Tuesday, July 2, 2024

"Svalbard and geopolitics: A need for clarity"

From The Barents Observer, July 2:

The Norwegian government is silent about its geopolitical concerns relating to Svalbard. This silence has consequences. 

“Strengthen national control”

White papers on Svalbard are produced at regular intervals. The latest, presented by Norwegian Minister of Justice and Public Security Emilie Enger Mehl in Longyearbyen on May 31, was written in a new security policy context.

Beyond the war in Ukraine and increased rivalry between China and the US, Norway’s Arctic areas are also central to security relations between NATO and Russia. Svalbard is increasingly attracting attention from countries far beyond the Arctic Circle: India has an Arctic strategy, and both North Korea and Turkey have signed the Svalbard Treaty.

Svalbard is Norway’s crown jewel in the north, the archipelago that makes Norway a polar superpower, granting it access to the Arctic Ocean, together with Canada, the Kingdom of Denmark, Russia, and the USA....

....MUCH MORE

If interested see this post and the links embedded therein:
"Top Russian legislators question Norwegian sovereignty over Svalbard"

I'm not entirely sure what the Russian play is here. It might be as straightforward as securing access to the Atlantic for Russia's Arctic-based submarines:

....Military speaking, Svalbard is of great strategical importance, located between the Barents-, Greenland-, and Norwegian Seas. The one controlling Svalbard is also likely to control the important gateway from the shallow Barents Sea to the deeper North Atlantic.

For Russia’s Northern Fleet, the so-called Bear Island Gap between mainland Norway and the archipelago’s southernmost island is key to conducting sea denial operations in and over the maritime areas further south, potentially threatening NATO’s transatlantic sea lines of communication.....


Russian Bastion Defence in relation to Norway and the Bear and GIUK Gaps. 
Source: Mikkola / RAND Europe report 
Hmmmm, I see that Alistair MacLean wrote both Ice Station Zebra which takes place on the Arctic drift ice and Bear Island which takes place on a boat off the coast of the island, thus forming a vector with the location of the cable break.

Or it might be a hankerin' for yummy crustaceans: 

Or, with the European return to coal against the backdrop of EU disunity, it might be a desire to restart the Norwegian coal mines and get the European Coal and Steel Community (originally France, Germany, Benelux) up and running again, this time with Russian membership and possible observer status for Norway.

With the Russians, who knows? More after the jump.....

"Russia’s New ‘Combat Icebreaker’ Heads For Sea Trials"

From gCaptain, July 2: 

Russia continues to push forward with the rapid renewal and expansion of its icebreaker fleet. In addition to commissioning three new nuclear icebreakers in the last four years, with three more currently under construction, Russia’s first armed combat icebreaker, Ivan Papanin, is now headed for open water factory trials. 

Ivan Papanin was laid down in 2017 and is expected to join Russia’s Northern Fleet by the end of 2024. Two additional vessels of the type are under construction for the naval units of the country’s border patrol.

“The patrol ship Ivan Papanin, built for the Russian Navy at the Admiralty Shipyards, has entered factory sea trials. During this stage of the trials, the functioning of the propulsion system and onboard equipment systems will be checked,” the Russia Ministry of Defense announced in a statement. 

Unlike nuclear icebreaking vessels operated by state-owned Atomflot, which primarily serve to escort merchant vessels through the icy waters of the Northern Sea Route, the combat icebreakers are equipped with offensive capabilities. They include the 76mm AK-176MA gun and pre-installed launchers for Uran anti-ship and Kalibr-NK cruise missiles.

With a displacement of around 9,000 tonnes Ivan Papanin is around half the size of the delayed U.S. Coast Guard Polar Security Cutter. 

Capable of breaking through five and a half feet of ice it will be able to access most of the Arctic Ocean unassisted, except during the depth of winter. Its capabilities are comparable to Norway’s Svalbard icebreaking patrol vessel, though the Russian counterpart will be much heavier armed....

....MUCH MORE

China's $13 Trillion Local Government Debt Problem

In the U.S. the state of Illinois would like the federal government to bail out the problem the state and local politicians have created over the course of the last ninety years but that approach may be too Communistic for the Chinese.

From Asia Times, July 2:

China to defuse its $13 trillion LGFV debt time bomb?
Local reports indicate policymakers may finally get serious about a solution to dangerous debt pile at upcoming Third Plenum  

China’s leadership gathering later this month could be the moment policymakers devise to defuse the US$13 trillion time bomb imperiling Asia’s biggest economy.

Though China’s property crisis gets the headlines, debt troubles plaguing municipalities across the nation also require urgent action.

At issue is the explosion of local government financing vehicles (LGFVs) in recent years. Such debt, the vast majority of it the off-balance-sheet kind, now almost rivals China’s annual gross domestic product (GDP).

Between the default drama surrounding giant property developers and the glut of LGFVs, it’s easy to see why global investors worry about China’s economic foundations – particularly at a moment of extreme global uncertainty.

With US bond yields staying elevated, Japan skirting recession and Europe walking in place, the second half of 2024 isn’t exactly fertile ground for China to manufacture an export surge.

The good news, however, is Xi Jinping’s Communist Party seems ready to tackle the ticking LGFV time bomb. Local press reports indicate that a long-delayed economic strategy session to be held July 15-18 will aim to craft a solution to the massive debt pile.

At the upcoming Third Plenum, Xi’s inner circle is expected to allow local governments to keep more of the fiscal revenues they generate that currently go to Beijing. The required reforms to China’s tax system could be a big step toward removing one of the most immediate threats to financial stability.

