Fires, Nikola’s ‘fraud,’ & climate profiteering
Plus the tech stock fallout, Brexit lawbreaking, and our Rapidest Round yet
Welcome to a new edition of Contention News! This week enjoy just about seven minutes of FANGMANTIStic dissident business news:
Tech stocks, job market still struggling
Fires, Nikola’s ‘fraud,’ & climate profiteering
Brexit break threatens U.K. trade deals
Rapid Round: Vaccine moves, World Bank Africa blues, and six total sentences on TikTok, Palantir, and Epic vs. Apple
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Tech stocks, job market still struggling
Unwinding speculation and mounting evidence of a stalled economic recovery drove markets down last week, the Dow 1.7%, the S&P 500 2.5%, the Nasdaq 4.1%.
The tech stock selloff that started last week continued after the Labor Day holiday, driving the Nasdaq into a formal market correction -- down 10% from recent highs -- in record time. The previous record: March’s crash in six days. Markets were down for the second consecutive week everywhere in the world, something else that hasn’t happened since March.
More investigation, however, has raised questions about the “SoftBank Whale” thesis we wrote about last week, with new indications that the Japanese investment company was simply riding a wave generated by widespread speculation by small investors:
60% of option orders during the melt up period were for 10 or fewer contracts.
Total volume for options orders was up 80% over 2019 monthly averages.
About 60% of those orders had a maturity date of two weeks or less.
The trend was for gambling: buying “out of the money” call options that would only pay off if single, hot ticket stocks made significant upward moves in a very short period of time. SoftBank contributed to the problem, but it seems to have inundated them as well -- news of their role drove their value down $9 billion, and they now appear to have closed most of their “whale” positions.
Meanwhile, back in the homes of working families, data continues to point to malaise. New jobless claims were worse than expected, but with recent changes in seasonal adjustment calculations, the report can only really be compared to the week before -- claims “failed to decline.” Without adjusting the numbers, 1.7 million new people lost work last week, and 18.4% of the U.S. workforce is on some sort of jobless benefit.
The picture is one of a world historic crash in March, a quick recovery most of the way back, but a huge remaining gap between where we were and where we are. Large majorities of families remain distressed, but Congress punted again on a relief bill last week, this time the Democrats leveraging all-or-nothing gamesmanship to boost their chances in the upcoming elections.
They have little to lose. They aren’t the ones literally going hungry, and Fed stimulus has juiced their pocket books until the last two weeks. We’ll see if markets continue their decline and if politicians and their backers start to care about doing anything to help.
Fires, Nikola’s ‘fraud,’ & climate profiteering
Wildfires consuming millions of acres of the U.S. west blotted out the sun, forced hundreds of thousands of evacuations, killed at least 33 people, and left dozens of others missing last week. Weather conditions improved over the weekend, reducing the looming risk of a “mass fatality event,” but fire season has not yet reached its normal peak and already the wildfires are 10 times worse than this point last year.
Climate change is a clear culprit in this disaster, but business-based solutions to that crisis stumbled too last week.
Automobiles account for the largest chunk of greenhouse gas emissions in the United States, making electric vehicles (EVs) a key element of any climate solution. But Tesla, the world’s most notable EV company, had its worst one-day drop ever on Tuesday, losing 21%. The decline was certainly part of the broad-based fall in “FANGMANTIS” tech-oriented stocks, but was also fueled by Tesla’s non-inclusion in the S&P 500.
Tesla competitor (and name troll) Nikola had it even worse though. On Tuesday GM announced that they were taking a $2 billion stake in the electric truck startup. The investment involved no cash, but instead involves exclusive supply and licensing agreements for battery, fuel cell, and powertrain technologies.
On Thursday, however, activist short seller Hindenburg Research dropped a report that branded Nikola as “an intricate fraud.” Nikola has made zero sales to date, and the report argues that the company faked its few demonstrations of working prototypes -- most notoriously by rolling a non-working semi down a hill and tilting the camera to make it look like it was running on level ground.
Many other lies and questionable personnel choices outlined in the report prompted a quick 13% drop in Nikola stock and a 4.7% decline in GM. Nikola has yet to refute any specific claims, promising to do so this week. GM -- whose deal entails little up front risk -- has stood by their partner so far.
The mess is just a very specific expression of a larger problem with profit-oriented solutions to the climate crisis now engulfing western states. There is no definition of sustainable business, and the make up of “ESG” (environmental, social, governance) investment funds is indistinguishable from non-ESG funds. That’s because actually solving the crisis will mean massive lifestyle shifts that don’t accord with consumer economy priorities.
Consumers in California, Oregon, and Washington are getting the first taste of what such a downgrade looks like. The real “intricate fraud” here is the sense that we can buy and invest our way out of the problem.
Brexit break threatens U.K. trade deals
U.K. Prime Minister Boris Johnson’s government announced plans to “break international law in a very specific and limited way” last week. At issue: Britain’s plan to leave the European Union and a new law governing commerce between Great Britain and Northern Ireland.
