Monday 13/03/23

1. In MACRO NEWS, Xi Jinping and Rishi Sunak commit to military spending and Saudi Aramco posts record profits
2. In SCANDAL NEWS, we look at what went wrong with SVB and the subsequent impact
3. In TECH NEWS, Tim Cook has high hopes for Apple’s mixed-reality headset, metaverse applications have their ups and downs and Silver Lake goes for a massive takeover
4. In MISCELLANEOUS NEWS, China’s BYD avoids the UK, China moves to corner cobalt supply, UK business confidence rises and Fever-tree mixes it up
5. AND FINALLY, I bring you a very surprising optical illusion…

So military spending commitments are made and Saudi Aramco makes a ton of money…

📢 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:

Xi Jinping vows to make Chinese military ‘great wall of steel’ as tensions rise with west (Financial Times, Joe Leahy and Ryan McMorrow) heralds a rallying pledge by China’s President to

strengthen China’s security and make its military a “great wall of steel” to defend China’s interests at a speech to almost 3,000 delegates at the annual National People’s Congress. Xi, unsurprisingly, got an unprecedented third term as China’s president. * SO WHAT? * This comes at a delicate time with US-China relations at a low point and tensions regarding whether China will invade Taiwan at a high point. The fact that Xi said, regarding the Taiwan issue, that he “resolutely opposed external interference and Taiwan independence separatist activities” does not bode well IMO.

Then in Rishi Sunak promises to ‘fortify’ Britain against threats from Russia and China (Financial Times, Jasmine Cameron-Chileshe and John Paul Rathbone) we see that our PM unveiled a £5bn increase to military spending over two years. It will be used to build up our ammo stocks again after supplying a lot to Ukraine as well as modernising our nuclear submarine programme. * SO WHAT? * This is all supposed to be a part of attempts to “fortify” us against increasing threats from Russia and China. Current military spending equates to 2% of GDP, but he aims to increase this to 2.5%. As Xi talked of “external interference”, Sunak described China as the “biggest state-based threat to our economic security”. The tensions continue…

Meanwhile, in oil, Saudi Aramco’s $161bn profit is largest recorded by an oil and gas firm (The Guardian, Mark Sweney) shows us that the world’s biggest oil company made an absolute killing last year thanks to rising energy prices and global demand. * SO WHAT? * This equated to a whopping 46% increase in profits year-on-year – and just to put into context just how incredible this figure is, it’s more than recent impressive profits of Shell, BP, Exxon and Chevron combined 😱! Saudi Aramco is the world’s biggest oil company and world’s second biggest quoted company after Apple.

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!

SVB causes a bit of a kerfuffle…

In case you haven’t heard, a small US bank called Silicon Valley Bank (SVB) collapsed at the end of last week. This may have gone under the radar normally – but it has caused a huge amount of panic around the world over the weekend (and today!), so let’s have a look at what the deal is!

Inside Silicon Valley Bank’s collapse as chief begged tech giants not to panic (Daily Telegraph, James Titcomb) gives you a rundown on how things unfolded to lead us where we are now! On Wednesday, the bank announced it had taken a massive loss on a sale of bonds this year and had to sell a hefty lump of shares to cover this. On Thursday, the SVB’s CEO called to tech industry bosses to “stay calm” in a private phone call. Following that, shares were suspended, VCs told start-ups to withdraw their deposits and then US regulators took control of it in the biggest banking collapse since 2008. Shares of Wall Street behemoths JP Morgan, Citigroup and Bank of America fell hard and European lenders including HSBC, Barclays and Standard Chartered also fell on Friday morning. SVB then ditched plans to have an emergency fund raise and then switched to talks of a fire sale.

In terms of the impact, America to protect all bank deposits (The Times, Callum Jones, Ben Martin and Katie Prescott) shows the Fed’s immediate reaction to the failure, saying that it would protect the deposits of all of SVB’s customers (this applies to every SVB customer in the US – not the UK, which is a standalone unit) to avert continued banking collapse while US regulators seek buyer for SVB as government rejects bailout (Financial Times, Colby Smith and Arash Massoudi) highlights a longer term solution. However, SVB collapse leaves founders liable for unpaid wages (Financial Times, George Hammond) says that start-ups are going to be desperately seeking out emergency loans to keep paying staff (something that is particularly sensitive in California as individual company executives can be made personally liable for unpaid wages!), Crypto group Circle admits $3.3bn exposure to failed Silicon Valley Bank (Finanial Times, Scott Chipolina) shows that the operator of one of the world’s biggest stablecoins has got a sizeable amount of cash locked up in SVB while Coinbase and Binance are suspending respective dollar conversions and Silicon Valley Bank’s China venture in doubt as start-ups struggle to access US funds (Financial Times, Ryan McMorrow and Cheng Leng) highlights even wider repercussions of the SVB collapse as a

lot of Chinese funds and tech start-ups have exposure while SVB’s JV with Shanghai Pudong Development Bank is in the air. Silicon Valley Bank: crash leaves start-ups vulnerable to takeovers (Financial Times, Lex) shows that around 10,000 small businesses have over $250,000 in deposits (this is the amount that is currently covered by the Federal Deposit Insurance Corporations – above that is tricky) with SVB as their sole banker. Given that will probably be a lot of these businesses failing, it is likely that we’ll see a wave of consolidation as tech companies with lots of available money can suddenly buy decent start-ups at fire sale prices.

