Miss Tweed : Luxury brands in an arms race to acquire suppliers

Luxury brands in an arms race to acquire suppliers

Gruppo Florence, the luxury goods supplier aggregator backed by former Bulgari boss Francesco Trapani, aims to double its sales within a few years to more than €1 billion and list on the stock market. It is among a handful of Italian players gobbling up suppliers at record speed and building power and influence in the fashion and luxury ecosystem.

The strategy is clear: luxury goods groups are engaged in an arms race to secure their supply chains and invest in top-end suppliers as sustainability and craftsmanship become crucial points of value and differentiation. In France, Hermès, Chanel and Louis Vuitton have integrated dozens of their suppliers in the past three decades. Now, Italy’s network of hundreds of small and medium-sized suppliers are joining aggregators such as Gruppo Florence or being acquired by brands.

The trend has intensified in recent months because of concerns about profitability being hit by rising energy prices, climate change and inflation. For private equity firms, this is a golden opportunity: if they can turn around a luxury goods supplier, something luxury brands or groups do not have the will and management time to do, they can cash in on their investment by selling it to one of its main client luxury brands in a few years’ time. Or, in the case of Gruppo Florence, they can hold an IPO in Milan or elsewhere, market conditions permitting.

In the last week alone, both LVMH and Kering have invested in jewelry makers in the Piedmont region, in northern Italy, famous for its jewlery production clusters. On Friday, LVMH acquired the Pedemonte Group, a jewelry manufacturer with 350 staff operating in Valenza, Valmadonna and in Paris. The acquisition will expand the production capacity of LVMH’s jewlery brands which include Tiffany & Co., Bulgari, Chaumet, Fred and Repossi. The Pedemonte Group is itself the product of a merger between several independent workshops with many years of experience, put together in 2020 by private equity firm Equinox.

Last week, Kering’s jewelry brand Pomellato bought an undisclosed stake in one of its suppliers Costanzo & Rizzetto. The French group said the transaction helped it secure vital know-how in Valenza, Italy’s “jewelry city-state.” It is home to Bulgari’s Manifattura, Europe’s biggest jewelry manufacture. Kering said Costanzo & Rizzetto would continue to work for Bulgari, Richemont’s Cartier and others in addition to supplying Pomellato.

“I think we are just at the beginning of this consolidation process among suppliers,” Olivier Salomon, managing partner at the consultancy AlixPartners in Paris told Miss Tweed. “Private equity firms see that there are fewer and fewer brands on the market but there are skills and know-how that need to be developed and preserved and they can help suppliers better value these assets.”

In the space of two years, Gruppo Florence has acquired 22 suppliers, at times doing several deals a month. It has plans roughly to double that number, giving the holding company combined sales of more than €1 billion. The group has just closed two deals in the manufacture of high-end woolen and cashmere jumpers in Italy’s northern Veneto region and expects to make further acquisitions in leather goods and shoe manufacturing in the next six months. These are two categories that are seeing particularly aggressive dealmaking, and the focus extends to the acquisition of tanneries, industry executives and financiers say.

Last week, LVMH’s Christian Dior bought a renowned leather finishing workshop called Art Lab, specialized in digital printing, according to the Italian newspaper Il Sole 24 Ore. It is located inSanta Croce sull’Arno, part of Tuscany’s tannery and leather goods cluster, located between Pisa and Florence. LVMH did not confirm the acquisition.

Gruppo Florence, which has offices in Milan and Florence, plans to offer all the categories of manufacturing a brand may need: handbags, wallets, belts, sneakers, shoes, coats, jumpers, jersey, denim, lacemaking and also prints, embroideries and other textile embellishments.

Attila Kiss, Gruppo Florence chief executive, says the time has come to strengthen and defend Italy’s supply chain. “A brand can call me and say ‘I need help’, and I shall be able to resolve their problem,” Kiss told Miss Tweed.

The fashion and luxury industries have become matters of national pride for many Italians. About 80 per cent of the world’s high-end goods are made in Italy. As in many other parts of the world, nationalism is on the up there – a natural response to the growing chaos. Last month, Giorgia Meloni took office as the head of Italy’s most right-wing government since World War II.

DEAL MANIA
Since early 2021, luxury goods sales have enjoyed a stronger than expected rebound. Suppliers have struggled to meet pent-up demand and called for investment to increase their production capacity. The spike in sales has contributed to a post-pandemic deal mania. However, as the market heads into a downturn, forecasting how much needs to be produced is proving to be a headache for many fashion brands and suppliers. The good news is that valuations have fallen slightly in the current bearish environment. Hence deals should be made at lower prices, in theory.

The trend for buying suppliers spans every sector of the luxury industry and that dynamic is reminiscent of the race to acquire the most prized independent luxury labels a decade ago, industry insiders say.

“Now you need to have the best button maker, the best chain maker, the best sneaker maker to be able to say to your consumer you are selling a real luxury good,” says Andrea Morante, chairman of Milan-based private equity group QuattroR which has invested in Italian fashion brand Trussardi. “That is changing the rules of the game within the supply chain.”

Morante, a former Gucci executive and Credit Suisse banker, was CEO of Pomellato and chairman of shoe manufacturer Sergio Rossi, now controlled by China’s Fosun International.

Morante was involved as a shareholder in the creation of the AMF Group, which is based in the fashion and luxury cluster of Bassano del Grappa near Venice. It has combined suppliers who produce metal and leather accessories for garments, shoes and bags, as well as small leather goods and custom jewelry. The AMF Group has spent tens of millions of euros to make its production more environmentally friendly and better meet the expectations of its clients, which are big luxury groups and brands.

Another aggregator is the Italian industry group Hind Holdings, whose fashion-focused arm HModa recently bought Bologna-based Rilievi Group specialized in high-end embroidery. The group, which works for brands including Celine, Fendi, Balenciaga and Prada, has invested in 10 suppliers and plans to expand its portfolio. For 2022, it expects combined sales of €185 million. “We are in the middle of negotiations with several companies and hope to announce acquisitions in the New Year,” Claudio Rovere, president of Hind Holdings, told Miss Tweed. HModa’s business model involves investing directly in the supplier, without the owners taking a stake in the holding company, as they do at Gruppo Florence.

In the world of Italian fashion suppliers, another high-profile player is Matteo Marzotto of the Marzotto textile dynasty. Marzotto was chairman of Valentino in the early 2000s before the brand was sold to Qatar’s Mayhoola. The Italian entrepreneur also tried to resuscitate the French fashion brand Vionnet a few years ago with little success. Last summer, Marzotto cofounded MinervaHub, a supplier aggregator specializing in finishes and materials for the luxury industry. It was created by the merger of two existing aggregators and is now controlled by the Luxembourg-based private equity firm Xenon. Last month, MinervaHub bought Jato 1991, a Bologna-based specialist in lacemaking for high fashion.

