>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-George Santos’s Lies Were Known to Some Well-Connected Republicans. Mr. Santos ignored advice to drop out of his House race after an extensive background check in 2021 uncovered his deceits, people with knowledge of the matter said. The episode reveals that a small circle of Republican campaign professionals had indications of his lies far earlier than the public.
-Russia’s claim to seize a Ukrainian town exposes rifts among forces. After Russia said it had taken Soledar, a leader of a mercenary group accused Moscow of stealing credit. Ukraine said forces were still fighting there.
-How do Western goods reach Russia? A long line of trucks through Georgia offers a hint. With Western sanctions barring many imports, a lot of what Russia needs now travels a slow, crowded truck route through the Caucasus Mountains.
-Russian forces have targeted Kiev, the Ukrainian capital, and other cities with missile and drone attacks off-and-on for months, devastating the power grid and forcing rolling blackouts.
-The Treasury Department expects to begin taking “extraordinary measures” to continue paying the government’s obligations before what is expected to be a big fight to raise the borrowing cap.
-Washington adjusts to new landscape after installation of special counsel. The documents investigation involving President Biden is sure to muddy the waters politically as former President Trump argues persecution over his own inquiry.
-Presidents and Their Prosecutors: Since the days of Watergate, every president but one has faced a special prosecutor scrutinizing them or their associates. President Biden now joins them.
-Sweden says it has uncovered a rare earth bonanza. A state-owned mining company said it had found Europe’s largest deposit of the vital minerals used in electric vehicles and other green technology.
-A German Village is at center of a fight over coal and climate is cleared out. For years, activists tried to save Lützerath from being razed to make way for the expansion of a coal mine. This past week, the police moved them out.
-Biden and Kishida vow to bolster US-Japan Alliance as China’s Power grows. The two leaders discussed tensions with China, North Korea and Russia and plans for deterrence in Asia with US troops and missiles.
-The Iranian government has executed a former defense official, a dual UK citizen, on spy charges. Alireza Akbari, previously a senior military and defense official, had moved to Britain a decade ago. He had been detained since 2019.
-Saks Fifth Avenue Wants to Add a Casino Atop Its Flagship Store. Hudson’s Bay Company, the owner of the department store, unveiled plans for a casino in Midtown Manhattan, joining the race for one of three full-fledged gambling licenses in the city.

THE FINANCIAL TIMES
-Bonds are on track for their best January performance in more than three decades, spurred by a growing conviction that inflation has peaked on both sides of the Atlantic. The Bloomberg Global Aggregate index, a broad gauge of global fixed income, has delivered a 3.1% return so far this month. If that continues for the rest of January it will be the biggest rise logged in the first month of the year in records going back to 1991.
-Nelson Peltz is set to take on Disney in the most high-profile proxy battle in years as he seeks shareholder support for a board seat. The co-founder of Trian Fund Management has been on a media blitz, comparing the company to communist China in a television interview with CNBC, setting the tone for a protracted and bitter fight.
-Germany’s defense minister Christine Lambrecht plans to step down, according to a German government source, following a series of errors that badly hurt her credibility as commander-in-chief of the country’s armed forces. The person said Lambrecht could announce her decision to resign as early as next week. Her resignation will trigger huge uncertainty at a time when Germany is facing a momentous decision on whether to break with longstanding policy and supply battle tanks to Ukraine, a move that chancellor Olaf Scholz has so far been reluctant to make.
-Russia’s defense ministry on Friday claimed its forces had taken complete control of the frontline Ukrainian settlement of Soledar, known for its underground salt mines and tunnels, after weeks of heavy fighting in and around the town.
-Chinese scholars involved in Alibaba’s lobbying operation published essays and submitted reports in support of the company to authorities in Beijing, including the State Administration for Market Regulation, which hit the group with a record fine for antitrust abuses in 2021. Alibaba provided the scholars with money, data, information and interview opportunities to bolster their research, according to more than 10 academics, government officials and company employees who spoke to the Financial Times.
-UK Prime Minister Rishi Sunak has accused Iran of a “cowardly act” after the Islamic republic executed an Iranian-British national convicted of espionage. Iranian state media said the Islamic regime had hanged Alireza Akbari, who had held various senior positions in Iran’s security and military institutions, after he was accused of spying for Britain’s MI6 spy agency.
-There has been a significant shift in western attitudes to Ukraine’s war with Russia. Thinking has moved a long way since the hopes earlier in the war that it would be enough to keep Ukraine in the fight until an opportunity for a peaceful settlement came along. The consensus now among leading western states is that the only way to persuade Russia that it cannot succeed in its war of conquest is for Ukraine’s armed forces to liberate much more territory.
-Fears that Germany could enter recession have eased after the federal statistical agency reported that the economy grew by 1.9% in 2022 and was likely to have stagnated in the fourth quarter. Data released by the agency suggested the boost delivered to private consumption by government fiscal support measures, combined with the lifting of coronavirus pandemic-era lockdowns, had outweighed the economic fallout from the conflict in Ukraine.
-US Treasury secretary Janet Yellen has warned the US will hit its $31.4T borrowing limit next week and could run the risk of a damaging debt default starting in early June, setting the stage for a high-stakes fiscal negotiation between the White House and Congress in the coming months.
-Donald Trump’s business empire will be forced to pay about $1.6M in penalties after being convicted of running a 13-year tax fraud scheme in which executives were handed “off-the-books” perks including a luxury apartment, Mercedes cars and school tuition.
-Qatar is seeking to keep momentum behind its push into sport, as the tiny desert state moves to diversify its economy away from oil and gas, further its soft power reach and burnish its credentials as investor.
One option now under consideration is an investment in the English Premier League. Qatar Sports Investments, the state-backed entity that bought PSG in 2011, recently held tentative talks with Tottenham Hotspur, according to a person familiar with the matter, although those at the London-based club denies it has discussed the sale of an equity stake.
-BlackRock’s Larry Fink has admitted that “negative markets had a substantial impact” on the world’s largest fund manager last year, wiping out $1.4T of its assets and hitting profits. In an internal memo seen by the Financial Times, the chief executive said the operating environment “is unlike anything we’ve seen in decades”.
-Prada is taking decisive steps towards implementing the complex succession that will eventually lead to Lorenzo Bertelli taking over from his parents, Patrizio Bertelli and Miuccia Prada, who have led the 110-year-old retailer since the late 1970s. The group, which also owns brands Miu Miu and Church’s, named former Luxottica chief Andrea Guerra as successor to co-chief executives Bertelli and Prada in December. It also appointed Gianfranco D’Attis, the departing boss of Dior US, as the first ever chief of Prada, the company’s main brand. Both executives start this month. Lorenzo, 34, who currently heads the group’s corporate social responsibility department, is expected to take the helm within a few years.

