>>> Barron’s Weekend Summary

Barron’s Weekend Summary: artificial intelligence has been a significant driver of growth

Cover:
-Artificial intelligence has been a significant driver of growth in the past 18 months, with Nvidia dominating the market for AI-related chips. Previously known for gaming graphics cards, Nvidia has transformed its GPUs into the core of the AI revolution, powering large language models and inference software in data centers worldwide. However, competition is coming from companies like Advanced Micro Devices and Intel, with the AI chip market projected to reach $400B by 2027 and $1T by 2030. Chip buyers are not keen on relying on a single source, with hardware companies like Dell Technologies, HP Enterprise, Lenovo, and Super Micro Computer seeking alternatives. Cloud providers like Amazon and Google are also designing their own chips to meet customer demand.

Interview:
-Gold's price has risen by 15% this year to $2,409, a 22% increase since the Federal Reserve began raising interest rates in March 2022. This is due to competition from higher bond yields, which have no yield. However, this is just one anomaly in the metals market, says Imaru Casanova, a portfolio manager at VanEck. The firm offers exposure to gold through exchange-traded funds, such as the VanEck Merk Gold Trust, VanEck Gold Miners ETF, and VanEck Junior Gold Miners ETF. Casanova, a Venezuelan mechanical engineer, joined VanEck in 2011 and became a deputy portfolio manager in 2014. She recently took over as manager of the firm's actively managed gold equity investment strategy, which includes the VanEck International Investors Gold fund (INIVX).

Tech Trader:
-Netflix's share price rallied 17% in January after reporting fourth-quarter earnings, despite missing revenue and profits by a few pennies. The company added 13.1M net new subscribers, ahead of its own forecast of 8.7M. Netflix has been hinting at reducing the focus on subscriber growth, and in late 2022, it announced it would stop providing quarterly guidance on subscribers starting in 2025. However, both CEOs, Greg Peters and Ted Sarandos, downplayed the news, and investors seem unconvinced. Netflix's decision to stop reporting its subscriber count is expected to impact the company's financial performance.

The Trader:
-Air Products anb Chemicals has experienced a 15% drop in 2024, with a significant portion of the loss occurring in February after missing expectations in the first quarter. The company's full-year earnings guidance was cut to $12.65 due to China's weakness. Analysts predict sales of $3.05B, down from $3.2B in 2023, and earnings of $2.70 a share. This falls short of the company's full-year guidance, but the market is ok with this, as analysts have projected rising sales and earnings in the third and fourth quarters of the year. Asia industrial gases' revenue is projected at 3.2% growth, which is not a significant increase given China's growth and first-quarter GDP growth. The company also has traditional hydrogen projects in Saudi Arabia and Uzbekistan that could add revenue.
-The S&P 500 experienced a 3% drop, marking its third consecutive week of declines. The Dow Jones Industrial Average was also down 0.3%, while the Nasdaq Composite fell 5.3%. The S&P 500 is still up 21% from a low in October, but investors are now realizing that the economic and geopolitical landscapes have turned against them. Economic data shows that March retail sales rose 4% year over year, raising concerns about the economy's strength and the delay of Fed rate cuts. The two-year Treasury note spiked to 5%, indicating that rates are expected to remain higher for longer. A more restrictive Fed would remove a tailwind that has helped stocks rally this year. Geopolitics adds a headwind, with Iran's attack on Israel and Israel's response requiring a degree in game theory rather than finance. The potential for additional flare-ups could also support oil prices, even if Brent crude futures fell 4.7% this past week. Persisting inflation forces raise the risk that rates will need to stay higher for longer than expected, compounded by upside risks to oil due to geopolitical developments.

Features:
-A new study by Equilar shows that median pay for America's top CEOs rose 11.4% in 2023 to a record $23.7M. This increase is ahead of the 3.4% inflation rate and the 4.3% gain for the average worker. Equilar's list includes the largest CEO pay packages at companies with revenue of at least $1B that filed their proxies to the Securities and Exchange Commission by March 31. Jonas Johnson, vice president of research at compensation consulting firm Economic Research Institute, warns that the trend of outsize salary increases for CEOs cannot continue forever, as the numbers become unsustainable.
-Tesla's stock fell for a sixth consecutive day on Friday, possibly due to news of a recall of its Cybertruck to fix an accelerator pedal issue or market weakness. The company has recalled about 2.6M vehicles, with the small number of 3,878, according to the National Highway Traffic Safety Administration's recall notice. The company's stock is trading lower due to the small number of recalled vehicles, which are likely all the trucks that have been delivered. Recall announcements can be jarring for automotive investors, but they are a normal part of the business. Tesla's stock is likely to break a level that suggests more losses could be ahead.

Europe:
-LVMH Moët Hennessy Louis Vuitton missed first-quarter revenue estimates due to slightly contracted demand for its luxury goods. The company reported revenue for the quarter ending in March fell 2% year-over-year to €20.7B ($22B), just below analysts' estimates for €21B ($22.3B). Organic revenue rose by 3%, while foreign exchange factors represented a 4% drag on reported revenue. The company's wines and spirits business experienced the biggest sales decline, down 16% compared to the same period last year. Demand for Champagne and Hennessy cognac was particularly challenged this quarter, with champagne sales hampered by normalizing demand post-pandemic and waning demand in Europe. The beauty category saw a 3% increase in perfume and cosmetics sales, while selective retailing, including the Sephora brand, rose 5%. LVMH remains vigilant and confident at the start of the year, despite an uncertain geopolitical and economic environment.

