>>> Silvergate Capital Corporation : Says it's suspending Silvergate Exchange Ne

Says it's suspending Silvergate Exchange Network (SEN) payment network, calling it a a 'risk based decision' (update)
- SEN discontinuation is effective immediately. All other deposit related services are operational
- "Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational."

FT : China’s military budget outpaces economic growth in shift to security

China’s military budget outpaces economic growth in shift to security
Defence expenditure to rise by 7.2 per cent in 2023 compared with 5 per cent target for GDP

China’s military spending will grow at its fastest pace in four years in 2023 and take up a larger share of the economy, underscoring Beijing’s reweighting towards security over development.

Defence expenditure will increase by 7.2 per cent in 2023, well ahead of the 5.7 per cent increase in general public expenditure, according to a draft budget presented to the National People’s Congress, the country’s rubber stamp legislature.

The defence budget points to a widening gap between China’s military and economic development, reversing a more than two-decade trend under which the expansion of defence capabilities took a back seat to economic growth.

It comes as the Communist party leadership frets over strained relations with the US, a lack of progress in bringing Taiwan under its control peacefully, and a host of international conflicts Beijing regards as threatening to its interests.

“If from Beijing’s perspective the threat environment increases or remains the same, we will see the defence budget and growth decouple for good,” said Meia Nouwens, an expert on the Chinese military at the International Institute for Strategic Studies in London. “I think we will see it decouple more in the future.”

China faces “high winds and choppy waters in the international environment”, outgoing premier Li Keqiang said in his work report to the NPC. NPC spokesman Wang Chao said the increased military spending was “appropriate and reasonable” and “needed for meeting the complex security challenges and to fulfil our responsibilities as a major power.”

Although China’s military spending is only one-third of the US level, it has grown fivefold over the past two decades according to the US think-tank CSIS, and now exceeds that of the 13 next-largest military spenders in the Indo-Pacific combined. Beijing has spooked its neighbours with increasingly assertive use of its military, holding unprecedented exercises last August to punish Taiwan for hosting Nancy Pelosi, the US House Speaker, and to assert its claims in the South China Sea against the Philippines and Vietnam.

China’s proposed rise in 2023 defence expenditure is 2.2 percentage points above the government’s 5 per cent growth target, a larger gap than in the draft budget a year ago, when Beijing first proposed a military spending increase higher than its growth target. Proposed defence spending also significantly outpaces development-related budget items such as education, social security and scientific research.

Budgeted defence expenditure for 2023 account for 5.7 per cent of total government expenditure, the third annual increase in that share after more than 20 years of continuous reductions.

Analysts said the commissioning of China’s third aircraft carrier, expected this summer, the rapid production of new destroyers and fighter aircraft, as well as investments in space technology and artificial intelligence for missile targeting systems were likely to be the main areas of spending this year.

China’s government provides little detail on its defence spending beyond a breakdown by personnel, training and maintenance, and equipment. “That lack of transparency makes it nearly impossible to trace certain procurements or shifts in military activity,” said Nan Tian, a researcher who tracks Chinese military spending at the Stockholm International Peace Research Institute.

“The increase in the People’s Liberation Army’s exercise and patrol activity, for example around Taiwan, is certain to generate additional costs, if even just for fuel, but the data China provides does not reveal how they account for that.”

FT : Wine: high margins point to the ultimate price bottle neck

Wine: high margins point to the ultimate price bottle neck
Capital should chase profits — but the question for winemakers to ponder is whether this will now occur in bottle making

Scarcity contributes to the mystique of fine wines. But only when the wine rather than the bottles is in short supply. French and Portuguese wineries say they cannot find enough of the latter.

Perhaps it is time for oenophiles to start gushing over the lustrous finish of their favourite plonk bottle, instead of the fruity top notes of the contents.

Two questions apply. Is there evidence of a shortage? If not, are there pointers to a price bottle neck that might be responsible for the grumbling instead?

Wine still dominates demand for bottles, accounting for nearly half of the volume produced. But wine sales in Europe have fallen a fifth by volume in the past three years, according to data from Statista.


In contrast, production of glass containers rose nearly 7 per cent by volume in the first half of 2022 compared with the same period of 2019. So there is unlikely to be a real shortage.

Some kinds of bottles may be harder to obtain, however. For example, finding enough typically larger Burgundy bottles in certain colours, such as “dead leaf” green may be a problem.