The intractability of the situation highlights the contradictions at the heart of the U.K. economy -- a prosperity built on colonialism now completely out of steam.
The United Kingdom left the European Union specifically to escape E.U. environmental and labor regulations. If cheap or subsidized British goods can drive freely across the Irish border and from there flow into the rest of Europe, then E.U. laws become meaningless.
But the land border between the two is in Ireland, and it is governed by the 1998 Good Friday Accords. That agreement set up a legal path for Irish reunification and forbids any border controls between the two countries. So Johnson et al. have proposed a law that seeks to resolve this contradiction by breaking the E.U.-U.K. treaty in three ways:
U.K. ministers can unilaterally override export declaration requirements for goods moving from Northern Ireland into Great Britain.
They can also unilaterally decide if goods moving the other direction -- from Britain into Ireland -- are at risk of moving into Europe’s common market.
They claim the unilateral right to decide whether or not to inform the European Union about state aid to firms in Northern Ireland.
The goal is to prevent a “customs border in the Irish Sea,” an aim immediately endorsed by right-wing British collaborators in Northern Ireland.
Literally everybody else in the world, however, sees the breach as problematic. E.U. officials threatened legal action and eventual sanctions, and U.S. House Speaker Nancy Pelosi indicated that a future U.S.-U.K. trade deal would be dead in Congress. The economic consequences for the U.K. -- losing significant access to its two largest trading partners -- could be huge.
The simplest solution, of course, would be to simply end the colonization of Ireland once and for all, and the mess illustrates the absurdity at the heart of the whole Brexit debacle: Brits want to keep the prosperity they extracted from the rest of the world, but they don’t have the power to keep extracting it and they don’t want to submit to the institutions which do have that power.
The trajectory of this decision is one that aims at serious consequences for the United Kingdom of Great Britain and Northern Ireland, but where it lands exactly is still up in the air. Stay tuned as the story develops.
Rapid Round
Vaccine plans still short
AstraZeneca stock plummeted early in the week when the U.K.-based company announced that they were suspending their vaccine test due to an unexplained illness in a study participant. By the end of the week they had restarted the test, and such pauses are routine in Phase 3 trials.
China, meanwhile, announced at an international trade fair that two of its vaccines were near the end of their Phase 3 tests, with one already injected into hundreds of thousands of citizens. Despite rampant vaccine nationalism from the United States, infectious disease leader Dr. Anthony Fauci reminded the public last week that there would likely be multiple vaccine winners, and that they would all be needed.
The International Air Transport Association, however, announced last week that distributing even one vaccine would require a global airlift of around 8,000 flights. To date, there are few plans to accomplish this project, especially in light of news that the United States will shut down its main international COVID response task force this week.
World Bank loan sharks circle Africa
The World Bank found new ways to advance investor interests at the expense of African communities suffering from the coronavirus and water insecurity in recent weeks.
The Bank is withholding a $1.5 billion loan to Nigeria intended for critical pandemic relief until the country’s government pays out foreign currency dividends owed to investors. The dividends have no connection to the loan’s aims, and failure to pay them does not imperil Nigeria’s ability to repay the loan. The move leverages recent desperation and Bank resources to weaken capital controls meant to prevent a currency crisis following a 90% drop in oil exports.
A previous World Bank investment in Nigeria is likewise at risk of default because of these same dollar shortages. The $900 million Azura-Edo Independent Power Plant has plenty of Nigerian nairas, but may miss its next dollar-denominated payment unless the government moves the Bank and its private equity partners up in the credit line. Both moves against Nigeria come as the U.N. warns that Northeast Nigeria is at risk of famine.
On the other side of the continent, World Bank-affiliated researchers collaborated with a Kenyan water utility to measure the political backlash associated with cutting off water and sewage services to villages when landlords did not pay their bills. They reported that collaborative methods were less effective than cutting off access to clean water, and did not inform the villagers that they were part of an academic study.
Rapidest Round: TikTok, Palantir, Epic vs. Apple
We wanted to give even more rapid, two sentence updates on some of the stories we’ve followed over the last several weeks:
TikTok: The deadline for selling the app comes tomorrow, and President Donald Trump has said he will not extend it. Chinese officials reportedly prefer a U.S. shutdown over a forced sale, as the latter makes Chinese companies look weak.
Palantir: The company’s COO Shyam Sankar told prospective investors that “macro instability or crisis” periods are “tailwinds” boosting the company because failing institutions can’t solve their own problems. Palantir Executive Chairman Peter Thiel might have been doing his part to stir up these winds in 2016 -- a new report outlined his extensive meetings with white nationalists leading up to the elections that year.
Epic vs. Apple: Apple countersued Epic Games for its breach of contract, the very gambit the gamemaker used to challenge the giant’s monopoly position. Analysts now believe Epic will have a hard time meeting the case’s burden of proof.
Disclaimer
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Photo Credit: Christopher Michel via Flickr