Barrons : 12 Stocks to Play Growing Energy Demand, From Oil and Gas to Nuclear a

12 Stocks to Play Growing Energy Demand, From Oil and Gas to Nuclear and Solar
Fossil fuels and clean-energy shares are unloved by investors. That’s an opportunity, say our roundtable experts. Why some stocks could double, and then some.

AES (AES US)
Vistra (VST US)
Constallation Energy (CEG US)
Bloom Energy (BE US)
Sunrun (RUN US) *
First Solar (FSLR US)
SolarEdge Tech (SEDG US)
Darling Ingredients (DAR US)
NEste (NTOIY US)
APA (APA US)
Kosmos Energy (KOS US)
Shell (SHEL US)

FT : How long can the good times keep rolling in markets?

How long can the good times keep rolling in markets?
We should at least be alive to the risks of a reckoning

Now that US interest rates seem to have stabilised, there are supposedly way too many deals being cooked up for bankers to take a summer break. As the Financial Times has reported, the joke around Wall Street these days is that August in the tony enclave of the Hamptons on Long Island has been cancelled. “There’s money everywhere,” the co-founder of one alternative asset manager was quoted as saying at this month’s Milken Institute conference.

The Hamptons quip is probably an exaggeration. But it’s certainly fair to say some green shoots are sprouting in the capital markets, at least in the bellwether investment banking products.

For instance, first-quarter M&A deal values in the US and in Europe harked back to the dealmaking enthusiasm of the pandemic years, according to Linklaters. In the US, the value of public M&A deals topped $224.3bn, the highest value of deals since the second quarter of 2022, when the deal values were $260bn. In Europe, deal values reached $47bn in the first quarter — also the highest since the second quarter of 2022 — driven by an increase in dealmaking in the UK.

According to S&P Global, global bond issuance in the first quarter of 2024 increased by 15 per cent, to $2.4tn, from $2tn in the first quarter of 2023. And last week, there was a rush of new issuance in both the investment-grade and high-yield bond markets.

One not so bright spot — initial public offerings. IPO issuance in the first quarter 2024 continued to decline, according to S&P Global, to the lowest level since the second quarter of 2022. But April was the busiest month for IPOs since November 2021, according to Renaissance Capital, which also tracks IPO issuance.

So good times it seems. But all of this raises a question. We are seeing a turn downwards in the interest rate cycle but without the usual painful economic correction that can accompany such pivots. Are we overdue a reckoning? The stock market might be one place to look for signs that things are getting out of hand after the more than doubling of the benchmark S&P 500 from pandemic lows in 2020.

David Einhorn, the reclusive hedge fund manager at Greenlight Capital who correctly predicted the implosion of Lehman Brothers in 2008, is pretty clear that things are not all right. “The stock market is fundamentally broken!” Greenlight declared in its first-quarter letter to his investors. Einhorn’s beef with the equity markets, as the letter outlined, seems to be that investors either don’t “care about valuation” or cannot “figure out valuation”.

He believes that old-fashioned value investing, where investors find stocks that are fundamentally undervalued and hold them until other investors figure out what they have been missing, is all but dead. He thinks index funds are ruling the markets and making the mistake of overinvesting in overvalued stocks and underinvesting in undervalued stocks.

“As several trillion dollars have been redeployed in this fashion in recent years, it has fundamentally broken the market,” according to the Greenlight letter. The firm claims not to be complaining. Rather, it says, it is “excited” to invest at this moment because “once these undervalued stocks underperform long enough, some of them become ridiculously cheap”.

Einhorn might not have had a great 2024 so far. His hedge fund returned 4.9 per cent in the first quarter of 2024 compared with a rise of 10.6 per cent for the S&P 500. But that came after an impressive 2022 and 2023, during which Greenlight made returns of almost 33 per cent and 22 per cent, respectively.

It’s hard to know which camp is right — the Wall Street banking optimists, who get paid to be upbeat, or Einhorn, who has made a fortune on occasion by being pessimistic. But there are substantive issues overhanging markets — the many ongoing global conflicts, the continued uncertainty around the Federal Reserve’s direction of interest rates, and the outcome of the November US presidential election, which could very well return Donald Trump to the White House.

It seems to me we should at least be alive to the risks of a reckoning. Tiff Macklem, the governor of the Bank of Canada, has argued likewise, warning on May 9 that “some indicators of financial stress have risen” and that the valuation of “some financial assets appear to have become stretched”.

