Where is the global economy heading?

JP Morgan's research department, meanwhile, has expressed surprise that SVB, for example, has undertaken a bond sale to increase the bank's liquidity so dramatically. In their view, they believe that this is more of a message that its strategy is one of liquidity prudence, given an uncertain outlook in which there could be further adjustments in liquidity needs due to outflows of customer deposits. JP Morgan also acknowledges that it was taken by surprise by the bank's drastic move. "We fully recognise that we did not see these aggressive actions to increase liquidity coming," it said in a report.

Quote of the day… 

Treasury Secretary Janet Yellen said rules out a politically sensitive scenario of bailing California banks with taxpayers' money.

Thestreet.com by luc olinga

Most read…

All This Economic Good News is Just Confusing

Many business leaders across the country were hoping for a dismal jobs report from the Bureau of Labor Statistics. Bad jobs numbers would mean that the economy is weakening, and that the Federal Reserve wouldn’t have to keep raising interest rates to get a handle on inflation. If interest rate increases stop, businesses will be able to borrow money more inexpensively.

TIME BY ALANA SEMUELS, MARCH 10, 2023

Janet Yellen Says Government Won't Bail Out Silicon Valley Bank

Treasury Secretary rules out politically sensitive scenario of bailing out California bank with taxpayers' money.

THESTREET by LUC OLINGA

Silicon Valley bank collapses and spreads to Europe: what happened and what are the risks?

The American institution faced liquidity problems, sold bonds at a loss and caused stock market falls across the financial sector. The US regulator yesterday intervened in its assets and will lead the process of selling the firm. The bank warns of the impact of the economic slowdown on SMEs: "Their environment will be more stressed". Silicon Valley Bank, in the United States, is an entity that mainly finances the technology sector. Silicon Valley Bank, in the United States, is an entity that mainly finances the technology sector ABC.

ABC.ES BY DANIEL CABALLERO, MADRID, SPAIN, TODAY

Biden administration to approve major oil project in Alaska -source

The Willow project, led by energy giant ConocoPhillips (COP.N), would be located inside the National Petroleum Reserve-Alaska, a 23 million-acre (93 million-hectare) area on the state's North Slope that is the largest tract of undisturbed public land in the United States.

Reuters By Nichola Groom and Maria Caspani

Britain's tax take risks blowing green energy off target

The British government has set targets for major increases in wind generation, for instance, as it seeks to meet a goal of net zero emissions by 2050 and to become more independent of imported energy following the supply disruption caused by Russia’s invasion of Ukraine.

Reuters By Susanna Twidale and Shadia Nasralla

All This Economic Good News is Just Confusing

Many business leaders across the country were hoping for a dismal jobs report from the Bureau of Labor Statistics. Bad jobs numbers would mean that the economy is weakening, and that the Federal Reserve wouldn’t have to keep raising interest rates to get a handle on inflation. If interest rate increases stop, businesses will be able to borrow money more inexpensively.

TIME BY ALANA SEMUELS, MARCH 10, 2023

But the jobs report was not dismal. The U.S. economy gained 311,000 jobs in February, the Bureau of Labor Statistics (BLS) said on March 10, about a third more than the 225,000 jobs predicted by economists polled by the Wall Street Journal. That follows a January gain of half a million jobs. The latest jobs report comes after a few more spots of strong data—U.S. consumer spending rose by the most in nearly two years in January, and there are still nearly two jobs for every unemployed worker, according to a BLS data release on March 8.

The jobs report does suggest that the economy’s breakneck speed of growth is slowing.

For example, the U.S. economy had added, on average, 343,000 jobs on average for the past six months, so February did represent a slight slowdown. Some industries continued to lose jobs, including information, which includes big tech companies, and transportation and warehousing, which includes the people who work in e-commerce. Wage growth appears to be slowing, and the unemployment rate ticked up slightly, to 3.6%.

