Apr 21, 2023
If you haven’t checked the price of lithium lately, you might be in for a surprise. Spot prices for lithium carbonate in China have collapsed by two-thirds since hitting record highs in November of last year. Prices have gone from $84k per ton to $25k per ton. That unwinds the vast majority of a spectacular surge that played out from 2020 to 2022. Lithium initially surged 1,279% from July 2020 to March 2022 as part of the broader explosion of commodity prices and booming demand for electric vehicles, eventually peaking up 1,387% from the post-COVID lows. It’s easy to forget that this critical battery input had already gone through one such cycle. A 224% rally in 6 months during late 2015 and early 2016 before a long, slow bear market that saw prices down 78% over several years.
In the equity market, the price cycle hasn’t been as dramatic in percentage terms, but there has still nonetheless been a double cycle of surging stock prices in 2016 followed by a grinding bear market, and then an even more dramatic surge through late 2022 that is now sliding into reverse. On Thursday, Chile’s government announced reforms to its lithium extraction policy. While existing contracts with firms that operate in the rich lithium brine deposits of the Chilean Atacama desert will be honored, the market is looking at weaker lithium prices and the fact that existing contracts will be replaced by less favorable ones 10+ years down the line and hitting lithium players. SQM is off 21% today while ALB is 10% lower.
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Apr 19, 2023
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit every Wednesday. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1 year return profiles for a cross section of the fixed income world.
In this week’s report, we dive in to bank exposure to CRE.
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Apr 16, 2023
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Labor
‘Zero Interest in Doing Business’: TSMC Snubs Phoenix Construction Workers by Lee Harris (The American Prospect)
Unionized construction workers in Arizona are getting little interest from Taiwan Semi’s massive fab investment, as the chip giant prefers importing contractors from out of state. [Link]
Next Wave of Remote Work Is About Outsourcing Jobs Overseas by Konrad Putzier (WSJ)
With tight labor markets and strong wage growth, some traditionally localized, skilled service workers are being outsourced to emerging markets economies. [Link; paywall]
Tech Dystopia
They’re Selling Nudes of Imaginary Women on Reddit — and It’s Working by EJ Dickson (Yahoo!/Rolling Stone)
A pair of computer scientists are selling nude pictures of women that don’t exist, proving that machine learning algorithms like Stable Diffusion have leaped forward towards full realism. [Link]
The U.S. Cracked a $3.4 Billion Crypto Heist—and Bitcoin’s Anonymity by Robert McMillian (WSJ)
Since blockchain transactions are immutable, with enough hard work forensic efforts to track bitcoins and other crypto currencies have yielded an impressive list of criminals. [Link; paywall]
Discord Member Details How Documents Leaked From Closed Chat Group by Shane Harris and Samuel Oakford (WaPo)
A small group chat on the platform Discord turned into the source of one of the most damaging national security leaks in recent history, with hundreds upon hundreds of documents transcribed and later photographed and sent to the small group of gamers and gun enthusiasts. [Link; soft paywall]
People Are Sick and Tired of All Their Subscriptions by Rachel Wolfe and Imani Moise (WSJ)
Attrition among subscription models is rising, with streaming cancellations up 49% and a range of other services repeatedly getting the axe from cost-conscious consumers. [Link; paywall]
Corporate Culture
JPMorgan Calls Managing Directors to Office Five Days a Week by Hannah Levitt & Daniel Taub (Bloomberg)
Leadership will be pushed to show their face in person at the nation’s largest bank, setting a tone for JPM after years of remote work jump-started by the pandemic. [Link; soft paywall]
Your Email Does Not Constitute My Emergency by Adam Grant (NYT)
The ever-present nature of email creates pressure for rapid responses which in turn raise the stress of workers receiving what they perceive as high priority communiques. [Link; soft paywall]
Cars & Drivers
After a Boom, an Auto Profit Bust Looms by Stephen Wilmot (WSJ)
In the wake of three years with tight inventories, under-producing factories, and key component shortages, the American auto industry is eying rate hikes and financial stress nervously. [Link; paywall]