Like Gruppo Florence, AMF Group and others, MinervaHub describes sustainability and the welfare of employees as priorities. They know that LVMH, Kering, Chanel and others are keen to tick the sustainability box and ensure that they will not have to deal with any scandals about employees’ well-being or other ESG (environmental, social and governance) matters.

TRANSPARENCY
Transparency over where luxury goods are made, by whom and in what working conditions is another factor driving consolidation. Stefania Saviolo, a fashion expert at Milan’s Bocconi University, published The Branded Supply Chain (Bocconi University Press, 2021), a study examining the need for luxury companies to increase control over their supply chains to ensure the highest quality. Saviolo argues that we are entering an age when “the branded supply chain is the product,” he says. “For many global companies, the most challenging labor and human rights issues are likely to occur in the supply chain. Issues that were left behind the scenes are now moving up to the forefront.”

Luxury goods executives are haunted by the possibility of malpractice coming to light in a supply chain they use but do not own, by having their goods made via third parties. In other words, the rush to acquire suppliers is not just proactive but also defensive. “It’s not just a desire to protect your supply chain – but also to be protected from your supply chain,” one senior banker told Miss Tweed, on condition of anonymity given the sensitivity of the subject.

In an age when anyone with a smart phone can broadcast or report on perceived abuses in the supply chain – and instantly put a luxury brand’s reputation at risk – providing radical transparency is going to be as crucial, if not more so, as having the best-in-class artisans.

“Concerns about supply chain security are real,” says one veteran luxury goods executive. “All luxury goods firms are seeking to protect their suppliers. The pandemic has accelerated that trend. It can mean anything from providing them with low-interest loans to buying a majority stake in their business and helping them resolve a succession issue.”

COMPETITION WELCOMED
Like Hermès and Chanel, LVMH has invested in a range of suppliers in the past 30 years. Its Métiers d’Art division led by Matteo de Rosa is finalizing its acquisition of a majority stake in Nuti Ivo, one of the most important names in Italian tannery, bankers in Milan say. Nuti Ivo made a net profit of €8.65 million on turnover of €58.7m in 2021, according to the Italian media.

LVMH is keen to preserve the excellence of Italy’s manufacturing clusters for luxury goods, not only in Tuscany but also in the country’s south, in Puglia and Sicily, through the purchase of minority and majority stakes.

Kiss of Gruppo Florence welcomes more competition. “The space in the market is enormous for supply chain aggregators,” he argues. “There are hundreds of great small suppliers. The more aggregations there are, the more stable the manufacturing terrain becomes.”

Gruppo Florence’s ambition is to build a group of like-minded entrepreneurs who are co-shareholders in the holding company and have a say in day-to-day management and strategy, and keep control of their own businesses at the same time. Such a model also allows those companies to share investments in costly things such as sustainability and associated certification, on top of other back-office expenses.

“There is too much discontinuity in the luxury industry with suppliers, many of these companies are born and die too easily,” Kiss explains. “We are in a sector that is so dynamic, such work (such as becoming more sustainable) can only be done when there are stable relationships between suppliers.”

Johann Rupert, chairman of Cartier owner Richemont, has long been talking about the need to preserve and celebrate the work of artisan suppliers, even before the pandemic. In 2018, Rupert launched the biennial Homo Faber exhibition in Venice to highlight the important role they play in the European economy. He believes Europe will become the luxury “workshop for the world”. His argument is that in the coming age of robots and artificial intelligence, Europe’s artisan manufacturers will be more sought after than its luxury brands. The uniqueness of handmade skills will be perceived increasingly as the real luxury by the super wealthy, particularly those from the U.S. and China.

Politico : Europe accuses US of profiting from war

Europe accuses US of profiting from war
EU officials attack Joe Biden over sky-high gas prices, weapons sales and trade as Vladimir Putin’s war threatens to destroy Western unity.

Nine months after invading Ukraine, Vladimir Putin is beginning to fracture the West.

Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer.

“The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO.

The explosive comments — backed in public and private by officials, diplomats and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies.

“We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”

Another top official, the EU’s chief diplomat Josep Borrell, called on Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.

The U.S. rejected Europe's complaints. “The rise in gas prices in Europe is caused by Putin’s invasion of Ukraine and Putin's energy war against Europe, period," a spokesperson for Biden's National Security Council said. Exports of liquefied natural gas from the U.S. to Europe "increased dramatically and enabled Europe to diversify away from Russia," the NSC spokesperson said.

The biggest point of tension in recent weeks has been Biden’s green subsidies and taxes that Brussels says unfairly tilt trade away from the EU and threaten to destroy European industries. Despite formal objections from Europe, Washington has so far shown no sign of backing down.

At the same time, the disruption caused by Putin’s invasion of Ukraine is tipping European economies into recession, with inflation rocketing and a devastating squeeze on energy supplies threatening blackouts and rationing this winter.

As they attempt to reduce their reliance on Russian energy, EU countries are turning to gas from the U.S. instead — but the price Europeans pay is almost four times as high as the same fuel costs in America. Then there’s the likely surge in orders for American-made military kit as European armies run short after sending weapons to Ukraine.

It's all got too much for top officials in Brussels and other EU capitals. French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs.

Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies.

When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue, according to the senior official quoted above. Other EU officials and diplomats agreed that American ignorance about the consequences for Europe was a major problem.

"The Europeans are discernibly frustrated about the lack of prior information and consultation," said David Kleimann of the Bruegel think tank.

Officials on both sides of the Atlantic recognize the risks that the increasingly toxic atmosphere will have for the Western alliance. The bickering is exactly what Putin would wish for, EU and U.S. diplomats agreed.

The growing dispute over Biden’s Inflation Reduction Act (IRA) — a huge tax, climate and health care package — has put fears over a transatlantic trade war high on the political agenda again. EU trade ministers are due to discuss their response on Friday as officials in Brussels draw up plans for an emergency war chest of subsidies to save European industries from collapse.

"The Inflation Reduction Act is very worrying," said Dutch Trade Minister Liesje Schreinemacher. "The potential impact on the European economy is very big."

"The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies," said Tonino Picula, the European Parliament's lead person on the transatlantic relationship.

An American official stressed the price setting for European buyers of gas reflects private market decisions and is not the result of any U.S. government policy or action. "U.S. companies have been transparent and reliable suppliers of natural gas to Europe," the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.

In most cases, the official added, the difference between the export and import prices doesn't go to U.S. LNG exporters, but to companies reselling the gas within the EU. The largest European holder of long-term U.S. gas contracts is France's TotalEnergies for example.

