Suisse Risk

  • “No one… believes this rally is real”
  • The Credit Suisse crisis (capital and liquidity)
  • Zach Scheidt on income-generating MLPs
  • Fool me seven times, shame on the EU
  • Ray Blanco: Intel competes for its share of gaming
  • Dude, where’s my airport slot?… The Fab Four’s tax treatment (circa 1966)… and More!

We begin our five minutes today by taking a glance at the market… where we see a sea of green.

The tech-heavy Nasdaq is in first position, rallying over 3% to 11,150. The S&P 500 Index comes next, up 2.8% to 3,780, and the staid Big Board is up 2.6% to 30,260. Happy days are here again?

Not according to Pam and Russ Martens at Wall Street On Parade: “No one… believes this rally is real. Wall Street veterans are thinking that either the Fed’s plunge protection team or the Treasury’s plunge protection team is behind the rally.”

Ah, ha, ha, ha, stayin’ alive…

“Equally unbelievable… is the fact that the major mega banks on Wall Street closed in the green yesterday,” the Martenses say.

Source: Wall Street On Parade

It’s particularly absurd in light of what’s going down at Credit Suisse; social media lit up over the weekend when ABC business reporter David Taylor tweeted: “Credible source tells me a major international investment bank is on the brink.”

The tweet was scrubbed — we wonder which Twitter standard Mr. Taylor violated? — but not before it was retweeted 4,000 times, according to the Martenses.

➢ “The panic around Credit Suisse has been growing as its share price [dove] this year [-55%] and last after the bank suffered over $5 billion in losses from its tricked-up derivatives with the family office hedge fund Archegos Capital Management,” the article outlines. “Archegos went belly up in March of last year. Credit Suisse’s reputation took another hit from its involvement in the Greensill Capital scandal.”

“The two issues that appear of most concern to investors,” says the Financial Times, “are the bank’s capital position, which reflects its ability to absorb losses, and its liquidity levels, which would be put to the test in periods of short-term stress. The bank insists that neither presents a risk.”

Umm, guess you could say those were the Top 2 concerns about Lehman Bros. in September 2008? Come to think of it, the top concerns about any bank!

“Credit Suisse is a global, systemically significant, too-big-to-fail bank that operates in the U.S. and is deeply interconnected throughout the global financial system,” warns Dennis Kelleher of watchdog group Better Markets.

“Its failure would have widespread and largely unknown repercussions from the inconvenient to the possibly catastrophic.”

[The mainstream media and big banks are underplaying the goings-on at Credit Suisse… just as few people paid attention when Biden enacted Executive Order 14067.

What’s buried in this order could set the stage for total control over your bank accounts and purchases. And it’s already underway.

While we still have time… Go here to learn the truth about Biden’s Executive Order 14067.]

“One of the best areas of the market for income investors is the master limited partnership (or MLP) industry,” says Paradigm’s retirement-and-income specialist Zach Scheidt.

“MLPs operate real estate and natural resource businesses. And most MLPs are engaged in the business of transporting, storing or distributing energy resources like oil, natural gas and refined fuels.

“Decades ago, Congress gave these companies some unique advantages in order to ensure U.S. access to important energy resources,” Zach observes:

  • “To start with, MLPs are not required to pay corporate taxes. So every dollar of operating profit generated is sheltered from the clutches of Uncle Sam
  • “Secondly, in order to maintain MLP status, these companies are required by law to distribute 90% of income to investors. (For this reason, MLPs are known as ‘pass-through entities’ — because income passes through the company directly to investors.)
  • “Finally, a portion of each dividend (technically a ‘distribution’) is classified as a ‘return of capital’ to shareholders,” Zach says, and capital gains taxes can be deferred in the near term.

“I’m sure you can see why I like MLPs for income investors. They offer government-mandated income — along with some great tax benefits!

“But let’s look at just why these investments make so much sense in today’s market…

“MLPs have one other advantage you may not have considered,” says Zach. “Debt!

“Most of today’s MLPs have a significant amount of debt — and that debt can give you an advantage as an investor.

“The costs to build pipelines, storage capacity and export terminals can be enormous. And successful MLPs have had to borrow billions to build our country’s energy infrastructure. Now, as inflation hits and interest rates rise, this debt actually works in investors’ favor.

“For the most part, MLPs have long-term debt obligations that aren’t due for years to come,” Zach continues. “And the capital has been borrowed at extremely low rates thanks to former ‘zero interest rate policy’ (or ZIRP).

“Meanwhile, inflation has driven the prices of energy resources like oil and natural gas higher. A trend that should continue for the foreseeable future,” Zach says. “It’s a great situation… leaving the broad MLP industry in great financial shape.

“And since these companies have already invested the capital to set up their network of pipelines, storage facilities and natural gas terminals, they’re raking in huge profits now that the world needs their help. And remember, these profits are required — by law — to be passed to investors.” While Zach has some specific MLP recommendations, we’re reserving those for paying readers…

European Commission President Ursula von der Leyen says: “We are proposing a new package of biting [Russian] sanctions.” Oy, here we go again…

“The European Union executive proposed… an eighth round of sanctions against Russia over its invasion of Ukraine, including tighter trade restrictions, more individual blacklistings and an oil price cap for third countries,” Reuters says.

