Strategy Boffins

Daily Strategy and News Journal

Update on financial, business and world news

and how they are interconnected

September 25, 2023

Strategy Journal

Japan-Malaysia Carbon Storage Pact

In a pioneering move to address global carbon emissions, Japan is charting a course with Malaysia to sequester its industrial and power plant carbon emissions within the Southeast Asian nation. The ambitious venture, as insiders reveal, is targeting its inaugural carbon shipment by 2028. The diplomatic channels are buzzing as Yasutoshi Nishimura, Japan’s Minister for Economy, Trade, and Industry, is poised to engage with top-tier executives from Malaysia’s state-backed energy titan, Petronas. This meeting is part of a broader tapestry of Japanese-led dialogues centered on decarbonization. Adding a technological edge, Mitsubishi Heavy Industries has unveiled a prototype vessel designed for the transport of liquefied carbon dioxide, hinting at the potential use of eco-friendly fuels for carbon transit. This Japan-Malaysia collaboration underscores a strategic pivot in Asia’s approach to carbon neutrality and environmental stewardship. Source- Nikkei

September 22, 2023

Strategy Journal

Cisco Systems acquires Splunk

In a landmark move, Cisco Systems, the global networking titan, has inked a deal to acquire cybersecurity and analytics firm Splunk for a staggering $28 billion in cash. This acquisition, Cisco’s most significant to date, underscores its strategic pivot towards fortifying its cybersecurity arsenal in an era increasingly dominated by artificial intelligence. Splunk, renowned for its prowess in data monitoring and analysis, offers businesses an edge in preempting cyber threats and swiftly resolving tech glitches. Chuck Robbins, the helm at Cisco, spotlighted the merger as a leap into the future of AI-driven security, envisioning a synergy that promises not just threat detection but also predictive defenses. With the deal slated for closure by the third quarter of 2024, industry watchers are keenly eyeing the ripple effects of this union on the cybersecurity landscape.

September 21, 2023

Strategy Journal

UK Energy Crisis

UK Energy Crisis : The UK’s energy landscape is undergoing significant shifts as Prime Minister Rishi Sunak announces a strategic pivot in the nation’s climate action goals. Amidst an intensifying energy crisis, Sunak has proposed a five-year delay to the ban on petrol and diesel cars, pushing it to 2035. This move, part of a broader softening of policies aimed at achieving net zero carbon emissions by 2050, has been met with widespread criticism. Environmentalists, opposition lawmakers, and industry leaders have voiced concerns, pointing to the UK’s leadership role in climate policies. The decision also comes at a time when the ESB’s consumer business in the UK reported substantial losses due to the crisis, and global automakers like Ford emphasize the need for consistent government policies to support the transition to electric vehicles. The recalibration of the UK’s green agenda, coupled with recent approvals of new oil and gas licenses, underscores the challenges the nation faces in balancing economic pressures with environmental commitments.

Update 24 September : The UK grapples with soaring energy bills, expected to persist despite Ofgem’s recent 7% reduction in the price cap from £2,074 to £1,923 annually. This revised cap, while a relief, remains significantly above the pre-crisis average of £1,000-£1,200. The aftermath of the pandemic, coupled with the collapse of 30 energy suppliers and skyrocketing gas prices, has pushed energy costs to unprecedented highs. While Ofgem’s chief, Jonathan Brearley, welcomes the cap reduction, he underscores the broader cost-of-living challenges Britons face. Calls intensify for the government to intervene, with advocates like Adam Scorer of National Energy Action urging for targeted energy discounts. Meanwhile, Labour’s Ed Miliband criticizes the government’s perceived inaction on bolstering renewable energy. A forecast by consultancy Cornwall Insight paints a grim picture, suggesting elevated energy bills could be the norm until the decade’s end.

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September 19, 2023

Strategy Journal

Form Energy’s Rust-Powered Batteries

Concept: Form Energy’s batteries are designed to store renewable energy using iron, one of the most common elements on earth. The batteries discharge energy from pellets of iron as they “rust” or oxidize in oxygen from the air. The reverse chemical process, effectively “de-rusting”, then uses electric current to recharge the battery.

Advantages:
Duration: These batteries can store energy for extended periods, potentially hundreds of hours. This long-duration storage capability is crucial for ensuring a consistent energy supply, especially during periods when renewable sources like solar or wind are not generating power.
Cost: The batteries are expected to be cost-effective. Form Energy’s COO, Ted Wiley, mentioned that in full production, the modules would be one-tenth the cost of any technology available today for grid energy storage.
Environmental Impact: Using iron as the primary material avoids the environmental concerns associated with mining lithium, which is commonly used in other battery technologies.

Current Projects:
A pilot facility in Minnesota is being developed to store enough energy to power about 400 homes for several days.
Another facility in Georgia could be ten times larger than the Minnesota project.

Development Stage: Form Energy is rapidly advancing its technology. They have announced two projects, with more on the horizon. They are actively signing contracts for delivery starting in a couple of years and will soon announce their manufacturing location.

Support: Both Form Energy and another company, Malta, Inc., which is working on an energy storage technology based on molten salt, are funded by Breakthrough Energy Ventures. This venture capital firm’s investors include notable figures like Microsoft co-founder Bill Gates and Amazon founder Jeff Bezos.

September 5, 2023

Strategy Journal

“Europe vs. US: A Comparative Overview of Economic Trends and Challenges

1. Inflation:
– Europe: Persistent and high.
– US: Rapid decrease and currently lower.

2. Economic Outcomes & Policies:
– Europe: Concerns over economic slowdown and policy challenges.
– US: Optimism with potential for a “soft landing.”

3. Wage Growth:
– Europe: Surpassing the US with significant increases.
– US: Slower growth, with 4.3% hourly earnings increase.