The NSC spokesperson quoted above added: "The increase in global LNG supplies, led by the United States, helped European allies and partners get storage levels to an encouraging place ahead of this winter, and we will continue to work with the EU, its members, and other European countries to ensure sufficient supplies will be available for winter and beyond.”

It’s not a new argument from the American side but it doesn’t seem to be convincing the Europeans. "The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic," European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. "Of course the Americans are our allies ... but when something goes wrong it is necessary also between allies to say it."

Cheaper energy has quickly become a huge competitive advantage for American companies, too. Businesses are planning new investments in the U.S. or even relocating their existing businesses away from Europe to American factories. Just this week, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments, in the latest of a series of similar announcements from key EU industrial giants.

Allies or not?
Despite the energy disagreements, it wasn't until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.

“The Inflation Reduction Act has changed everything," one EU diplomat said. "Is Washington still our ally or not?”

For Biden, the legislation is a historic climate achievement. "While we understand that some trading partners have concerns with how the [electric vehicle] tax credit provisions in the IRA will operate in practice with respect to their producers, we are committed to continuing to work with them to better understand and do what we can to address their concerns," the NSC spokesperson said. "This is not a zero-sum game. The IRA will grow the pie for clean energy investments, not split it."

But the EU sees that differently. An official from France’s foreign affairs ministry said the diagnosis is clear: These are "discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China's path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.

The EU is preparing its responses, such as a big subsidy push to prevent European industry from being wiped out by American rivals. "We are experiencing a creeping crisis of trust on trade issues in this relationship," said German MEP Reinhard Bütikofer.

"At some point, you have to assert yourself," said French MEP Marie-Pierre Vedrenne. "We are in a world of power struggles. When you arm-wrestle, if you are not muscular, if you are not prepared both physically and mentally, you lose.”

Behind the scenes, there is also growing irritation about the money flowing into the American defense sector.

The U.S. has by far been the largest provider of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the start of the war. The EU has so far provided about €8 billion of military equipment to Ukraine, according to Borrell.

According to one senior official from a European capital, restocking of some sophisticated weapons may take “years” because of problems in the supply chain and the production of chips. This has fueled fears that the U.S. defense industry can profit even more from the war.

The Pentagon is already developing a roadmap to speed up arms sales, as the pressure from allies to respond to greater demands for weapons and equipment grows.

Another EU diplomat argued that “the money they are making on weapons” could help Americans understand that making “all this cash on gas” might be “a bit too much.”

The diplomat argued that a discount on gas prices could help us to "keep united our public opinions” and to negotiate with third countries on gas supplies. “It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.

FT : Brussels to propose rise in cigarette taxes and first EU-wide vaping levy

Brussels to propose rise in cigarette taxes and first EU-wide vaping levy
Bloc’s push to cut smoking rates would increase minimum excise duty from €1.80 to €3.60 per pack of 20

The EU is to propose a bloc-wide vaping levy as part of a shake-up of taxation on the tobacco industry that would also double excise duties in member states with low cigarette taxes, according to a draft European Commission document.

The changes to legislation, part of a push by Brussels to cut smoking rates, will increase the EU’s minimum excise duty on cigarettes from €1.80 to €3.60 per pack of 20, which would raise prices in eastern European nations where packs can sell for under €3.

The update to the 2011 EU tobacco taxation directive will also bring the taxation of novel smoking products, such as vapes and heated tobacco, into line with cigarettes, as policymakers worldwide take an increasingly dim view of the new products’ popularity among young people.

Stronger vaping products would have an excise duty of at least 40 per cent applied to them, while lower-strength vapes will face a 20 per cent duty. Heated tobacco products will also be hit by 55 per cent duty, or a tax rate of €91 per 1,000 items sold.

Alberto Alemanno, professor of EU law at HEC Paris business school, said the absence of an EU-wide excise framework for vapes and heated tobacco had been “weakening tobacco control efforts” across the bloc.

Excise duties on cigarettes would also increase considerably in countries such as Austria and Luxembourg where prices are low relative to income. The tax rise on cigarettes is expected to generate an extra €9.3bn for EU member states.

The changes aim to speed up the EU’s push for a “tobacco-free generation” by 2040. As part of the EU’s Beating Cancer Plan, health officials want to drive tobacco use among EU citizens from the current level of about 25 per cent down to 20 per cent in 2025, and below 5 per cent by 2040.

The commission this month imposed a ban on flavoured heated tobacco products to curtail a surge in demand among younger consumers. In the US, regulators at the Food and Drug Administration have moved to ban popular vaping products, such as Juul.

Rob Branston, senior lecturer in business economics and a member of the University of Bath’s Tobacco Control Research Group, said the tax regime update was “long overdue” to increase prices in countries where cigarettes were “too cheap” and to catch up with inflation.

“This will save lives,” he said. “Tax-induced price increases are . . . one of the most effective tools for reducing tobacco use, so significant increases in minimum tax rates . . . are crucial to attaining the desired reductions in cancer and other illnesses.”

But Peter van der Mark, secretary-general of the European Smoking Tobacco Association, an industry body, warned that “if you have a sudden very steep increase, you can create a market for illicit trade”.

Dustin Dahlmann, president of the Independent European Vape Alliance, added that imposing taxes on novel tobacco products could lead to “the much less harmful alternatives” to smoking being “taxed far too heavily in many countries”.

A leaked impact assessment said that the increase in the minimum excise duty would have “a strong impact on consumers and economic operators” in EU states where cigarette prices were low, including Bulgaria, Slovakia, Poland and Hungary.

The assessment also noted that the excise duty on novel tobacco products “which are particularly appealing to young people, who are at risk of developing addiction” would aid public health efforts to cut tobacco use.

The proposal will have to be agreed by all EU member states before it is enshrined in law. British American Tobacco, one of the world’s biggest cigarette manufacturers, stressed this was “the beginning of a long legislative process”. The commission did not reply to a request for comment.

FT : The fighter jet that could create a new alliance between the UK and Japan

The fighter jet that could create a new alliance between the UK and Japan
A partnership set to be agreed this year marks a shift in the Asian country’s role in the global defence industry after years in the shadows

It sounds like something out of a Hollywood movie: a fighter jet set to take to the skies in 2035 equipped with hypersonic weapons capable of travelling at Mach 5, swarming drones controlled by artificial intelligence, and “directed energy” weapons that could use electromagnetic pulses to bring down enemy systems.

The plans are yet to be finalised, but the ambition is unprecedented. The jet would be at the centre of the first ever three-way defence collaboration between the UK, Japan and Italy, built on a design that would put it among the most sophisticated aircraft ever made.