NY POST
-In Jamestown, New York — about as far as one can get from the southern border without entering Canada — residents are bracing for an influx of migrants that could cause a crisis similar to the one that has New York City facing a fiscal cliff. “If a city of 8 million people can be overwhelmed by a couple thousand migrants, imagine what a couple hundred can do to overwhelm a small rural community upstate?” warned state Sen. Joe Borrello (R-Jamestown). “It wouldn’t take many migrants to overwhelm the system,” he added. At least 35 migrants from Colombia are known to have arrived in the tiny upstate city since late last year, with others believed to be living and the shadows and more certainly on the way, a leading Hispanic advocate told The Post.
-President Biden back at Delaware home where classified documents were stashed in garage. The 80-year-old commander-in-chief arrived Friday evening at the Delaware home where he kept classified documents from his time as vice president next to his 1967 Corvette Stingray, one day after Attorney General Merrick Garland appointed a special counsel to investigate the matter. Friday’s trip is Biden’s 52nd to Wilmington since taking office in January 2021. According to a tally by The Post, Biden has spent all or part of 151 days of his presidency at the 6,850-square-foot mansion.Meanwhile, Hunter Biden lived at Delaware home where classified docs were kept. President Biden already admitted guilt — he's just betting Garland doesn't prosecute him, or Trump.
-Dem Rep. Hank Johnson suggests classified documents ‘planted’ in Biden office, garage. Rep. Hank Johnson (D-Ga.), who once worried Guam would sink from overpopulation, floated a theory on Thursday that sensitive papers found at Biden’s Delaware home and an office he used at a Washington, DC, think tank could have been “planted.”
-A conservative group alleges in a new IRS whistleblower complaint that the University of Pennsylvania’s Biden Center for Diplomacy and Global Engagement flouted non-profit rules — in part by giving the future president (Biden) and his allies “no show” jobs. The center burst into the national spotlight Monday with the revelation that classified documents dating from President Biden’s vice presidency were found at its Washington office, ultimately leading to the appointment of special counsel Robert Hur to determine whether Biden or others in his orbit illegally mishandled records.
-L’Oréal is bringing inclusivity to the makeup chair in 2023. The beauty giant announced on Jan. 3 that the brand will be releasing the world’s first handheld lipstick applicator designed for people with limited hand and arm mobility. L’Oréal-owned Lancome will pilot the ultra-precise computerized applicator, called HAPTA. The tool was displayed recently at the Consumer Electronics Show (CES) 2023 in Las Vegas.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: 10 Barron’s panelists help make sense of increasingly complicated market dynamics as part of their annual gathering

Cover Story:
-10 Barron’s panelists help make sense of increasingly complicated market dynamics as part of their annual gathering, which was held on Jan. 9 in New York City. The participants agree on a few fundamentals: The age of free money is over. Valuation matters again in equity markets, unlike in recent years, and fixed income finally lives up to its name, offering ample income and a viable alternative to stocks. Regardless of the economic backdrop—and few see a deep or lengthy recession in 2023—bulls and bears alike should find plenty to entice them amid the rubble of 2022. Prospective winners include, among many others, broken IPOs, dividend payers, international issues, even the shares of tech companies getting religion on costs.

Interview:
No interview in this weekend’s edition

Tech Trader:
-Even without major moves from Congress, 2023 is shaping up as a year in which the government will have a big impact on tech. For example, coming this September is the US vs. Google, the longstanding Department of Justice case asserting antitrust violations by the search giant. The crucial question is whether Alphabet has furthered a monopoly by paying Apple for the right to be the preferred search engine on Apple devices. Any ruling that breaks up the cozy relationship would be bad for both sides—Apple provides more than half of Google’s search traffic, according to some estimates, while collecting an annual fee reportedly above $10 billion. (The actual number isn’t disclosed.) A court-ordered change could be a big win for Microsoft Bing.

The Trader:
-Inflation, while slowing, is still present, though it might not be for much longer. Signs of looming price declines are starting to show up. Take apartments, which about 40M Americans call home. They felt the inflationary pain in 2022, with average rents up about 7% year over year, according to the Bureau of Labor Statistics. But those high prices have started to pinch, and now it seems like no one is looking to move. Real estate service provider RealPage notes that demand had “all but evaporated” by the end of 2022. “Volume always precedes price,” says one real estate investor, and he’s right. Rents will have to fall to get people thinking about moving again. Car prices are also too high. The average new-car price in the US hit a record $49,507 in December, according to data provider Cox Automotive. Those prices are starting to hit demand as well, and forcing companies to reconsider. Tesla, for one, cut prices for some of its vehicles by up to 20% this past week as inventory piled up and order rates took a dive.
-Barron’s calls Martin Marietta Materials a stock for all seasons. Martin Marietta is a producer of aggregates, the industry term for stone, sand, and gravel, and it’s a pretty solid business. It has some natural barriers to entry—it isn’t easy to find and start a new quarry—and high regional market shares give players some pricing stability. It can weather both inflationary and deflationary environments, and despite the weakening economy, its outlook for growth is improving.
How is that possible? For starters, Martin Marietta has between 20% and 30% share of the markets it operates in, including Texas, Florida, Georgia, and Colorado, and aggregates markets are largely local because it’s too expensive to ship gravel long distances. Rocks are dirt cheap, but pricing has been moving up over time. In the third quarter, Martin Marietta realized $16.65 for a ton of aggregate, up from $13.40 five years ago, an average annual gain of about 4%. Volumes at Martin Marietta have grown at an annual rate of about 6.5% over that span, both organically and through acquisition.