But there were also some big employment gains in industries like leisure and hospitality, retail, and even construction, despite worries that the housing market is softening.

More than anything, the jobs report presents more confusing data to economists in an era where no one seems to really understand whether or not the U.S. economy is headed south—though many people seem to be salivating for bad economic data. Economists didn’t know what to make of it. “If you squint at the numbers, you might be able to see signs of a slowing labor market,” Lisa Sturtevant, chief economist of Bright MLS, a real estate listing service, wrote in commentary. “February’s job gains beat expectations again in another display of resiliency for this labor market,” another analyst, Cody Harker, head of data and insights from Bayard Advertising, commented.

The average American can take comfort in knowing that despite some gloomy economic predictions, the job market is still strong. Unemployed workers should have no trouble finding a new job.

But this jobs report also means that the Federal Reserve will likely continue to quickly raise interest rates, which is not happy news for any consumer who is trying to borrow money soon. The Fed’s Open Market Committee will release its next decision on interest rates on March 22. Testifying before Congress on March 7, Fed chair Jerome Powell said that the strength of recent economic data “suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

What that means for the next few weeks is more business leaders and economists trying to read the tea leaves for any signs of a recession, and arguing the case that the economy is slowing down. Economists keep thinking up reasons why this strong data is a fluke—unseasonably warm weather led to unusual consumer spending in January, all these job gains are just replenishing industries that experienced big cuts during the pandemic, CEOs are pessimistic so hiring can’t continue.

“People want some reassurance that inflation will come down—and some people, especially those who have been around for a while, think that a recession is the only way to permanently reduce those inflation expectations,” says Daniel Altman, chief economist for Instawork, a flexible staffing company.

Already, forecasting groups like the Conference Board, which tracks economic indicators, predict that high inflation and slowing consumer spending will “tip the economy into recession in 2023.” The data don’t show any sign of that yet. But an economic forecaster can continue to hope.

Janet Yellen Says Government Won't Bail Out Silicon Valley Bank

Treasury Secretary rules out politically sensitive scenario of bailing out California bank with taxpayers' money.

THESTREET by LUC OLINGA

The message is clear: the government is not going to bail out Silicon Valley Bank, despite several calls from influential voices in the financial and business communities.

The message was delivered by Treasury Secretary Janet Yellen during an interview with CBS's "Face the Nation" on March 12. Yellen said regulators were working all weekend "to address the situation in a timely way” in order to avoid the panic some fear in global markets if no resolution is found. 

She however added that a bail out was not an option being considered.

"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out," Yellen told CBS’ s "Face the Nation." "And we're certainly not looking - and the reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and we're focused on trying to meet their needs.”

SVB’s failure on March 10, which was the second-largest of a bank in U.S. history, has shaken many investors. It was the result of a bank run, caused by the bank’s announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, after it sold bonds in its portfolio of investments at a $1.8 billion loss.

'Wide Range of Available Options'

About $42 billion of deposits were withdrawn by the end of March 9, according to a regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million.

The Federal Deposit Insurance Corporation took control and is now the manager of $175 billion in customer deposits, including money from several startups and from some of the biggest names in the technology world.

The regulator also created a new entity, and indicated that unsecured depositors, that is, SVB customers with more than $250,000 in their accounts, will not, for the moment, have access to their money. 

This leaves many uncertainties about the ability of many startups to operate in the coming weeks, since their funds are locked up. The FDIC said it will pay uninsured depositors an "advance dividend within the next week."

The question is how much this "advanced dividend" will amount to. 

Companies with SVB accounts, lines of credit and credit facilities are wondering what this means for them, when they can access their funds, if they will be able to get all their funds out, and whether they will have access to their credit lines. More than 95% of the bank's deposits were uninsured as of December, according to regulatory filings.

As a result, many influential voices on Wall Street and in Silicon Valley worry that the may not enough and are calling on the government to bail out the bank that played such a huge role in the startup and small business ecosystem in the Bay Area.