Until now, Japan has worked exclusively with US partners on major military programmes. The tri-national project would merge Japan’s F-X programme with the UK and Italy’s Tempest project, marking a shift in the Asian country’s role in the global defence industry after years in the shadows.

The project would reinforce Tokyo’s determination to forge deeper security ties with a range of allies to prepare for the possibility of a war with China over Taiwan. “[It] will expand Japan’s network to Europe and contribute to strengthening its security environment, while potentially making exports possible,” says Katsutoshi Kawano, the former chief of Japan’s Self-Defense Forces’ Joint Staff.

By working with the UK, he adds, Japan would probably have more flexibility to upgrade its fighter jets to address growing security threats. “It’s unprecedented but I can’t really imagine a case for failure.”

The deal is not yet sealed; over the past few months, attempts to find the perfect moment for a three-way signing have been derailed by the political turmoil in the UK, a change of government in Italy and the assassination of Japan’s longest-serving prime minister.

With fewer than 30 working days left in 2022, the governments of Japan, the UK and Italy are straining to put a date in the diary to formally unveil the partnership or risk budgetary constraints delaying the aircraft’s development until past its anticipated launch date of 2035.

That would set back Japan’s attempts to secure its future in a dangerous and decoupling world confronted by an increasingly assertive China as well as nuclear-armed North Korea and Russia.

The stakes are also high for the UK to make the project work. First unveiled at the Farnborough Airshow in July 2018, Tempest underlines the country’s intention to retain its cutting-edge expertise, despite Brexit, after being left out of a rival Franco-German-Spanish future fighter project. The UK has always made clear it would need international partners, both to help reduce cost and to secure export orders, and signed a statement of intent with Italy in 2019.

If a deal is reached next month, it would be a collaboration between the main contractors Mitsubishi Heavy Industries (MHI) of Japan, the UK’s BAE Systems, and Italy’s Leonardo.

Sovereignty is also a key issue for Japan, as it attempts to build defence capabilities to reflect a changing geopolitical landscape.

Behind the effort that has brought Asia’s largest developed country to the negotiating table with the UK is a sense of frustration in Tokyo over the US’s habit of keeping its most cutting-edge technology to itself, say analysts. Defence executives say the move was driven in part by a focus on having onshore capabilities.

“Japan will continue to have a very close relationship with the US,” says Norman Bone, chair and chief executive of Leonardo UK, one of the existing industrial partners on Tempest. “But there are some points where countries have to decide they have to have onshore freedom of action. When they want that onshore freedom of action there are times when the US model is not applicable.”

The Japan-US divergence
For almost all of its postwar history, Japan has been largely dependent on US military technology and troops to defend itself.

But people involved in the discussions say Tokyo’s decision to partner with the UK for its new stealth fighter stems from growing concerns that its local defence industry would not be able to maintain its sovereign capability to develop modern military equipment and weapons without playing a more leading role in their development process.

Japan has long dreamt of building a domestic aircraft to match its famous second world war-era Zero fighter, and officials in Tokyo have pushed for the use of a homegrown design for the replacement for its F-2 fighter jets.

But during the Trump administration, the country came under political pressure to choose a US defence company to jointly develop its F-X fighter even though Tokyo was considering a British alternative to cut its reliance on American weapons.

In late 2020, Japan’s defence ministry chose Lockheed Martin, the US maker of the F-22 and F-35 stealth fighters, as a partner for MHI, which is heading the F-X programme. But it also continued its discussions with BAE Systems, and engine maker Rolls-Royce, according to the ministry. In July, the UK formally announced it would conduct joint concept analysis on future combat air capabilities with Japan and Italy.

While Lockheed remains a partner, people involved in the discussions say talks with the US company stalled over concerns in Tokyo that the aircraft would use US technology designed for the F-22 and F-35.

That would limit the use of Japanese technology, resulting in a “black box” fighter with no access to the source code required for independent upgrades — something the Japanese air force would like and many lawmakers consider essential to sovereignty.

“Japan is seeking flexibility with upgrades to the fighter jet so a black box is not acceptable. We can’t touch the F-35,” says Naohiko Abe, who heads MHI’s defence and space business. “But in terms of whether it makes a difference working with the US or the UK, there isn’t a big difference in terms of development from a corporate perspective.”


Japan has long dreamt of building a domestic aircraft to match its famous second world war-era Zero fighter © Matteo Omied/Alamy
Lockheed Martin declined to comment specifically on talks between the governments of the US and Japan but said it had a “longstanding partnership” with Tokyo. The company was “standing ready as the government of Japan considers its F-X partnerships”. 

Douglas Barrie, senior fellow for military aerospace at the International Institute for Strategic Studies, says the issue around technology access has long been brewing between the US and its allies.

“From a US perspective it is understandable, you have spent billions of dollars on this stuff and you don’t necessarily want other countries, even your closest allies, to have full access. Conversely if you are a close ally it is obviously frustrating,” he says.

The question of how much control Japan should have in developing the new fighter jet, however, is also an emotional debate that is partially driven by nationalistic sentiment.

The resentment towards the US within some corners of Japan’s defence community stems from its contentious history in developing MHI’s F-2 fighter jets, which are set to retire in the mid-2030s.

In the late 1980s, Japan had initially aimed to develop its own F-2 aircraft but its ambitions for a homegrown design were crushed by pressure from the US during a period of intense bilateral trade tensions. In the end, domestic development of the F-2 was scrapped and its design was based on the US F-16 fighter jet.

Some on the US side believe negotiations over the F-X were fraught with emotions for the Japanese. “It is difficult to overstate how much bravado and national feeling is tied up in this fighter discussion,” says a former senior officer in the US Navy.

A person working for a US company directly involved in the discussions says the nationalistic tendency at times appeared to override the main objective of the fighter jet programme.

“Sometimes it appeared that people were forgetting the reason why they were making this fighter jet in the first place and the mindset was missing that they needed equipment that was necessary to address a stronger China. It just became a question of who was making the aircraft and who the partner should be,” the person says.

‘A relationship of equals’
Japanese lawmakers, industry experts and executives say a closer partnership with the UK makes sense both strategically and financially. In December, the two countries are also set to sign a major defence pact that will make joint exercises and logistics co-operation easier.

“The UK and Japan have similar defence budgets, similar requirements in the same timeframe as the UK and, like us, they need to be interoperable with the US,” says Charles Woodburn, chief executive of BAE Systems.

Japan began considering the UK as a potential partner for its new fighter jet around seven years ago, and talks accelerated in late 2017 during a meeting in London between the foreign and defence ministers of the countries, according to two people with direct knowledge of the discussions.

“I’ve consistently argued that we need a relationship of equals,” says Itsunori Onodera, who was Japan’s defence minister in 2017, adding that his country had repeatedly checked with the UK whether they would be willing to share technology as partners.