Features:
-It’s looking like a buyer’s market for companies looking for acquisitions and partnerships, according to many of the pharmaceutical and medical technology executives who gathered at this year’s J.P. Morgan healthcare investor conference, which wrapped up in San Francisco on Thursday.
“We’re getting lots of calls from companies that literally we talked to six months ago,” says Geoff Martha, CEO of Medtronic, a medical device manufacturer. The change to the medical device and biotech sector has come just in the past few months. As recently as April, when the SPDR S&P Biotech exchange-traded fund dropped 40% from its early 2021 peak, Merck CFO Caroline Litchfield told Barron’s that biotech leaders still thought their firms were worth what they had been before the market fell. Now biotech boards are no longer counting on the prices ticking back up soon. “It’s changed completely in terms of both the deal structures they’ll contemplate, the valuations that they’re thinking about,” says Andrew Dickinson, CFO of Gilead Sciences.
-Rising rates have made all types of annuities more interesting investments, but two in particular are worth considering now: Multi-year guaranteed annuities—MYGAs, for short—are the insurance world equivalent of a bank certificate of deposit. Just like with CDs, rates have shot up in the last year. Unlike CDs, gains in a MYGA are tax-deferred until you take the money out. And these same tax deferral in fixed index annuities, which are otherwise far more complicated products. They promise returns linked to a myriad of different indexes. In many FIAs, your investment doesn’t lose value when the index drops, however, you only get a portion of the gains when it rises. The upshot is that higher rates allow insurers to give investors a bigger share of gains during up years.

European Trader:
-Mining and commodities trading giant Glencore was one of the FTSE 100’s top performers last year, and it could be set to repeat the trick in 2023.
Glencore was the third-best performing stock in 2022, behind defense giant BAE Systems and publisher Pearson, climbing 47%, largely driven by record thermal coal prices. The miner’s exposure to coal is also what makes it an attractive proposition in 2023, while China’s reopening should push metals prices higher, adding to Glencore’s upside. Over the longer term, its status as one of the world’s leading producers and marketers of copper leaves it well placed to benefit from the global transition toward greener energy.

Emerging Markets:
-Despite an episode of unrest in the Brazilian capital, the markets promoted Brazil over the past week. The iShares MSCI Brazil ETF climbed 6% since rioters swarmed the Congress and presidential palace in Brasilia on January 8. The yield on 10-year sovereign bonds shrank more than half a percentage point to 12.4%. Brazil’s event bears extensive parallels with the US insurrection a year and two days earlier—only Brazil’s elite united much more decisively to defend their democracy afterwards. Society seems inclined to follow for now.
-China is reopening faster than many anticipated after policy makers’ abrupt U-turn on their harsh Covid policies. But unlike past Chinese recoveries, this one is unlikely to set off a surge in demand for commodities and send prices soaring, including for oil. That’s good news for global central bankers trying to tamp down inflation.
When Europe and the US started to reopen following pandemic restrictions, it sparked inflationary pressures by increasing supply chain snarls. Demand outstripped capacity, and created a surge in prices, including for hotels, dining out and airfare as consumers tried to make up for lost time.

Commodities:
-You say crypto, I say tomato or better corn: Over the past two years, cryptocurrency companies like FTX, Coinbase and Cash App lured several athletes, in equity and sponsorship deals ,while paying them the company’s shares, or crypto itself. That didn’t work out very well for some high-profile athletes. You might ask one Tom Brady about this. The high profile failures may have injected a dose of more common sense into athletes’ ambitions. Cincinnati Bengals quarterback Joe Burrow, Boston Celtics forward Blake Griffin, New York Islanders forward Anders Lee, Toronto Blue Jays pitcher Kevin Gausman, and Milwaukee Bucks forward Khris Middleton are among the pro-athletes who recently purchased a 104-acre corn and soy Iowa farm for $5M.The financial acquisition was made through investment vehicle Patricof Co. The plan is to lease the land to farmers, in hopes of a single-digit-percentage annual return—24 athletes in total are part of the purchase, according to FrontOfficeSports.

Streetwise:
-This week Jack Hough talks about noted activist investor Neslon Petz’s appetite for turnarounds and penchant for PowerPoint presentations to highlight the errors of smug CEO’s. This past week, Peltz targeted no less than Bob Iger, CEO of Disney. Peltz argues that Disney’s adjusted show-business earnings should have climbed from $9.4B before the Fox deal to $13.3B with promised synergies, but have instead fallen to $3.1B, or $7.1B not counting streaming losses. “Is there a large Fox write-down on the horizon?” his report asks. Debt is up, the dividend is gone, and the stock has stunk. As Peltz puts it, Disney has spent $162B since 2018 on deals, content, and capital investments, and the result is a halving of earnings per share.

FT : Climate graphic of the week: ‘alarming’ trends revealed in weather reports

Climate graphic of the week: ‘alarming’ trends revealed in weather reports
Findings from US agencies serve as ‘call for action’ to mitigate against rising temperatures


Last year was the fifth warmest on record, with global land and ocean temperatures about 1.1C warmer than during the pre-industrial era, according to the US’s top climate scientists.

The data, from the National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautics and Space Administration (Nasa), come days after similar findings from the EU’s earth observation programme, Copernicus, which also ranked 2022 as the fifth warmest year, and said temperatures had been about 1.2C higher than before human-driven warming set in.

A fourth group, the Geneva-based World Meteorological Organisation, reached a strikingly similar conclusion, estimating that the average global temperature in 2022 was about 1.2C above pre-industrial levels.

The data are “pretty alarming”, said Nasa’s administrator Bill Nelson. “Science leaves no room for doubt,” he added. “What we’re seeing is our warming climate [. . .] it’s a warning all of us.”

“If our leaders [. . . ] do not act on this scientific data, our ice sheets are going to continue to melt, our oceans will become more acidic, extreme weather will intensify [. . .] This is a call for action.”

Last year brought a series of devastating extreme weather events to countries around the world, from floods to wildfires and droughts. Scientists are clear that such events will become more common and intense with every fraction of a degree of warming.

Under the Paris climate accord signed in 2016, almost 200 nations pledged to strive to limit warming to 1.5C. But the WMO said on Thursday that the “likelihood of — temporarily — breaching the 1.5C limit of the Paris Agreement is increasing with time”.


According to NOAA, the 2022 annual Antarctic sea ice extent was at a near-record low, second only to 1987, and the 10-warmest years on record have all occurred since 2010.

