on green shift amid booming demand for fossil fuels (Daily Telegraph, Matt Oliver and Rachel Millard) shows that another oil major is at least being honest with what it’s doing! The supermajor said that it wants to “dial back” its efforts in clean energy so that it can profit hugely from the booming demand for fossil fuels! Chief exec Looney said that he’s concerned about the return on investment from things like wind and solar, but he said that he now wants to focus on profitability. * SO WHAT? * Hey, once an oil company, always an oil company, right?!? Mind you, at least he is being honest about it and not greenwashing his focus on bringing in the greenbacks! I think that, particularly at a time when war is raging, it makes commercial sense for BP to concentrate on what it’s best at – although it is somewhat questionable on moral grounds. TBF, Looney has said in the recent past that he doesn’t want to pursue renewables purely for the sake of it – he will only do so if they offer decent returns.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

We look at return to office, headcount reductions, trends in the UK property market and the ongoing supermarket tussle…

Interesting employment trends continue to emerge in U.S. Return-to-Office Rate Rises Above 50% for First Time Since Pandemic Began (Wall Street Journal, Joseph Pisani and Kailyn Rhone), which cites data from Kastle Systems (this company tracks security swipes into buildings every business day) that shows workers are now spending more time in the office again as occupancy rates breached 50% for the first time since the pandemic started. Findings also showed, though, that offices were emptiest on Fridays and busiest on Tuesdays. * SO WHAT? * I think that this is due to a mixture of people wanting to go back and employers wanting to see them back. I would have thought that the long-term norm for many will be four days in the office and one day at home.

Unfortunately, inflation, over-hiring in the pandemic and uncertain business conditions continue to take their toll as Paypal boss calls for ‘compassion’ – as he sacks 2,000 staff (Daily Telegraph, Matthew Field) shows that the digital payments company is making a 7% headcount reduction as the Great Big Tech Layoff continues, FedEx Is Laying Off More Than 10% of Its Management Ranks (Wall Street Journal, Esther Fung and Will Feuer) highlights the effects of a slowdown in demand and Rivian to Lay Off 6% of Workforce in EV Maker’s Second Round of Job Cuts (Wall Street Journal, Nora Eckert) shows yet more cuts at the troubled EV maker as it tries to do what it can to save cash.

There were some interesting developments for consumers in the UK housing market as Mortgage overpayments surge as borrowers fend off rising interest bills (Financial Times, James Pickford) which cites industry body UK Finance as observing a sudden rise in mortgage borrowers paying their debt off early to avoid the higher interest rates. However, UK house prices fall for fifth consecutive month (Financial Times, Valentina Romei) cites

the latest Nationwide figures which show that property prices fell by more than expected between December and January in the longest “down-streak” since the 2008-9 financial crisis as higher mortgage rates, trickier economic conditions and squeezed household finances take their toll.

Meanwhile, in retail news, Aldi ripped off M&S light-up gin bottles, High Court rules (Daily Telegraph, Daniel Wolfson) shows that it’s going Colin/Cuthbert all over again – but this time with gin 🤣 as Aldi shamelessly wades into the grey area of making stuff that is earily similar to the successful product of a rival! This time, it was unsuccessful in fending off M&S’s claims that Aldi ripped off its fancy gin bottles with its “Infusionist” range. M&S cannily registered the design of its festive gin liqueurs with LED lights that illuminated the liquid in April 2021 – and Aldi began selling its own range in November that year. * SO WHAT? * Aldi plans to appeal, but we all know what it is doing – trying to provide a luxury product at a knock-down price. Let’s face it – it’s one of the reasons why people go to Aldi (Aldi’s done similar things with Cuthbert the Caterpillar/Colin the Caterpillar, Heck’s sausages and Thatchers cider). Aldi seems to me to be the Shein of groceries 🤣!

Staying on the subject of Aldi, Tesco is losing the plot in its battle with Aldi and Lidl (Daily Telegraph, Ben Marlow) is an interesting article which questions the thinking behind Tesco’s purchase of Paperchase. * SO WHAT? * Although fans of the deal will say there’s little downside as Paperchase was bought for pennies and will only require a bit of extra shelf space at Tesco, critics say that it is a desperate move that perhaps reflects the lack of ideas the supermarket has to fend off the march of the German discounters. I think that Tesco just needs to concentrate on its core offering and improve that rather than faff around with stationary. It has already tried and failed to do a discount sub-brand – called Jack’s – so I think it should do as much as it can to make its core business as attractive as possible. I say “you do you” and don’t try to out-Aldi Aldi 👍.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

A US chipmaker goes to Germany, Intel cuts back, OpenAI launches a subscription option, Meta has a good day, YouTube takes on TikTok and Darktrace tries to rebuff criticism…

In US chipmaker to build semiconductor plant in Germany (Financial Times, Laura Pitel) we see that a US chipmaker (called Wolfspeed) has announced plans to build a €3bn factory in Germany (and most notably not the other way round!), which German officials are claiming as a victory against the might of America’s big green subsidies. The plant is to provide silicon carbide chips for EVs and for industrial use. * SO WHAT? * All I can say is that Wolfspeed must have had a LOT of back-handers to build in Europe! Wolfspeed’s CEO is actually hoping that 20-25% of the cost could come from subsidies. Still, it is a victory of sorts…

Elsewhere in chips, Intel cuts executive and manager pay to save cash amid chip downturn (Financial Times, Richard Waters) further confirms the effect of a slowdown in semiconductor demand as managers and senior execs are getting a pay cut ranging between 5% and 25% to save cash ahead of an expected downturn in demand for its product in the first half of this year. This comes just a week after Intel shocked the markets by saying its revenue for this quarter was likely to be 40% below the equivalent period last year. It is worth noting, however, that Intel has resisted the urge to make major job cuts. For now.