Emerging Markets:
-No update this week

Commodities:
-Oil prices have been rising due to production from Venezuela and Iran, which have strained relationships with the US. New political developments could potentially curb some of these supplies, potentially causing further price increases. International crude oil prices have risen 13% this year to $87.29 per barrel, while the average national gasoline price is $3.68 a gallon. President Joe Biden is trying to manage complicated relationships with oil-producing countries while avoiding price spikes. The Biden administration has announced sanctions on Venezuelan oil due to Maduro's actions, which violate the agreement. Sanctions could curb Venezuela's total crude oil supply by 120,000 barrels in the near term.

Streetwise:
-European earnings season began with reports from Bavarian Capacitor and Royal Jellied Eels. The iShares Europe ETF has underperformed its US counterpart, the iShares Core S&P 500 ETF, over the past several years. European earnings are estimated to have shrunk by 11% in the first quarter, compared to a 3% increase in America. JP Morgan is less bearish on Europe and believes the period of US earnings outperformance versus the euro zone might be ending. The US has benefited from government spending and currency effects, while the Magnificent Seven tech stocks have shone, though earnings growth is slowing. The 3% first-quarter growth forecast was over 10% last summer, raising doubts about remaining forecasts that have US growth rebounding to double-digit percentages later this year.

Barrons : Apple Has Been Left Behind in the AI Rally. Why It Might One Day Still

Apple Has Been Left Behind in the AI Rally. Why It Might One Day Still Be the Big Winner.

I was about to start writing this column on Thursday afternoon when Facebook parent Meta Platforms
launched a new chatbot. It wasn’t procrastination, I swear. As a tech editor, I have to be up on this stuff. So, I spent a few minutes trying Meta’s new generative AI tool. The column could wait. Sorry, editors.

But a few minutes turned into more. I dare you to go to Meta.ai without spending the next hour texting friends and family all of your artistic creations. I started by asking the bot to imagine cows in a field, and then I layered on turtles, all inside a baseball stadium. I have no idea why. The machine added each element in real time, as I typed.

My pièce de résistance was a series of cartoon giraffes bathing in a toilet. I suggested to my wife that it would be good for our bathroom wall. (She was less enthused.)

This is amazing technology—and a total waste of time.

Meta’s new chatbot, which is based on its latest open-source large-language model, called Llama 3, has all of the required features of an artificial-intelligence chatbot in 2024. I was able to get a solid list of album recommendations and a bulleted list of comparative data on sport-utility vehicles. But I’m not ready to update my view on the current state of generative AI; as an everyday consumer tool, I remain unimpressed. (My colleague Eric J. Savitz has a different take.)

Still, I’m trying to keep an open mind. The stock market has added trillions in new value on the back of AI. That has to count for something. I’ll get to the “Wall Street” portion of this column, but first more on my quest for AI appreciation.

Just after my Meta.ai lark, I spoke to Dr. Peter Noseworthy, a professor of cardiology and medical director for business development at the Mayo Clinic. I had reached out to Mayo hoping to get beyond the chatbot chatter.

It didn’t take long. Within a few minutes, Noseworthy was talking about the lifesaving implications of AI projects and clinical trials that Mayo is working on. He combined tech, business, and medicine in a way I hadn’t heard before.

“One of the problems in healthcare,” Noseworthy told me, “is that it’s delivered as a service, and as a result, it’s not scalable. There are probably aspects of medicine that, with large-language models and AI, can convert from a service to a product. And once that happens, it’s scalable, it’s portable, and people can carry these things in their pocket.”

He says Mayo’s team is using AI to find disease markers with a commonly performed electrocardiogram: “We found that it’s actually a really powerful marker of all kinds of diseases that even people who read ECGs for a living don’t rely on an ECG for.”

Ultimately, those ECG tools can be used with a device like an Apple Watch, he says. “And then, the consumer carries, on his wrist, a clinical-grade ECG tool to deploy our AI.”

We talked about phones as an omnipresent form factor. “We can detect all kinds of signals for health and disease in a patient’s voice, particularly when it’s trended over time,” says Noseworthy. Similar signals could come from a phone’s step counter and by measuring changes in a user’s gait.

He compared AI and phones to a mother who quickly spots illness on a child’s face. “That sort of clinical gestalt that comes from an astute observer is probably replicable with AI. And we’re making dozens, if not hundreds, of recordings of our faces every day. There may be opportunities to leverage things like that.”

Our phones have already taken over lots of roles in our lives, but the doting mother would be a new one.

Noseworthy also gave me a different framework for considering chatbots. “The closest we have to a patient-doctor interaction is probably a generative AI LLM solution in the form of a medical chatbot,” he says. “If you’d asked me six months ago, I would have thought we were a few years out for something I trusted. Now, I think we might be six months from something that’s clinically useful.”

Mayo is actively working on these chatbots, Noseworthy says. It will still take a few more years, he adds, “to fully emulate clinical acumen.”

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In the short term, Noseworthy says a chatbot could help patients adjust medications and ask questions about drug interactions.

“The most mature version of that technology will allow patients to converse in natural language with a chatbot to discuss their symptoms or concerns and get high-quality, vetted medical information presented in an easily understood and natural feeling conversation,” he told me.