“If they can do that, we can make more aircraft and bring down the cost while there could potentially be bigger volumes if the UK can export to Nato countries,” he says.

The UK has a “very strong history of collaborations in defence”, says one European industry executive familiar with the talks, pointing to the Eurofighter programme, which was built by BAE Systems, Airbus and Leonardo. “We don’t want to partner with countries that are not up to the mark on this,” the executive adds. “We don’t want any passengers.”

One initial hurdle was the different size of the aircraft the UK and Japan had in mind, but they began working together on several studies in sensitive areas such as on engines, radar and propulsion technology, all of which will feed into the future combat air system programme.

Rolls-Royce, the aero-engine maker which is developing the engines for Tempest, announced last year it would work with Japan’s IHI Corp to develop an engine demonstrator, while Leonardo and Mitsubishi Electric have been collaborating on a number of joint studies for several years.

Progress has been made at the technical level, according to people familiar with the situation, although issues surrounding intellectual property and export controls still need to be resolved.

Leonardo UK’s Bone says there was a “natural alignment” between the UK and Japan’s air force since both countries were trying to “achieve similar things with similar worries and similar threats”.

According to Barrie of the IISS, another reason driving the partnership between the UK and Japan is likely to be the development by China of a stealth combat jet.

“For the first time possibly ever, the kind of threat platform that the two countries are baselining their needs on is a Chinese aircraft — the Chengdu J-20,” he says. “[It is] one of the threat drivers for the UK and Japan in terms of what kind of combat aircraft they might need in the future.”

Flying business
The UK, Japan and Italy have now entered the final phase of discussions, focusing both on how the costs will be shared and also to what extent the F-X and Tempest can be integrated, according to people familiar with the talks.

Two of those people say negotiators have yet to reach an agreement on how the costs will be distributed between the countries. Japan plans to boost its defence budget by roughly 11 per cent to more than ¥6tn ($42bn) for the year to March 2024, including a request for ¥143.2bn to develop the new fighter. Meanwhile, the British government has said it would commit an initial £2bn towards the project.

But both countries are under pressure to reduce the development costs and are seeking a greater contribution from Italy. Although Rome recently increased its financial commitments to the programme, the country may struggle given the significant budget demands, according to Trevor Taylor, professorial research fellow at the Royal United Services Institute.

“As Japan’s role grows within the programme, it will be crucial to delineate a role for Italy that aligns with its aspirations but matches its resources,” he wrote in a recent note.


A full business case for the Tempest F-X will need to be presented to partner governments in 2025, at which point they will need to commit.

Bringing Japan on board as a fully fledged partner would not only help increase “affordability and scale,” said Taylor in the recent note, it would also potentially open up the Indo-Pacific market as a further avenue for export sales.

It still remains unclear how much the Tempest and F-X programmes can be merged. Japan is considering using digital engineering technology for the F-X. Such a method could save costs as well as making it easier for the Tempest and the F-X to have a common architecture but distinct features, according to Simon Chelton, a former UK defence attaché in Japan and an associate fellow of the Royal United Services Institute.

Japan’s defence ministry declined to comment on details, saying it was going to decide on the broader framework of the collaboration with the UK and Italy by year-end. The UK Ministry of Defence reiterated that work on the “joint concept analysis” was ongoing with Japan and Italy. Further decisions were “expected to be made by the end of 2022”, it added.

While the UK has a history of sharing technology with its partners, industry executives have also questioned whether it can actually provide full disclosure to Japan considering that Tokyo does not have a security vetting system that is comparable to the US and the UK.

Since the fighter jet will need to be interoperable with the US, some people involved in the discussions have pointed to the possibility that Washington may intervene if the UK were to share sensitive technology with Japan.

Leonardo’s Bone stressed that “security processes will get harmonised to an appropriate level” before any formal partnership is agreed, while Japan’s MoD said there was a bilateral intelligence sharing agreement with the UK.

Time, however, is running short if the countries are to meet their ambition to have a jet in service by 2035. The rival Franco-German-Spanish project, the Future Combat Air System, has been struggling to achieve lift-off but is close to reaching the next critical phase.

Industry executives say the Tempest F-X project needs to work not only for the nations involved, but for the US as well. Washington, which needs its allies to bolster their defence capability to counter China’s military rise, has welcomed the UK’s recent focus on the Indo-Pacific region.

“The US side is obviously looking at this [joint Japan-UK-Italy programme] very carefully, and, because of the changing global situation and threats, there may be more US comfort with it than there would have been in the past,” says Lance Gatling, a veteran defence consultant at Nexial Research.

“At this stage, the US may not stand too much in the way of its allies getting stronger, even if it means letting these projects happen. I think the US side also knows that, in the end, it will somehow be involved.”

FT : Team behind Apple’s Face ID develops tiny robots to deliver drugs into brai

Team behind Apple’s Face ID develops tiny robots to deliver drugs into brain
Bionaut Labs has raised $43.2mn in second financing round to fund first clinical trials

The team behind Apple’s Face ID is developing tiny robots to deliver drugs into the brain, controlled by magnetic propulsion, to target hard to treat diseases.

Los Angeles-based Bionaut Labs raised $43.2mn in a second round of financing led by Khosla Ventures to fund the first clinical trials to try to prove that the robots are safe and effective.

Seven new investors, including Israel’s Deep Insight and Canada’s Sixty Degree Capital, joined the round.

The company is starting with trials to deliver drugs to treat a type of brain tumour and a rare paediatric neurological disorder Dandy-Walker Syndrome, where the robot will be used to poke a hole in a cyst.

It eventually hopes to address trickier and more common diseases such as Parkinson’s, Huntington’s, Alzheimer’s and strokes.

Michael Shpigelmacher, Bionaut’s chief executive, founded the company with Aviad Maizels because he wanted to do something “more meaningful” than consumer electronics. The pair co-founded PrimeSense, an Israeli 3D sensor company that they sold to Apple for about $400mn in 2013.

Shpigelmacher said the remote-controlled robots had the potential to become a “platform”, opening the way to treating diseases in the “holy grail” of the brain, across the central nervous system and beyond. The robots could also be used to diagnose disease by taking biopsies.

“There are so many places in the body where science today cannot reach easily,” he added.

The robots — a few millimetres long and containing a strong micro-magnet — would be injected at the back of the head. Then, using an external control system, it would be propelled by magnetic fields to the target area to release a drug and then return to the needle to be extracted.

Shpigelmacher said his “aha moment” came when he realised that even when we try to treat something very local, drugs were always distributed around the whole body, risking widespread side effects.

“That didn’t make sense to me as a roboticist. Robotics is all about accelerating the world around you in a precise manner,” he said.