“This increases the risk of a sharp correction that could generate system-wide stress,” he said. “What’s most important is that to properly manage risks, financial system participants need to remain proactive. And financial authorities need to remain vigilant.”

>>> US Close Dow +0.34% S&P +0.12% Nasdaq -0.07% Russell -0.03%

Closing Market Summary
The Dow Jones Industrial Average closed above 40,000 for the first time, gaining 0.3% today. The S&P 500 (+0.1%) also closed with a gain and the Nasdaq Composite (-0.1%) settled slightly lower than yesterday.

Today's price action was limited, leading the major indices to trade in relatively narrow trading ranges through the session. Advancing issues led declining issues at the NYSE and declining issues led advancing issues at the Nasdaq.

The performance of the S&P 500 sectors also reflected mixed action. Aside from energy, which closed 1.4% higher, none of the sectors moved more than 0.9% in either direction.

The consumer discretionary sector was another outperformer thanks to a big move higher in shares of Tesla (TSLA 177.46, +2.62, +1.5%) on news that it plans to cut approx. 600 positions in California, according to Forbes. Amazon.com (AMZN 184.70, +1.07, +0.6%) also closed higher.

Treasuries settled with losses today, which kept buying somewhat in check in the stock market. The 10-yr note yield settled four basis points higher at 4.42%. The 2-ry note yield rose three basis points today to 4.82%.

Still, Treasuries settled with solid gains on the week, which acted as support for buying activity in stocks through the week. The 10-yr note yield was eight basis points higher on the week and the 2-yr note yield was five basis points lower.
  • S&P 500:+11.2% YTD
  • Nasdaq Composite: +11.2% YTD
  • S&P Midcap 400: +8.4% YTD
  • Dow Jones Industrial Average: +6.1% YTD
  • Russell 2000: +3.4% YTD
Reviewing today's economic data:
  • April Leading Economic Index -0.6% (consensus -0.3%; prior -0.3%)

Looking ahead, there is no US economic data of note on Monday.

>>> Weekly Market Update

Weekly Market Update: Signs of slowing and CPI support Chairman Powell's messaging

Trading opened this week with Mime stocks “Roaring” back in vogue after a tweet sent Gamestop up more than 100% on no real news. AMC and others tied to the wild volatility from a few years ago also saw outsized gains before faltering later in the week. On Friday GME preannounced lackluster Q1 results while also filing for the sale of up to 45M shares. US Treasury Sec Yellen called out China for unfair trade practices ahead of widely telegraphed Biden tariff announcement on EVs and a host of other industries that source products from China. Separately, China announced several new programs intended to bolster their property markets which helped drive copper prices to new all-time highs.

April PPI data ran hotter than expected, but markets quickly looked past that report after Fed Chairman Powell called the data more “mixed” than “hot”, and emphasized he still does not see the next Fed move as likely to be a hike. April CPI data didn’t likely increase the Fed’s confidence that inflation is returning to target, but was clearly step in the right direction. Numbers mostly met or came in below expectations showing deceleration from the hot readings seen in Q1. Of particular note the rent of primary shelter index saw the smallest gain since August 2021 after that indicator was flagged by Fed officials of late. April retail sales also printed below estimates with significant revision lower for March data. May Philly Fed and housing starts/permits were much weaker than expected too. Stocks jumped on a surge in volumes hitting new all-time highs for the S&P and NASDAQ while the Dow would test 40K for the first time. Treasury prices rose while the US dollar plumbed to fresh 1-month lows. Nevertheless, Fedspeak would continue to push the higher-for-longer message with Mester, Williams and Barkin echoing the view more evidence is needed inflation is progressing towards 2% target. By Friday markets were once again fully discounting a Fed rate cut in November, with 68% chance of a cut in September, the same situation seen ahead of US CPI. For the week the S&P rose 1.5%, NASDAQ gained 2.1% and the Dow added 1.2%.

