Monday Morning Reads

Monday Reads


Morning Reads








Russia deployed its newest Kinzhal hypersonic missile in Ukraine twice over the weekend, claiming to have hit an underground ammunition depot in Deliatyn on Saturday and a fuel storage site near Mykolaiv on Sunday. Analysts say it marks the first time hypersonic missiles have been used in combat, though there were reports of the weapons being used during campaigns in Syria. China and Russia first began testing hypersonic weapons in 2014 and 2016, respectively, prompting the U.S. to ramp up its testing programs.

What are hypersonic weapons? Missiles in development, like boost-glide missiles and air-breathing missiles, are being designed to evade defense systems while flying at speeds higher than Mach 5. The objective is to travel at such a high velocity and low altitude that make them difficult to intercept, while they can also maneuver in-flight compared to the fixed sub-orbital trajectories of ballistic missiles. Some ground-based radars can detect hypersonic weapons, but current systems cannot give an early enough warning to respond to an attack in real-time.

Looking to play catch-up, the U.S. is rushing the development of its own hypersonic arsenal. General Dynamics (NYSE:GD) subsidiary Bath Iron Works is beginning the engineering and design work needed to retrofit the weapon system on three Zumwalt-class destroyers in fiscal year 2023. The project will continue through 2025, while hypersonics will be added to Virginia-class nuclear-powered attack submarines by 2028.

Outlook: Former acting Navy Secretary Thomas Modly has said hypersonic weapons "have already changed the nature of the battlespace, much as nuclear technology did in the last century." The Pentagon's FY2022 budget reflected as such, with requests for hypersonic-related research and development pegged at $4B, up from $3.2B a year earlier. "The engineering is not that hard," added Bryan Clark, a defense analyst at the Hudson Institute. "It'll just take time and money to make it happen." (22 comments)

Oil tears higher

The rebound in oil prices is continuing this morning as the war in Ukraine approaches the end of its first month with no conclusion in sight. WTI crude futures (CL1:COM) climbed as much as 5% to over $108 a barrel, after falling to as low $93/bbl last week (from $130 the week before). Russia is now turning to more destructive weaponry in Ukraine as the latter rejected a demand to surrender the besieged southern port city of Mariupol.

Other catalysts: The EU is considering whether to impose an oil embargo on Russia, which could prompt Moscow to close flows on the Nord Stream 1 pipeline that helps provide the bloc with 40% of its natural gas needs. It comes after Qatar agreed to work on supplying Germany with LNG as it seeks to reduce its long-term dependence on Russian imports. Houthi rebels also unleashed a series of drone and missile strikes on energy facilities in Saudi Arabia on Sunday, temporarily cutting crude production at one site.

In fact, the recent upward pressure on oil saw Saudi Aramco (ARMCO) more than double its profits to $110B in Q4. "We see healthy oil demand. Unfortunately, there is shrinking global spare capacity, combined with low inventories and a lack of investment," CEO Amin Nasser said following the results, blaming "a transition plan that is totally unrealistic" for the current pricing dynamic. "We're doing our part, but it's not enough. Other players in the industry also need to do their part and increase investment."

Alarm bells? The International Energy Agency, which last year urged an end to new oil, gas and coal projects as a way to help the environment, is now warning of an "emergency situation" for global energy security. The notice came along with a 10-point plan that focuses on cutting consumption, though it will be hard to convince consumers and corporations to play along. The actions include lowering speed limits on highways, car-pooling, working from home, eliminating air travel for business, taking trains instead of planes and the adoption of "car-free Sundays." (6 comments)

Food protectionism

The conflict in Ukraine has already led nations to reassess their energy security, but with two of the world's biggest grain exporters at war, food security is also making waves. The Hungarian government now has the option to buy any grain destined for export, while Moldova and Serbia have restricted sales of crops like wheat and sugar. Bulgaria has also allocated government funds to increase its national grains reserve, while proposals in France are lobbying the government to stockpile grains on fears that supplies could get depleted.