The US Food and Drug Administration has granted Bionaut Labs a humanitarian use device designation and an orphan drug designation to accelerate its journey through clinical trials.

The company has done animal studies optimising the size and the speed of the mini-robots to try to ensure they do not damage tissues.

Iahn Cajigas González, a professor of neurosurgery at the University of Pennsylvania, said when he first heard about the device he was “incredulous” that it would actually work.

“My biggest concern when I hear of any technology is: is it going to be deployed safely? And everything that I saw when I visited their facilities shows that they really are very meticulous at every stage of the way. So I think it would fill a very important niche,” he said.

Samir Kaul, founding general partner at Khosla Ventures, said the long-term opportunity was “massive”.

He said Shpigelmacher was working closely with experts. But he added that it was an advantage that he did not have a background in medical science.

“Elon Musk wasn’t an auto executive, Brian Chesky didn’t come from Hilton, Travis Kalanick was not in taxi cabs. Sometimes big disruptions need to come from the outside,” he added.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-Trump’s latest dinner guest: Nick Fuentes, white supremacist.
The former president’s table for four at Mar-a-Lago on Tuesday also included Kanye West, whose anti-Semitic statements have made him an entertainment-industry outcast.
-Meet the House Republicans who will wield power in the new Congress.
The GOP lawmakers in line to lead key committees have made it clear they will prioritize investigations of the Biden administration.
-Walmart gunman bought a pistol to kill co-workers and left a ‘death note.’
A message on the killer’s phone asked God to forgive him for targeting co-workers, whose deaths were the latest in a string of mass shooting fatalities.
-Kherson evacuates hospitals under relentless Russian shelling. “This is the revenge of those who lost,” the Ukrainian president, Volodymyr Zelensky, said of Russia’s attacks.
-Artillery is breaking in Ukraine. It’s becoming a problem for the US.
Ukrainian soldiers are firing thousands of shells daily, forcing the Pentagon to replace gun barrels across the border in Poland.
-Retailers push sales, and normalcy, but economic uncertainty looms. Black Friday deals returned, drawing shoppers back into stores, but inflation worries left many companies unsure what the holiday shopping season would look like.
-Major shareholder raises concerns about News Corp’s merger with Fox
T. Rowe Price, News Corp’s largest owner after the Murdoch family, says the deal to combine the two companies risks undervaluing News Corp.
-John Brown Jr., KFC Mogul and Kentucky Governor, dies at 88
Though his political career was brief, after storming to victory with a former Miss America by his side, he made millions on the fried chicken chain.
-Meet the mice who make the forest.
Scientists are unearthing a quiet truth about the woods: Where trees grow, or don’t, depends in part on the quirky decisions of small mammals.
-An Israeli schoolboy died in the West Bank. To find his body, foes joined forces. After Palestinian gunmen refused to hand over a dead Israeli teenager on Tuesday, officials on both sides of the conflict worked together to recover his abducted body.
-In the midst of a criminal trial of 10 of its officials on charges of financial impropriety, the Catholic Church put forth a long-delayed document that lays out standards for avoiding improper investments.
-A fire in a residential high-rise in Urumqi, where many residents have been under lockdown, set off public anger and questions about China’s zero-Covid policy.
-As Venezuelan antagonists talk, the US softens its stance. Negotiations between the Venezuelan government and opposition could lead to an easing of the country’s protracted crisis.
-Canadian Prime Minister Justin Trudeau strongly defended the decision at a public inquiry into the government’s use of an emergency law to shut down the blockade.
-A Chinese Court has sentenced a Canadian singer to prison for rape.
Before his arrest over #MeToo allegations, Kris Wu was one of China’s most popular entertainers, with legions of fans and brand deals.

THE FINANCIAL TIMES
-Qatar has launched a review of its investments in London after the city’s transport authority this week banned the Gulf state’s advertisements on the UK capital’s buses, taxis and underground train system. The move by Transport for London was prompted by concerns about Qatar’s stance on LGBT+ rights and its treatment of migrant workers. It has infuriated Doha, which has become increasingly angered by criticism aimed at it as host of the football World Cup.
-For old colleagues, and many in Hollywood, outgoing Disney CEO Bob Chapek’s defining mistake was not missing numbers but something more intangible. His public spats over pay with stars such as Scarlett Johansson were a symptom of a deeper problem. Chapek had lost the confidence of the creative community, as well as the support of the one man who could give him the keys to Hollywood.
-EU ministers say that time is running out to resolve the worsening dispute with the US over Washington’s $369B in green subsidies as they seek to head off a transatlantic trade war. Brussels and Washington have set up a task force to address the impact of the Inflation Reduction Act (IRA) and its “buy American” provisions, but European capitals are growing impatient with the lack of progress.

Jozef Sikela, the Czech minister who is chairing a meeting of EU trade ministers in Brussels on Friday, said he wanted solutions by the next meeting of a separate bilateral Trade and Technology Council on December 5.
-US businesses are hiring fewer seasonal workers this holiday shopping season, as stubborn inflation dims the outlook for retail sales. Employers posted 8.25 fewer holiday openings this year than last year, according to jobs site Indeed. The decline came even as Indeed reported that searches for seasonal jobs rose 33% this year over 2021 to their highest level since 2019.
-Scenes of protest from the locked-down western Chinese city of Urumqi have spread on social media after a fire killed 10 people, as nationwide unrest over the country’s strict Covid policies continues to build. Social media posts alleged that restrictions in the capital of Xinjiang province, which has been locked down since August, hampered rescue efforts and the ability of residents to escape the fire in an apartment block on Thursday evening.
-Donald Trump faced a new backlash after it emerged that he dined with one of America’s most prominent white supremacists at his Mar-a-Lago estate this week, just days after announcing a new bid for the White House in 2024. According to Axios, Trump had a meal on Tuesday with Nick Fuentes, who is known for his extreme views, along with rapper Kanye West — who now goes by the name Ye and who has also stoked controversy by making anti-Semitic comments.
-Washington’s top telecommunications regulator has barred China-based Huawei and ZTE from selling equipment in the US, citing national security concerns in a move that could further fuel tensions with Beijing. The Federal Communications Commission announced the step on Friday, saying it was the latest effort by US authorities to “build a more secure and resilient supply chain” in the telecommunications industry.
-NATO plans to increase shipments of power generators, clothing and other non-lethal items to Ukraine to help it withstand Russia’s onslaught on its power and water networks, the alliance’s chief said. Jens Stoltenberg said he would use a meeting of its members’ foreign ministers in Bucharest next week to secure additional pledges. The demand for more support to patch up Ukraine’s power, heating and water supplies comes as Russian missile strikes this week left a majority of the country in darkness.
-A decade on from the Libor scandal, US courts have rejected a series of criminal charges against traders accused of fiddling the rate once used to benchmark hundreds of trillions of dollars of financial contracts.
Between January and October, a New York court has thrown out criminal charges against Tom Hayes, a UK trader who worked at UBS and Citi trader, and Roger Darin, another former UBS trader. It also overturned the convictions of two former Deutsche Bank traders, Matthew Connolly and Gavin Black.
-One of Northern Ireland’s leading unionist politicians lobbied the British government to dilute legislation that gives UK ministers powers to tear up the post-Brexit deal governing trade in Northern Ireland. The Democratic Unionist party has expressed support for the legislation, which threatens to unilaterally sweep away the so-called Northern Ireland protocol that has bedeviled relations between London and Brussels since Brexit.
-The dealmaking and networking on the sidelines of the COP27 summit was notable at the Red Sea resort town of Sharm el-Sheikh, where energy industry executives rubbed shoulders with top government officials at the vast conference, held against the backdrop of higher gas prices.
Energy security was in focus as countries worked to secure gas supplies and diversify their energy mixes by adding renewables. The EU, in particular, has looked to African nations with fossil fuel reserves this year, to replace Russian gas supplies following the war on Ukraine.
-Itamar Ben-Gvir is set to be Israel’s new national security minister after his Jewish Power party reached an agreement with the Likud grouping of the prime minister-designate Benjamin Netanyahu. The deal will give Ben-Gvir, an ultranationalist previously convicted of incitement to racism, a seat in the prospective government’s cabinet, as well as making him responsible for the police. “We took an important step tonight towards establishing a fully rightwing government,” Ben-Gvir said on Friday morning, urging other rightwing parties to form a new government “as quickly as possible”.