The group found that Europe and Asia had their second warmest years, behind 2020, while Copernicus concluded that 2022 had been Europe’s hottest summer on record. NOAA’s analysis of global surface temperatures ranked last year as the sixth warmest year.

The unusual heat last year occurred despite the “temperature-suppressing” presence of the La Niña phenomenon. La Niña involves the large-scale cooling of the Pacific Ocean’s surface, and has persisted for three consecutive years.

“Even those years with a temporary cooling influence from La Niña, such as 2022, are now much warmer than all years before 2015,” the UK’s Met Office said. 2022 was the ninth successive year to have “equalled or exceeded 1C above the pre-industrial period”, the group said.

However, both Copernicus and NOAA said this week that the chances of a fourth La Niña year were waning. Instead, the chances of an occurrence of the opposing phenomenon, El Niño, which has a warming effect, had increased, said Michelle L’Heureux, a scientist at the US National Weather Service’s Climate Prediction Center.

There was roughly a “50 per cent chance” of El Niño occurring later this year, she said. However, similar indications were present at the beginning of the last few years, “so that does give us pause,” she added. “I would not be shocked to even see a return of La Niña.”

One of the last significant El Niño events was in 2016. Meteorological agencies said that year was the warmest on record, raising concerns that the phenomenon’s return could fuel one of the hottest ever years in 2023.

FT : Charting a road map for the European Political Community

Charting a road map for the European Political Community
Europe’s latest new organisation unites 44 states but its purpose and value remain open questions

First, the results of last week’s poll. In response to the question of whether China’s economic influence and soft power in Europe are too strong, some 75 per cent of you said yes, 11 per cent were on the fence and 13 per cent said no. Thanks for voting!

Non-Europeans, and for that matter most Europeans, deserve a medal if they can name and define the purpose of all the institutions set up since the second world war to defend peace, liberty and prosperity on the continent — or just to provide an opportunity to meet, talk and not do very much.

In a nerd-free world, many would struggle to distinguish between the European Council and the Council of Europe, or to remember much about the European Social and Economic Committee or the European Neighbourhood Policy.

Now we have the European Political Community, or EPC. In October it held its inaugural meeting in Prague, with 44 countries in attendance. In spring, everyone will reconvene in the Moldovan capital of Chişinău. Later on in the year the EPC will meet in Spain, and then the UK will play host in the first half of 2024. This map, prepared by Geopolitical Intelligence Services, shows the group’s members, bringing together all European countries except Belarus and Russia.

First and foremost, the EPC is an informal club for diplomatic discussions among equals. It doesn’t have a central secretariat or financial resources of its own, as pointed out by Sir Michael Leigh, a former senior European Commission official responsible for EU enlargement.

The EPC’s member governments do not wish it to overlap with weightier institutions such as Nato, the EU, the G7, the G20, the OSCE or the OECD, as Christian Turner writes for the UK in a Changing Europe research unit.

Who is in the EPC and who is out
The EPC doesn’t include Russia or Belarus — and so the gathering in Prague carried a certain symbolic significance as a moment of collective opposition to the Kremlin’s aggression in Ukraine.

At the same time, the US and Canada are not part of the EPC, which is therefore a purely European entity — welcome evidence of autonomy to those who would like Europe to stand more on its own feet in the world. On the other hand, the EPC isn’t directly involved in what, for Europe, is the most critical decision-making of our time — the west’s military and financial support for Ukraine’s war of self-defence.

Neither, strictly speaking, is the EPC a club of democracies, since it includes countries with a questionable record on civil liberties, free institutions and the rule of law such as Azerbaijan, Hungary, Serbia and Turkey.

However, the EPC is distinctive in that it brings together all 27 EU states, some that have been trying to join for many years (mainly in the Balkans), some that have just been invited to join (Moldova and Ukraine), some that are outside but aligned with the EU in various ways (Iceland, Norway and Switzerland), some that will probably never join (Armenia and Azerbaijan) and one that has just left (the UK).

Is the EPC an excuse for putting off EU enlargement?
Immediately after President Emmanuel Macron of France gave a speech last May proposing the EPC’s creation, some countries expressed concern that the new group might serve as a way of being nice to them while ultimately keeping them out of the EU.

“Nothing that falls short of EU membership would be acceptable,” warned Dmytro Kuleba, Ukraine’s foreign minister.

The EPC “should not and must not be a substitute for full European Union membership”, said Dimitar Kovačevski, North Macedonia’s prime minister.

To their credit, however, the French quickly reassured these doubters that the EPC would not be used as a vehicle for blocking their progress towards the EU. For this reason, the EPC should in principle have more staying power than the now largely forgotten 1989 proposal of François Mitterrand, the late French president, for a “European Confederation” of states.

Central and eastern European countries, which had just thrown off Soviet-imposed communism, correctly saw Mitterrand’s initiative as an attempt to fob them off with something less than full EU membership.

How can the EPC be useful in practical terms?
At the EPC meeting in Prague, discussions were held on issues such as peace, security, climate change, energy, migration and economic co-operation. As Suzana Anghel wrote in a perceptive piece for the European parliament’s research service, the informal nature of the Prague talks recalled the type of meetings once held by leaders of the old European Economic Community — the EU’s forerunner.

It was not until December 1974 that EEC leaders decided to hold regular, formal summits as the European Council, the body that unites EU heads of state and government. After that step, a kind of bureaucratisation of high-level policymaking took hold — something the EPC’s member states want to avoid.

What, then, did the EPC achieve in Prague, and what can it do in the future?

Well, the Prague event provided an opportunity for some useful talks on the sidelines to try to defuse the long-running conflict between Armenia and Azerbaijan. Unfortunately, things have gone into reverse on that front since October.

The Prague meeting also saw the UK quietly expand contacts with its former EU partners, leading to an agreement in December on British participation with EU and North Seas countries on renewable energy projects. The British government goes so far as to call this “a new phase of UK-EU co-operation”.

The UK’s willingness to host the EPC in 2024 is another sign that even a neuralgically Eurosceptic Conservative government is apparently comfortable with hanging out with other Europeans in a new, loose format.

If things go well, the EPC will start promoting further practical initiatives on energy and infrastructure. This might be a way of integrating EU candidate states, such as the Balkan countries and Ukraine, into some EU activities in the period — likely to last many years — before they qualify as full members, as Milica Delević writes for the European Council on Foreign Relations.