This kind of personalized tool takes AI to another level.

I spoke to the founder and CEO of a company called Limitless, which says it’s harnessing AI to give us memory superpowers. I had already tested out an earlier product from the company called Rewind.ai, which uses character and audio recognition to record everything that comes through a Mac screen and speaker, including calls, texts, and emails. Then, using a large-language model, the app can answer questions about our lives: “Tell me about my last conversation with Mom. What time is our lunch?”

The company’s newer product, also called Limitless, offers apps for the Mac, Windows, and the web. This past week, it launched a wearable pendant with a microphone that users can attach to their clothing to record life’s real conversations—the ones that don’t go through a device.

This all enables huge possibilities and, of course, serious privacy concerns. Dan Siroker, Limitless’ founder, says the two aren’t contradictory. “It starts with the fundamental premise—that privacy should not come at the cost of convenience,” he says. “Facebook and all ad-driven companies did the world a huge disservice by kind of making you think that should be a choice—that you should have to compromise your privacy for convenience.”

The new pendant offers a consent mode that will track only voices that have given permission to be recorded. The company says it has already received 10,000 orders for the $99 pendant, which will ship in August. Limitless says all of the data brought into its cloud are encrypted with a secret key that no one else can access, including the company. Data sent through large-language models for summarizing and transcribing is deleted after 30 days.

Limitless has raised $33 million from venture-capital firms like Andreessen Horowitz and New Enterprise Associates, as well as from OpenAI founder Sam Altman.

The key to Limitless, Siroker says, is that it’s offering context to AI models. It’s like providing a prompt to a chatbot that says, “I like the colors blue and green. Pick me the best Benjamin Moore paint color.”

With Limitless, the context is more than just liking blue and green, though. It’s potentially sending every conversation you’ve ever had. Ultimately, that’s how an AI model trained on generic internet data will bring personalized answers to our lives.

So, what does all this mean for stocks? The promise of AI has already driven a massive market rally. The irony is that Apple, the company with more context about our lives than any other, has been left behind.

Consider the Apple Health app on my phone. That app has years worth of data about my daily step count, my heart rate, the number of times I stand in a day, my exposure to loud sounds, and my blood oxygen level. A few rows over on my home screen, I have thousands of photos with location and time stamps. And then there are my texts. With my permission, Apple could conceivably feed all of this into a large-language model to create an absurdly detailed journal of my life. It would be a self-help book on steroids.

Yes, there are privacy issues, but we’ve already given all of these data to Apple. I’m fine with the company putting it to better personalized use.

The current knock on Apple is that unlike Big Tech rivals Meta and Alphabet, or the start-up OpenAI, it has yet to create its own large-language model.

I have no proprietary information on whether it will. CEO Tim Cook has said that Apple is putting a lot of time into AI, with details coming later this year. The company will probably have major announcements in June at its annual developers conference. For now, though, investors have all but given up on Apple and AI. And that feels like a major oversight.

Late last month, Melius Research analyst Ben Reitzes published a note about the Cupertino, Calif., company’s AI efforts titled, “Apple May Still Have the Last Laugh.”

Reitzes has covered Apple for more than two decades, as an analyst and banker. “The reason we wrote the note was to say, remember, these guys are market makers. And maybe we should hear them out,” Reitzes told me. “Even going back to the original example of when Steve Jobs was trying to build iTunes. He didn’t make the music. He made enjoying the music better.”

Reitzes says Apple won’t have to make a world-beating AI model to be a winner in this new world. “They don’t need to be Microsoft. They don’t need to be OpenAI or Gemini. Apple needs to be Apple, and that is providing an interface that allows you to enjoy where apps are going in this new world. We think they can do it, and they are going to start to lay the groundwork for that carefully, potentially with a splash in June.”

For now, Apple is down 14% this year, versus a 4% gain for the S&P 500 and a 56% gain for AI leader Nvidia.

Melius says there are legitimate concerns about Apple’s iPhone sales in China, where the company seems to be quickly losing market share. And he understands why some investors are worried about the company’s AI efforts thus far.

But Apple has been here before. From September 2012 to September 2013, between the release of the iPhone 5 and the iPhone 5S, Apple shares fell 33% versus a 18% gain for the S&P 500. At the time, Samsung Electronics was gaining steam with its larger-screen phones.

Then, in late 2014, Apple released the iPhone 6, its first larger-screen phone. Since then, Apple shares have returned 635% versus 198% for the S&P 500.

The switch to AI, to be sure, is more complex than making a larger-screen phone. But Apple’s dominance hasn’t changed. And that puts it at the center of any shift—real or artificial.

WSJ : Coach, Michael Kors Tie-Up Opens a Curious Bag of Antitrust Concerns

Coach, Michael Kors Tie-Up Opens a Curious Bag of Antitrust Concerns
Proposed merger’s fate might rest on the definition of ‘affordable luxury’

Coach owner Tapestry’s TPR 0.30%increase; green up pointing triangle quest to become an American luxury giant is turning out to be quite the uphill battle.

The Federal Trade Commission is reportedly preparing a lawsuit to block Tapestry’s proposed acquisition of Michael Kors owner Capri Holdings CPRI 1.85%increase; green up pointing triangle, according to a report Wednesday from the New York Times.