Winemakers complain about rising prices in a concentrated market. There may be more than sour grapes in these gripes.

Paris-listed Verallia and O-I, which is quoted in New York, dominate the output of wine bottles in France. Their costs have risen, especially for energy, accounting for almost a quarter of the total last year, according to FEVE, an industry body.


However, wine bottles are getting lighter to reduce shipping and distribution costs. In the UK, weights have dropped at least a fifth to 450 grammes in recent years, says trade group British Glass.

Moreover, bottle makers evidently have pricing power to pass overheads on to customers. For example, Verallia has been doing nicely. Since 2017, its revenues have expanded at a compound growth rate of 7 per cent. In that time, Verallia’s operating margin has jumped from 11.1 per cent to 18.8 per cent in 2022. That is a strong level of profitability given relatively low-tech products.

Capital should chase profits. The question for winemakers to ponder over a glass is whether this will now occur in bottle making. If not, margins may remain persistently high in this important supply industry. That would leave winemakers asking whether there are structural impediments to competition.

FT : European industrialists question focus of energy subsidies

European industrialists question focus of energy subsidies
Policies should concentrate on reducing fossil fuel demand and transition to renewables, say top executives

Europe should not be spending billions on subsidies for fossil fuel consumption but be focusing instead on reducing demand and the transition to renewables, according to leading European industrialists.

“There is something wrong in where the money is going,” Philippe Delorme, head of European operations at industrial group Schneider Electric, told the Financial Times. “I understand the pain. [People] are screaming hell because they cannot pay their bills. But we are spending all our money on short-term painkillers rather than curing our disease.

“There is an urgent need to cut reliance on these carbon-heavy fuels and address inefficiencies in energy use,” he said.

Dimitri Papalexopoulos, chair of Titan Cement and vice-chair of the European Round Table for Industry, said it was understandable that governments were trying to ease the pain of soaring energy prices for households and businesses this winter but these subsidies were not sustainable.

“Not enough attention is being paid to the five- to eight-year horizon,” he said. The focus should be on accelerating the transition to renewable energy, while ensuring that as much of the value of innovation as possible stays in Europe, he added.

Global subsidies for fossil fuel consumption were more than $1tn last year, the highest amount on record, according to the International Energy Agency.

Economic think-tank Bruegel estimates that more than €657bn has been allocated by EU member states to shield consumers from rising energy costs since September 2021, with Germany alone accounting for €265bn.

Not all of this will subsidise fossil fuel consumption, said Simone Tagliapietra, author of the Bruegel report. But fossil fuels currently make up roughly 70 per cent of Europe’s energy mix, suggesting much of the spending will go that way.

“We can’t continue to have generalised subsidies for energy,” Tagliapietra said. “All governments should target only vulnerable consumers and incentivise them to go green. That will structurally help Europe to get out of this situation in the long term.”

Benoit d’Iribarne, head of manufacturing at building materials giant Saint-Gobain, agreed. “General subsidies are not the best way to spend money,” he said. “If we could spend half or one-third of that to accelerate the transition, that would be much better for Europe and its industries. If we reduce demand we also reduce the cost of energy.”

The comments come as the European Commission is putting the final touches to a package of measures designed to respond to the Inflation Reduction Act in the US, which offers some $369bn in clean energy incentives.

European industry is hoping the plan will address some long-running challenges, such as the bloc’s high energy costs compared to the US and Asia, a fragmented energy market and complex regulation.

Europe had been early in its planning for the transition to renewable power but “too slow to implement”, said d’Iribarne.

Jori Ringman, director-general at Cepi, the trade body for Europe’s €95bn-a-year paper and pulp industry, said improving energy efficiency was one of the first and most important steps in the transition. “We are starting with energy efficiency because we know that clean energy will be a scarce commodity,” he said.

The paper industry was not asking for energy subsidies, he added. “We need to get rid of our natural gas dependence. We have opportunities but we need a better regulatory and permitting environment. If you just want to put some solar panels on the roof of your factory, it shouldn’t take years and years to get a permit.”

WSJ : China Sets Conservative Growth Target as Challenges Loom

China Sets Conservative Growth Target as Challenges Loom
Officials aim for around 5% GDP growth this year, the lowest target in a quarter-century

HONG KONG—China unveiled its lowest growth target in more than a quarter-century as Beijing faces challenges in the domestic and global economy following its emergence from three years of strict Covid-19 measures.

