Axios Markets: A perfect storm

Plus: Minting a coin in minutes | Tuesday, October 05, 2021

Open in app View in browser   Presented By Goldman Sachs One Million Black Women   Axios Markets By Kate Marino ·Oct 05, 2021 ☀️ Good morning! 🤔 If you're as intrigued by the Pandora Papers as I am, let me know what parts you're most curious about. As always, reply to this email or reach me on Twitter @thekatemarino. 👀 Today's newsletter is 1,224 words, 5 minutes.     1 big thing: What's behind rising energy prices Illustration: Sarah Grillo/Axios   Energy prices are climbing around the world amid a perfect storm of extreme weather, rising power demand and supply constraints. It's roiling markets overseas, with China and India facing electricity crises while a dozen power companies in the U.K. have gone belly-up. Driving the news: Oil prices jumped again Monday after OPEC decided not to boost production beyond the modest increase that it had previously outlined. Prices for both oil and natural gas have roughly doubled over the last year, and gasoline at U.S. pumps is up by about 50% on average. Why it matters: Commodities like oil and gas operate in global markets, so the U.S. isn't immune to the effects of rising prices. Just look at the Consumer Price Index, one major gauge of inflation — its latest reading in September showed energy costs up 25% compared to a year ago. The big picture: Higher energy costs impact our economic recovery. Every dollar that goes to electric and heating bills is a dollar that isn't spent on holiday shopping or going out to eat. What happened: The current price trajectory is the result of supply moderating while demand heads skyward, Luke Tilley, chief economist at Wilmington Trust, tells Axios. On the demand side, the reopening of the global economy over the last year sent energy needs up around the world, he says. High demand led to natural gas shortages in Europe and China. That prompted some power companies to swap gas for oil — pushing up prices of both. The supply side is more complicated. For one, oil production dropped off at the start of the pandemic when demand cratered for everything from airplane fuel to gasoline. U.S. independent producers are far more cautious about cranking the spigot open every time prices inch up, thanks to a recent wave of bankruptcies and investors demanding more focus on returns. OPEC isn't raising supply significantly, in a bid to keep prices at profitable levels. And production has been more constrained because the world's largest economies have made transitioning to more renewable power a top priority, says Phil Orlando, chief equity market strategist at Federated Hermes. Be smart: The climate-related pullback in production is driven by investors in energy companies, as well as public sentiment, as much as it is by governments. Our thought bubble, via Felix Salmon: The effect of oil companies refusing to raise output in response to higher demand is functionally identical to the effect of a carbon tax. The longer fossil fuels remain pricey, the more attractive the development of renewable alternatives will be. Go deeper.     2. Catch up quick A government watchdog will review whether the financial market trading activity of two top economic officials at the Fed violated the central bank's rules or the law. (Axios) Chinese property developer Fantasia Holdings failed to repay a bond when it came due on Monday, another sign of stress for the country's property sector on the heels of China Evergrande's missed payments. (Bloomberg) Facebook's latest controversies have sent its stock plummeting, a clear indication of its vulnerability to long-term business headwinds even if its ads business continues to grow for now. (Axios)     3. Trillion-dollar coin could be minted at the last minute Illustration: Aïda Amer/Axios   Felix reports: A trillion-dollar platinum coin could be minted "within hours of the Treasury Secretary's decision to do so," Philip Diehl, former director of the United States Mint, tells Axios. Why it matters: Congressional solutions to the debt-ceiling problem could take weeks to implement, especially if the reconciliation process is used — and time is running out. In case of emergency, a trillion-dollar coin could be deployed to bridge any gap between the money running out and the debt ceiling being raised. How it works: The U.S. Mint, which Diehl ran from 1994 to 2000, already produces a one-ounce Platinum Eagle and has no shortage of platinum blanks already in stock. Producing a trillion-dollar Eagle would require only the denomination to be changed. "This could be quickly executed on the existing plaster mold of the Platinum Eagle," says Diehl. Then an automated process would transfer the new design to a plastic resin mold. Even if Janet Yellen, the Treasury secretary, has no intention of minting such a coin, there is no reason for her not to quietly instruct the Mint director to take those steps a day or two in advance. At that point, a coin could be struck in minutes at the West Point mint. Even if it then needed to be physically deposited at the New York Fed, that's only a short helicopter ride away. "Voila, we'd have bought ourselves the equivalent of a trillion-dollar increase in the debt limit, without any impact on inflation," says Diehl.     A message from Goldman Sachs One Million Black Women Black women receive less than .3% of VC funding     Black women start businesses faster than any other demographic, yet they receive only 0.27% of VC funding. Goldman Sachs' One Million Black Women initiative aims to narrow this and other opportunity gaps through $10 billion in capital investment. Get more details.     4. Newest fake news frontier Illustration: Annelise Capossela/Axios   Two recent fake news releases show how easily cryptocurrency markets can be manipulated, adding to the perception that the growing industry is a new Wild West, Axios' Hope King writes. Catch up quick: The price of litecoin shot up about 30% after a fake press release last month purporting to be issued by Walmart said the retailer would accept litecoin as online payment and cited Litecoin's creator. Last Friday, the price of XRP jumped at least 4% after a fake release said the Securities and Exchange Commission had dismissed a lawsuit against Ripple, the company behind XRP.    Walmart, Litecoin and Ripple all quickly distanced themselves from the fake news and confirmed their fraudulent nature, while news outlets including Reuters and CNBC had to withdraw or update their original stories. Why it matters: Fake news and pump and dump schemes are not new phenomena in financial markets and have moved into crypto markets. In early 2017, for example, the SEC charged more than two dozen companies and individuals with promoting stocks through secretly paid-for articles on Yahoo Finance, Forbes.com and other sites.  A year later, dozens of trading groups manipulated the price of cryptocurrencies, causing hundreds of millions of dollars in losses, according to the Wall Street Journal. GlobeNewswire, the service that was used to publish the fake Walmart press release, said in a statement that the company had never encountered an incident like this before and that it has "enhanced" its authentication process. It won't share details with the public, in order "to ensure the highest level of security."  What they're saying: There are a lot of problems and regulatory uncertainty in the industry, Max Dilendorf, a lawyer who specializes in cryptocurrencies, tells Axios. "Fake news is just a small dot on the radar."  What to watch: SEC chair Gary Gensler vowed to crack down on cryptocurrency markets this summer, saying that activity in the industry is filled with "fraud, scams and abuse."   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. Corporate America's debt binge Data: LCD, an offering of S&P Global Market Intelligence; Chart: Kavya Beheraj/Axios U.S. companies are still binging on debt, as interest rates remain near record lows. Driving the news: With the third quarter now in the books, we can see that the dollar amount of year-to-date leveraged loans and high yield bond sales are unmatched in recent history. This debt is the type issued by companies with lower credit ratings. Meanwhile, the amount of higher-rated investment-grade bonds issued through the third quarter of the year is eclipsed only by last year's record. Why it matters: The debt is fuel for the record number of M&A transactions this year. It's also enabled dividends to shareholders of both public and private companies. Debt deals for below-investment-grade companies in which the money was used for dividend payments have already hit a full-year record, the WSJ recently reported.     A message from Goldman Sachs One Million Black Women Investing $10 billion to create opportunity for Black women     Goldman Sachs' One Million Black Women initiative aims to narrow opportunity gaps for Black women across key investment areas — from education to healthcare, digital connectivity to workforce advancement and more. Learn about the first round of investments.   Like this email style and format? Learn more about Axios HQ. It'll help you deliver employee communications more effectively.   Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here. 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