But I still have some concerns.

The EPC’s relevance would be severely tested if some crisis arose, for example, between Greece and Turkey, or if Moldova came under even more pressure than it already is from Russia — on which, please read this incisive analysis by Jakob Hedenskog for the Stockholm Centre for eastern European Studies.

It would be unfair to write off the EPC at such an early stage as just another European talking shop. However, the jury is out on whether the EPC can and will add something useful to the somewhat higgledy-piggledy architecture of European co-operation.

More on this topic
The EPC should function like a “regional United Nations” rather than a discussion forum or the EU-style body that its name implies, Derrick Wyatt, emeritus professor of law at the University of Oxford, writes for the London School of Economics’ European politics blog

New order: there can be no turning back — an analysis of the impact of the Ukraine war on Europe and the international system by Michel Duclos, a former French ambassador, for the Paris-based Institut Montaigne

FT : How UK retailers are defying the consumer gloom

How UK retailers are defying the consumer gloom
The country’s biggest players have been surprisingly upbeat — so far

The first two weeks of the new year have delivered a spate of profit warnings in sectors ranging from housebuilding to recruitment, but one part of the UK’s corporate landscape has proved surprisingly resilient: retail.

Predictions of a yuletide of woe on the high street, as shoppers faced with rising borrowing and household bills drastically cut back on spending, have failed to materialise. So far, car parts and bike seller Halfords has been the only conspicuous profit warning — easily outnumbered by upgrades from peers including Next, JD Sports and B&M.

Compared to recruitment, where important players Robert Walters and PageGroup have warned on profits, or technology, where cyber security specialist Darktrace and video game developer Frontier have said they would record lower revenues than expected, retailers have largely stuck with their full-year forecasts.

They do not yet appear to have suffered from political uncertainty or the knock-on effect from a recent jump in mortgage costs, both of which were flagged by housebuilder Barratt for slowing home reservations.

Kien Tan, retail director at PwC, said this was partly a function of which names had updated investors so far — mostly blue-chip companies with strong market positions and clear strategies that had “been at the good end of lots of trends”.

Higher prices
Many areas of retail, from food to technology, have been broadly deflationary for years, increasing the purchasing power of consumers. That changed in 2022 as prices surged, particularly following Russia’s invasion of Ukraine, and meant that retailers needed to sell fewer wares in order to achieve the same revenue. Broadly speaking, consumers bought fewer things but retailers’ turnover still rose.

Price inflation in areas such as fashion has been fairly modest so far, but in food it has been high — and a creditable 7 per cent rise in festive sales at both J Sainsbury and Tesco needs to be seen in the context of food prices that are on average 16 per cent higher than a year ago.

Favourable comparisons
December 2021 was marked by the rapid advance of the Omicron variant of coronavirus and although no national lockdowns were imposed, many consumers remained wary of mixing in crowded places or had smaller gatherings at Christmas. That hurt retailers with thousands of stores and meant that this year’s sales were up against weak comparative figures.

The most obvious example of this was Argos, the general merchandise seller owned by supermarket chain J Sainsbury. A 4.5 per cent increase in sales for the third quarter looks healthy enough — but sales fell 16 per cent in the same period a year ago.

Shoppers flock back to the stores
When Britain was gripped by fear of catching Covid-19, consumers largely shopped online. But one of the defining trends of last year was the return to shops, and stores got a further boost in December from a sudden cold snap and disruption to delivery services due to postal strikes.

“The channel shift [back to stores] has been a benefit for the biggest retailers,” said Lisa Hooker, head of UK retail at PwC. “The online share of sales is now only a year ahead of where it would probably have been had Covid never happened.”

At Next, store sales grew 7.5 per cent in the nine weeks to December 30 while online sales fell. At Marks and Spencer, clothing sales in stores were up 12 per cent in the third quarter.

Sales made in stores generally mean higher profit margins than those made online for many retailers, because the customer bears the cost of “last mile” transport and the running costs of stores are largely fixed.

Protecting Christmas
Supermarket bosses readily acknowledged that consumers shopped earlier and more carefully this year. But like the annual summer holiday, Christmas is an event that many families regard as almost sacrosanct — especially after the disruptions of the past two years — and were determined to enjoy it.

Lionel Desclée, chief executive of Very Group, agrees. “Christmas is very important to the families that we serve and they have clearly worked hard to protect it,” he said. The online retailer and credit provider sells mostly to customers in lower income groups, who in theory would be the most exposed to cost-of-living concerns.

Hooker added that in-person gatherings of families “tend to mean more food and more presents”, which may explain why half of the respondents to PwC’s latest survey ended up spending more on presents, not less.

Surplus stock
The summer of 2021 featured heavy disruption to the global supply chains that keep shelves stocked — including renewed lockdowns in Asian manufacturing centres and limited shipping capacity. That meant many retailers, especially in toys, electronics and technology, went into their peak trading period with far less inventory than usual.

Next chief executive Lord Simon Wolfson said that with hindsight, availability may have affected sales more than he believed at the time, with a correspondingly beneficial impact in 2022.

Overdone pessimism?
Many retailers issued their most recent and arguably conservative profit guidance between April and October, a period bookended by Russia’s invasion of Ukraine and the brief but chaotic Liz Truss premiership in the UK.

As some inflationary pressures come down, chief executives are a little more confident.

“There is nothing yet that we are particularly worried about” said M&S chief executive Stuart Machin, when asked about the outlook this week. Ken Murphy at Tesco declared himself “cautiously optimistic”.

Richard Walker at Iceland Foods said there “seems to be a bit of normalisation”, though spending among lower income groups is still under intense pressure.

TheNew Yorker : California’s Devastating Storms Are a Glimpse of the Future

California’s Devastating Storms Are a Glimpse of the Future
Even as the state weathers a megadrought, climate change is increasing the risk of catastrophic floods.

On the morning of January 10, 1862, Leland Stanford, the industrialist and railroad magnate who would later lend his name to Stanford University, departed his mansion, in downtown Sacramento, en route to the state capitol building, about five blocks away. Stanford was preparing to be sworn in as the eighth governor of California. He had to abandon his grand plans to travel in style, via horse-drawn carriage, however. Sacramento lay under as much as eighteen feet of river water after the region’s second major flood in as many months. Weeks of downpour had caused the levees on the American River and the Sacramento River to breach. While residents fled in droves, the Governor-elect likely travelled to the capitol via rowboat. One can imagine the oars disappearing into the brown murk as the detritus of a ruined city drifted by.

