Stuck

The escalating energy crisis in Europe

May 13, 2022 Read in Browser TOGETHER WITH Good morning. It's been a tough week for Cameron and Tyler Winklevoss, the identical twins who, in a failed lawsuit, accused Mark Zuckerberg of stealing the idea for Facebook. After Harvard, the twins went on to become prominent bitcoin investors, but have lost an estimated 40% of their respective $2 billion fortunes in the cryptocurrency rout, according to the New York Post. Despite what the twins might claim, Zuckerberg also beat them to this latest trend. His net worth has depreciated by $56 billion so far this year. Morning Brief • Russia is back to using energy as a weapon against the EU. • The Chinese government imposes more Covid restrictions. • After a $27 billion loss at SoftBank’s Vision Fund, CEO Masayoshi Son jokes he’s no bald fraud. Global Economy Latest Sanctions by Russia Spike European Energy Costs On Thursday, for the second day in a row, a pipeline carrying gas from Russia to Europe shut down, driving up energy prices on the Continent. This latest shutoff, a product of Russia's retaliatory sanctions, is the latest move in a tit for tat battle of weaponized energy. Europe’s options for retaliation may be hamstrung by the fact that Putin is working with an inside man. The Hungary Games On Thursday, Russia's state-owned gas giant Gazprom cut off shipments through the Yamal pipeline, which runs from Russia to Germany through Poland. A day earlier, another major pipeline, this one in Ukraine, shut down because of interference from occupying Russian forces. Economists at the Oxford Institute for Energy Studies estimate Russia’s tactics could leave Europe’s gas supply 13 billion cubic meters short this year. For context, Russia supplies roughly 40% of Europe's total needs. Efforts are already underway to close the gap: in March, the US agreed to ramp up the amount of liquified natural gas (LNG) it supplies to the EU by 15 billion cubic meters this year. This week, German legislators fast-tracked approvals for new LNG terminals that could replace 70% of Russian gas imports by mid-2024. Still, in the fallout of the pipeline's closing, key European gas benchmarks jumped 13% to €106 per megawatt-hour on Thursday (more than four times higher than a year ago).   While the EU has applied sanctions to Russia in other industries, its options for retaliation in the energy sector are limited by politics: • Hungarian President Viktor Orbán, a Putin ally hailed by the Russian president for his re-election last month, said he will not support any retaliatory sanctions that target Russian energy exports. • Orbán has refused to let Western arms meant for Ukraine move through his country and had campaigned for re-election on a platform of, among other things, staying out of the war.  “On the whole, the situation is escalating,” said German economic minister Robert Habeck. “It’s becoming evident once again that Russia is using energy as a weapon.” The Price You Pay: Habeck told German newspaper Handelsblatt that the effects of Russia’s sanctions are “manageable” and that supply has fallen by the equivalent of 3% of German demand. Some analysts worry that could change in winter, when energy demand increases, but Habeck suggested that, rather than cutting supplies, Putin’s true goal is to stir uncertainty and make purchasing more expensive. It seems to be working: in addition to the EU gas benchmark, futures for German electricity hit €230 per megawatt-hour Thursday — the highest this year, per Refinitiv. Covid China to ‘Strictly Limit’ Outbound Travel China has fully committed itself to a zero-Covid policy. It's a drastic — some would say draconian — goal, and drastic goals require drastic measures. In its latest major step, China is not just locking down major cities like Shanghai, but nearly the entire country itself. On Thursday, the Chinese government said it intends to “strictly limit” unnecessary outbound travel. Not Leaving On a Jet Plane Throughout the pandemic, Beijing has advised its citizens to avoid non-essential travel. Still, the new restrictions, announced Thursday by The National Immigration Authority on popular social media platform WeChat, suggest a looming crackdown at the borders of the world’s most populous nation. The declaration came soon after the National Health Commission reported 237 newly confirmed cases and 1,680 new asymptomatic cases, mostly in Shanghai. Meanwhile, in Beijing, 35 new locally transmitted cases in the previous 24 hours sparked concerns about an imminent lockdown. Outbound Chinese tourism has all but evaporated in the past two years, in stark contrast to the pre-pandemic years, dealing a major blow to the recovering travel industry: • In 2019, over 154 million outbound tourists departed from China, according to Statista — a remarkable increase from just 57 million in 2010. In 2021, just 25 million Chinese tourists traveled internationally. • Chinese travelers racked up over $260 billion in expenses while traveling abroad in 2019, also per Statista — the most of any nation. Americans spent $184 billion, with Germans, Brits, and the French rounding out the top five.  