"I simply want to say that we're very aware of the problems that depositors will have," Yellen said. "Many of them are small businesses that employ people across the country and of course this is a significant concern and working with regulators to try to address these concerns."

Asked whether regulators might be open to a "foreign bank" buying SVB, Yellen responded, "I'm sure they're considering a wide range of available options that include acquisitions."

"This is really a decision for the FDIC, as it decides on what the best course is to resolve this firm,” Treasury Secretary said.

'Corporate Bailouts Must End'

One of the solutions that the FDIC and the Federal Reserve are working on, is the creation of a fund that would allow regulators to backstop more deposits at banks that run into trouble, following the collapse of SVB, reports Bloomberg News.

Many politicians have already sent the message that taxpayer money should not be used to bail out SVB.

"Taxpayers should absolutely not bail out Silicon Valley Bank," Republican presidential candidate Nikki Haley said on Twitter. "Private investors can purchase the bank and its assets. It is not the responsibility of the American taxpayer to step in. The era of big government and corporate bailouts must end."

"If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight against it," Rep. Matt Gaetz (R-Fla) tweeted on Mar. 10.

The challenge for the FDIC and the Fed is that any guarantee of the borrowers’ funds might be perceived as a bailout, with taxpayer money being used to protect clients, drawing similarities to the government intervention in the 2008 financial crisis.

"What I'll say about the banking system overall is it's more resilient, and has a better foundation than before the financial crisis. That’s largely due to reforms put in place after the financial crisis. Our Treasury secretary is at the helm and working diligently with regulators," Shalanda Young, director of the White House Office of Management and Budget, said on CNN’s "State of the Union."

Seaboard: pioneers in power generation in the country

…Armando Rodríguez, vice-president and executive director of the company, talks to us about their projects in the DR, where they have been operating for 32 years.

More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.

Silicon Valley bank collapses and spreads to Europe: what happened and what are the risks?

The American institution faced liquidity problems, sold bonds at a loss and caused stock market falls across the financial sector. The US regulator yesterday intervened in its assets and will lead the process of selling the firm. The bank warns of the impact of the economic slowdown on SMEs: "Their environment will be more stressed". Silicon Valley Bank, in the United States, is an entity that mainly finances the technology sector. Silicon Valley Bank, in the United States, is an entity that mainly finances the technology sector ABC

ABC.ES BY DANIEL CABALLERO, MADRID, SPAIN, TODAY

SVB is an American financial institution, specifically from California. It is not among the ten largest banks in the country; it is a local company with aspirations for the whole world. But those aspirations have been dashed by the collapse it has experienced over the past two days. The effect on the rest of the sector has not been long in coming and the world's largest banks have suffered big falls on the stock market at the end of the week.

SVB stands for Silicon Valley Bank. The bank of Silicon Valley, the cradle of American entrepreneurship and innovation. This firm is one of the major financiers of startups and entrepreneurs looking for an opportunity.

The interest on new operations has more than doubled in just one year due to the ECB's rate hikes

It was destined to achieve huge returns with this business but the world of technology is not what it used to be and the problems of this sector have swallowed up the SVB. The bank has been suffering from a massive flight of customer deposits for three days, draining it of liquidity and forcing it to take drastic internal decisions to try to stay afloat. It announced the sale of a $21 billion portfolio of US Treasury bonds to raise funds, but had to do so at a loss because their value had collapsed due to the rise in interest rates. For this reason, it said it expects to record a loss of $1.8 billion in the first quarter.

Thus, he moved the hole from liquidity... to capital, solvency itself. And it announced a 2.25 billion share sale round to raise funds. That round failed and, according to CNBC, its managers have opted to sell what remains of SVB. It will be difficult to quantify the value of the bank, with its liquidity problems - the flight of deposits continues -, capital and a 60% fall on the stock market on Thursday; in fact, it had to be suspended from trading yesterday because in the 'premarket' (prior to the stock market opening) another fall of almost 70% was already anticipated.