Walmart wowed investors with its Q1 earnings report and raised guidance, powering its shares to all-time highs along with the DJIA. Management allayed some fears about the shape of the US consumer after Home Depot and Under Armour offered up disappointing results. Shares of Deere stumbled after cutting its outlook on softening global demand for agricultural and turf products. China’s Alibaba continued down the road to recovery with solid quarterly results and an announcement that its preparing for a primary listing in Hong Kong, in an effort to capture southbound flows from mainland China investors. OpenAI and Google debuted the latest versions of their AI models with powerful new features that make the AI assistants faster and more helpful to average consumers. Also in the AI realm, Reddit struck a partnership deal with OpenAI, surging the recent IPO’s shares higher. AMAT posted solid results with China sales doubling in Q2. Cisco Q3 number topped estimates and the company raised their FY rev outlook with management talking up stabilization in demand.

MON 5/13
(IN) INDIA APR CPI Y/Y: 4.8% V 4.8%E
(US) Citi Mid-May Economic Surprise Index -18.5 v -7.3 prior (second straight negative print and lowest since Jan 2023)
(US) Redfin: An early look at this year’s data shows that demand for second homes hasn’t picked up in 2024
AAL.UK Rejects ~14.5% raised BHP's all-stock offer of 0.8132 BHP shares for each ordinary share in Anglo American, implying £27.53/shr for AAL and EV of £34B [**Note: prior rejected offer was 0.7097 shares for each share in Anglo American (implied £25.08/shr offer)]
OPENAI.IPO Announces new flagship model GPT-4o (Omni) with AI voice assistant and real time translation capabilities, to be available for free - Spring update event
SDF.DE Reports Q1 EBITDA €200M v €195Me, Rev €988M v €898Me

TUES 5/14
(CN) CHINA PBOC CONDUCTS CNY125.0B IN 1-YEAR MEDIUM TERM LENDING FACILITY (MLF) MONTHLY SETTING AT 2.50% VS. 2.50% PRIOR
(CN) Ex-PBOC adviser Yu Yongding: PBOC should play a more active role in facilitating fiscal stimulus
(DE) GERMANY MAY ZEW CURRENT SITUATION SURVEY: -72.3 V -75.9E; EXPECTATIONS SURVEY: 47.1 V 46.4E
(RU) Russia newly appointed Defense Min Belousov: There will be no mobilization
(US) APR PPI FINAL DEMAND M/M: 0.5% V 0.3%E; Y/Y: 2.2% V 2.2%E (highest annual pace since Sept 2023)
(US) Morgan Stanley: Y/Y growth in card delinquencies slowed across the broader group in Q1, which is encouraging and a clear indication that we are past peak deterioration
(US) NY Fed reports household debt in Q1 rose 1.1%; An increasing number of borrowers missed credit card payments
(US) WHITE HOUSE RELEASES DETAILS ON TARIFFS ON $18B OF CHINESE IMPORTS AHEAD OF BIDEN ANNOUNCEMENT; CONFIRMS TARIFF RATE ON CHINESE EVS TO INCREASE FROM 25% TO 100% THIS YEAR; TARIFF ON SEMICONDUCTORS TO INCREASE FROM 25% TO 50% BY 2025
OPEC Monthly Oil Report (MOMR)
2317.TW Reports Q1 (NT$) Net 22.0B v 29.3Be, Op 36.8B v 35.2Be, Rev 1.32T v 1.37Te; Raises Q2 Rev to rise significantly y/y (prior growth y/y)
6758.JP Reports FY23/24 Net ¥178.3B v ¥937B y/y, Op ¥1.21T v ¥1.21T y/y, Rev ¥13.0T v ¥11.5T y/y; To conduct 5-for-1 stock split at Sep 30th: Announces ¥250B buyback (2.46%)
700.HK Reports Q1 (CNY) adj Net 50.3B v 43.0Be, Rev 159.5B (+6% y/y) v 158.8Be; On track to repurchase over HK$100B of shares in 2024
AMZN Amazon Web Services CEO Adam Selipsky to step down - The Verge citing internal memo
BABA Reports Q1 (CNY) 10.14 v 10.71 y/y, Rev 221.9B v 219.8Be; Approves $4.0B dividend for FY24 ($1.00/ADS regular annual dividend and special $0.66/ADS dividend); Prepares for primary listing in Hong Kong by end-Aug 2024
BABA Exec: We are still seeing good healthy growth domestic eCommerce sales in Apr and May; AI-related Rev rose triple digits y/y - conf call
FDX Affirms FY24 NG EPS $17.25 to $18.25 v $17.70e, Rev 'low single digit rev decline'; Notes muted small package and macro-economic backdrop - Tier1 analysts citing CEO/CFO meeting 31st Annual BofA Transportation, Airline, and Industrials conference
HD CFO: The home improvement customer is extremely healthy from a financial perspective; And so it’s not the case of not having the ability to spend. What they tell us is they’re just simply deferring these projects as given higher rates, it just doesn’t seem the right moment to execute – CNBC
OPENAI.IPO Co-founder and Chief Scientist Ilya Sutskever to leave OpenAI after almost a decade in the company
TRIP Tripadvisor's Summer Travel Index: Nearly all (92%) US respondents plan to spend at least the same amount on travel as last summer, while more than half expect to spend even more than in 2023
VOD.UK Reports FY24 adj €0.07 v €0.11 y/y, adj EBITDA €11.0B v €12.4B y/y, Rev €36.7B v €37.7B y/y