NY POST
-Former Surgeon General Jerome Adams said that he struggled to find a job after his four-year stint as America’s top doctor under former President Donald Trump.
“People still are afraid to touch anything that is associated with Trump,” Adams told the Washington Post in an interview published on Friday. While he sought out positions in academia, Adams and his wife, Lacey, recounted receiving polite rejections from university officials who they believed were worried about how having a former Trump administration official on campus would be received by left-leaning students.
-A big US furniture company this week fired all of its 2,700 employees while they were sleeping, telling them in texts and emails not to come to work the next day. The mass firing on Tuesday by United Furniture Industries, which makes budget-friendly sofas and recliners for Simmons Upholstery, left thousands of employees including truck drivers and factory workers in North Carolina, Mississippi and California unemployed just two days before Thanksgiving.
-President Biden and scandal-plagued first son Hunter Biden went shopping Friday on Nantucket amid a federal investigation of the first family’s overseas business deals — as House Republicans vow a parallel probe to unearth Joe Biden’s role in his brother and son’s foreign consulting work. The president, 80, and his 52-year-old son visited several small businesses on the exclusive Massachusetts island after Joe Biden lunched at a restaurant called Brotherhood of Thieves — apparently without Hunter. Hunter Biden and his father popped into shops before attending the island’s annual Christmas tree lighting festival, where Hunter then stood alongside his dad to greet eventgoers. The Biden family is staying — likely for free — at the home of private-equity billionaire David Rubenstein, who also lent his $20M compound to the president last Thanksgiving.
-The owners of 9 West 57th Street insist they have no plans to sell the iconic property, one of Manhattan’s premier office towers, despite a bombshell report which claimed a deal was in the works. “There are no plans to sell the building,” Hayden Soloviev, a son of and a spokesman for Soloviev Group chairman Stefan Soloviev told Realty Check. “The news must’ve been mixed up with the residential sales,” Hayden Soloviev speculated. (Soloviev Group has in fact been selling off some of its luxury rental apartment buildings).
-The Internal Revenue Service is reminding tax filers to prepare to report transactions of at least $600 that are made through so-called “third-party” facilitators such as Venmo and PayPal. The IRS on Tuesday posted an explainer warning American business owners earning $600 or more per year on payments that are received through apps such as Zelle, Cash App, Venmo, and PayPal to file a tax form known as Form 1099-K. The IRS is interested in transactions involving part-time work, side gigs, and selling goods, according to the agency.
-More holiday shoppers are putting off paying their bills with buy-now-pay-later apps, even financing lower-priced goods, according to new data on Thanksgiving spending. Spending on such apps rose 1.3% on Thanksgiving, according to Adobe, while the average order value for purchases made with the apps declined 6%, according to Salesforce data. Buy-now-pay-later apps like Affirm, Afterpay and Klarna “started as a way to finance bigger ticket items but have morphed into everyday purchases and for lower priced gifts as consumers think about the economy and their personal finances,” Salesforce vice president of retail Rob Garf told The Post.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: At some point quantum computing is going to change the world


Cover Story:
-At some point quantum computing is going to change the world. “We want to solve problems that are intractable for today’s—or even next century’s—supercomputers,” says Krysta Svore, vice president of quantum software at Microsoft. With conventional supercomputers, she says, there are unsolvable problems—like sorting through potential drug candidates—that would require compute times longer than the current lifespan of the universe. “We want to bring this technology forward and see how we can use it in conjunction with classical technology.” For those interested in investing in Quantum, Barron’s suggests some rather familiar stocks: The quantum combatants include some of the biggest players in “classical” computing: Microsoft, Intel, Alphabet, Amazon.com, and IBM are all building quantum hardware, along with Japan’s Toshiba, NEC, and NTT, and China’s Baidu, Huawei Technologies, Tencent, and Alibaba. At the other end of the scale are a handful of small firms that rode quantum hype into the public markets, mostly through SPACs, mergers, including Rigetti Computing, D-Wave Quantum, and IonQ. And that’s just the tip of the iceberg: According to PitchBook, 251 quantum start-ups have together raised more than $5.4B in venture capital since the beginning of 2017.

Interview:
-This week, Barron’s interviews David Rubenstein co-founder of The Carlyle Group. Rubenstein co-founded The Carlyle Group in 1987, and it has since become a private-equity behemoth with $369B under management and 29 offices across five continents. A lawyer by training, Rubenstein is now Carlyle’s co-chairman, but he wears many hats, as a philanthropist, author, and host of two shows on Bloomberg Television. This year has seen a worsening landscape for private equity, with high inflation, rising debt costs, and a poor fund-raising environment for much of the industry. Rubenstein has seen such economic conditions before: He worked in the White House during administration of President Jimmy Carter. His career also included a stint working alongside Federal Reserve Chairman Jerome Powell, whom Rubenstein hired at Carlyle in 1997. Rubenstein spoke with Barron’s about what makes those investors successful, the economic environment, and whether anyone could have seen the crypto meltdown coming.