Stuck: Unsurprisingly, the pain is felt most acutely at tourist destinations in nearby Asian countries. Vietnam’s government says that more than 95% of travel businesses in the country — a vacation hotspot for mainland Chinese — have closed or suspended operations. Unfortunately for international destinations and cabin-fever-feeling Chinese tourists alike, the trend may not end anytime soon. A January Goldman Sachs report forecasts that the Chinese government’s strict rules will last at least through the end of the year, and likely into 2023. SPONSORED BY vinovest One Recession-Resistant Investment You Need To Try Here at The Daily Upside, “bloodbath” isn’t a term we use often. Unfortunately, nothing else can accurately describe the performance of the stock market these past few months… so here we are.  That performance is exactly why it’s worth exploring new investment opportunities – in particular, ones that diversify your money outside of traditional stocks and bonds. Our favorite recession-resistant option?  Fine wine via Vinovest. While it may seem like the favorite investment vehicle of the upper crust, fine wine actually has a number of factors that make it attractive both in good and not-so-good times: • Scarcity that increases with time as people drink it • Aging that improves wine quality (and value) over the years • Brand Equity from estates that can command up to six figures for a single bottle But don’t take our word for it – fine wine has outperformed the Global Equity Index for the past 15 years, including downturns.  If your portfolio has taken a beating these last few months, we recommend getting started on Vinovest right here to hedge your bets.  Investing SoftBank’s Vision Fund Has Lost a Whopping $27 Billion SoftBank CEO and founder Masayoshi Son has used his gift of gab to become one of the most charismatic celebrity investors around. On Thursday, the numbers did the talking for him, as Son was busy eating a fresh slice of humble pie. Son’s brainchild, the SoftBank Vision Fund, a high-profile, high-flying investment arm, which focuses on generating high returns from high tech, has delivered a shocking $27 billion loss. Carry on, Wayward Son Founded in 2017, the $100 billion Vision Fund — two funds, technically: Vision Fund 1 and Vision Fund 2 — made pretty clear sense. Aided by his team of experts, Son, one of the world’s foremost tech investors, would pile into startups with the potential for big returns. A who’s who of top business brands, including Microsoft, Apple, and Saudi Arabia's Public Investment Fund, lined up as backers. When the market was on fire last year, and interest rates were low, the strategy was gravy. SoftBank Vision Fund 1 alone had generated cumulative gross investment gains of $55 billion, distributing $22.3 billion to LPs as of March 31, 2021. And yet the bullish Son failed to account for the likelihood of massive re-rating of growth assets, the type we have witnessed in 2022. Knocked off his lofty perch, Son must now engineer a turnaround: • Step one is to pull back, especially in China. Two of Vision’s biggest losers were Chinese tech giants: ride-hailing group Didi Chuxing (down 50% this year) and e-commerce giant Alibaba (down 30%). “It’s not that we won’t be investing in China at all as there are some great companies there, but we want to be investing smaller amounts,” he said Thursday. • Step two is to keep the faith. “When it rains, you open an umbrella,” Son added, suggesting the current turmoil will pass. Of note, SoftBank plans to cash in on UK chip designer Arm Ltd. by taking it public in the aftermath its failed $40 billion tieup with Nvidia. Some of Vision’s investments are holding up. The $2.2 billion the fund put into South Korean e-commerce firm Coupang is still up $6 billion, despite shares falling 60% this year. No Bald Fraud: SoftBank’s market value plummeted after the dot com boom, when it was similarly caught up in a tech rout, but Son has weathered the storm. “My nickname back then became the ‘bald fraud’,” he joked Thursday. “While it’s true that I’m balding, I believe I’m no charlatan.” Extra Upside • Bill Simmons got a big promotion to lead global sports content at Spotify.  • Check out the first picture ever of the supermassive black hole at the center of the galaxy. • Daily Upsiders get 20% off this healthy, non-alcoholic wine with code UPSIDE20. Surely Wines was created with one thing in mind: Let people enjoy their favorite wines, without any of the negative side effects of alcohol. These vegan wines are keto-friendly, gluten-free, low sugar, and still full of the amazingly complex flavors you crave. Get your first bottle for 20% off right here (and don’t worry – they offer a 100% satisfaction guarantee or your money back).* *Partner You have 0 referrals. Share The Daily Upside, Earn Rewards Or, simply copy and paste your unique referral link and share it with others: https://sparklp.co/bb4b34b2 Just For Fun Catch. Skateboarder. Written by Sean Craig and Brian Boyle. ADVERTISE // CAREERS No longer want to receive these emails? Unsubscribe here. Copyright © 2022 The Daily Upside, LLC., All rights reserved. 1230 York Avenue, Box 154, New York, NY 10065

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