It could also be a vital step toward investing more in high-value manufacturing sectors while stimulating now languid domestic consumption. At issue is a lack of social safety nets that causes mainlanders to save more than they spend.

Increased revenues would give local governments greater scope to invest in innovation and productivity-enhancing industries and make municipalities less reliant on property and land sales to stay afloat. They also would diminish the allure of debt issuances.

It’s hard to exaggerate the game-changer such a pivot could be. Fixing China’s financial cracks is only one part of the process. The other is building economic muscle that puts China on a path toward growing better, not just faster....

....MUCH MORE

"So much for green Google - emissions rise 48% since 2019" (GOOG)

It would be less of a big deal if the GOOG didn't have this bit running at the bottom of the search page:

Our third decade of climate action: join us

From The Register, July 2:

Datacenters and AI blamed for the increase, even as Chocolate Factory bets on AI to fix it 

With six years left for Google to meet its 2030 "net zero" climate commitment, the web giant has admitted its carbon emissions are rising.

In an environmental report [PDF] published on Tuesday, Google admitted that its greenhouse gas emissions rose 48 percent since 2019. In 2023 alone, the search giant's carbon footprint topped 14.3 million tons of CO2 equivalents, up 13 percent from the prior year.

Chief sustainability officer Kate Brandt and SVP of learning and sustainability Benedict Gomes pinned the blame squarely on increased datacenter energy consumption.

This shouldn't come as much of a surprise considering Google operates enormous datacenter fleets, and the sheer amount of compute required to train and deploy its growing library of AI models and services. Training the largest models often requires tens of thousands of accelerators running flat out for weeks, or even months. Everyday Google services like search also consume more power these days: it's estimated that an AI-powered query consumes ten times more energy than a standard search.

AI's impact on the environment wasn't lost on Brandt or Gomes, who spun it as a net positive. "We know that scaling AI and using it to accelerate climate action is just as crucial as addressing the environmental impact associated with it," Brandt and Gomes wrote in the report.

Google's argument is that AI development contributes to a larger carbon footprint, but the technology will offset more emissions elsewhere, such as by generating more efficient routes for automobiles and other ways to cut emissions....

....MUCH MORE

Shades of John Kerry when, as Climate Czar jetting off to Iceland in his private plane to receive a climate change leadership award:

“If you offset your carbon, it’s the only choice for somebody like me
who is traveling the world to win this battle”

Roger that, only choice, over. 

One of the more telling stories about how tough this stuff is, from 2015:
 
And related, 2011:
Google is one of the largest energy users* in the world, so large that they are embarrassed to say how much electricity they consume.

The Goog will not build a data center in California because of the cost of electricity.
The company has made something on the order of $3/4 billion in clean/green/alt energy investments, some of it in decidedly staid technology. Here they appear to be forecasting breakthroughs.

"First Solar’s Future Hinges on AI Demand and Election Outcomes" (FSLR)

We are tardy following up on our promise to return to FSLR in this morning's "First Solar's Decline: That Was A Quick 80 Bucks (FSLR)". Reality intruded but that is no excuse.

One of my physicians is an adjunct professor and department head as well as running her practice. The first time I went to see her one of her nurses came in ahead of the scheduled time and told me: "She's always late but she's worth it." She was and she was.

I believe I can say the same about the author of this piece, James Hyerczyk. The "worth the wait", not the always late.

From FX Empire, July 1:

Key Points:

  • Anticipated AI electricity demand positions First Solar as a key beneficiary.
  • First Solar stock drops nearly 10% after Trump outperforms Biden in debate.
  • First Solar benefits from Biden’s tariffs and tax credits, enhancing competitiveness.

First Solar: Riding the Waves of Volatility Amid Political Uncertainty

First Solar (NASDAQ: FSLR) has found itself at the epicenter of market volatility, driven not just by its operational performance but by external political and technological factors. The company’s stock has seen significant price fluctuations recently, with bullish traders optimistic about its potential to meet the rising electricity demands spurred by the AI boom. On the other hand, skeptics attribute its recent gains to government subsidies aligned with President Biden’s green energy agenda, highlighting the stock’s high-risk nature.

https://responsive.fxempire.com/v7/_fxempire_/2024/07/FSLR_2024-07-01_11-05-51.png?func=crop&q=70

Political Winds and Market Reactions
The political landscape heavily influences First Solar’s stock performance. Following a recent presidential debate where former President Donald Trump outperformed President Joe Biden, First Solar shares plummeted nearly 10%. Trump’s criticism of Biden’s Inflation Reduction Act as the “green new scam” underscores the market’s sensitivity to political rhetoric, particularly concerning clean energy policies. Investors are evidently pricing in the potential impact of a Trump victory on renewable energy stocks, leading to heightened volatility.

Analyst Sentiments and Stock Performance
Despite the political noise, several research firms maintain a positive outlook on First Solar. BMO Capital Markets and Evercore ISI have upgraded their price targets and ratings, reflecting confidence in the company’s long-term prospects....

....MUCH MORE

The stock closed down another $5.98 (-2.69%) at $216.73, fully $90.04 below the intraday high less than three weeks ago.

First Solar will report their second quarter numbers in four weeks. We expect beats top and bottom and guidance to match or exceed the street. The Go-Go's are on standby for:

A Quizzie From Izzy

That headline sounded better in my head than it looks in pixels.