However, such a private sale will no longer be possible. The Federal Deposit Insurance Corporation (similar to the Spanish deposit guarantee fund) intervened yesterday afternoon and took control of Silicon Valley Bank. The US regulator, in a statement, said that "all insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023". In this regard, the institution also reported that, as of 31 December 2022, "Silicon Valley Bank had approximately $209 billion in total assets and approximately $175.4 billion in total deposits".

Contagion effect

American and European banks have not been able to avoid the contagion effect on their stock market valuations. JP Morgan, Wells Fargo and Bank of America, three of the world's giants, lost more than 5% on Thursday. In the Old Continent, Banco Santander fell by more than 4% yesterday, as did Deutsche Bank, which fell by more than 7%, and BNP Paribas, which fell by nearly 4%.

The most internationalised institutions with the greatest exposure to public debt were among those that suffered most from the collapse of SVB. But... But what is behind the fact that a local bank dragged down the entire global banking sector?

The issue, beyond the collapse of a relatively small financial institution, is whether there may be further liquidity problems in other US institutions, and especially the negative effect of central bank interest rate hikes.

This is how much SVB's stock market fell on Thursday after the full extent of its crisis became known.

Central to all this is SVB's sale of 21 billion in US Treasury bonds. These were AFS bonds, which are 'available for sale'. When it sold these assets because it needed liquidity, it did so at a loss.

Financial sources point out that what is important here is to know whether the latent losses on sovereign bonds that financial institutions accumulate on their balance sheets could be a problem. And they speak of latent losses - which are adjusted against capital - in all cases arising from the rise in the Fed and ECB's benchmark interest rates; if the price of money rises, the value of the bonds you hold in your portfolio at a lower interest rate falls sharply. Therefore, if you need to sell those bonds, you will do so at a big loss.

Nevertheless, the banking sector believes that there is no reason to panic. They explain that this is a specific situation of the SVB and that the markets have overreacted with stock market crashes against the sector as a whole. But they do warn that some institutions are more exposed to sovereign risk than others.

"All the uncertainty linked to the sector is translating into falls in the European banking sector, especially Italian and Spanish banks, which we see as unjustified. We believe that the market's reading is based on an overreaction to sovereign bond exposure which is not the problem. Moreover, the liquidity of European banks is very high," the banking sector says.

For the moment, the situation is relatively calm in European banks, according to the sources consulted, while waiting to find out how far the SVB crisis may spread. They refer rather to whether other medium-sized institutions could find themselves in liquidity problems of this nature, and materialising latent losses due to rate rises. Even so, they argue that the health of European banks is significantly better than that of US banks in terms of liquidity and solvency.

SVB's fall shows the negative side of rate hikes in banking due to the latent losses accumulated in the portfolio.

Guy de Blonay, investment manager for financial equities at Jupiter AM, adds: "Silicon Valley Bank has a less diversified balance sheet structure than many large global banks and is more exposed to deposit outflows due to a very specific type of client: technology entrepreneurs. We believe that the risk of a large deposit outflow and the resulting bond and equity divestments is low for diversified European banks".

"Still, this development draws attention to changing monetary policy and its potential impact on banks. Rising rates and quantitative tightening that remove liquidity from the financial system may put pressure on asset values and deposits, altering balance sheet structures and affecting net interest income, especially in the US," the Jupiter AM manager continues.

Set of elements

"Given that client money outflows are also likely to be driven by higher interest rates, it is no exaggeration to say that this episode is emblematic of the regime of higher rates for longer that we seem to be in at the start, as well as inverted curves, and a technology industry that has been experiencing much tougher times of late. The perfect storm of all the things we have been worrying about in this cycle," says Jim Reid, strategist at Deutsche Bank, in his daily report.