China’s target of around 5% growth this year in gross domestic product, announced on Sunday by Premier Li Keqiang at the start of the country’s annual legislative session, suggests that officials are less concerned about raw economic expansion as they turn their attention to other priorities.

At this week’s legislative meetings, leader Xi Jinping is expected to further consolidate his grip over the realms of security, finance and technology, reshuffling key posts to further dilute the government’s role in policy-making at the expense of the Communist Party, The Wall Street Journal has reported.

This year’s growth target was more conservative than the roughly 5.5% goal set by Beijing last year—a target that the world’s second-largest economy missed by a wide margin, held back by Mr. Xi’s stringent Covid controls and a prolonged property slump. Last year’s 3% growth rate was the slowest in decades, with the exception of Covid-plagued 2020, when officials dropped its target altogether.

“This year, it is essential to prioritize economic stability and pursue progress while ensuring stability,” Mr. Li said in the government work report, his last before he is set to step down.

That emphasis on stability comes after three years of “zero-Covid” policies, when containing the pandemic trumped all other priorities, including supporting the economy. If China’s economy is able to find its footing following the dismantling of Covid-related restrictions, it could put the country back onto a trajectory that would allow it to eventually surpass the U.S. as the world’s largest economy—a prospect that many economists had grown increasingly skeptical of as the pandemic stretched on.

Achieving a growth rate of around 5% this year would mean the Chinese economy would expand by an average of roughly 4.6% for the four years from 2020 to 2023, down a notch from the 6.7% average annual growth rate between 2015 and 2019.

In the near term, the relatively conservative 5% growth target shows that policy makers are wary of a litany of challenges that could slow down the pace of recovery, even with Covid controls scrapped—a list of headwinds that includes tepid business and consumer confidence, weak overseas demand for Chinese-made goods and heavy local government debt loads that could limit their ability to stimulate the economy.

The 5% target is especially cautious given the strong rebound in business activity in the first two months of the year, said Louise Loo, a Singapore-based China economist for Oxford Economics. Official and private gauges of China’s manufacturing, service and construction sectors all rebounded strongly in January and February.

“The language today suggests that Beijing believes the reopening boost is likely to be only temporary,” Ms. Loo said. “The policy push is to spend just enough to reach the 5% growth target.”

Mr. Li said Sunday that the government would boost fiscal spending by 5.6% this year, less than last year’s increase, while fiscal revenue was expected to grow by 6.7% this year, more than last year. Officials are aiming for a fiscal deficit of 3% relative to GDP this year, up modestly from 2.8% in 2022—suggesting Beijing isn’t likely to stimulate aggressively.

One question this year will be the extent to which export growth slows after powering China’s economy through much of the pandemic. Export growth began to slow in year-on-year terms, and then to reverse course in October, after consumers and businesses in the West cut back on spending amid central banks’ aggressive moves to tame inflation.

China is scheduled to release trade data on Tuesday for the first two months of the year. Analysts say plunging shipping costs and a glut of empty containers at Chinese ports in recent weeks suggest trade demand remains sluggish.

“If exports turn out to be a lot weaker than we expect, policymakers may need to boost monetary or fiscal easing and infrastructure building again,” Goldman Sachs economists told clients in a note March 2.

Another critical factor for China’s overall recovery is the sustainability of any postpandemic rebound in consumer spending.

Economists are watching to see how Chinese households deploy their pile of excess savings built during the pandemic, though some have argued that lingering uncertainty will crimp consumers’ urge to splurge.

Though Mr. Li called for the government to “stabilize spending on big-ticket items and promote recovery in consumption of consumer services,” he made no mention of cash handouts, a pandemic-era practice widely adopted in many Western economies to spur consumption.

Instead, Mr. Li called for the boosting of people’s income levels to encourage consumption, without elaborating. Youth joblessness remains high by official measures after peaking at nearly 20% last year. Migrant workers face higher job insecurity as factories likely hold back on hiring as export demand wobbles.

Officials on Sunday also signaled little in the way of fresh support for the beleaguered property market, which has been stuck in a downturn since late 2020, when regulators began strictly enforcing lending curbs on real-estate developers.

The government work report called for support for first-time home buyers, new urban residents and young people. However, it also reiterated the “housing is for living in, not for speculating on” mantra that Mr. Xi and other officials have adopted in their campaign against runaway housing prices.