By the time that Stanford had placed his hand on the Bible and floated home, the floodwaters had risen so high that he and his wife reëntered the mansion through a second-story window. “The scenes of horror . . . defy description,” a guest at Stanford’s inauguration later wrote. “Cracking, falling, floating houses; businessmen ruined in an hour; strong men struggling for life in the current of our streets. Many of all ages and both sexes clinging to houses and floodwood, shrieking in despair, some sinking in death, and flood still rising!” In the end, rain fell for more than forty days; the deluge stretched from Oregon to San Diego, and as far east as Utah and Arizona. Sacramento was underwater for months. The legislature and governor’s office temporarily moved to San Francisco. (The state Supreme Court moved there and never left.) Thousands of people are believed to have died. Even more cattle perished, and a drought followed, forcing the state to abandon much of its livestock economy in favor of crops.

The storms that have buffeted the state since December 31, 2022, evoke scenes from the great flood that afflicted Stanford’s inauguration. In recent days, gale-force winds toppled century-old trees onto cars and homes in Sacramento; ocean waves wiped out a portion of a pier at Capitola, in Santa Cruz County; rivers have exceeded their capacities, running over banks and into residential streets and homes. President Biden declared a state of emergency; tens of thousands of people have been displaced.

Meteorologists and climate scientists identify these recent tempests as atmospheric rivers—columns of vapor that worm through the atmosphere, carrying moisture from the tropics. In the air above the Pacific, atmospheric rivers can contain as much water as the Mississippi; when they expel their moisture in the form of rain and snow, they can leave death and destruction in their path. On Wednesday evening, only eleven days into 2023, atmospheric rivers had already claimed the lives of at least eighteen Californians. A two-year-old boy was struck by a falling tree in his house in Sonoma County; rescuers are still searching for a five-year-old boy swept away from a car by floodwaters in San Luis Obispo County.

The Great Flood of 1861-62 and its lessons had largely disappeared from public memory until 2010, when a study funded by state and federal agencies, dubbed ARkStorm—short for Atmospheric River thousand-year Storm—modelled a hypothetical weather event based in part on the great flood. (Though its name suggests that such an event happens every thousand years, the geologic record shows that it actually occurs every hundred to two hundred years.) At the time, the U.S. Geological Survey estimated that this storm—a when-not-if proposition—would inflict some seven hundred and twenty-five billion dollars in damage and economic loss.

Strangely, that broad, multi-agency study did not take climate change into account. In 2010, “climate was a pressing issue,” Karla Nemeth, who works under Governor Gavin Newsom as director of the California Department of Water Resources, told me, last summer. But, because fewer people had experienced life-threatening climate disasters then, funding research into climate change required a great deal of political will, Nemeth said. It was difficult to convince Californians that climate change could cause a deadly influx of surplus moisture, particularly during a years-long drought.

More recently, a research team co-led by Daniel Swain, a U.C.L.A climate scientist, has been updating the 2010 report to factor in human-caused climate change. So far, the results of ARkStorm 2.0 render the astonishing predictions of the original study twice as terrifying. “Climate change over the past century has doubled the risk of an extreme winter storm sequence capable of causing widespread, severe flooding,” Swain and his research partner wrote in a summary of their study, which was published in the journal Science Advances, last August. Even so, the scientists have struggled to sustain funding for their research. “I think there’s an interesting undercurrent of not wanting to know, because then you would actually have to deal with the problem,” Swain told me last year.

As California’s ongoing storms increasingly dominate headlines, leaders in Sacramento appear to now be acknowledging the threat. Earlier this week, Newsom proposed two hundred and two million dollars in funding for flood prevention in his 2023 budget, supplementing the seven hundred and thirty-eight million invested in flood-protection programs over the previous two years. Swain has seen renewed interest in his work. “I’m getting e-mails every week now from governmental entities wanting to talk about our storm,” he said, of ARkStorm 2.0. Swain has been speaking regularly with officials like Nemeth, who has supported ARkStorm research since its inception. “I think I scared her a little bit,” he told me. That fear may be what’s required to get the rest of the state on board.

In June, 2022, I attended the annual California Extreme Precipitation Symposium, in Folsom, about half an hour east of Sacramento. Some sixty in-person attendees had gathered in a hotel conference room and, along with online participants, reckoned with the power and peril of the state’s rivers—both those on the ground, like the American and the Sacramento and the Russian, and those that flow through the sky. Meteorologists and hydrologists—nearly everyone in attendance seemed to be a government -ologist of some kind—spoke of atmospheric rivers and changing watersheds and the glut of forecasting technologies that purport to help avert disasters.

The tone was clinical and sedate. With few exceptions, the presenters gave the impression that, thanks in part to human ingenuity, things were under control; it did not sound like the destruction of the Great Flood of 1861-62 would repeat itself. “We’ve built all these dams upstream,” Gary Estes, who has run the symposium since 1994, told me. “We have a new spillway, we have forecast-informed reservoir operations. We’ve built levees way bigger than existed back in 1862.”

Later, one of the presenters, Gary Bardini, of the Sacramento Area Flood Control Agency, took me on a tour of the region’s flood-prevention projects. It was the second day of summer, the air was an oppressive ninety-seven degrees, and green vegetation was already turning yellow. The Sacramento and American Rivers were low and docile. For three hours, we explored miles of rural Sacramento, walking alongside weirs and levees, some of them actively under construction. Dump trucks with tires twice my height rolled past us, ferrying dirt like so many ants, building what Bardini and his fellow-engineers hope will be unbreachable barriers.

Bardini spoke of past floods, including one, in 1986, that breached a levee near the confluence of the Yuba and Feather Rivers, drenching four thousand homes and causing nearly half a billion dollars in damage. Standing outside in the summer heat, surrounded by signs of California’s megadrought, I could understand why water calamities are hard to imagine until they happen. But imagination is just what climate change demands.