JP Morgan's research department, meanwhile, has expressed surprise that SVB, for example, has undertaken a bond sale to increase the bank's liquidity so dramatically. In their view, they believe that this is more of a message that its strategy is one of liquidity prudence, given an uncertain outlook in which there could be further adjustments in liquidity needs due to outflows of customer deposits. JP Morgan also acknowledges that it was taken by surprise by the bank's drastic move. "We fully recognise that we did not see these aggressive actions to increase liquidity coming," it said in a report.

Related to this, JP Morgan issues a warning signal: "Given that the company has been quiet since the deal was announced, we are uncertain what caused the company to move to sell virtually its entire AFS bond portfolio before fully exhausting other options.

In this case, the latter firm points out that, in the face of rising interest rates, "banks' bond portfolios have seen an increasing reduction in value, with a growing balance of 'unrealised (latent) losses'" being booked against capital. Adds the investment bank, which is in fact a shareholder in SVB: "This has become a key focus for investors with the message from bank management teams being largely 'not to worry' about these unrealised losses given the multitude of alternative funding options available to banks.

Biden administration to approve major oil project in Alaska -source

The Willow project, led by energy giant ConocoPhillips (COP.N), would be located inside the National Petroleum Reserve-Alaska, a 23 million-acre (93 million-hectare) area on the state's North Slope that is the largest tract of undisturbed public land in the United States.

Reuters By Nichola Groom and Maria Caspani

March 12 (Reuters) - U.S. President Joe Biden's administration will approve a major and controversial oil drilling project in Alaska on Monday, according to a source familiar with the matter.

The decision to move ahead with the project by authorizing three drill sites in northwestern Alaska would come a day after Biden announced sweeping curbs on oil and gas leasing to protect up to 16 million acres of water and land in the region.

The Willow project, led by energy giant ConocoPhillips (COP.N), would be located inside the National Petroleum Reserve-Alaska, a 23 million-acre (93 million-hectare) area on the state's North Slope that is the largest tract of undisturbed public land in the United States.

The project, announced in January 2017, is expected to produce about 600 million barrels of oil equivalent over its life, peaking at 180,000 barrels of oil per day, ConocoPhillips says on its website.

Earlier on Sunday, the U.S. Interior Department unveiled actions to make nearly 3 million acres of the Beaufort Sea in the Arctic Ocean "indefinitely off limits" for oil and gas leasing, building on an Obama-era ban and effectively closing off U.S. Arctic waters to oil exploration.

In addition to the drilling ban, the government will put forward new protections for more than 13 million acres of "ecologically senitive" Special Areas within Alaska's petroleum reserve, the administration said in a statement on Sunday.

The area includes the Teshekpuk Lake, Utukok Uplands, Colville River, Kasegaluk Lagoon and Peard Bay Special Areas.

The new moves come as Biden tries to balance his goals of decarbonizing the U.S. economy and preserving pristine wilderness with calls to increase domestic fuel supply to keep prices low.

Willow has support from the oil and gas industry and state officials eager for jobs, but is fiercely opposed by environmental groups who want to move rapidly away from fossil fuels to combat climate change.

An environmental group said the new protections announced on Sunday did not go far enough and the government should stop oil and gas developments to help fight climate change.

"Protecting one area of the Arctic so you can destroy another doesn't make sense, and it won't help the people and wildlife who will be upended by the Willow project," said Kristen Monsell, a senior attorney at the Center for Biological Diversity.

Cooperate with objective and ethical thinking…

Britain's tax take risks blowing green energy off target

The British government has set targets for major increases in wind generation, for instance, as it seeks to meet a goal of net zero emissions by 2050 and to become more independent of imported energy following the supply disruption caused by Russia’s invasion of Ukraine.

Reuters By Susanna Twidale and Shadia Nasralla

LONDON, March 13 (Reuters) - A cap on revenue and the lack of the kind of incentives offered to oil explorers are blocking the development of renewable energy in Britain, say industry officials who are pressing for changes ahead of this week's budget.