The failure of Silicon Valley Bank ‘stops us bringing our product to market’ (The Times, Katie Prescott) highlights the panic being felt by start-ups over here as they tried to work out what it all meant for the UK subsidiary, Why Silicon Valley Bank was so important to UK tech sector (The Guardian, Alex Hern) says that many of SVB UK’s 3,500 customers face major losses without government intervention and while Silicon Valley Bank collapse will not trigger new financial crisis, insists Sunak (Daily Telegraph, Eir Nolsoe and David Millward) shows that Sunak is trying to calm the situation with rhetoric, UK racing to secure deal to protect firms from Silicon Valley Bank collapse (The Guardian, Kalyeena Makortoff and Aubrey Allegretti) shows that a lot of people were putting in some overtime on the weekend to find a buyer of the UK business. This morning, HSBC buys Silicon Valley Bank’s UK unit for £1 in rescue deal (Financial Times, George Parker, Laura Noonan, Daniel Thomas and Tim Bradshaw) shows that a deal has now been done . A sale was the preferred option for chancellor Jeremy Hunt as it would mean that the UK government wouldn’t have to make the very expensive commitment to protect depositors – and he tweeted this morning that “deposits will be protected, with no taxpayer support”. From HSBC’s point of view, they’ve got a cheap asset that consolidates their commercial banking business and gives it sudden access to “innovative and fast-growing firms”. * SO WHAT? * What an absolute nightmare! One of the main problems here is that although there was a collective trust in the bank itself, no one wanted to be the last one out and suffering big losses – so once one started withdrawing, it had a domino effect. Many tech companies are expected to potentially go bust this week as a result of their exposure but central banks have acted pretty swiftly to limit contagion. Talk about coming at a tricky time! Jeremy Hunt’s got to announce the Budget this week as well! It’ll be interesting to see who goes bust as a result of this, though…

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!

Tim’s new glasses, metaverse matters and Silver Lake’s big deal…

still fresh in the mind of many, have meant that the pendulum has now swung the other way as people crave in-person interaction! It will be interesting to see, though, how institutions take advantage of such technological advances because you would have thought they could get more students and generate much more revenue – AS LONG AS PEOPLE HAVE ACCESS TO AND CAN USE metaverse-related tech.

On the other hand, Inside the £2m military metaverse dedicated to training future soldiers (Daily Telegraph, Gareth Corfield) shows how digital simulation is actually gaining more traction in areas like the military where simulating missions and stressful situations can be done successfully using technology, saving millions in the process. BAE Systems is helping to develop a metaverse in Project Odyssey where soldiers, sailors and airmen can train safely and effectively and it sounds like it is at the cutting edge of such developments worldwide. * SO WHAT? * I think that THIS is where virtual reality and the metaverse really comes into its own – and I’ve said before that I believe it could be hugely beneficial in training emergency services to help them perform in stressful real-world scenarios. That said, I don’t think we’ve even scratched the surface of the capabilities of the metaverse at the moment…

Then in Silver Lake set to take over software company Qualtrics in $12.5bn deal (Financial Times, Antoine Gara) we see that the US private equity firm has agreed to buy Qualtrics, a specialist software company, for a ton of money as part of a consortium of other investors in the biggest private equity buyout this year. * SO WHAT? * It’ll be interesting to see whether this deal “breaks the seal” and results in more deals in this area. The thing is that debt financing has become more expensive as interest rates have gone up, so sharing the load with other monied investors sounds like the smart thing to do.

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!

BYD swerves the UK, China corners cobalt, business confidence rises and Fever-tree mixes it up…

In a quick scoot around some other interesting stories from today’s newspapers, China’s BYD blames Brexit as it rules out UK for first electric car plant in Europe (The Guardian, Mark Sweney) shows that the UK has missed out on being the European manufacturing hub of the world’s biggest seller of EVs and hybrids because China’s BYD has snubbed the UK in favour of making a factory in Germany, France, Spain, Poland and Hungary. * SO WHAT? * It said that Brexit was the reason for avoiding the UK, but I guess we’ll never know! Fun fact: BYD stands for Build Your Dreams! TBH, it’s hard to tell whether the Brexit is the real reason or whether it’s just a way of putting pressure on the government to give out more in incentives…

China set to tighten grip over global cobalt supply as price hits 32-month low (Financial Times, Harry Dempsey and Leslie Hook) heralds China’s ongoing martch to further corner the world’s supply of cobalt (as it has done with lithium!), citing a report by Darton Commodities, a UK-based cobalt trader. It reckons that China’s world share of cobalt production is going to beat 50% of output,

up from the current level of 44%. * SO WHAT? * OK so prices are coming down now, but given that cobalt is a key raw material in EV production, this is bound to trend up again – and when it does, China will be waiting! It just seems like history is repeating itself. If auto makers continue to stick with current technologies, China really will have the monopoly. As I’ve said before, lithium (and cobalt!) will be to China what gas was to Russia (a power lever) – which doesn’t augur well for Taiwan.

Meanwhile, Confidence rises with signs of business activity increasing (The Times, Robert Lea) cites the latest survey from Accenture and S&P Global which shows that business confidence in Britain is rising, something that was reflected in a recent separate BDO survey. It’s nice to hear good news, no?? Maybe it’s worth celebrating with a G&T…

Talking of which, Fever-tree shakes up sales with mixers for cocktails (The Times, Dominic Walsh) highlights the launch of a new range of mixers that can be added to rum, vodka or tequila. The mixers will make cocktail-making at home a lot easier, apparently! Sounds interesting – and it’s good that they are looking to broaden their product range.

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…

Regular readers of Watson’s Daily will know that I am partial to a good optical illusion! Well this is a really good one: Puzzlers left baffled by ‘trippy’ stormy beach at night optical illusion (The Mirror, Julia Banim). Amazing!