General Motors will stop offering Apple CarPlay and Android Auto connectivity by Car Dow (Top Gear)
In an effort to keep Apple and Alphabet out of their data and customer relationships, GM won’t be including popular phone-mirroring apps in future EVs (even as they continue to offer them in their ICE fleet). [Link]
E.P.A. Lays Out Rules to Turbocharge Sales of Electric Cars and Trucks by Coral Davenport (NYT)
Under new emissions standards, automakers would be obliged to convert roughly two-thirds of their new sales to EVs in less than a decade, with heavy trucks targeted at a perhaps more ambitious quarter. [Link; soft paywall]
Real Estate
Downtown San Francisco Whole Foods Closing a Year After Opening by Josh Koehn (The San Francisco Standard)
Whole Foods is shuttering a downtown San Francisco location, citing deteriorating street conditions including drug use and crime near the store, including high theft and hostile visitors. [Link]
What’s the Real Situation with CRE and Banks: Doom Loop or Headline Hype? By Kevin Fagan, Matt Reidy, Thomas Lasalvia, Blake Coules, and Victor Calanog (Moody’s)
Moody’s analysts think that while banks are heavily exposed to commercial real estate and CRE is dependent on banks, mitigating factors can keep the two from spiraling together into a major credit crunch. [Link]
Sports
Quinnipiac Shocked the College Hockey Universe in 10 Seconds by Jason Gay (WSJ)
A historic come-from-behind victory to earn a national championship may have looked like a lucky break, but to win its first NCAA title Quinnipiac bet on itself rather than relying on luck. [Link; paywall]
Michael Jordan’s signed trainers sell for record $2.2mn at Sotheby’s auction by Alexandra White (FT)
A pair of signed Michael Jordan sneakers worn during Game 2 of the 1998 NBA Finals were sold for $2.2mm in a record for a shoe transaction; an MJ jersey went for $10mm back in September. [Link; paywall]
Climate Change
Policies, Projections, and the Social Cost of Carbon: Results from the DICE-2023 Model by Lint Barrage & William D. Nordhaus (NBER)
An update to the giant cost-benefit model which was most recently updated in 2016 shows a significantly higher social cost of carbon and therefore more urgency for action on climate change. [Link; soft paywall]
The American West
Biden Administration Proposes Evenly Cutting Water Allotments From Colorado River by Christopher Flavelle (NYT)
Overuse and drought have left the mighty Colorado near dry, leading the federal government to propose pro-rata cuts to water distributions out of the river system. But that would flout legal precedent, which gives California first dibs on water and could almost eliminate drinking water supplies in Phoenix. [Link; soft paywall]
Peak Real Estate: This Tiny Wyoming Community Has Some of the Country’s Priciest Mountain Homes by Jessica Flint (WSJ)
A tiny town of 1600 people in the neighborhood of Jackson Hole is the second-most expensive mountain town real estate in the country, trailing only Aspen. [Link; paywall]
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Apr 14, 2023
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A month ago, financial markets were focused on how badly the Federal Reserve had broken the banking system. This week, the initial earnings from a few very large banks suggest that the quick work of the FDIC and Federal Reserve in the wake of Silicon Valley Bank’s failure have prevented broader damage. Lenders including PNC Financial (PNC), JPMorgan (JPM), Wells Fargo (WFC), and Citi (C) reported Friday,, and the sigh of relief from markets was palpable. JPM delivered beats on strong investment and commercial banking performance and raised guidance for net interest income this year by some 11%. That drove the stock to its biggest gains since 2020 and its second best earnings reaction day in at least 20 years. It’s hard to view the US banking system as faulty when its largest lender is finding such firm ground beneath its feet. Other lenders delivered less spectacular results, but reassured investors that among big banks there isn’t much reason to be concerned. In the charts at right, we show the aggregate results from banks reported Friday in the form of loan loss reserves as a percentage of the total loan book and loan book-weighted average interest margin. Credit quality didn’t deteriorate much on the quarter, and there are plenty of reserves relative to recent history. At the same time, the core bank business of borrowing short and lending long appears to be doing just fine with net interest margins nearing 3%.Terra firma beneath the feet for financials may be just the platform this market needs to push higher.
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