WED 5/15
(AU) AUSTRALIA APR EMPLOYMENT CHANGE: +38.5K V +23.7KE; UNEMPLOYMENT RATE: 4.1% V 3.9%E (Highest unemployment rate since Jan)
(CN) China Foreign Min Wang Yi: US tariffs show that some people in the US have reached the point of losing their minds
(EU) EU Commission Spring Economic Forecasts
(EU) EURO ZONE Q1 PRELIMINARY GDP Q/Q: 0.3% V 0.3%E; Y/Y: 0.4% V 0.4%E
IEA Monthly Oil Report (OMR)
(US) APR ADVANCE RETAIL SALES M/M: 0.0% V 0.4%E; RETAIL SALES (EX-AUTO) M/M: 0.2% V 0.2%E
(US) APR CPI M/M: 0.3% V 0.4%E; Y/Y: 3.4% V 3.4%E (1st deceleration in Y/Y pace in 3 months)
(US) Atlanta April Sticky-CPI annualized 4.6% v 5.0% m/m, Core 4.6% v 5.2% m/m (update)
(US) Atlanta Fed GDPNow: Cut Q2 GDP forecast to 3.8% from 4.2% prior (update)
(US) DOE CRUDE: -2.5M V -1ME; GASOLINE: -0.2M V +0.5ME; DISTILLATE: -0.0M V +0.5ME
(US) MAY EMPIRE MANUFACTURING: -15.6 V -10.0E; Prices Paid: 28.3 v 33.7 prior (lowest since Jan 2024)
(US) MAY NAHB HOUSING MARKET INDEX: 45 V 50E
(US) Tier1 analysts May Spending Survey (conducted May 8-13th): New Vehicle next 12-month spending expectations have increased significantly in May on a sequential and year-over-year basis to highest level since Jan 2023, with 43.0% of respondents expecting to buy a vehicle vs. 35.8% last month and 41.2% last year
(US) Redfin: Real estate investors bought ~44K U.S. homes in Q1 2024, +0.5% y/y (the first increase since Q2 2022)
BRBY.UK Reports prelim FY23/24 £0.74 v £1.26 y/y, Adj Op £418M v £634M y/y, Rev £2.97B v £3.09B y/y; Expect H1 to remain challenging
BRBY.UK CEO: Americas remain quite challenging; Americas decline is broader than aspirational clients - post earnings comments
CBK.DE CEO: No longer expect a recession in 2024 - post earnings comments
COF Reports Apr net charge-offs 6.07% v 6.15% m/m; Domestic Card delinquencies: 4.23% v 4.48% m/m
CSCO Reports Q3 $0.88 v $0.83e, Rev $12.7B v $12.5Be; Raises FY Rev guidance; Seeing stabilization of demand
EOAN.DE Reports Q1 Adj Net €1.05B v €1.03B y/y, adj EBITDA €2.75B v €2.72B y/y, Rev €22.6B v €33.5B y/y
JJC Copper NY futures Comex surge over 4% to record high around $5.10/pound (equivalent to ~$11.2K/ton)
NFLX To launch in house ad technology platform by end of 2025 in pact with TTD
TKA.DE Reports Q2 Net -€377M v -€105M y/y, adj EBIT €268M v €373M y/y, Rev €17.2B v €19.1B y/y; Cuts Net and Rev outlook citing volume reductions and lower prices at Steel Europe and Materials Services
TUI1.DE Reports Q2 Underlying EBIT -€198M v -€242.4M y/y, Rev €3.65B v €3.15B y/y; Bookings for the Summer 2024 season continue to be promising, with 60% of the season sold
THRS 5/16
(CN) Reportedly US to place 25% tariff on China synthetic graphite ending its exemption; Tariff to be imposed in stages over next two years - press [**Note: China produces ~60% of global synthetic graphite]
(CN) China Ministry of Industry and Information Technology said to have asked automakers including SAIC Motor, BYD, Dongfeng Motor, GAC Motor and FAW Group to increase their local procurement of automotive-related chips to 20-25% by next year from ~10% currently – Nikkei
(US) APR IMPORT PRICE INDEX M/M: 0.9% V 0.3%E; Y/Y: 1.1% V 0.4%E
(US) APR HOUSING STARTS: 1.360M V 1.421ME; BUILDING PERMITS: 1.440M V 1.480ME (1-year low)
(US) Atlanta Fed GDPNow: Cut Q2 GDP forecast to 3.6% from 3.8% prior (update)
(US) BOFA INSTITUTE: WEEK-TO-MAY 11TH TOTAL CARD SPENDING +2.3% Y/Y V +0.3% AVERAGE IN APR; Overall, y/y spending growth is likely boosted by the Mother's Day timing mismatch (May 12 in 2024 vs May 14 in 2023)
(US) INITIAL JOBLESS CLAIMS: 222K V 220KE; CONTINUING CLAIMS: 1.794M V 1.78ME
Ocean Freight Bookings remain strong after the Chinese Labor Holiday; Shippers talking up another rate hike for June, following May hikes - Flexport
AMAT Reports Q2 $2.09 v $1.97e, Rev $6.65B v $6.51Be; Sales to China doubles; Some customers that make semiconductors used for ICAPS pausing orders
BIDU Reports Q1 $2.76 v $2.30e (2 est), Rev $4.37B v $4.31Be
BT.A.UK Reports final FY23/24 Pretax £1.19B v £1.73B y/y, Adj EBITDA £8.10B v £8.13Be, Rev £20.8B v £20.9Be
CSCO TTN Earnings Call Quotes summary: "We're getting to the tail end of this supply chain situation that we've been navigating for the last several years"
DE Cuts FY24 US/Canada Global Roadbuilding Equipment -5% to flat y/y (prior flat y/y); Reports Apr (rolling 3-month) US/Canada Combines retail sales 'down double digits'; Apr 2WD Tractors dealer inventories 31% v 29% y/y - earnings slides
DE Reports Q2 $8.53 v $7.86e, Net sales $13.6B v $13.3Be; Cuts outlook again citing global agricultural and turf demand further softens
JD Reports Q1 (CNY) 5.65 v 4.76 y/y, Rev 260.0B v 243.0B y/y; Notes general merchandise category continue to pick up momentum, thanks to the robust recovery of supermarket category
JPM CEO Dimon: Repeats "A lot of inflation forces are in front of us" and may keep rates higher
RDDT OpenAI to bring Reddit content to ChatGPT and OpenAI products; OpenAI to become Reddit advertising partner
ROG.CH Reports positive Phase I results for dual GLP-1/GIP receptor agonist CT-388 in people with obesity; At week 24, 100% of CT-388 treated participants with once-weekly subcutaneous injection achieved >5% weight loss, 70% achieved >15% and 45% achieved >20% weight loss; CT-388 Phase 1 cohort data expected 2H24
SIE.DE Reports Q2 Net €2.20B v €3.55B y/y, Rev €19.2B v €19.4B y/y; Affirm outlook
SIE.DE CFO: Will end up at lower end of FY revenue guidance range (+4-8% y/y); Latest announcement on China tariffs is not helpful - post earnings comments
UA Reports Q4 $0.11 v $0.08e, Rev $1.33B v $1.32Be; Guides FY25 weak; Announces restructuring program and up to $500M share buyback; Notes challenging retail environment that included high inventories and a consistent drumbeat of promotions
WMT Reports Q1 $0.60 v $0.52e, Rev $161.5B v $159.4Be; Raises outlook; Notes US LFL inflation is 'slightly positve'
WMT Grocery inflation +LSD in Q1 but moderated 80bps q/q; Unit volumes in hardlines and home increased - earnings slides
WMT *CFO: WE’VE GOT CUSTOMERS THAT ARE COMING TO US MORE FREQUENTLY THAN THEY HAVE BEFORE - PRE-RECORDED MEDIA CALL COMMENTS
WOSG.UK Q4 FY24 Trading Update: Q4 Rev £380M +5% (cc); Q4 FY24 saw a significant improvement in jewellery performance; US sales remained strong across all regions; FY25 outlook reflects cautious optimism