Whether the deal creates market-share concerns depends on the definition of the market in question. Coach and Michael Kors combined had a 17% share of the North American bag market in 2022, according to a report from Bernstein, citing Euromonitor data. Narrow that down to luxury bags and the two brands’ combined market share rises to 26%. Whittle that further to “affordable” luxury bags, and the FTC appears to have a stronger case: Coach and Michael Kors command a 53% share in North America.

The narrow definition, however, might be hard to justify. Bernstein says it defined “affordable” luxury not by a specific price tier but “manually,” by excluding certain luxury houses like Hermès. Both Coach and Michael Kors have products with pricing that overlaps with high-end luxury brands such as Louis Vuitton and Gucci, as well as nonluxury bag brands such as DKNY and Cole Haan. Coach’s selection ranges from a $150 cross-body pouch bag to a $10,000 limited-edition alligator bag.

Will the combination lead to higher prices? Possibly, but within limits. Tapestry has turned Coach around by getting more customers to pay full price and preventing products from ending up on clearance racks. In a November earnings call, the company said the Coach brand has increased its average pricing by more than 30% over three years. Surely one of the compelling rationales for Tapestry’s acquisition is to pull off a similar feat at Michael Kors, which is suffering from the same problem that Coach had years ago. But being in the “affordable luxury” segment is precisely what creates a natural price ceiling for Coach and Michael Kors: Neither can afford to push up prices too much for fear of losing out to more exclusive luxury brands.

Moreover, fashion has a relatively low barrier to entry and a consumer looking for a midtier bag still has plenty of choices. A search on Macy’s website for bags priced from $100 to $500 yields results for more than 70 different brands. Importantly, scale alone hasn’t helped Tapestry and Capri. Data from Euromonitor shows that both companies’ market share of the North American luxury leather goods market has shrunk from 2018 to 2022.

Capri stock, which jumped to $53.90 on the deal announcement in August (shy of the $57 offer price), has shed 29% since that peak. The decline reflects investors’ skittishness about the FTC blocking the deal as well as worsening prospects for Capri, which badly missed Wall Street expectations on earnings in its past two quarterly reports following the deal announcement. Besides antitrust risk, some of the Capri discount could reflect a chance that Tapestry gets cold feet. So far, though, Tapestry seems undeterred. A spokesperson for Tapestry said in an email that it has “full confidence in the merits of this transaction and in our legal arguments, should we need to make them.”

At current prices, holders of Capri can expect to make a 48% return if the deal successfully closes. What’s the downside? If investors assume that Capri’s share price—as a multiple of expected future earnings—will revert to pre-deal levels, they can expect to lose about 45%. But that might be a conservative reading: Capri’s disappointing results mean the stock could settle at even lower levels.

The FTC’s antitrust case doesn’t seem like a slam dunk. But the huge potential swings in Capri’s stock price mean an awful lot is riding on the definition of affordable luxury.

WSJ : One French Company’s Lonely Struggle to Survive Fierce Competition From Ch

One French Company’s Lonely Struggle to Survive Fierce Competition From China
After China destroyed Europe’s solar-panel industry, the continent struggles with onslaught against other green sectors

PARIS—French solar-panel company Photowatt once powered Europe’s ambition to become a renewables manufacturing giant, one that would provide the technology to help achieve the continent’s far-reaching climate goals.

Today, Photowatt is instead hanging by a thread, a potent symbol of the West’s struggles to fend off fierce competition from China.

A wave of cheap Chinese exports now threatens millions of jobs and is stirring fresh friction between Beijing and leaders in the U.S. and Europe. Photowatt’s fate, and the decimation of Europe’s solar-panel industry, is a warning to the U.S., which is now considering how to protect American industries from renewed pressure from China.

Photowatt’s orders have plunged, its customers lured away by solar panels imported from China at rock-bottom prices. Cash infusions from the French government keep it alive. Even Photowatt’s state-controlled owner, the power company EDF, has largely stopped buying its panels in favor of those made by Chinese companies.

“There are fewer and fewer of us. We lose skills, workshops close—it’s hopeless even,” said Emilie Brechbuhl, an engineer and union delegate at Photowatt. “We aren’t competitors of the Chinese. We are nonexistent.”

Beijing is seeking to stimulate a flagging economy by channeling investment into its vast manufacturing sector. That threatens a repeat of the so-called China shock two decades ago when Chinese exports flooded global markets and destroyed many Western competitors.

In particular, fears are surging across the West that China will crush its green industries, forcing the U.S. and Europe to rely on a geopolitical rival in China for the goods that are expected to power the low-carbon economy of the future.

The sectors that Chinese officials dub the “new trio”—solar panels, electric vehicles and batteries—are creating massive overcapacity, according to Western governments. China’s wind-turbine manufacturers are also hunting for customers in the West, threatening an industry still led by European and U.S. companies like Vestas and GE Vernova.

During a visit to China this month, U.S. Treasury Secretary Janet Yellen pressed Beijing to rein in subsidies for green manufacturers. Yellen said the Biden administration was determined to prevent a repeat of the wave of China imports 15 years ago that drove U.S. solar panel producers and other manufacturers out of business.

“It would not be acceptable to the United States, to President Biden, that this happen again,” she said.

The U.S. has imposed tariffs on Chinese solar panels for more than a decade. That has slowed imports directly from China. But Chinese companies have set up factories in Southeast Asia that are exporting heavily to the U.S.