That suggests that property, though likely to enjoy some relief from regulators this year, may not be given the chance to reprise its historic role as a major engine of growth.

The overall cautious tone in the government work report reflects a continuing concern with fiscal rectitude in Beijing—a preoccupation that predates the pandemic.

“Beijing will prioritize the fiscal sustainability issue this year,” says Houze Song, a fellow at the Paulson Institute in Chicago.

To that end, Beijing signaled modest support on Sunday for local governments, whose debt burden ballooned amid Covid-related spending mandates and the downturn in the property market, hitting the land auctions that had become a major revenue source for local officials.

Fiscal transfers from Beijing to local governments are set to increase 3.6% to 10.06 trillion yuan this year, a far cry from last year’s 18% increase.

Beijing will allow localities to issue a combined 3.8 trillion yuan, or $550 billion, worth of local government special-purpose bonds, which are mainly used to fund infrastructure projects, down from last year’s 4.04 trillion yuan.

Beyond the goals outlined in Sunday’s government work report, the economy’s performance will hinge on whether the new cabinet—packed with loyalists to Mr. Xi—can revive confidence among households and private businesses.

“The challenge the government faces is how to bolster the private sector, which is crucial for better employment and productivity growth,” said Eswar Prasad, a professor of trade policy at Cornell University.

FT : Scientists launch new initiative to look for extraterrestrial life

Scientists launch new initiative to look for extraterrestrial life
Astrobiologists believe simple organisms pervade the universe but advanced civilisations are extremely rare

Scientists at four of the world’s leading universities have teamed up to investigate the origins of life on Earth — and look for similar biological processes taking place elsewhere in the universe.

The universities of Cambridge in the UK, Harvard and Chicago in the US and ETH Zürich in Switzerland announced the formation of what they called the Origins Federation on Saturday at the American Association for the Advancement of Science annual meeting in Washington.

“I believe that life is embedded into the laws of physics of the universe,” said Didier Queloz, a leader of the initiative, who has dual appointments at Cambridge and ETH. He was a co-discoverer of the first known exoplanet — a planet orbiting a star other than our sun — in the 1990s.

The longstanding search for extraterrestrial life — whether simple microbes or advanced civilisations — will be supercharged by new interplanetary missions to Mars and Jupiter’s moons and by observatories such as the James Webb telescope, the founding scientists said. Complementary research will focus on the still mysterious emergence of life on Earth itself.

“We are living in an extraordinary moment in history,” said Queloz. Scientists have identified more than 5,000 exoplanets and they believe that billions exist in the Milky Way galaxy alone.

“The discovery of many different planets is the big game changer,” said Queloz. “We have found a huge diversity of planetary systems and a lot of them are quite different from the solar system.”

His Cambridge colleague Emily Mitchell, an evolutionary biologist, believes that simple life will be widespread across our galaxy, judging from the speed with which microbes emerged on the young Earth around 4bn years ago.

Mitchell’s lab is looking for clues about extraterrestrial life from the early biochemical evolution of the first microbes on Earth. “As we begin to investigate other planets,” she said, “biosignatures could reveal whether or not the origin of life itself and its evolution on Earth are just a happy accident or part of the fundamental nature of the universe, with all its biological and ecological complexities.”

But the discovery of extraterrestrial life would probably not be a single clear-cut event. “A life detection announcement is unlikely to be from a single piece of data,” said Heather Graham, an astrobiologist at Nasa Goddard Space Flight Centre.

“If we get a really cool result from a Mars rover or from a telescope, we’ll need to look in another way to confirm it. We have started to think about life detection and bio signature detection as being suites of data rather than singular pieces of data.”

Kate Adamala at the University of Minnesota is investigating the origins of life by making simple synthetic cells in her lab. “Chemistry is itching to make life but to make intelligent life is much more difficult,” she said.

“And then staying alive as an intelligent life form might be really challenging.” Extraterrestrial civilisations might tend to destroy themselves with their advanced technologies, she suggested.

Queloz agreed that, although simple life probably pervades the universe, high-tech civilisations might be extremely rare. “As you get more knowledge, it becomes easier to destroy yourself. Maybe there is a kind of doomsday waiting for us,” he said.

FT : Fed’s Daly says US rates likely to be higher for longer

Fed’s Daly says US rates likely to be higher for longer
Comments reflect increasing concern about persistent inflation and global trends fuelling price pressures

Federal Reserve officials are converging around the need to keep US interest rates high for longer, reflecting concern about recent hotter-than-expected inflation data and worries about global economic trends that could fuel price pressures.