Two from Ms. Kaminska's eXtwitter feed:

First Solar's Decline: That Was A Quick 80 Bucks (FSLR)

And the interesting thing about the twenty day, 27% decline is that not a lot of people seem to have noticed. On May 17 it was reported that FSLR had become the largest solar company by market cap, in the world and on June 12 the stock top-ticked, intraday, at $306.77 (within 4% of the 2008 all-time high of $317.00) before closing at $300.72.

Here's the latest via Investing.com:

Baird lowers First Solar shares target amid revised pricing and cost guidance

Tuesday, First Solar (NASDAQ:FSLR) shares saw a revision in their price target, now set at $307, a decrease from the previous $344, while the Outperform rating remains unchanged.

The adjustment comes as Baird aligns its model with the company's average selling price (ASP) and cost per watt guidance ahead of the second quarter financial reporting.

The firm acknowledges First Solar's strong demand as the second quarter reporting season approaches, emphasizing the company's advantageous position at the intersection of several key trends. These include the increasing demand for AI and data centers, the current geopolitical tensions with China, and the rising global need for reliable power sources.

Baird's stance suggests confidence in First Solar's potential for stock appreciation, driven by a reduction in costs and the anticipated durability of pricing, which is expected to be reflected in the company's forthcoming new bookings. The firm's commentary indicates a belief that these factors will contribute positively to the company's performance....

....MUCH MORE 

The article concludes by saying "This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.".

Which, if you've read enough of these things you could tell by the third paragraph.

The stock is down 40 cents in pre-market trade and posting this piece probably means it is turnaround Tuesday for FSLR.  $222.32 down $0.39 (-0.18%) last.

The pre-market low was $220.0517 (08:00:01 AM).

We'll be back with another FSLR post in a couple hours.
Recently: "
First Solar, Inc. Apparently A Victim Of President Biden's Debate Performance (FSLR)".

Capital Markets: "No Turn Around Tuesday as Greenback Remains Firm"

From Marc to Market:

Overview: The sharp jump in US long-term interest rates has helped lift the greenback in recent sessions and it remains firm against most of the G10 currencies today. The Canadian dollar is the best performer, and it is nearly flat. The intraday momentum indicators warn that after a mostly consolidative Asia Pacific and European morning, the greenback may probe higher in North America. The US economic calendar features the JOLTS report on job openings, while auto sale will trickle in throughout the day. Headline risk comes from the ECB gathering in Sintra, where Fed Chair Powell will speak later this morning.

Equity markets are mostly lower today, though Japan's Topix made new highs and the Nikkei reached its best level in three months. Most of the other large markets in the region fell. Europe's Stoxx 600 snapped a four-day slide yesterday but is giving it all back plus some today. It is off nearly 0.5%. US index futures are off 0.3-0.5%. European benchmark 10-year yields are 1-3 bp firmer today and France's premium over Germany is slightly wider today. UK Gilts are bucking the move, and the 10-year yield is a couple of basis points lower, aided by moderating BRC shop inflation. The 10-year US Treasury yield that was testing 4.20% early last week is consolidating around 4.45% now. Gold is subdued in the narrow range established at the end of last week (~$2320-$2340). August WTI has extended its rally to $84. It has not closed above there in almost three months. Escalating tensions in the Middle East and the onset of the hurricane season in the Atlantic are cited as the proximate drivers....

....MUCH MORE

"Hurricane Beryl explodes into Category 5 storm with 165-mph winds. Where is it going now?"

Although there don't appear to be any landmasses directly in the the path of the storm while it is at Cat 5, Jamaica is at risk as even a near miss is pretty darn energetic.

From the National Hurricane Center,  July 2:

https://www.nhc.noaa.gov/storm_graphics/AT02/refresh/AL022024_5day_cone_no_line_and_wind+png/090034_5day_cone_no_line_and_wind.png

note under current information maximum sustained wind 165 mph.

And from the Palm Beach Post:

Hurricane Beryl exploded overnight, growing into a Category 5 hurricane with 165-mph winds, according to the latest advisory from the National Hurricane Center.

And it's still intensifying.

When it made landfall at 11 a.m. on Carriacou Island Monday, July 1, it was a Category 4 storm with 150-mph winds.

Track Hurricane Beryl

 Track all active storms

Forecasters said Beryl is expected to bring "life-threatening winds and storm surge to Jamaica later this week."

The next significant landmass in Beryl's path will be Jamaica on Wednesday," AccuWeather Lead Tropical Meteorologist Alex DaSilva said. "Jamaica is likely to experience a high risk to lives and property Wednesday."....

....MUCH MORE

Monday, July 1, 2024

The Convexity Maven Is Perplexed

Markets can be wrong, "the truth is in the price" only some of the time, and there is something weird about how mortgage backed securities are being priced.
Harley Bassman, the Convexity Maven, knows a heck of a lot more* about packaged products than I do, but the fact he's been making this pitch for a while now leads one to consider the MBS trade as an example of the Climateer theory of wrongness: He is either wrong in the underlying thesis or he is wrong in his timing.

And I don't know which.

Anomalies that don't disappear over time elicit two emotions, fear that one might be missing some key factor which will become apparent only after one has committed a substantial fraction of one's net worth to the trade, and greed-based intrigue because it is in the interstices of the matrix and their intersection with understanding that alpha is found.

Or something.

From The Convexity Maven, July 2:

“Of Horses and Water”

I am sure you are well familiar with the expression:

“You can lead a horse to water; but you can’t make it drink”

After raising four strong-willed children, my version of this idiom is:

“You can lead a horse to water, chop off its head and fill it with cement,
drop it into a lake and it still will not drink”
. [Hat tip to Don Corleone]

Today we consider why Mortgage-back Securities (MBS) are still trading nearly
two standard deviations wider (higher in yield) than their historic average, nearly
two years after the Federal Reserve Bank [FED] started their tightening cycle.