Breadbasket of Europe: Ukraine yields 10% of global wheat exports, 14% of corn exports and about half of the world's sunflower oil, according to the U.S. Department of Agriculture. Russia is the world's largest exporter of wheat, accounting for more than 18% of international exports.

"What's going on in Ukraine is going to change our whole approach, and our view on the future of agriculture," declared EU Commissioner for Agriculture Janusz Wojciechowski. EU officials will meet today to discuss ways for making food supplies more secure, like allowing fallow land to be used for protein crops, relaxing state-aid rules to grant assistance to farmers or offering support to the pig meat industry.

Go deeper: Food protectionism is even enveloping markets outside of Europe. Indonesia, the No. 1 producer of palm oil, is raising export duties to make it more profitable for companies to supply the domestic market. Argentina, the biggest exporter of soybean meal and oil, is blocking traders from registering cargos for export, while Egypt is prohibiting staples like flour, lentils and wheat from leaving the country for three months. "Any stability that you get in the country that's putting up the export ban is an instability exported to the rest of the world," explained Joseph Glauber of the International Food Policy Research Institute. (6 comments)

Buffett makes moves

In his 2022 annual letter to shareholders, Warren Buffett bemoaned the lack of good investment opportunities, noting that both he and longtime right-hand man Charlie Munger found "little that excites us." That sentiment may be changing as Berkshire Hathaway (BRK.ABRK.B) just disclosed an $11.6B deal to buy insurance firm Alleghany Corporation (Y). Shares of the latter are ripping higher in premarket trade, climbing 25% to over $850 at the time of writing.

Quote: "Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," the Oracle of Omaha said in a statement.

Recall that Alleghany CEO Joseph Brandon once led Berkshire-owned General Re, before departing in the midst of the global financial crisis. At one point he was even seen as a possible successor to Warren Buffett, but later joined Alleghany in 2012, before working his way up to chief executive in December 2021. Alleghany has a whole host of different insurance lines, including wholesale specialty, property and casualty, as well as reinsurance operations.

Next steps: The latest transaction, which was unanimously approved by both boards of directors, includes a "go-shop” period where the insurer can solicit and consider other acquisition proposals for 25 days. It also means Buffett is diving deeper into the world of insurance, which has been a key driver of Berkshire's growth into a conglomerate. While Buffett had recently turned to stock buybacks to put his almost $150B cash pile to work, the old-time deal hunter might be back in action. (10 comments)

Today's Markets

In Asia, Japan closed. Hong Kong -0.9%. China +0.1%. India -1%.
In Europe, at midday, London +0.7%. Paris -0.1%. Frankfurt +0.1%.
Futures at 6:20, Dow -0.4%. S&P -0.2%. Nasdaq -0.4%. Crude +4.5% to $107.71. Gold -0.2% to $1926.10. Bitcoin -1.1% to $41,379.
Ten-year Treasury Yield +3 bps to 2.18%

Today's Economic Calendar

8:00 Fed's Bostic Speech
8:30 Chicago Fed National Activity Index

Companies reporting earnings today »

What else is happening...

Boeing (BA) 737 crashes in China with more than 130 on board.

Shenzhen reopens, but Shanghai Disney (DIS) closed until further notice.

Ivermectin had no clinical benefit against COVID in largest study to date.

Thoma Bravo said to agree to buy Anaplan (PLANfor $10.7B.

Nielsen (NLSN) rejects $9B proposal from private equity consortium.

Potential commodity fallout from the Canadian Pacific (CPrail strike.

U.S. recession risks rise as Ukraine-Russia adds to inflation.

How have the 5 largest dividend ETFs matched up in 2022?

Microsoft (MSFT) has a platform that could drive more growth than Office.

Kinder Morgan (KMI) urges FERC not to apply tough new climate polic


Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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