The state’s struggle against devastating floods will depend, in part, on residents who will need to prepare even when there is little water in sight, Nemeth, the Department of Water Resources director, told me. Even progressive California sometimes lacks the political will to fund research and flood-mitigation projects, and misinformation about the climate crisis—as Nemeth put it, “three decades of just a lot of fundamental questioning of ‘Is climate change even real?’ ”—continues to get in the way. But Swain told me that there are now promising signs that ARkStorm 2.0 could soon be fully funded. If so, the project will be able to map out where the deadliest flooding is likely to occur.

The storms now soaking California have yet to reach ARkStorm 2.0 proportions; such a calamity would require several more weeks of back-to-back, even more extreme precipitation, which aren’t currently forecasted. Still, Swain, like other scientists, sees what he considers the direct impact of human activity altering the Earth’s atmosphere. “Warming temperatures increase the water-vapor-holding capacity of the atmosphere,” he told me. “So we’re probably at a point where extreme precipitation events, on average in the world, are about ten to fifteen per cent more intense than they would have been.” In other words, this storm is bad. The next big one is likely to be worse.

CrunchBase : The Week’s 10 Biggest Funding Rounds: Monogram And ShiftKey Land Hu

The Week’s 10 Biggest Funding Rounds: Monogram And ShiftKey Land Huge Rounds In Big Week For Health Care

Health care led the way this week with two huge raises totaling nearly $700 million. However, the second week of 2023 produced a lot of big rounds. In fact, U.S.-based startups have seen more than a dozen rounds of $100 million or more so far this calendar year. While uncertainty looms, thus far VCs are pulling out their checkbooks.

1. Monogram Health, $375M, health care: Nashville-based Monogram Health is the first of several health care startups to make the list this week by raising a huge $375 million funding round. The round included strategic investments from the likes of CVS Health, Cigna Ventures and others.The startup is a specialty provider of in-home care for patients living with polychronic conditions, including chronic kidney disease. More than 37 million American adults live with chronic kidney disease, according to the company. Founded in 2019, the company has raised $555 million, per Crunchbase data.

2. ShiftKey, $300M, health care: The medical system is battling a significant labor shortage and investors are looking at startups to battle the massive problem. ShiftKey is one of those, and the Dallas-based startup locked up a $300 million round at a more than $2 billion valuation. The round was led by Lorient Capital. The company’s scheduling platform connects licensed health care workers to facilities with staff openings. ShiftKey joins other startups such as San Francisco-based Incredible Health and Los Angeles-based Greater Good Health that aim to help solve the labor and staffing issues in the health care sector. ShiftKey works with more than 10,000 health care organizations across the U.S. Founded in 2016, the company has raised $300 million, per Crunchbase.

3. VettaFi, $175M, financial services: In the financial realm, data is gold and VettaFi has a lot of that apparently. The New York-based startup formed last year and provides data analytics and indexing for financial advisers, asset managers and institutional investors. The company received a $175 million investment from global market developer TMX Group — whose operations include both the Toronto Stock Exchange and Montreal Exchange. The deal gives TMX a 21% common equity stake in VettaFi.

4. Xpansiv, $125M, financial services: San Francisco-based Xpansiv had a busy week. The company announced the acquisition of Evolution Markets — which helps with transacting environmental commodities — and the closing of a $125 million round. Xpansive said the new capital is “linked to the recent $400 million capital raise led by Blackstone Energy Partners which closed in August 2022.” New strategic investors Bank of America and Goldman Sachs participated in the new round. Xpansiv is looking to grow its market infrastructure platform which helps with energy transactions such as carbon credits and renewable energy certificates. Founded in 2017, the company has raised more than $700 million, according to Crunchbase.

5. Chronosphere, $115M, analytics: New York-based Chronosphere, which helps companies monitor cloud-native applications, raised an additional $115 million Series C from investors including GV and Geodesic Capital, valuing the company at $1.6 billion. The company actually hit unicorn status in October 2021 with a $200 million round. Unlike many companies that have slashed their valuation, Chronosphere has increased its value as companies are looking for more observability tools to enhance customer experience. Founded in 2019, the company says it has raised nearly $343 million.

6. Carbon Health, $100M, health care: San Francisco-based Carbon Health, a health care startup that uses technology to better manage users’ health, received $100 million from CVS Health Ventures as part of an initial close of its Series D. Founded in 2015, the company has raised a total of nearly $623 million, according to Crunchbase data.

7. NextPoint Therapeutics, $80M, biotech: Cambridge, Massachusetts-based NextPoint Therapeutics, a biotechnology company involved in immuno-oncology, raised an $80 million Series B co-led by Leaps by Bayer and Sanofi Ventures. It was the company’s first announced funding.

8. (tied) Capella Space, $60M, space: San Francisco-based Capella Space, a satellite manufacturer, closed $60 million in growth equity financing from the US Innovative Technology Fund. Founded in 2016, the company has raised a total of $239 million, per Crunchbase.

8. (tied) Consumer Edge, $60M, consumer tech: New York-based Consumer Edge, a startup focused on data insights and analytics about consumers, raised a $60 million-plus equity financing from funds managed by CoVenture. The round is the company’s first announced financing.

10. Tigo Energy, $50M, energy: Campbell, California-based Tigo Energy, a developer of solar and energy storage solutions, sold $50 million of convertible notes to L1 Energy. Founded in 2007, the company has raised nearly $200 million, according to Crunchbase.

Big global deals
Two rounds from outside the U.S. cracked the top five financings globally.
  • Germany-based Enpal, which provides solar power systems to homeowners, raised a Series D worth about $232 million.
  • China-based Yuze Semiconductor, a development manufacturer of N-type solar monocrystalline silicon rods and silicon wafers, raised a Series B worth approximately $179 million.

(ZH) "Catastrophic Outcomes": Davos Elite Worried About Global Volatility, Cost-

"Catastrophic Outcomes": Davos Elite Worried About Global Volatility, Cost-Of-Living Crisis

What happens when plebs can't afford bread, and the circuses aren't that entertaining?
Nothing good. Which is why the cost-of-living crisis is the #1 problem, according to the World Economic Forum's Global Risks Report - an annual poll of 1,200 government, business and civil society professionals.