We also consider why Investment Managers are not scooping up MBS to replace
Credit bonds (that can default) when confronted by a FED that is standing on the
monetary brakes.

As a reminder, these are NOT the infamous sub-Prime mortgages that collapsed
the housing market in 2008 presaging the Great Financial Crisis (GFC). Rather, a
single MBS is a collection of perhaps 10,000 standard 30-year mortgage loans
made to “prime” borrowers (FICO above 720) that are “wrapped” by Fannie,
Freddie or Ginnie (GSEs) so there is absolutely no default risk.

If you think one of these GSEs (Government-Sponsored Enterprises) can default,
I advise you to gather cans of tuna, a gun, and small denomination Gold coins.

These borrowers have the right (option) to prepay (or refinance) their loan at
any time for any reason with no penalty.

It is this prepayment uncertainty that creates the extra yield for owning MBS.
When one buys MBS, they do not know if that bond will pay off in two years or
thirty years; it is all at the discretion (option) of the borrower.

One can roughly model MBS as a “buy-write strategy” where one:
1) Buys a ten-year US Treasury (UST) at a price of 100
2) Sells a three-year expiry call option, struck at 105

It is the confluence of Interest Rates and Implied Volatility that creates this
embedded option’s two most important “values” – its price and its duration
(delta). It is also this option that creates the negative Convexity profile for MBS
where its upside price is capped near 105 while its downside is substantial.

The Asset Allocation Decision
When deciding how to allocate among various fixed-income (bond) assets, there
are only three risk vectors to consider:

1) Duration – When one receives their money back;
2) Credit – If one receives their money back;
3) Convexity – How one receives their money back.
When a bond matures is often used as a proxy for Duration risk, but more
precisely it measures a bond’s price sensitivity to interest rate changes.

Credit risk measures the chance of a default and the loss of one’s investment.

Convexity risk is a bit tricky since it is mostly found embedded into callable
bonds and can be a challenge to measure without a fancy model. [Thus, the
employment of “quants” to discern a bond’s Option Adjusted Spread (OAS).]....

....MUCH MORE (11 page PDF)
*Our boilerplate introduction to Mr. Bassman:
...Wall Street loves to make convexity sound complex (I suppose it’s so they can charge higher fees?). We speak Greek (calling it “gamma”), employ physics as a metaphor (analogizing to it “acceleration”), and use mathematical definitions (since it is the second derivative of the asset’s price change).

Pish, posh. An investment is convex if the payoff is unbalanced for equally opposite outcomes. So if there’s the potential to earn a profit of two on a bet versus a maximum loss of one, the bet is positively convex. If you can lose three versus making two, it is negatively convex. That’s it. The rocket scientists are called upon to help (fairly) price the cost (value) of such possible outcomes. This is why the expansion of derivative trading in the 1990’s resulted in a hiring spree of physics PhD’s....
"Pish. Posh." is a technical term only used by market professionals for those situations where one has decided to go full Alinsky rule #5*
*#5 Ridicule is man’s most potent weapon. It’s hard to counterattack ridicule, and it infuriates the opposition, which then reacts to your advantage...

The Convexity Maven is nothing if not a professional. Here is part of his mini-bio at MacroVoices:

Harley S. Bassman
Harley Bassman created, marketed and traded a wide variety of derivative and structured products during his twenty-six-year career at Merrill Lynch.  In 1985 he created the OPOSSMS mortgage options product that facilitated risk transmission between MBS originators and financial institutions.  In 1988, he assumed responsibility for trading and marketing IO/PO and other levered prepayment securities.  Soon after this, he started purchasing RTC auctioned MBS Servicing rights and repackaged them for the securities market as BIGS - Beneficial Interests in GNMA Servicing.  Later, he started a GNMA servicing conduit becoming one of the Top 20 originators in 1992.  As managing and hedging prepayment risk became a priority focus for the financial markets, Mr. Bassman created PRESERV, Merrill's trademarked Prepayment Cap product. Merrill was a leader in this product category writing protection that covered the risk on tens of billions of notional mortgage servicing rights.  Later, Mr. Bassman managed Merrill's initial venture into off-balance sheet mortgage trading.
In 1994, Mr. Bassman assumed responsibility for OTC bond options.

Within a year, Merrill was the leader in this product sector.  A wide variety of products were offered including vanilla and complex options on MBS spreads and the Treasury yield curve.
To help clients more fully appreciate Volatility as a primary risk vector, he created the MOVE Index.  Similar in form to the VIX Index, it is now the recognized standard measure of Interest Rate Volatility.

From 1995 to 2000 he focused on creating hedge strategies for MBS servicers and portfolio optimization techniques for Total Return and Index investors.

Mr. Bassman became the manager of North American MBS and Structured Finance trading in 2001.  During his tenure, he created SURF, (Specialty Underwriting and Residential Finance), a self-contained Sub-Prime mortgage conduit.  He supervised the issuance of Merrill’s first Sub-Prime securities. He also transitioned the structuring business to a new technology platform....
And so much more, all those cutesy Merrill acronyms can be blamed on him and his team. 