In Europe, the alarm is so great that authorities are abandoning some of their long-held reluctance to challenge Beijing.

Over the past two months, they have opened probes into subsidies potentially channeled from Beijing to Chinese solar-panel companies in Romania and wind-turbine companies in France, Spain, Greece, Romania and Bulgaria.

The investigations follow a probe into Chinese electric-vehicle subsidies that is likely to result in import tariffs in the coming months. Allowing China to grab most of the European EV market as it did solar panels would be disastrous for the continent’s economy, where millions of people work in the auto industry.

Europe’s EV companies are competing against made-in-China models that are usually 20% to 40% cheaper. For example, the MG4, a hatchback made by China’s SAIC Motor, sells in France starting around €25,000—the equivalent of $26,700—compared with €39,000 for the Volkswagen ID.3 hatchback.

“We can’t afford to see what happened on solar panels happening again on electric vehicles, wind,” Margrethe Vestager, the European Union’s competition commissioner, said this month.

Chinese officials have rejected criticisms of Beijing’s industrial policy and accused the West of hypocrisy. Last month, China filed a complaint at the World Trade Organization against U.S. tax credits that are reserved for domestic manufacturers of electric vehicles.
While Europe has already faced a surge of electric-vehicle imports, the U.S. hasn’t been hit yet—partly because it has already placed tariffs on all Chinese cars. But the Chinese EV giant BYD is planning to build a plant in Mexico. That would allow it to export with minimal tariffs to the U.S. BYD has said it doesn’t plan to enter the U.S. market.

China’s green-energy equipment exports pose a dilemma for the West. Its cheap yet high-performing solar panels, EVs and batteries are accelerating the global shift to clean energy by making it more affordable. Europe is counting on solar panels to be its leading source of electricity by 2030 and will need to install hundreds of millions of panels by then. The continent’s imports of solar panels from China have more than quadrupled over the past decade. China now controls more than 95% of the European market.

Most EU governments oppose import tariffs on Chinese panels. Instead, they pledged this month to give European panel producers a leg up in tenders for publicly subsidized solar farms and use government funds to support the industry. Help hasn’t arrived in time for a number of EU producers that shut in recent months after a huge influx of Chinese panels over the past year.

When the U.S. slapped steep tariffs on Chinese solar panels in 2012, Europe was preparing to do the same. But then China retaliated, announcing an antidumping probe on French wine and signaling it was considering a similar move against European luxury cars, a pressure point for Germany due to its large car sector.

The EU set a minimum import price on Chinese panels. Much of the European solar business died off in the following years. The EU scrapped the minimum price altogether in 2018.

“China is very good at playing the member states like a piano,” said the former EU trade chief Karel De Gucht.

Photowatt survived thanks to the French government’s determination to keep it afloat. In 2012, then-President Nicolas Sarkozy visited its factory near Lyon to announce that he had ordered EDF to buy the company. It was on the verge of bankruptcy. EDF’s renewable-energy arm would buy all the solar panels produced by Photowatt for its own solar-power installations, Sarkozy said.

“Photowatt is a symbol,” Sarkozy said. “We don’t want the only jobs created by the solar supply chain in France to be in the installation of panels.”

Photowatt makes silicon wafers that are then assembled into solar cells and panels, one of the few companies outside China in that part of the supply chain. Photowatt invested in a wafer technology that was supposed to allow it to compete against the Chinese. The production process was less energy-intensive than the Chinese technology—and thus more environmentally friendly—but the wafers were less efficient.

The bet didn’t work out: Developers want panels with the maximum output at the lowest cost.

As Photowatt continued to lose tens of millions of euros a year, EDF slashed purchases of its panels and sought to shut the company down. But the government of President Emmanuel Macron nixed that idea.

“EDF wanted to close Photowatt,” Jean Castex said in 2021 when he was the French prime minister. “We stopped them!”

These days, EDF says it doesn’t want to make solar panels and is trying to find an “industrial partner” for Photowatt. Macron’s government this month announced financial incentives for solar-panel production in France. Two large factories are in the works but neither has broken ground yet.

“We have managed to free ourselves from dependence on Russian gas and oil. Do we want to move to a dependence on Chinese photovoltaic panels?” said French Finance Minister Bruno Le Maire. “We must therefore produce solar panels on our territory.”

FT : Investors raise bets on euro falling to parity with dollar

Investors raise bets on euro falling to parity with dollar
Eurozone borrowing costs seen as likely to fall first as strength of US economy lowers chance of imminent rate cuts

Traders have upped their bets that the euro could fall back down to parity with the dollar as stubbornly high inflation and resilient growth in the US raise expectations that the Federal Reserve will only begin cutting interest rates months after the European Central Bank.

Investors have been buying options that will pay out if the common currency falls to $1 or below. Based on the price of these options, strategists at Bank of America say markets are now pricing in a more than 10 per cent chance of such a scenario within the next six months. At the beginning of January the market saw almost no chance of this happening.

The euro has already slipped 3.5 per cent against the greenback since the start of January. Parity would require a further drop of almost 6.5 per cent.

“It now seems like markets have thrown in the towel on substantial rate cuts in the US, whereas traders are pretty certain the ECB will start easing in June,” said Francesco Pesole, a currency strategist at ING.