The British government has set targets for major increases in wind generation, for instance, as it seeks to meet a goal of net zero emissions by 2050 and to become more independent of imported energy following the supply disruption caused by Russia’s invasion of Ukraine.

Representatives of the renewable energy sector say those goals could be missed without policy changes, especially as other countries are doing more to attract investment in green power.

Among the most contentious issues is Britain's Electricity Generator Levy (EGL), which the government implemented from the start of this year to combat high energy prices, and which the industry says is a "de facto windfall tax".

Rod Wood, managing director at wind energy developer Community Wind Power, is among those seeking changes to the EGL in Britain's March 15 budget.

“The taxation (EGL) is going to kibosh renewable targets the UK has set,” he said.

Specifically, he wants it to include an investment allowance like the one oil and gas companies receive under their equivalent Energy Profits Levy (EPL).

The EPL includes an investment incentive that means oil and gas firms can offset from their tax bill 91.40 pounds in every 100 pounds spent on new production.

British government targets include increasing offshore wind capacity to 50 gigawatts (GW) from around 14 GW now.

Wood said without tax changes, his company would be forced to halt development of three onshore Scottish projects, totalling 1.2 GW, which by 2025 could be generating enough power for more than a million homes.

“When you look at how much costs have gone up in the UK versus stimulus packages on offer in the U.S., it's not hard to see anyone who can will be relocating business there,” he said.

U.S. President Joe Biden's administration last year signed into law the Inflation Reduction Act, which delivers a support package for clean technology worth $370 billion.

INFLATION, SUPPLY CHAINS, INTEREST RATES

Other developers say the combination of levies, high energy prices, supply chain bottlenecks, inflation and interest rate rises means their projects are under threat.

Denmark's Orsted last week said its Hornsea 3 project in the North Sea, which at around 3 GW would be the world's largest windfarm when built, could be paused unless it gets support such as tax breaks because costs have surged.

Another major project is the Vattenfall group's Norfolk Offshore Wind Zone.

Rob Anderson, its project director, said the British government "must show its support for the sector in next week’s budget through capital allowances”.

Under the EGL, a 45% tax on low-carbon power generators applies to revenue on power generation at an aggregate price above 75 pounds ($89) per megawatt hour (MWh).

With wholesale electricity prices around 120 pounds/MWh, the level at which the tax kicks in is too low, Wood said, citing more generous levies in Europe.

The European Commission has set a revenue cap on electricity companies, requiring them to hand over any excess revenue to national governments they get for selling their non-gas generated power over 180 euros ($190)/MWh.

OIL AND GAS SECTOR UNHAPPY TOO

Oil and gas producers, which have been subject to a windfall tax since May 2022, also want change.

They say the Energy Profit Levy (EPL) windfall tax which last year raised the tax rate to 75%, one of the world's highest, is shrinking producers' access to funding.

Renewable developers say the oil and gas sector has for years enjoyed tax breaks, while green groups say the sector should no longer be given any incentives given the need to phase out fossil fuel.

The British fossil fuel industry says it is still necessary to invest in the ageing North Sea basin and home-grown fuel is far less polluting than importing oil and gas from distant places where supply might be more easily disrupted.

It also says higher tax rates should kick in only when profits are derived from prices above a yet-to-be-agreed price floor, based on an historic average, rather than the entire profit regardless of price as is currently the case.

The industry also wants the tax to apply to realised prices, which include hedging results, rather than broader market prices.

Many oil and gas producers hedge large chunks of their output to comply with lenders' demands, which means their exposure to market price changes is limited.

Finance Minister Jeremy Hunt, in a meeting in December, rebuffed calls from the oil and gas industry to amend the windfall tax.

Further meetings, including in late February with Treasury officials have taken place, but no change was expected from the March 15 budget, two industry sources said, declining to be named.

Meanwhile, Britain's biggest oil and gas producer Harbour , has announced job cuts and shunned the latest licensing round. TotalEnergies (TTEF.PA) cut its UK investment programme by a quarter.