I've been debating whether to post this as much of the early material is basic/intermediate stuff (you should see Harley when he gets going on more advanced tactics, a tour de force in every paragraph!) but in this short little monograph he just keeps building and building and we get to watch someone who is the master of his material, much less of his domain.

note for newer readers: when he refers to the MOVE index, his invention while at Merrill, he is talking about a sentiment indicator for bonds akin to the CBOE's VIX for the S&P 500. Both are derived from prices of options on the underlying
Convexity Maven: "Moral Hazard" (see also Long Island)
 

Paper or Plastic?: "Amazon’s plans to shift its packaging strategy " (AMZN)

From Tedium, June 23:

Turn Off The Pillow Machines
Amazon’s plans to shift its packaging strategy points at a new front in the lengthy tug of war between paper and plastic—a war that started in grocery stores. 

Today in Tedium: If you’ve been buying stuff on Amazon lately, odds are you saw some interesting shifts in the packaging on your doorstep. More of it, perhaps not all, has been coming in packages completely made of paper or paper byproducts. That is an interesting trend, and it’s likely to continue in a big way, according to Amazon itself. The company announced this past week that it had made “its largest reduction in plastic packaging in North America to date,” and planned to replace 95 percent of plastic air pillows produced for its North American packaging with far more recyclable paper equivalents by the end of the year. In many ways, this is the latest round in a push-and-pull that has been happening between plastic and paper packaging over the past 40 years—with plastic mostly winning during that period, but paper winning the most recent rounds. Why? Today’s Tedium ponders paper, plastic, packaging, and baggage—the latter in more ways than one. — Ernie @ Tedium

Today’s issue is sponsored by TLDR; more from them in a second.

1965
The year Sten Gustaf Thulin, a Swedish package designer for Celloplast, received the patent for “bag with handle of weldable plastic material.” This invention? Effectively, the modern grocery bag. Essentially, the bags were made as a giant extruded plastic tube, with the ends welded and parts cut off as needed. In other words, despite being completely different in use case than plastic air pillows, they’re essentially two variants of the same basic idea.
Remembering when paper bags were seen as worse than plastic ones
When I was a teenager, I worked in a grocery store. I was a “courtesy clerk,” which meant I was responsible for four things: retrieving carts, managing the bottle machines, putting back unpurchased goods, and (occasionally) bagging.

Despite the fact that a solid 50% of my job was managing a recycling apparatus, I remember that the modern consensus about single-use plastic bags wasn’t set at that time, and nobody was bringing in reusable bags at this juncture. (This was around the period in which American Beauty, a film with a scene built around a floating plastic bag, won an Oscar for Best Picture.) In fact, we tended to believe that plastic bags were somehow more environmentally friendly than the paper equivalents, and we were told to only use paper if the customer specifically asked for them.

That would be considered crazy talk today—nowadays, paper is seen as immensely more renewable. But the debate was a bit more up in the air than you believe.

The reason? Paper bags are resource-intensive to make. They also tend to be a bit heavier, and don’t handle rain particularly well. And then there’s the fact that paper bags require the chopping down of trees to make.

You may think I’m making stuff up, but the British Environmental Agency did in-depth research into the paper bag in a 2011 study about baggage options in general and found plenty of reasons to lean against the use of paper as a baggage option:

However, we analyzed the production of similar forms of paper and found the energy required from grid electricity contributed significantly to all impacts. The disposal of ash from paper production also has an impact on eutrophication and freshwater aquatic ecotoxicity. The production of palm oil for use in paper manufacture affects terrestrial ecotoxicity. Although the bags are produced in Europe, the distribution of the bags from the bag producers into the supermarkets via the UK importer is still noticeable in most impact categories. This is because of the impacts of road transport emissions on acidification, eutrophication, terrestrial ecotoxicity and photochemical oxidation, and the impacts of oil production for diesel on abiotic depletion, human toxicity and aquatic ecotoxicity.

While the study noted that paper’s long-term impact was lower than plastic, as it actually, y'know, biodegrades, paper comes with serious considerations on the front end, because of its ecologically heavy production process....

....MUCH MORE

"Nvidia set to face French antitrust charges, sources say" (NVDA)

La perfidie!

A Reuters exclusive, July 1:

Nvidia is set to be charged by the French antitrust regulator for allegedly anti-competitive practices, people with direct knowledge of the matter said, making it the first enforcer to act against the computer chip maker.

The French so-called statement of objections or charge sheet would follow dawn raids in the graphics cards sector in September last year, which sources said targeted Nvidia. The raids were the result of a broader inquiry into cloud computing.
 
The world's largest maker of chips used both for artificial intelligence and for computer graphics has seen demand for its chips jump following the release of the generative AI application ChatGPT, triggering regulatory scrutiny on both sides of the Atlantic.
 
The French authority, which publishes some but not all its statements of objections to companies, and Nvidia declined comment. The company in a regulatory filing last year said regulators in the European Union, China and France had asked for information on its graphic cards....
....MUCH MORE

We happened to catch the raids last September and put our editorial comment in the headline symbol parenthetical:

"Nvidia offices raided by French competition authority" (NVDA; WTAF)

Who Gets The Money: "The Distributional Effects of U.S. Tax Credits for Heat Pumps, Solar Panels, and Electric Vehicles"

From the Haas School of Business of the University of California at Berkeley, June 2024:

Energy Institute at Haas working papers are circulated for discussion and comment purposes.
They have not been peer-reviewed or been subject to review by any editorial board. The Energy Institute acknowledges the generous support it has received from the organizations and individuals listed at https://haas.berkeley.edu/energy-institute/about/funders/.