“In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will probably be necessary,” Mary Daly, president of the San Francisco Fed, said on Saturday in remarks at Princeton University. “Restoring price stability is our mandate and it is what the American people expect. So, the FOMC remains resolute in achieving this goal,” she added.

Daly’s remarks follow a series of hawkish comments from other senior officials at the US central bank, reacting to economic indicators showing that US inflation is not subsiding as rapidly as hoped. The US labour market also remains remarkably strong.

They come ahead of a pivotal month for Fed policy and economic data. Next week, Jay Powell, the Fed chair, will testify before Congress in comments that will set the stage for a highly anticipated Fed policy meeting on March 21-22 including new economic projections and interest rate forecasts.

In between, new data on inflation and the US jobs market could determine whether the Fed presses ahead with a new 25 basis point interest rate increase, as has long been expected, or is forced to be more aggressive and move interest rates up by 50 basis points.

“I think my colleagues agree with me that the risk of undertightening is greater than the risk of overtightening,” Neel Kashkari, president of the Minneapolis Fed, said this week at an event in South Dakota. He added that he was “open-minded” about whether to increase rates by 25 or 50 basis points at the next meeting.

Christopher Waller, a Fed governor, said on Thursday that “recent data suggest that consumer spending isn’t slowing that much, that the labour market continues to run unsustainably hot, and that inflation is not coming down as fast as I had thought”.

Waller added that he hoped future data showed signs of “moderation” and “progress” in the Fed’s goal of cooling the economy, but “wishful thinking is not a substitute for hard evidence, in the form of economic data” and “we cannot risk a revival of inflation”.

In her Princeton speech, Daly raised the possibility that a number of structural factors in the US and global economies may have shifted in recent years to create a far more inflationary environment in the post-pandemic world.

Over the past decades, a combination of globalisation and technological changes kept prices and wages down, as policymakers struggled to boost employment and get inflation up to the Fed’s preferred 2 per cent target.

But Daly suggested that was changing. She said one trend to watch was a decline in “global price competition”. Another was the “domestic labour shortage”, as fewer Americans seek to work and immigration remains subdued. A third was the transition to a “greener economy, which will require investment in new processes and infrastructure”, with companies looking to pass costs to consumers. Daly also warned of the danger that inflation expectations, which have remained under control, could also start to move higher.

“If the old dynamics are eclipsed by other, newer influences and the pressures on inflation start pushing upward instead of downward, then policy will probably need to do more,” she said.

Speaking to reporters after the speech, Daly said it was too early to discuss the specifics of any policy adjustment at the next meeting, saying she would be looking for “additional information” from the data.

FT : Chinese regulators probe large Covid-related writedowns

Chinese regulators probe large Covid-related writedowns
Property developers have led in making provisions, even though home sales are starting to recover
Regulators at China’s two biggest stock markets have asked more than 70 companies to explain why they made large provisions for the effects of the pandemic, with industry observers expressing concerns that China’s strict zero-Covid policy may have been used as a cover for earnings manipulation.

Since mid-January, the Shanghai and Shenzhen stock exchanges have queried companies with a combined market capitalisation of Rmb398bn ($57bn) over why they wrote down the value of assets last year in earnings guidance. Staff at the exchanges also questioned more than two dozen companies about large goodwill impairments.

The regulatory scrutiny comes as a record 859 listed groups have said in recent weeks that they expect to report big losses in 2022, due in part to asset write-offs in the fourth quarter. That compares with 743 guiding for losses in 2021 and 680 in 2020.

The Shanghai and Shenzhen stock exchanges did not reply to requests for comment on the probe, which was revealed in company filings on the stock exchanges’ websites.

As the Chinese economy begins to recover from its worst downturn in decades, listed companies have been booking large losses on underperforming assets in spite of many months of steady performance. Many of them blamed the writedowns on the pandemic and the toll of Beijing’s stringent zero-Covid policy on their performance.

Industry observers warn the provisions could be subject to manipulation and may distort the real picture.

“Some listed companies may use the pandemic as an excuse to make big provisions so they can cover up losses that should have been disclosed earlier,” said Dong Yizhi, a lawyer at the Zhengce law firm in Shanghai. “That is a very bad practice as it may lead to a misunderstanding of corporate performance and inflated stock prices in the future.”