The cost of betting on further weakness in the euro in the options market has “increased quite dramatically of late”, he added.


Signs of stubborn inflation and resilient growth in the US have led traders to slash their bets on how fast borrowing costs will fall in the world’s largest economy. Traders are now pricing in less than two quarter-point interest rate cuts this year from the Fed, compared with expectations of more than six at the end of last year. 

In contrast, in the eurozone the annual pace of inflation dropped to 2.4 per cent in March, close to the ECB’s 2 per cent target, while growth also remains comparatively sluggish. The IMF said on Tuesday that the US economy was on track to grow 2.7 per cent in 2024 — more than triple the pace of the eurozone.


Fears of a widening conflict in the Middle East, and the potential knock-on effect of higher oil prices, have also triggered warnings about a hit to the common currency, with Europe dependent on energy imports.

The euro last dropped to parity with the dollar in 2022, the first time in two decades, amid the energy price shock triggered by Russia’s full-scale invasion of Ukraine and during a huge bull run on the dollar.

“The US economy is still not landing [weakening] and the risk of higher oil prices has increased. This has dramatically increased the risk for an even weaker euro-dollar, even parity,” said Athanasios Vamvakidis, global head of G10 foreign exchange strategy at Bank of America.

ECB President Christine Lagarde told CNBC on Tuesday that the central bank would monitor oil prices “very closely”, but noted that the market reaction following Iran’s air strikes on Israel last weekend had so far been “relatively moderate”.

Signs of escalation in the Middle East could also push the greenback higher as investors typically gravitate towards the perceived safety of the dollar in times of stress.

Deutsche Bank and JPMorgan have warned that the ECB might have to move more gradually once it starts lowering borrowing costs as interest rate differentials could cause excessive weakness in the common currency and risk a fresh spike in inflation by pushing up the price of imported products.

But Jane Foley, head of FX strategy at Rabobank, said the ECB might not oppose a gradual weakening of the euro as it begins to focus “more on growth risks than inflation risk”.

A softer exchange rate could help exports, said Foley, and the boost to growth would be particularly welcome for countries in the region, such as France and Italy, that are struggling with rising government deficits.

FT : Sports investor Arctos to focus on US deals after raising $4.1bn fund

Sports investor Arctos to focus on US deals after raising $4.1bn fund
Shareholder of Paris Saint-Germain targets predictable returns of home market where teams are not relegated and share profits

Arctos Sports Partners plans to focus on finding more deals in its US home market because of the financial unpredictability of European football, says the co-founder and managing partner of the new Paris Saint-Germain shareholder.

Ian Charles said that while Arctos was open to working with more teams in Europe, the firm was far more likely to invest in the US where there is “no shortage of opportunities” for generating reliable returns from sport.

“We want to invest behind global brands that have the predictability and the durability and resiliency and the dynamics that are commonplace in North American sports assets,” he added. “Finding those outside of North America is difficult.”

The sports specialist firm, which typically targets stakes in individual teams rather than leagues, recently closed its second dedicated sports fund after raising $4.1bn, overshooting its $2.5bn target. About a third of the new fund’s capital has been allocated.

Arctos has recently been active in Europe, having concluded a deal in December to buy up to 12.5 per cent of Qatar-owned football club PSG. The agreement valued the French champions at more than €4bn.

The firm also invested in UK-based motorsport team Aston Martin F1 at a £1bn valuation late last year, and has an indirect shareholding in Liverpool FC and a small stake in Italian side Atalanta.

Charles said that while it would be “fantastic” if Arctos could find more opportunities outside the US with a similar profile to the PSG and Aston Martin deals, he said it would be a “surprise” if the firm made another large European investment in the coming 18-24 months unless it was to help an existing partner expand into the region.

“Our firm’s data advantage, brand advantage, operational advantage . . . is in North America,” he said. “And where private equity firms often run into trouble is when they move outside of their zone of competency.”

European football has become increasingly popular with US investors in recent years, with Americans now owning stakes in dozens of clubs. However, Charles said the European sport model — with promotion and relegation, broadcast money distributed based on league placing, and a small group of dominant teams in each country, made it a less attractive investment proposition.

“Every owner in North America gets paid the same amount from its league, no matter if they’re in first place or last place,” he said, making it “more predictable than just about anything else you can invest in private markets”.

Through both direct and indirect stakes, the firm already has exposure to several baseball teams, including the Boston Red Sox and the Los Angeles Dodgers, as well as a number of basketball franchises, such as 2022 National Basketball Association champions the Golden State Warriors, the Utah Jazz and the Sacramento Kings. 

Dallas-based Arctos is one of a small group of professional investors that have been pouring money into sports in recent years. Others include private equity firms RedBird Capital Partners, Ares Management, Silver Lake, Sixth Street and CVC Capital Partners.

While private equity investors are barred from owning teams in the National Football League, the world’s richest sports division, several groups are gearing up for a possible change to the rules.

Last year set a new record for sport-related investment, thanks to a handful of large transactions including the $6bn sale of the Washington Commanders NFL franchise to Apollo co-founder Josh Harris and the deal to combine World Wrestling Entertainment and the Ultimate Fighting Championship.

Charles said the firm’s recent fundraising was a sign of strong appetite among institutional investors, including insurers, pensions funds and family offices, to put money into the sector.