Abstract
Over the last two decades, U.S. households have received $47 billion in tax
credits for buying heat pumps, solar panels, electric vehicles, and other “clean
energy” technologies. Using information from tax returns, we show that these
tax credits have gone predominantly to higher-income households. The bottom
three income quintiles have received about 10% of all credits, while the top
quintile has received about 60%. The most extreme is the tax credit for electric
vehicles, for which the top quintile has received more than 80% of all credits.
The concentration of tax credits among high-income filers is relatively constant
over time, though we do find a slight broadening for the electric vehicle credit
since 2018. The paper then turns to the related question of cost effectiveness,
examining how clean energy technology adoption has changed over time and
discussing some of the broader economic considerations for this type of tax
credit.

....MUCH MORE (48 page PDF)

"How to Build an AI Data Center"

From Construction Physics, June 10:

This piece is the first in a new series from the Institute for Progress (IFP), called Compute in America: Building the Next Generation of AI Infrastructure at Home. In this series, we examine the challenges of accelerating the American AI data center buildout. Future pieces will be published at this link.

We often think of software as having an entirely digital existence, a world of “bits” that’s entirely separate from the world of “atoms." We can download endless amounts of data onto our phones without them getting the least bit heavier; we can watch hundreds of movies without once touching a physical disk; we can collect hundreds of books without owning a single scrap of paper.

But digital infrastructure ultimately requires physical infrastructure. All that software requires some sort of computer to run it. The more computing that is needed, the more physical infrastructure is required. We saw that a few weeks ago when we looked at the enormous $20 billion facilities required to manufacture modern semiconductors. And we also see it with state-of-the-art AI software. Creating a cutting-edge Large Language Model requires a vast amount of computation, both to train the models and to run them once they’re complete. Training OpenAI’s GPT-4 required an estimated 21 billion petaFLOP (a petaFLOP is 10^15 floating point operations).1 For comparison, an iPhone 12 is capable of roughly 11 trillion floating point operations per second (0.01 petaFLOP per second), which means that if you were able to somehow train GPT-4 on an iPhone 12, it would take you more than 60,000 years to finish. On a 100 Mhz Pentium processor from 1997, capable of a mere 9.2 million floating-point operations per second, training would theoretically take more than 66 billion years. And GPT-4 wasn’t an outlier, but part of a long trend of AI models getting ever larger and requiring more computation to create.


 Via Epoch AI

But, of course, GPT-4 wasn’t trained on an iPhone. It was trained in a data center, tens of thousands of computers and their required supporting infrastructure in a specially-designed building. As companies race to create their own AI models, they are building enormous compute capacity to train and run them. Amazon plans on spending $150 billion on data centers over the next 15 years in anticipation of increased demand from AI. Meta plans on spending $37 billion on infrastructure and data centers, largely AI-related, in 2024 alone. Coreweave, a startup that provides cloud and computing services for AI companies, has raised billions of dollars in funding to build out its infrastructure and is building 28 data centers in 2024. The so-called “hyperscalers,” technology companies like Meta, Amazon, and Google with massive computing needs, have enough estimated data centers planned or under development to double their existing capacity. In cities around the country, data center construction is skyrocketing.

Estimated Hyperscaler Data Center Capacity (MW).....

*****

.....But even as demand for capacity skyrockets, building more data centers is likely to become increasingly difficult. In particular, operating a data center requires large amounts of electricity, and available power is fast becoming the binding constraint on data center construction. Nine of the top ten utilities in the U.S. have named data centers as their main source of customer growth, and a survey of data center professionals ranked availability and price of power as the top two factors driving data center site selection. With record levels of data centers in the pipeline to be built, the problem is only likely to get worse. 

The downstream effects of losing the race to lead AI are worth considering. If the rapid progress seen over the last few years continues, advanced AI systems could massively accelerate scientific and technological progress and economic growth. Powerful AI systems could also be highly important to national security, enabling new kinds of offensive and defensive technologies. Losing the bleeding edge on AI progress would seriously weaken our national security capabilities, and our ability to shape the future more broadly. And another transformative technology largely invented and developed in America would be lost to foreign competitors.

AI relies on the availability of firm power. American leadership in innovating new sources of clean, firm power can and should be leveraged to ensure the AI data center buildout of the future happens here.

Intro to data centers....

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Capital Markets: "Sigh of Relief Lifts French Markets, But..."

From Marc Chandler at Bannockburn Global Forex:

Overview: The market feels a bit more at ease after the first round of the French elections that extreme policies will be avoided by an effort to deny the National Rally a legislative majority. French stocks have recouped some of their recent losses and the euro reached $1.0775, its best level since June 13. The yen remains soft after the Tankan survey showed little change but an uptick in capex plans. Outside of the yen and Swiss franc, the dollar is trading with a mostly softer bias. A handful of emerging market currencies are weaker today, including the Mexican peso. Central European currencies, though, a firmer in the wake of the euro's gains, but the South African rand is leading the emerging market currencies with nearly a 1% gain as a new government is falling into place.

Asia Pacific and European equities began the new month on a positive note. All the large bourses in the Asia Pacific region were higher but Australia after MSCI's regional index posted its first weekly advance since early June last week. Europe's Stoxx 600 is snapped its own four-day down draft today, helped by the bounce in French stocks. US index futures are narrowly mixed. Bonds are continuing their pre-weekend slide European yields are 2-8 bp higher, with core-peripheral spreads narrowing and the French premium over Germany narrowing by around five basis points. The 10-year US Treasury yield is firm near 4.41% after rising 14 bp last week. Gold is trading quietly (~$2318-$2330) after settling last month slightly below $2327.August WTI continues to probe the $82 area. It reached $82.70 before the weekend but closed near $81.40...