Property developers have led the pack in making provisions, even though home sales are starting to recover in many cities. Public records show more than half of China’s listed developers booked large writedowns in the fourth quarter for underperforming projects that had for many months been labelled as safe, even though sales were weak at the time.

“Companies make large provisions on an asset when its ability to generate future cash flow deteriorates dramatically,” said Mike Zhao, a Shanghai-based fund manager. “That’s not the case for real estate, since the worst days are over.”

Xue Yunkui, an accounting professor at the Cheung Kong Graduate School of Business, said it was difficult for outsiders, including regulators, to distinguish between normal and “malicious” asset writedowns because of a lack of information.

Yet large provisions, such as those worth one or several years of sales or profits, are enough to raise red flags, as the accounting treatment may “greatly” change how companies are perceived by investors, according to Xue.

“It is not normal for a company to report a big loss due to a Rmb1bn writedown, when investors expect it to make a Rmb50mn profit,” he said.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: After a decade-long slump, US growers appear to be headed for a third consecutive year of healthy pay

Cover Story:
After a decade-long slump, US growers appear to be headed for a third consecutive year of healthy pay. Crop prices are down from last year’s highs but are expected to remain well above historical averages. The Department of Agriculture puts this year’s expected net cash farm income at $150.6B. Adjusted for inflation, that would be down from last year’s record $195.3B, but above the 20-year average of $130.5B. Farmland prices in Iowa shot up 17% last year and 29% the year before. The average acre recently went for $11,411, around triple the national price. Beneficiaries include more than locals. Farmland Partners, a real estate investment trust valued at close to $600M, has returned 82% cumulatively over the past three years, more than twice as much as the S&P 500 index. Pension funds are riding big gains on the vast farm acreage they’ve amassed. So are Bill Gates and Jeff Bezos.

Interview:
-Last week Barron’s interviewed Vincent Clerc, CEO of AP Moller-Maersk. Few executives have a better insight into the state of the global economy than Clerc, who heads the world’s second-largest container-shipping group. Clerc took charge at the start of 2023, just as shipping rates were collapsing from Covid-pandemic highs. Maersk is hoping an expansion into land-based logistics and e-commerce will pay off. It is also preparing for the end of its alliance with Mediterranean Shipping, the world’s biggest container-shipping group, in 2025. Barron’s spoke with Clerc on the sidelines of the Mobile World Congress in Barcelona about the outlook for the global economy, US-China tensions, and the potential of artificial intelligence.

Tech Trader:
-Stock-based compensation has been a noncash way for many tech companies to supplement employee salaries, primarily through awarding stock options or restricted equity grants—a promise to deliver stock at a future date upon predetermined conditions. The trend has particularly taken off in the last decade. The average stock-based compensation for the industry rose from just 4.2% of revenue in 2012 to 10.5% in 2020, accelerating to 22.5% in 2021, according to SVB MoffettNathanson. It’s “become part of the culture and the expectation from software company employees,” Ader says. Theoretically, there is an alignment of interest with overall company performance, giving an ownership incentive for employees to work harder. Management, meanwhile, appreciated the flexibility of paying less cash for staff salaries, enabling more resources to be shifted to R&D and marketing. As long as stock prices went higher, engineers and salespersons enjoyed ever-rising levels of total compensation. Investors didn’t complain about dilution as long as stock prices were rising. In Wall Street models, stock-based comp usually got stripped out of earnings figures, as if the payments didn’t exist. But those times are over. Revenue growth has slowed, and stock prices have tumbled from their peaks. Many newly public companies that used stock-based compensation still do not have earnings on a GAAP, or generally accepted accounting principles, basis. Now, even with stocks well off their highs, companies may be forced to issue more shares to their employees that have grown accustomed to substantial awards.