According to the poll, there will be little respite from "energy inflation, food and security crises" in the coming years (or months?).
In the near term, nearly 70% of those polled say volatile economies and various 'shocks' are in the cards, while 20% or so of those polled say they fear "catastrophic outcomes" within the next 10 years, according to Bloomberg.
"Very few leaders in today’s generation have been through these kind of traditional risks around food and energy, while at the same time battling what’s coming up in terms of debt, what’s coming up in terms of climate," said Saadia Zahidi, WEF managing director, who warned that the world may be entering a "vicious cycle."
"We’re going to need a sort of new type of leadership that is much more agile," she told Bloomberg Television.
Next week will mark the annual WEF conference in Davos, Switzerland, where the global elite will sit around and discuss how best to run our lives.
The gathering begins at a time when inflation is at a four-decade-high across many advanced economies, with interest rates far more elevated than anyone was predicting 12 months ago.
The report calls for global cooperation, and warns that if governments mishandle the current crisis they “risk creating societal distress at an unprecedented level, as investments in health, education and economic development disappear, further eroding social cohesion.”
Increases in military expenditure could reduce support for vulnerable households, leaving some countries in a “perpetual state of crisis” and set back the urgent need to tackle climate change and biodiversity loss. -Bloomberg
The worst case scenario, according to the report, is the risk of "geoeconomic warfare" - in which geopolitical rivalries are likely to increase economic tensions, exacerbating both short and long-term risks.
"In this already toxic mix of known and rising global risks, a new shock event, from a new military conflict to a new virus, could become unmanageable," according to Zahidi. "Climate and human development therefore must be at the core of concerns of global leaders to boost resilience against future shocks."
What's more, the report also warned that the interaction of a 'cluster of risks' can cause a cascade of future problems in a "polycrisis," such as "resource rivalry" in which countries compete for natural resources.

FT : Delphine Arnault, an LVMH heir steps up at Dior

Delphine Arnault, an LVMH heir steps up at Dior
The executive will take over a thriving brand in her biggest operational role yet

As Louis Vuitton staff put the finishing touches on the displays for a new collaboration with Japanese artist Yayoi Kusama earlier this month, they received a surprise visit. It was late at night at the flagship Champs Elysées store, but Delphine Arnault, the 47-year old daughter of LVMH’s billionaire owner and number two executive at Louis Vuitton, wanted to make sure the launch was perfect.

Nicolas Ghesquière, the creative director of Louis Vuitton who has worked closely with Arnault for more than a decade, said the 11pm visit was typical of her attention to detail. “When you’re designing, she already has a vision of what the product will look like in the boutique,” he says. “She is more demanding than most, but I find it reassuring since I know she will make sure that my ideas reach the market intact.”

It is easy to dismiss Delphine Arnault as another heir ushered up the ranks by their parent. Bernard Arnault built LVMH into a behemoth, turning it into the 12th-biggest company globally by market capitalisation and putting his family near the top of the world’s richest list.

On Wednesday, he promoted his daughter to chief executive of Dior, LVMH’s second-largest brand with almost €8bn in sales last year, according to Citi, excluding fragrance and cosmetics. It is a big step up, suggesting the patriarch believes Arnault has proven herself since joining the company in her mid-20s.

She will take over a thriving business — Pietro Beccari, her predecessor, has tripled sales since 2018 and the brand has an elite following from Shanghai to New York. Her nomination also thrusts her into the biggest operational role of any of the five Arnault children, all of whom work at the group. So far, she is the only one to sit on the 14-member executive committee.

Family ownership remains common in the luxury goods sector, as do questions over how successfully future generations carry on the businesses they inherit. Those are always in the background at LVMH, although Bernard Arnault, 73, has no intention of retiring anytime soon. Last year, the corporate bylaws raised the chief executive age limit from 75 to 80.

For the time being, says one analyst, “investors do not have a good feel for her.” But people who know Delphine Arnault warn against underestimating her. They say she has a knack for working with designers, a sense of what products will work and how to market them and — importantly for a company that makes most of its profits from leather goods — an eye for a hit handbag.

Softly spoken and protective of her personal life, Arnault lived in New York as a child — a big change from the family’s previous home in the northern French industrial town of Roubaix. This taught her adaptability and left her speaking nearly accentless English.

She later graduated from Edhec business school in France and London School of Economics, before learning the luxury ropes from Sidney Toledano and Michael Burke, two of LVMH’s best executives. From 2001 to 2013 she worked under Toledano at Dior, starting in shoes and progressing to deputy managing director, where she is credited with tempering the fallout of John Galliano’s scandalous departure in 2011.

Paying surprise visits to stores is something Bernard Arnault often does and in this, and other respects, Delphine is her father’s daughter. People who know them say they share a natural authority and directness, as well as strong ambition, although she does not display it as openly. They also share a passion for art and art collecting.

“There is a special bond — she is his only daughter and the eldest,” says Toledano. “She has a strong personality and can be direct with him.”

Within the company, her influence with her father is such that employees or managers often discreetly lobby her as a way to gain backing for a new project or a big hire.

Arnault has also played a major role in recruiting the artistic directors who bring LVMH brands to life. Her additions to the stable include Raf Simons at Dior, Jonathan Anderson at Loewe and Ghesquière at Louis Vuitton. In 2014, she created the LVMH Prize for Young Designers, a global talent search, with the winner getting a €300,000 grant and a year of mentoring.

“She is intimidating to the designers at first, but she has this quality of listening that makes her surprisingly approachable and accessible,” says Isabella Capece Galeota, who has worked on the prize since its inception.

Others say she has a calm management style and seeks to build consensus instead of imposing decisions. When she first began working on new handbag ideas with Ghesquière, she joined him in sitting on the workshop floor while he tried out different pieces of leather and fabric. “It was surprising . . . but she was very natural,” he recalls.

Outside of work, she has two children with telecoms billionaire Xavier Niel. A dedicated art collector, she sits on the board of the Gagosian art gallery with Snapchat founder Evan Spiegel, who is a friend of the family. “She got really into the Los Angeles art scene so we would go visit artists together when she was in town,” he says. “She is really interested in the creative process herself, and loves to see artists at work.”

One such visit to the studios of Jonas Wood and Alex Israel turned out to be fruitful for Louis Vuitton — the two took part in a 2019 project in which artists reimagined the top-selling Capucines handbag. As is typical for the Arnault family, work is never far away.