Then in OpenAI to Offer ChatGPT Subscription Plan for $20 a Month (Wall Street Journal, Joseph De Avila) we see that OpenAI is, understandably, looking to make some cash out of the recent hype. It is launching ChatGPT Plus, will cost $20 a month and will include access during peak periods (currently you aren’t able to access it at all times). They will also get early access to new features and updates. It will start in the US in the next few weeks and then be rolled out to other countries thereafter. In the meantime, would-be users can sign up to a wait list. Free access will continue, but the company says that paid access will support the ongoing provision of the free version.

Meanwhile, in social media news, we see that Meta Platforms had a good day yesterday as Meta Platforms Stock Rises After Posting Upbeat Outlook for Coming Year (Wall Street Journal, Salvador Rodriquez) shows that the social media giant did well enough to be confident enough to announce a massive $40bn share buyback as

its costs are set to fall and global user numbers increased. This surprised the market so much that Meta’s share price shot up by a whopping 19% on the news. Investors must also have loved hearing Zuck talk about making the company more efficient by removing layers of middle management and jettisoning projects that aren’t performing or relevant to their core business. As if this wasn’t good enough already, FTC Loses Antitrust Challenge to Facebook Parent Meta (Wall Street Journal, Dave Michaels and Jan Wolfe) highlights another positive for Meta yesterday as the giant has moved a step closer towards its bid to buy VR start-up Within Unlimited. This is a blow for the FTC, which has been trying to block the deal on antitrust grounds but it will be a useful boost to Meta’s VR ambitions (particularly in the metaverse I would have thought!). The FTC could continue to try to block the deal via another lawsuit, but it is likely that this route could be abandoned.

Then in YouTube Shorts takes on TikTok in battle for younger users (Financial Times, Cristina Criddle and Arjun Neil Alim) we see that YouTube is now offering new financial incentives to content creators to try to lure them away from TikTok glory onto its own Shorts. Creators will be able to get a cut of advertising profits from their short-form videos on the platform. Growth on Shorts has been gathering momentum. * SO WHAT? * I think that this is an interesting development as TikTok does not have a long-form offering whereas YouTube obviously does. It may well be that YouTube could look more attractive in that it will offer creators two bites of the cherry in Shorts – but also longer-form videos (where you can earn more money because you can stuff more adverts in). Another thing that YouTube has in its locker is that it has not been banned in India – which means creators will have access to another major market! TikTok is clearly the hottest of the short-form video platforms right now, but I am sure that YouTube can make up a lot of ground.

Darktrace responds to short seller allegations on accounting practices (Financial Times, Anna Gross) shows that the British cybersecurity company has strongly rebutted claims by the US hedge fund Quintessentially Capital Management that it inflated its sales figures  and Darktrace announces £75mn share buyback after short seller attack (Financial Times, Anna Gross) suggests that the company is putting its money where its mouth is and putting a floor under the stock to ostensibly demonstrate it has nothing to hide. The drama continues…will the short sellers win??

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Adani’s nightmare continues and Peloton pedals towards recovery…

In a quick scoot around some of today’s other interesting stories, Adani Enterprises calls off $2.4bn share sale (Financial Times, Benjamin Parkin, Adam Samson and Oliver Ralph) shows that Adani Enterprises is not going to be able to style out the criticism meted out recently by Hindenburg research as it decided to cancel its intended $2.4bn equity fundraising after the company’s share price fell 27% below the range of the offering in trading yesterday. * SO WHAT? * The accusations of financial dodginess are just not going away and they are proving to be hugely damaging to the stock (and presumably highly lucrative for Hindenburg’s short position!). The company has seen its market cap fall by over $90bn since the report was published 😱. Your move, Adani!

Then in Peloton: cycle turns as hardware business looks to software (Financial Times, Lex) we see that the troubled stationary bike maker is showing signs of recovery now that it has outsourced the manufacturing of its fitness equipment, cut its headcount by more than half and concentrated on getting subscriptions for its fitness content. * SO WHAT? * This is good news for the company, but its valuation is still waaaaaaay down from its peak. I maintain that this company should be bought by Google or Apple as I think it would be a decent fit for either as integration of the FitBit and Apple Watch and related health apps could be great IMO.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I have to say that I’m probably late to the party on this, but I discovered someone on YouTube recently who I think is absolutely hilarious! Her name is Lyanna Kea and she does brilliant skits/sketches with an Asian theme. Here’s one on playing games – and this one about how difficult it is to apologise is absolutely superb – it is my mum down to a “t” 🤣 (my mum is Japanese). Sorry mum 🤣🤣🤣