FT : Blackstone bids for Hipgnosis in attempt to derail $1.4bn Concord Chorus de

Blackstone bids for Hipgnosis in attempt to derail $1.4bn Concord Chorus deal
Emergence of higher offer could trigger battle for music rights owning company

Blackstone has attempted to derail the proposed $1.4bn takeover of Hipgnosis Songs Fund by Concord Chorus by making a higher offer for the listed UK music rights investment company.

Blackstone said on Saturday that it had made a proposal to the company’s board to acquire the business at a price of $1.24 per share in cash, which would trump Concord Chorus’s offer on Thursday of $1.16.

The US private equity group added that it “strongly encourages the board of Hipgnosis to recognise the significant increase in value available to all shareholders under the terms of its fourth proposal”.

Hipgnosis’ music portfolio includes artists such as the Red Hot Chili Peppers and Shakira.

Blackstone was one of several parties to bid for the company as it went through a strategic review in recent months. The board said on Thursday that these offers had been “less certain, and at a lower value” than the agreed Concord Chorus offer.

Hipgnosis Songs Fund declined to comment. A person close to Hipgnosis said the board would consider Blackstone’s higher offer, but added that it was a proposal rather than a firm bid.

A person close to Blackstone said that a firm offer could come early next week. They added that the private equity group was surprised at the Concord agreement, as it had been confident that it was the frontrunner and had been carrying out due diligence on its offer.

The emergence of the higher offer could trigger a bidding war for the music rights owning company, which has been through a tumultuous period in the face of questions over its valuations, debt levels and governance.

This led shareholders to decide against the continuance of the fund in a vote last year, sparking a strategic review by a new board and ultimately Thursday’s agreement to sell the fund to US rival Concord Chorus.

The Concord offer was at a premium of about a third to the Hipgnosis share price before the bid was announced, and a 4.3 per cent premium to the fund’s September net asset value. 

That deal has already been backed by about 29 per cent of Hipgnosis’ issued share capital. 

Blackstone already part owns Hipgnosis Song Management (HSM), the manager and investment adviser of Hipgnosis Songs Fund (HSF), although its new offer is separate to that holding. 

HSF was founded by music executive Merck Mercuriadis in 2018 to turn music rights into an asset class. He was HSM’s chief executive until February, when he became its chair. If Blackstone acquires HSF the music would be managed by HSM under its new chief executive Ben Katovsky.

Blackstone said HSM has an option to purchase the entire HSF portfolio of songs, which is exercisable for six months after the termination of HSM’s contract with HSF.

This means it could try to acquire the portfolio at market value if the board continues to back the Concord offer.

But the board could consider whether there are grounds to terminate HSF’s contract with HSM, according to a person close to the situation. That would remove HSM’s option to buy HSF’s portfolio.

Doing so would risk triggering a legal dispute between the two sides.

On Saturday, Blackstone said it “remains confident in the enforceability of the [HSM] option”.

“Blackstone is seeking to find a positive outcome for all shareholders at a fair and reasonable value; however, Blackstone and HSM value the contractual protections . . . and will vigorously defend HSM’s rights pursuant to the option if required to do so,” Blackstone said.

WSJ : The Coney Island Apartment Complex That Nearly Sparked a Banking Panic

The Coney Island Apartment Complex That Nearly Sparked a Banking Panic
Investors are worried about ticking time bombs on banks’ balance sheets. Warbasse Houses was one.

Amalgamated Warbasse Houses, a sprawling apartment complex blocks away from the Coney Island boardwalk, was an unlikely spark for a near panic in the banking industry earlier this year.

Few people knew it at the time, but the 1960s-era complex was a ticking time bomb buried in the balance sheet of New York Community Bancorp NYCB 0.00%increase; green up pointing triangle. When the bank revealed big losses on real-estate loans, which included Warbasse and another high-dollar property, its shares fell 60%, pulling down other lenders.

Regional banks have started to report first-quarter earnings, and investors are worried that more Warbasses will be revealed. Shares of these small and midsize banks, which are stuffed with loans for office buildings, apartment complexes and other commercial properties, are near their lowest level in five months.

NYCB’s $112 million charge-off on the Warbasse loan in last year’s fourth quarter was a surprise. Banks typically don’t disclose the names of their borrowers or how much they owe, and NYCB didn’t identify Warbasse by name in its financial disclosures, either. Clues left behind by the lender and the sheer scale of the complex’s mortgage helped unmask Warbasse.

NYCB said the loan was for a co-op and had “a unique feature that prefunded capital expenditures.” In addition, Wall Street stock analysts who had spoken with NYCB management said in their research reports that the unpaid principal balance was $275 million, which is huge for a co-op loan.

Those few details were enough to allow The Wall Street Journal to identify the borrower through a review of more than 70,000 NYCB real-estate loan records filed with the New York City Department of Finance. Details about the large capital spending at Warbasse were covered in the local real-estate press. The co-op’s identity was also confirmed by a person familiar with the matter.

NYCB spokesman Steven Bodakowski declined to comment. The other loan cited by NYCB was less unusual—a $40 million charge-off on a nonperforming loan for an office building.

There were times this year when it looked like NYCB could be on the brink and might even trigger a new regional banking crisis, less than a year after Silicon Valley Bank’s collapse. NYCB had been one of the beneficiaries of last year’s brief flurry of bank failures. It acquired most of Signature Bank’s deposits and about a third of Signature’s assets from the Federal Deposit Insurance Corp.