“The G7 wealthy nations — the United States, Japan, Germany, Britain, France, Italy and Canada — and the EU” want “to enlist other countries, including India and China” to put a price cap on Russian oil. While the details are still being “hammered out” the price cap is reported to be in the “$40–60 per barrel range for crude,” according to Reuters.

[This is thought-provoking: The G7 also wants London-based maritime insurer International Group of Protection & Indemnity Clubs — which insures “about 95% of the global oil shipping fleet” — to cancel coverage on Russian oil tankers. Imagine the global ramifications of, say, an oil spill… plus a canceled insurance policy.

Guess we shouldn’t give these control freaks any ideas because they’re really coming for our oceans.]

“There’s an old saying that when you’re stuck in a hole, the best approach is to stop digging,” says our macro authority Jim Rickards. “If you have imposed seven rounds and they all failed, you might want to stop short on the eighth.”

Instead? “The EU is moving full-speed ahead.”


Wartime sacrifices

Meanwhile, the ruble is stronger than before the war, and Russia is raking in more than $21 billion per month on its oil-and-gas exports.

Jim’s conclusion: “As in the past, the EU economies will be the big losers… The best approach would be to end the war and get back to business. That seems to be the furthest thing from EU leaders’ minds.” That’s assuming they have any…

“Intel Corp. (INTC) is in the news for its push into the gaming sector with an upcoming graphics processing unit (GPU),” says Paradigm’s science-and-technology editor Ray Blanco.

“A GPU is a specialized chip designed to facilitate the processing of computer images sent to a display device, typically your computer monitor,” he notes. “GPUs are found in everything from mobile phones, to personal computers, workstations and game consoles.

“Advanced GPUs are necessary for running the latest… hyper-realistic graphics [that] require the intense processing power found in cutting-edge GPUs,” he adds.

“Although popularity has dwindled a bit since the height of the pandemic,” Ray says, “gaming is still a massive industry that will continue to grow over the years.”

And when it comes to GPUs for gaming consoles, Nvidia Corp. (NVDA) and Advanced Micro Devices (AMD) have “dominated the market.”

“To put things in perspective,” says Ray, “sales figures for Nvidia’s GPUs touched $2 billion in its latest quarter, while AMD pulled in $1.7 billion with its gaming segment.

“If Intel can capture a decent segment of this market, it could prove wildly successful for the company,” Ray continues. “And Intel has a plan to get in on the action.

“Intel’s CEO Pat Gelsinger announced that the company will be releasing a line of graphics cards for gamers with a launch date of Oct. 12.”

Per GPUs, Gelsinger says: “They’ve just gotten super expensive, and we don’t think they need to be. We’re about to fix that.”

“For reference,” Ray says, “when it’s released, the newest Nvidia GPU will have a price tag of $1,599.” In comparison, Intel’s “Arc chip” will be priced at $329.

“The way things are looking, Intel is full speed ahead trying to reboot its business after a few years of struggling to advance,” he says.

“With a new CEO and having recently broken ground on a $20 billion semiconductor plant near Columbus, Ohio,” Ray concludes, “Intel has a serious chance of netting a portion of profits within the gaming industry.”

American Airlines:“Dude, where’s my airport slot?”

According to an article at The Points Guy: “A slot is the authorization for a flight to use a runway at a busy airport for either a takeoff or a landing… The slots are distributed throughout the day and week to balance traffic.”

The FAA regulates this slot system at four busy airports in the country — three in New York/New Jersey and Ronald Reagan Washington International Airport serving D.C.

Now American Airlines in in U.S. District Court, arguing to partner with smaller airline JetBlue in the Northeast. Without said partnership, American claims it can’t compete for slots — particularly at JFK International Airport.

“Turns out that American still had more slots to use,” The Points Guy says, “and could have had a moderately stronger presence in New York — if only it hadn’t forgotten about them.”

In fact, after the American Airlines-US Airways merger finalized in 2015, seven coveted slots got lost in the shuffle; the FAA noticed their disuse and acted on a “use it or lose it” basis.

The art of mean tweeting…

American Airlines Chief Commercial Officer Vasu Raja blames manual “accounting and combining slots after the merger” for the MIA slots. He adds: “I’m a little beside myself that it happened… It makes us sound completely ridiculous.”

We hope Mr. Raja isn’t too hard on himself — it’s actually refreshing to hear an executive own up to mistakes.

A reader comments on the U.K.’s 45% top tax rate, applying to incomes as low as 150,000 pounds — about $169,000.

“Cue the Beatles’ ‘Taxman’ (1966),” he says:

If you drive a car, I’ll tax the street
If you try to sit, I’ll tax your seat
If you get too cold, I’ll tax the heat
If you take a walk, I’ll tax your feet

“Shh, don’t give them any ideas!”

We think the cat’s out of the bag… You said it yourself: The U.K. — and the rest of the world — has had the Fab Four’s tax template since 1966.

Take care! We’ll be back with another episode of The 5 tomorrow.

Best regards,

Emily Clancy
The 5 Min. Forecast

P.S. Seeing more green in the rest of the market, too…

Commodities? Oil is up over 3% to $86.30 for a barrel of West Texas Intermediate. And precious metals are catching a bid — gold is up $31.70 per ounce to $1,733.60 and silver is up 2.5%, over $21.

Last, Bitcoin and Ethereum are both up about 3% to $20,140 and $1,350 respectively.

Emily Clancy

Emily Clancy

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