Tech Trader:
-Still bullish on Amazon.com? In July, Barron’s featured a cover story that made a bullish case for Amazon.com, tied to the enormous long-term value of the company’s cloud-computing arm, Amazon Web Services. Amazon shares have since fallen 25%, amid concerns about the near-term growth prospects for both the company’s core e-commerce business and for AWS. While those worries are valid, Barron’s remains convinced that it makes sense to buy Amazon.com shares for the long haul. So, while shopping for gifts over the holiday season, you might want to commit a few bucks to Amazon shares, as well.

The Trader:
-It’s time to come up with a game plan to navigate the last month of 2022 and what is likely to be a challenging market next year, despite a solid holiday-shortened trading week. The S&P 500 closed up 1.5%, while the Dow Jones Industrial Average was up 1.8% and the Nasdaq Composite finished up 0.7%. Enjoy it while it lasts. Chris Senyek, chief investment strategist at Wolfe Research, recommends focusing on defensive sectors such as healthcare and consumer staples. In addition to downside protection, investors get dividends. The Health Care Select Sector exchange-traded fund is down 3% this year and yields 1.5%, while the Consumer Staples Select Sector is off by 1% and yields 2.5%. “Focus on these until there is more sign of a turn,” Senyek tells Barron’s, noting that he doesn’t think the market has bottomed yet.
-Since the FTX debacle, crypto-related assets have gotten crushed. Crypto bears believe that a bubble has popped and some sanity is slowly being restored to financial markets. Maybe, but when fear and liquidity issues hit any financial asset, forced selling pushes prices down further and faster than fundamentals alone would imply. Bears who don’t like crypto fundamentals should watch out for an end-of-fear bounce that typically follows events like the FTX bankruptcy. Crypto assets won’t go down in a straight line. Nothing ever does. Those looking for a Bitcoin bounce might be disappointed. “Recent volatility in the cryptocurrency market has generated a long-term breakdown in Bitcoin below key support near $18,000,” wrote Fairlead Strategies founder Katie Stockton on Wednesday. She sees prices heading down around $14,000 in coming months. CappThesis founder Frank Cappelleri sees some technical trading support for Bitcoin around $15,000, but like Stockton, he doesn’t observe a reason for a big post-FTX bounce. Cappelleri does note some support for Coinbase Global at about $40, “which lines up with the May low point,” he tells Barron’s. Coinbase is a crypto broker, similar to FTX, and its shares were caught up in the crypto shock just like the cryptocurrencies. Traders looking to take advantage of market dislocations arising from nonfundamental selling pressure might want to look at Coinbase instead of the currencies traded on its platform.

Features:
-Business development companies lend to midsize private companies at high interest rates. They have proven popular with retail investors in recent years by offering dividend yields of around 10%. Total industry assets have doubled to about $260B since late 2020. Leading BDCs include Ares Capital, Owl Rock Capital, FS KKR Capital, and Blackstone Secured Lending (BXSL). The largest BDC is the nontraded Blackstone BXS Private Credit fund, known as Bcred, which has grown to $22B in net assets since its inception in January 2021, more than twice the size of Ares ARCC Capital, the largest public BDC. The bullish case for BDCs has been that they allow individual investors to invest side by side with institutions in the booming market for “private credit,” and benefit from what have been historically low loan losses. Most loans have floating rates tied to short-term interest rates. This has allowed BDCs to capitalize on the sharp rise in rates to a recent 4% from near zero at the start of 2022. A high percentage of loans go to companies acquired in leveraged buyouts by private-equity firms.

European Trader:
-Prospects for Germany’s economy looked dire earlier in the year. Russia’s invasion of Ukraine cut off a significant portion of the country’s national gas supplies. Energy prices spiked, and inflation shot up. That prompted the European Central Bank to start raising interest rates for the first time in a decade. And yet, the economy unexpectedly grew in the third quarter. Consumers lifted spending after saving through the pandemic, accounting for most of the strength in the period. Gas prices retreated, alleviating the crunch on industry, and the country scrambled to maximize gas storage for the winter. That is an impressive feat, especially as Germany was already under considerable pressure to adjust to a new world order. Its legendary car industry, led by powerhouses Volkswagen, BMW, and Porsche, are facing new competition from electric vehicles. Its famous Mittelstand, or small to medium-size companies that make up a majority of output, was just starting to recover from the pandemic when the energy crisis hit. To be sure, economists still expect a downturn. It just won’t be as bad as feared.

Emerging Markets:
-The Western powers are wimping out on a promise to cap Russia’s oil export revenues. Or they are letting the market do their work for them. By November 25, the G7 remained in closed-door talks on a price cap due to take effect on Dec. 5. Leaks steered expectations toward $65 to $70 a barrel. That’s...about where prices are now. Back in June, the European Union, Russia’s largest traditional oil customer, pledged to halt all imports as of December. It also banned EU insurance companies from covering shipments of Russian oil anywhere. The United Kingdom joined in. The two entities control 95% of the tanker insurance market, so this looked like a staggering blow. Then the Biden Administration, bedeviled by soaring gasoline prices at home, stepped in with a sort of get-out-of-jail-free card: Russian oil could get insurance after all, so long as it was sold below a price to be named later.

Commodities:
-A recent tumble in coffee bean prices will likely reverse shortly, prompting possible gains of as much as 25% over the coming weeks. The issue is that the downdraft, caused by collapsing Vietnamese currency, plus an overly optimistic outlook for Brazil’s crop, has gone too far. “I think the panic stage is over, and we are due for a substantial bear market rally,” says Shawn Hackett, president of Hackett Financial Advisors. “This is an opportunity to go against the trend.” In other words, the broad price trend isn’t higher, although the likely surge over the next few weeks—possibly as high as $2—will be significant enough for investors to watch. Traders hoping to benefit from the likely jump should consider buying March-dated futures contracts on the London-based ICE. Those who don’t favor buying futures might try the iPath Series B Bloomberg Coffee Subindex which tracks the price of coffee beans. ETNs are like exchange-traded funds but also expose the investor to the credit risk of the issuer.

Streetwise:
-Jack Hough wonders whether Bob Iger can get Walt Disney stock rising, or will streaming losses dim his legacy? It’s a difficult moment for corporate icons. Mark Zuckerberg must miss being called a fiendish genius now that he has been downgraded to obstinate cash furnace. His Meta Platforms stock has fallen some 65% from its peak in just over a year, amid rampant spending on a cartoon fever dream called the metaverse. Elon Musk has been owning the libs on Twitter, and they’ve been rethinking their ownership of Tesla vehicles. He’s the first person to amass $300B in personal wealth, and now the first to lose $100B in a year. Iger’s main challenge will be that streaming is still a metaverse-level money loser, and Disney is all in.