FRI 5/17
(CN) CHINA PBOC ADJUSTS INTEREST RATE FOR COMMERCIAL HOUSING LOANS; SCRAPS NATIONWIDE INTEREST RATES FLOOR FOR 1ST AND 2ND HOMES – PRESS
(US) Tier1 week-to-May 16th US Truckload Demand Indicator at 53.7 v 56.5 prior (back below 54 avg freight recession level)
(UR) NATO allies reportedly inching closer to sending troops into Ukraine to train Ukrainian forces; As a part of NATO, US with other allies would be obligated under the alliance’s treaty to aid in the defense of any attack on the trainers - NYT (update)
(US) Apr Leading Index: -0.6% v -0.3%e
6752.JP CEO: EV market slowdown in US is "steep" and worse than expected – Nikkei
ALK Exec: No demand challenges have been identified and record travel volumes are expected this summer - BoFA conf comments summary
CFR.CH Reports FY23 Net €2.36B v €301M y/y, Op €4.79B v €5.03B y/y, Rev €20.6B v €20.0B y/y; Names Nicolas Bos as CEO; effective June 1st; Increased proposed dividend 10% to CHF 2.75 per 1 ‘A’ share / 10 ‘B’ shares
CVLG *CEO: This is the worst market in my 51 years in trucking; See our recent annual contract renewals down 4-5% v the market's down 8-9%; Do not expect positive contract rates until 2025 - BoFA conf comments summary
GME Files to sell up to 45M common shares (16.8% of total float)
JBLU Exec: Business trends discussed on the Q1 2024 earnings call are intact and there have been no unforeseen changes to business performance Q2-to-date - BoFA conf comments summary
RXO CEO: Somewhat delay the company's expectation for a truckload market recovery from H2 2024 to late H2 2024-early 2025, as the pace of carrier exits slowed - BoFA conf comments summary