The Trader:
-Arconic investors got a pleasant jolt this past week after The Wall Street Journal reported the aluminum products company was in talks to be acquired by private-equity firm Apollo Global Management. Despite a big gain, the stock still looks like a buy.
The Journal reported Apollo (ticker: APO) submitted a bid in February at a “significant premium” to recent levels. Apollo didn’t respond to a request for comment, while an Arconic spokesperson said the company doesn’t comment on rumor or speculation. But many takeout offers start at about a 20% premium to a stock’s 30-day moving average which implies a price for Arconic of around $28 a share. It makes sense, then, that shares would jump about 30% off Tuesday’s lows and close at $27.20 on Friday.
-Once synonymous with Wall Street money-making, Goldman Sachs found itself on its back foot after failing to wow investors at its second-ever investor day this past Tuesday. Shares tumbled 3.8% in that day’s trading—and are off 3% for the week—after the bank announced plans to cut $1B in costs but failed to give clear guidance on the future of its wayward consumer business. The investor day was supposed to be an opportunity for the bank to reset its relationship with Wall Street. Instead, it ratcheted up concerns about the bank’s—and CEO David Solomon’s—credibility. Solomon in particular faltered this week, saying almost in the same breath that the bank was seeking “strategic alternatives” for its money-losing consumer-banking business while also declaring that he would push for it to break even on a pretax basis by 2025.

Features:
-The scramble for shearling-collar coats and snap-button shirts, brought on by the success of TV shows like Yellowstone, is one more feather in the cap of Western-wear retailer Boot Barn Holdings. But it’s worth noting that cowboy chic has cycled in and out of fashion over the decades, and Boot Barn has done just fine. That’s because it caters to an increasing number of shoppers who are less concerned with trends, as well as others simply trying to look the part. As the meteoric rise of Tractor Supply (TSCO) has shown in recent years, investors overlook more rural-themed retailers at their own risk. “Right now, Boot Barn is one of the most attractive names in retail,” says David Swank, co-manager of the Hood River Small-Cap Growth fund, who notes that the company is finding success in the Northeast, a previously untapped geographic region for the brand.
-Bulls on Hertz Global Holdings should consider the rental car company’s unusual and attractively priced warrants, which offer an alternative to Hertz common shares. First, some details on Hertz Global Holdings warrants. They amount to long-term call options on the stock and trade around $10.50 while the stock changes hands at $18.77. The warrants have an exercise price of $13.80, meaning investors can buy Hertz shares at $13.80 through the maturity date in 2051. One way to play Hertz is to buy two warrants instead of one share of the stock. The warrants should deliver most of the gains in the stock. On Friday, the stock rose 42 cents and the warrants were up 33 cents.

European Trader:
French catering giant Sodexo is once again facing headwinds after the reopening of offices, universities, and sports venues helped it bounce back from the coronavirus pandemic. The stock rose 12.1% in the past year, but has slumped almost 5% in the past month to 87.96 euros ($93.44). The likely culprit is investor disappointment that 2023 guidance was only in line with forecasts amid the prospect of a recession and spiraling inflation. Much of the impact of a downturn has already been priced into the stock. Sabrina Blanc, an analyst at Société Générale, wrote in a recent note that Sodexo has hiked its prices 5% to 6%, which will help mitigate the rising cost of ingredients.

Emerging Markets:
-Everyone who matters in Chinese politics will converge on Beijing this weekend for the so-called Two Sessions, an annual joint meeting of the National People’s Congress and the Chinese People’s Political Consultative Conference. Two guys who won’t make it: Jack Ma and Fan Bao. Ma, of course, is a founder of Alibaba Group Holding, the charismatic face of Chinese capitalism until some rude remarks to state bankers forced him into exile two years ago. Bao, CEO of investment bank China Renaissance, was the country’s best-known rainmaker until he vanished two weeks ago. His company subsequently revealed that “he is cooperating in an investigation being carried out by certain authorities.”

Commodities:
-Oil companies are making more money than ever, but they’re spending less of it on exploration. One reason: Executive compensation packages today favor cash flow over production. The change is helping to curb the amount of oil that comes out of U.S. soil at a time when President Joe Biden and others are urging producers to pump more. Indeed, despite high prices and big profits, output is likely to grow just 3% this year, says Morgan Stanley analyst Devin McDermott. Investors don’t want to return to the old days of “drill, baby, drill,” which often led to poor returns.

Streetwise:
-In the decade through 2021, most days for Tesla felt like investor days. The stock gained 18,000%. The company stuck to shareholder meetings and events themed around technology—like a battery day and an AI day. Then, last year, rising interest rates shook frothy stocks, and Tesla dropped 65%. So, on Jan. 2, the company announced a day just for equity enthusiasts. Speculation began immediately that Tesla would give details on a new, cheap car—maybe not Honda Civic cheap, but Accord-ish, say $30,000. That didn’t happen—hence the disappointment. In February, CEO Elon Musk tweet-promised to share his Master Plan 3, and he did just that. Sort of.