4. Economic Expansion:
– Europe: Slowing growth.
– US: 2.1% annualized expansion.

5. Challenges & Divergence:
– Europe: Unique challenges like surging natural gas prices.
– US: More optimistic outlook on inflation.

6. Inflation Depth & Impact:
– Europe: Deeper inflation impacts, with rates like 5.3% in the Eurozone.
– US: Easing inflation with policymakers’ optimism.

September 4, 2023

Strategy Journal

US Economy Cools while China Slows down

USA vs China

USA:
– Economic Cooling: The US economy is showing signs of cooling, but remains resilient.
– Interest Rates: The US Federal Reserve is considering holding interest rates steady due to the cooling economy. The current federal funds rate is between 5.25-5.5%.
– Employment: The unemployment rate increased slightly in August, but 187,000 jobs were added, indicating a still-strong labor market.
– Monetary Policy: The Federal Reserve is cautious about further tightening, with a focus on controlling historically high inflation.
– Economic Outlook: Experts believe the Federal Reserve might not raise interest rates in the upcoming meeting, suggesting a wait-and-see approach.

China:
– Economic Slowdown: China’s economy is slowing down, with concerns about contagion effects in Asia.
– Trade Impact: Countries closely tied to China, like South Korea and Japan, are experiencing declines in manufacturing and exports.
– Deflation: The Chinese economy recently retreated into deflation, raising concerns about consumption, currency stability, the property sector, and local government debt.
– Manufacturing: China’s manufacturing sector contracted for the fifth consecutive month in August.
– Regional Impact: China’s economic challenges are affecting its trading partners, with countries like Australia, Vietnam, Malaysia, and Thailand experiencing economic pressures.

In summary, while the US is experiencing a cooling economy with a resilient labor market and cautious monetary policy, China is facing a more pronounced economic slowdown with ripple effects across Asia.

August 31, 2023

Strategy Journal

Vattenfall halted a new wind project in the North Sea

Turbines are now being developed with a capacity of 18MW or more. Towers rising more than 100 metres above the water’s surface. Wind Turbines, with 8 MW model have 81-metre turbine blades can power a home for 24 hours. Wind Turbines with 107-metre blade can power a home for two days.

However,  Nacelles weighing 800 to 1,000 tonnes. About $13bn of investment needed for replacing installation vessels for offshore.

Hence, Swedish developer Vattenfall halted a new project in the North Sea due to pressure from inflation and high interest rates. Iberdrola and Shell are also exiting agreements in the US.

 

August 30, 2023

Strategy Journal

The Five Global Trends

The Five Global Trends Reshaping the Global Economy in 2023

1. Policy Adjustment on Inflation: The focus is shifting from reducing inflation to maintaining it under control. Both the U.S. Federal Reserve and the European Central Bank emphasize that it’s too early to declare victory over inflation.

2. Unstable Supply Conditions: The traditional ways of understanding inflation through demand and sustainable growth rates are no longer applicable. The pandemic, energy crises, and geopolitical events like Russia’s invasion of Ukraine have made supply conditions highly unstable.

3. Public Finance Concerns: In the U.S., there is a lack of political will to show restraint over budget deficits, which has implications for monetary policy. European nations are also likely to face similar challenges related to defense, demographics, and climate change.

4. Rise of India: As China’s growth rate slows, India is expected to become a more significant contributor to global growth.

5. Slower Global Growth: Productivity growth is slowing, and countries are prioritizing resilience over efficiency, leading to barriers in trade.

Source: FT

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August 28, 2023

Strategy Journal

Global Economic Leaders Call for New Playbook

Global Economic Leaders Call for New Playbook Amid Pandemic and Geopolitical Upheaval in Jackson Hole

  1. Shift in focus: From inflation to new challenges like the pandemic and the war in Ukraine.
  2. Urgent call: Policymakers advocate for a new economic playbook.
  3. Main concerns: Frequent supply shocks, higher prices, and increased financial volatility.
  4. Inflation: Optimism exists, but victory is not yet declared.
  5. Interest rates: Likely to remain in restrictive territory for an extended period.
  6. Neutral rate of interest (R-star): Debate on its future level.
  7. Public debts: Warning issued about the difficulty of reducing them.
  8. Emerging economies: 60% are in or close to debt distress.
  9. Fiscal support capacity: Concerns raised about the ability to provide large-scale fiscal support in future crises.

August 26, 2023

Strategy Journal

The Multi-Manager Hedge Fund Industry

The Multi-Manager Hedge Fund Industry: A Comprehensive Overview of Strategies, Performance, and Emerging Challenges

– Multi-manager funds have been the fastest-growing and most profitable segment in the global hedge fund industry over the past five years.

Challenges
1. Capacity Constraints: The industry is grappling with limitations on how much they can grow.
2. Talent War: The competition for skilled professionals is fierce and expensive.
3. High Fees: Investors are questioning the high fees and long lock-in periods.
4. Regulatory Scrutiny: Regulatory bodies like the SEC are paying closer attention due to the industry’s growing influence.
5. Performance: Recent performance has not been as strong, and there are concerns about the sustainability of the multi-manager model.

Business Model
– Multi-manager funds employ a large number of specialized traders.
– They use a “pass-through” expenses model, passing on all costs to investors.
– Despite representing only 8% of the hedge fund industry’s assets, they account for 27% of the industry’s holdings in U.S. equities.

Future Outlook
1. New Entrants: Despite high barriers to entry, new firms are entering the market.
2. Talent Management: Firms are trying to cultivate talent internally to mitigate the high costs of hiring.
3. Performance Pressure: With higher risk-free rates, the performance needed to justify high costs is becoming elusive.
4. Leverage Risks: The use of borrowed money to amplify returns could backfire, echoing the collapse of LTCM in 1998.

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