FT : Wegovy is becoming too essential for its elite price

Wegovy is becoming too essential for its elite price
As the health benefits of anti-obesity medicines widen, pharma companies need to rethink what they charge

From amphetamines to slimming pills, there is a long history of weight-loss drug crazes that ended in disappointment, or worse. Until anti-obesity medicines such as Wegovy and Zepbound, none of them had started out promisingly and then produced better and broader results.

It is surprising, but studies of the health impact of the new generation of weight drugs have steadily brought more encouraging news. One published this week found that patients who took Novo Nordisk’s Wegovy sustained weight loss for up to four years. It builds on data from last November showing the drug reduced the risks of heart attacks and death.

Health systems are waking up to the full potential of medicines that were first developed to address diabetes: Eli Lilly’s Zepbound anti-obesity injectable was only approved in the US last year. “These drugs are doing more than just one thing and producing benefits across a range of diseases,” Naveed Sattar, a Glasgow University professor who chairs the UK government’s Obesity Mission, tells me.

Other companies are playing catch-up with the leaders in the field, while they advance: Novo Nordisk is trialling its compounds to see if they can reduce alcohol intake and alcoholic liver disease. The reasons to remain cautious over safety and whether these drugs improve health as well as promoting weight loss, which I wrote about last July, are diminishing.

But everything comes at a price, and the one attached to the GLP-1 agonist drugs is enormous. Indeed, the more effective they turn out to be in treating a variety of chronic and life-shortening ailments, the higher the looming costs to health insurers and governments. Battles about the prices of innovative drugs are nothing new, but this one is on another financial scale.

The drugs are now testing the rule that no product can be too successful. If they were as cheap and convenient as blood pressure pills and statins, they might soon be routinely prescribed. But they are far from it: Wegovy’s list price in the US is $15,600 per year, although insurers obtain discounts. There is a widening gulf between benefit and affordability.

Bernie Sanders, the democratic socialist US senator, this week released a study that claimed these drugs had “the potential to bankrupt Medicare, Medicaid and the entire [US] healthcare system”. He wants Novo Nordisk to reduce the US price of Wegovy to the much lower one in Denmark but, even there, the government only provides limited coverage for severe obesity.