Europe
The first round of the French elections gave Le Pen's National Rally a plurality of votes but even with a generous look at round two, it most likely will not secure an outright majority after the second round this coming weekend.
 The markets have responded well. French stocks have rallied around 1.4% and the French 10-year premium over Germany has narrowed by about five basis points. Meanwhile, tomorrow the preliminary aggregate June CPI will be reported, and the year-over-year rate is likely to be little changed from May's 2.6%, but for the rounding. Before the weekend, France, Italy, and Spain reported their figures and today, German states have. The national figure is due shortly and it looks to have risen a mild 0.1% for a 2.4% year-over-year pace (down from 2.5%). Eurozone consumer prices appear to have accelerated in Q2 (4.3-4.4% annualized vs. 4.0% in Q1). Looking further ahead, the base effect warns of a difficult second half....

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Putting the "fa" In Antifa: Riots In France

Vote doesn't go your way? Riot.

It's so predictable and overused that the response has become cliché and a little bit boring.

Lifted in toto from Business Today, India, July 1:

'Paris is burning': France fears civil war as left wing sparks riots amid defeat in first round of elections
Police reinforcements flooded the streets, particularly around Paris's Place de la République, where clashes broke out between law enforcement and rioters carrying flares well into the early hours.

Rioting erupted in Paris last night as thousands of left wing activists set fire to debris, smashed shop windows, and launched fireworks following a decisive first-round victory for the far-right in snap parliamentary elections. 

Police reinforcements flooded the streets, particularly around Paris's Place de la République, where clashes broke out between law enforcement and rioters carrying flares well into the early hours. All of this is unfolding as the Paris Olympics draw near, with just 25 days remaining until the opening ceremony.

And from the Daily Mail, July 1:

Shops are boarded up amid fears of left-wing riots as far-right National Rally WINS first round of snap French election: Humiliated Macron drops to third - Le Pen's party could be in power by the Olympics as she declares: 'Democracy has spoken'

Rioting engulfed the streets of Paris last night as thousands of enraged voters set light to rubbish, smashed up shop windows and launched fireworks after the far-right steamed to victory in the first round of snap parliamentary elections. 

Hordes of riot cops were dispatched across the city, particularly in the French capital's Place de la République where the police clashed with flare-toting rioters into the early hours of the morning. 

Marine Le Pen's far-right National Rally (RN) won some 33% of the vote, according to the Interior Ministry, followed by the left-wing New Popular Front alliance on 28% - with incumbent president Emmanuel Macron's centrist alliance lagging in a distant third on just 20%....

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War, What Is It Good For? Britain's Bloodiest Day

First up, from Country Life, June 20, 2016, approaching the 100th anniversary of the first day:

Britain’s bloodiest day: in memoriam 

The first day of the Battle of the Somme was the costliest in British military history. Here, in abridged extracts from Jolyon Fenwick's book Zero Hour, he explains why we shall always remember July 1, 1916.

We have never tired of revisiting the First World War. A hundred years on, its tragic ironies continue to cast their spell. Names like Gallipoli, Arras and Passchendaele remain bywords for thwarted youth and needless slaughter. There is one battle, however, whose name has come to symbolise a generation’s sacrifice like no other—its doom-laden resonance is almost embedded in our genes: the Somme.

To us, the Somme is synonymous only with bloody failure, but, at the time, after two years of stalemate, the battle promised to be the turning point of the war. Civilians and Government had allowed their generals the failed offensive experiments of 1915. This time, however, on the rolling fields of Picardy, Gen Sir Douglas Haig, Commander of the British Army in France, would put Teutonic barbarism to the sword once and for all.

The belief in certain victory was under- pinned by the introduction to the field of a new kind of army—an army who were all friends. These were the men from the same villages, factories, cricket teams and public schools —the ‘grinning archaic faces’ who had waited patiently outside their local recruiting offices to enlist in August 1914. For the people at home, these civilian ‘Pals’ units would naturally outclass the servile martial professionalism of the enemy. And the civilian soldiers—right up until the final seconds— believed it, too.

The plan was familiar in format, but novel in scale. The British would attack with 13 divisions along a 15-mile front (the Germans having received over 1,500,000 shells) and force a break in the enemy line that the cavalry would then exploit. The objective was the town of Bapaume, 10 miles up the old Roman road from the British lines. It was forecast they would get there in three days.

But the breakthrough never came. On November 18, 140 days after the initial attack, Haig called a halt just short of the ancient burial ground of the Butte de Warlencourt. The remnants of Gen Rawlinson’s 4th Army were still four miles short of Bapaume, having suffered 420,000 casualties. The passage of the fighting was charted by the unrecovered bodies and makeshift graves of 131,000 British and Empire soldiers.

Each phase of the campaign had been costly. But the names of such killing grounds as Delville Wood, Pozieres and Guillemont would not headline the battle for posterity. The ownership of the Somme in popular memory would forever rest with the battle’s first day.

In the early hours of that summer Saturday, a society of miners, stevedores, tramwaymen, errand boys, shipping clerks, railway porters, artists and aristocrats— along with regular and territorial soldiers —assembled in the dirty white chalk of the British front line. At 7.30am (zero hour), the early mist had gone and, against a sky ‘of the kind commonly described as heavenly’, 60,000 men, each carrying at least 60lbs of equipment, climbed out of their trenches and—in the vast majority of cases—walked towards the enemy.

The advancing troops had been assured the German defences would be obliterated by the six-day British bombardment. ‘You will be able to go over with a walking stick; you will not need rifles,’ one general told them. ‘You will find nothing other than the caretaker and his dog,’ promised another. They were wrong.