After its Jan. 31 earnings release, NYCB changed chief executives twice. The panic cooled after an investor group led by former Treasury Secretary Steven Mnuchin provided a lifeline by injecting $1 billion of fresh capital.

Warbasse is practically a small city unto itself. It has five 24-story towers, 2,585 units, about 8,000 residents and its own power plant. It was built as affordable housing for union families by the Amalgamated Clothing Workers Union and the United Housing Foundation, according to the co-op’s website.

Warbasse covers almost 27 landscaped acres and has a big contingent of Russian immigrants. Brighton Beach, a Russian enclave, is a few blocks away. The complex, where a two-bedroom apartment with a terrace costs about $1,700 a month, has a waiting list to get in.

Warbasse’s age, its location near the ocean and damage from Superstorm Sandy in 2012 help explain the unusually large mortgage.

The co-op refinanced its mortgage in 2014, borrowing $200 million from NYCB. Half of that was set aside for capital projects, according to a September 2021 article about Warbasse by Habitat Magazine, which covers the New York co-op scene. This appears to be the “prefunded capital expenditures” referred to by the bank.

The article said the Atlantic Ocean’s “corrosive salt air, punishing winds and occasional floodwaters,” had wreaked havoc on the property over the years. Leaks got so bad that residents began referring to the co-op as “Water-basse Houses,” the article said.

An engineering firm hired by the board in 2017 found that “the whole system was at the end of its life,” Michael Silverman, the longtime co-op board president, told the magazine. “We were one step short of a complete catastrophe.”

Silverman and other co-op board members declined to comment. Warbasse has undertaken a major renovation project since then, the magazine article said.

Property records show Warbasse refinanced again in March 2022, when it took on the new $275 million mortgage from NYCB.

While the borrower and the charge-off on the loan are known, there are still some mysteries behind it. NYCB said the borrower wasn’t in default. But the way it accounted for the loan loss made it clear that NYCB had determined the loan wouldn’t be fully collectible. The bank didn’t say why.

It wasn’t clear from public records if Warbasse had an interest-only loan. The copy of its mortgage filed with the city showed the original $275 million principal amount, but not the interest rate or maturity date.

Weeks after NYCB took the loan loss that helped shatter its stock, the bank sold the loan to Bank of America, which has a large mortgage-trading desk. BofA spokesman Bill Halldin declined to comment on the bank’s plans for the Warbasse loan.

>>> French Chateau, Once Owned by the Rothschild Family and the King of Morocco,

French Chateau, Once Owned by the Rothschild Family and the King of Morocco, Selling for €425 Million
A castle outside Paris once owned by a member of the Rothschild family and, later, the King of Morocco is being shopped around quietly for a staggering €425 million (US$452 million), Mansion Global has learned.

That nine-figure price tag makes Chateau d’Armainvilliers, some 30 miles east of the Eiffel Tower, one of the world’s most expensive homes, according to Ignace Meuwissen, a luxury real estate advisor and co-founder of Whisper Auctions, which specializes in off-market luxury real estate transactions. He is handling the sale of the castle.

Chateau d’Armainvilliers, which sits on close to 2,500 acres, has a long history, beginning as a medieval stronghold in the 1100s and was later partially destroyed during the French Revolution, according to a brief history of the building on the Rothschild Archive. Notable ownership has included the noble Rochefoucauld Doudeauville family and Edmond de Rothschild, who replaced the castle and bought up additional acreage.

Much of the sprawling home’s current exterior was created during the Rothschilds’ ownership, including “its steeply-pitched roofs and timbering in the upper storeys, bears some resemblance to the English cottage style,” according to the family’s archives.

The Rothschilds sold Chateau d’Armainvilliers to King Hassan II of Morocco in the 1980s, according to Meuwissen.

The last time it changed hands was in 2008, when, following the death of King Hassan II in 1999, his son assumed ownership of the estate and sold it for €200 million, Meuwissen said.

“The property was purchased by an owner from the Middle East but has never been utilized,” Meuwissen said over email. Mansion Global couldn’t identify the owner.

The 100-room chateau boasts three floors with three elevators, five salons, 17 themed bedroom suites and state-of-the-art kitchen facilities. There’s a plethora of amenities across the estate, such as a hairdressing salon, a hammam, a private car park, stables for 50 horses, housing for staff members and 36 various parkland buildings. The chateau still retains much of the Moroccan-themed interior stylings, images show.

“The property will likely be sold behind the scenes,” said Meuwissen, who intends to share it through his network. “Most properties we sell are on a whispering basis; the properties change owners mostly confidentiality.”

Some potential clients have already expressed interest, “including one from East Europe, three from Asia and one from Mongolia,” he said.

The property “stands out due to its expansive land size and development potential,” Meuwissen said. Occupying a swath of France almost three times the size of New York City’s famous Central Park, the estate could be home to a golf course, apartments, villas and even shopping malls, he said.

Another home on the outskirts of Paris currently holds the title of the world’s most expensive, but would be dethroned if Chateau d’Armainvilliers sold for anywhere close to its asking price.

Chateau Louis XIV, located between Versailles and Marly-le-Roi, sold for more than €275 million in 2015. The owner is reportedly Crown Prince Mohammed bin Salman, the heir apparent to the Saudi Arabian throne.