It was easier for governments and insurers to hold the financial line before studies showed benefits beyond simply curbing obesity. But the US Food and Drug Administration approved Wegovy for heart disease risk in March, opening coverage for older Americans under Medicare. If it does what trials show, cost alone may become the chief obstacle to mass adoption.

Still, the fact that something is useful does not make it worth the price. It is extremely valuable to an individual to avoid a heart attack that debilitates or kills them, but that does not mean a government should provide the same treatment more widely to limit the risk to millions of people. There is a hard financial calculation to be made.

Drugs such as Wegovy and Zepbound fail the latter test at their current US prices, says Jonathan Gruber, economics professor at the Massachusetts Institute of Technology. A healthcare system can save money with drugs that prevent disease, but “the bottom line is that the savings are not enough to justify anything near the price”, he says.

Very large numbers accumulate on both sides of the calculation. The potential cost of prescribing such drugs to all obese Americans could exceed $1tn, Gruber has estimated. Yet obesity also has high costs, not just to healthcare systems but to societies and economies. Being overweight can make it more difficult for people to work, and add to the burden of social care.

There are sound reasons for optimism: the tensions are, after all, produced by the fact that the drugs seem to be very effective. Sattar believes they could not only contribute to raising workforce productivity, but address conditions from kidney disease to dementia, if current progress continues. “There is a sweet spot in the future where they will become cost effective,” he says.

So far, the companies leading the field have enjoyed amazing success: Goldman Sachs predicts that the global market for these medicines will grow to $100bn or more by 2030. But very high drug prices are usually justified by their research costs having to be spread over a limited set of potential patients. In this case, the target population could be more than 1bn people.

The question is not whether something has to give on anti-obesity drugs, but how soon it happens. Novo Nordisk has cut its prices in response to Eli Lilly’s and has talked of innovative deals to spread costs over years, matching long-term health benefits. The elite pricing model with which it started is being overtaken by events.

FT : OpenAI put ‘shiny products’ over safety, departing top researcher says

OpenAI put ‘shiny products’ over safety, departing top researcher says
Jan Leike’s exit from ChatGPT maker is the latest sign of internal divisions over technology’s development

OpenAI’s top safety leaders left the company this week after disagreement over whether to prioritise “shiny products” or safety reached “breaking point”, says one of the departing researchers.

Jan Leike, who led OpenAI’s efforts to steer and control super-powerful AI tools, said he quit on Thursday after clashing with his bosses about the amount of time and resources the start-up is putting into those efforts.

“Over the past years, safety culture and processes have taken a back seat to shiny products,” wrote Leike in a post on social media site X on Friday.

OpenAI has been the frontrunner in a fierce race to build evermore powerful models, competing with rivals including Google, Meta and Anthropic to push the frontiers of AI technology.

The company has raised billions of dollars — including $13bn from Microsoft — to build AI models that can interpret text, speech and images and can demonstrate reasoning abilities. The pace of those advances has stoked concerns about everything from the spread of disinformation to the existential risk should AI tools “go rogue”.

Leike, one of OpenAI’s most highly regarded researchers, left alongside Ilya Sutskever, the company’s co-founder and co-lead of the safety-focused “superalignment team”, who announced his resignation earlier this week.

That in effect disbands the team at OpenAI most explicitly focused on ensuring its technology is developed safely. It has also exposed a growing tension at the heart of the company between capitalising on an early lead in AI and abiding by its core mission of ensuring super-powerful AI “benefits all humanity”.

“We urgently need to figure out how to steer and control AI systems much smarter than us,” Leike wrote. “I joined because I thought OpenAI would be the best place in the world to do this research. However, I have been disagreeing with OpenAI leadership about the company’s core priorities for quite some time, until we finally reached a breaking point.”

Sam Altman, OpenAI’s chief executive, wrote on X that he was “very sad to see [Leike] leave. He’s right we have a lot more to do; we are committed to doing it.”

Concerns over safety were also a factor in November’s boardroom drama at OpenAI, during which Altman as ousted by directors — including Sutskever — only to return four days later. Before he was sacked, Altman had clashed with then-board member Helen Toner, who compared OpenAI’s approach to safety to that of rival Anthropic in a way Altman felt was unfavourable to his company.

OpenAI launched its superalignment team last year, saying it was designed to address concerns superintelligent machines “could lead to the disempowerment of humanity or even human extinction”. At the time, the company suggested AI could outsmart humans within the decade. In the months since, the start-up has been behind a number of major advances.

The company committed to allocate 20 per cent of its computing resources to support the team’s work ensuring AI would align to human interests even as it became exponentially more powerful.

But Leike said not enough attention had been given to the safety and societal impact of more powerful models: “These problems are quite hard to get right, and I am concerned we aren’t on a trajectory to get there.”

The superalignment team struggled to access computing resources which were being sucked into developing new models for consumers such as GPT-4o, OpenAI’s latest model released on Monday, Leike said.

“Over the past few months my team has been sailing against the wind. Sometimes we were struggling for compute and it was getting harder and harder to get this crucial research done,” he wrote.

FT : ECB pressures banks to speed up Russia exits on fear of US action

ECB pressures banks to speed up Russia exits on fear of US action
Regulator has requested detailed plans from lenders including Italy’s UniCredit and Austria’s Raiffeisen

The European Central Bank has told all Eurozone lenders with operations in Russia to speed up their withdrawal plans because of fears they could be hit by US punitive measures.

The ECB has written to lenders in recent weeks asking for detailed plans on their exit strategies, according to several people with knowledge of the communication. Lenders need to provide the regulator with an “action plan” for their Russian business as early as June, some of the people said.

Last week, Austria’s Raiffeisen Bank International was forced to abandon a deal to swap assets in Russia for ones in Europe after pressure from US authorities. The US intervention has led to concern at the ECB that RBI and other lenders could be targeted in future crackdowns.

“This could lead to serious damage to the banking system if the US authorities take sanctions,” said a person briefed on the ECB’s position.

The letters underline the increasing pressure from Washington over European groups that might support Russia’s war in Ukraine more than two years after the invasion.

“The ECB’s response to the US interventions shows the big dependency of Europe on the US,” said an adviser to the banks with Russian subsidiaries. “We are more followers than leaders on judgments involving European companies.”

The US Treasury did not immediately respond to a request for comment.

The person briefed on the ECB’s position said supervisors there wanted to avoid European banks facing a similar fate as ABLV, a Latvian bank that was shut down after the US Treasury department accused it of “institutionalised money laundering” as well as breaches of North Korean sanctions and cut off its access to the US financial system in 2018.  

The letters from the ECB have been written with different levels of severity depending on how advanced each bank is in pulling out of Russia, according to people with knowledge of their contents. The central bank has been calling on Eurozone banks to look for an exit from Russia since Moscow launched its full-scale invasion of Ukraine in February 2022.

At one extreme, RBI, which has the biggest exposure to Russia among the European lenders, has been told to reduce its lending in the country by two-thirds from its current level by 2026. The bank, which faces potential fines by the ECB if it fails to comply, has already shrunk its Russian loan book by 56 per cent since the war began. 

Meanwhile, other banks including Italy’s UniCredit — the lender with the second-biggest exposure — have been asked to provide the ECB with a detailed breakdown of their plans for their operations. UniCredit has been given a deadline of June 1 to respond. The ECB declined to comment.

UniCredit and OTP — the Hungarian bank that is not under direct supervision of the ECB — have in the past year started to repatriate profits from their Russian subsidiaries in the form of quarterly dividend payments.

According to people with knowledge of how the repatriation system works, the banks were required to make a request to Russian authorities, which allowed the payments of up to half their subsidiaries’ net profits, as long as they paid local taxes.

Last year, UniCredit received €137mn from its Russian subsidiary, while OTP received €135mn. UniCredit declined to comment. OTP said the repatriated dividends were part of its efforts to reduce its presence in Russia.

RBI’s stranded profits were originally intended to be repatriated as part of its planned €1.5bn asset swap deal, according to a person briefed on Russia’s decision-making. The bank abandoned the deal this month after the US Treasury warned the lender that it risked being cut off from the US financial system if it went ahead.

The Vienna-based lender said it had not taken a dividend from its Russian division “since the start of the war” and did not expect to be able to do so in the future. 

“To receive a dividend, the Russian authorities were very clear: commit to remaining in the market, meet business targets, and dividends can be distributed . . . we have been reducing business substantially and are actively looking to sell. This of course is contrary to committing to remain in the market,” they said. 

US authorities are also concerned about recent reports by the Financial Times of Raiffeisen’s expansion in Russia. The bank posted 2,400 job ads between December and mid-April, many of which stated the bank was looking to grow in the country.