Sheltered (although, in many cases, tormented to madness) during the unprecedented preliminary shelling in underground bunkers (in places 40ft deep), the majority of the defenders survived. Within two minutes of the British barrage lifting, German machine gunners had scaled their ladders and set up their weapons, unloading belt after belt into the ‘perfectly dressed’ British lines at a rate per gun of 500 rounds a minute. The German artillery also laid down its own carefully ranged stripes of shellfire in No Man’s Land. The explosions looked like ‘a thick belt of poplar trees’.

The resulting carnage appalled even the Germans. In the first hour, more than 20,000 of the attacking troops were killed or wounded. By nightfall, out of a total of 116,000 British and Empire soldiers committed to the battle over the course of the day, 57,470 had become casualties—19,240 of them were dead.

For days following the battle, the British people remained ignorant of the fate of their young men. High-flown headlines of ‘heroic advances’ and ‘enemy trenches occupied’ persisted in national newspapers through the first week of July. But, as early as the Sunday evening, rumours of the disaster were crossing the Channel with the wounded....

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And from the Daily Mail, June 29/30, 2016:

Relaxing before the carnage: Heartbreaking photos of our troops on the eve of the Somme 100 years ago shortly before they went 'over the top' on the bloodiest single day in British military history

  • The weeks leading up to the bloodiest battle in British history were gentle, compared with the horror that followed
  • Rolling countryside north of River Somme was home to more than a million British servicemen, mainly volunteers
  • Haunting photographs from 100 years ago show the men relaxing, released to mark the centenary of the WWI battle
  • But the lush, green, springtime lands would shortly be turned into a muddy moonscape by the horrifying conflict  

https://i.dailymail.co.uk/i/pix/2016/06/30/00/35CD36DA00000578-3666866-image-a-72_1467243171512.jpg

A welcome rest: Exhausted soldiers of the 9th Rifle Brigade take a break — and a chance to have a smoke — in a field away from the front line. From left, Second Lieutenant Walter Elliott, who was killed on November 20, 1916, Second Lieutenant Roger Kirkpatrick, wounded (date unknown), Captain Herbert Garton, who was killed on September 15, 1916, Lieutenant Evelyn Southwell, killed on September 15, 1916, and Second Lieutenant Herman Kiek, wounded on April 27, 1918. Southwell told his mother in a letter he was so tired he fell asleep while marching

https://i.dailymail.co.uk/i/pix/2016/06/30/00/35CD1F9700000578-3666866-image-a-73_1467243202814.jpg

A chance to wash: Officers of the 9th Rifle Brigade bathing in a stream behind the lines are (from left, excluding obscured faces): Captain Arthur Mckinstry — wounded, Second Lieutenant William Hesseltine, killed August 21, 1916, Captain William Purvis, wounded September 15, 1916, Second Lieutenant Joseph Buckley, killed December 23, 1917, Lieutenant Morris Heycock, wounded August 22, 1916, Captain Eric Parsons, killed September 15, 1916, Second Lieutenant Sidney Smith (in background) killed August 25, 1916, and Second Lieutenant Walter Elliott, killed November 20, 1916

https://i.dailymail.co.uk/i/pix/2016/06/30/00/35CD26E200000578-3666866-image-m-75_1467243216509.jpg

Facing the future: Smiling confidently in their trench beneath a clear blue springtime sky are two officers of the 11th Royal Fusiliers: Lieutenant Richard Hawkins, left, was wounded in February, 1917, during the final push on the Somme prior to German evacuation. Second Lieutenant George Cornaby, right, was killed on September 23, 1918, only weeks before the end of the war....

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Wärtsilä—"World's most efficient engine becomes a colossal clean energy generator"

We've looked at some Wärtsilä engines over the years, usually the ones that used LNG or ammonia (as hydrogen carrier) as fuel for ships. They are quite large.
More after the jump.

From New Atlas, June 25:

One of the world's largest engines becomes a clean generator. Originally designed to burn diesel, dual-fuel, or gasoline for tankers and container ships, the Wärtsilä 31 marine engine gets a new life generating clean, renewable electricity.

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The Wärtsilä 31 engine is in the Guinness Book of World Records for being the most efficient 4-stroke marine engine ever made in its class. It also boasts the highest power per cylinder in engines of equivalent bore size. It can be configured in 8 to 16 cylinders and with a power output ranging from 4.6 MW to 10.4 MW at 720 and 750 rpm.

This Finnish company is best known for making the world's largest combustion engines – notably the 89 ft (27 m) tall, 44 ft (13 m) long, 110,000 horsepower RTA96-C. The Wärtsilä 31 engine is a fair bit smaller, maxing out at 15.4 ft (4.7 m) high and 28.8 ft (8.7 m) long, and running on fossil fuel, it can crank out up to 13,142 horsepower (9.8 MW). 

The cylinder bore and stroke (12.2 x 16.9 inches, or 31 x 43 cm) sound enormous if you're coming from the auto/moto world, but compared to some of the company's bigger engines, which have cylinders big enough to walk into, they're relatively compact.

Converted to a generator, the hydrogen-ready 31SG-H2 version can run on natural gas, or a blend of natural gas and 25% hydrogen – or it can be upgraded to run on 100% hydrogen. There's also a flexible-fuel 31H2 designed to run natively on full hydrogen, but also accepting natural gas or blended fuels....

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June 2018: Shipping: "The Engines of the Largest Container Ships in the World, and Challenges their Manufacturers Face" 

October 2019:  Shipping: "Wärtsilä, Norsepower Team Up on Rotor Sails"

Wärtsilä makes scrubbers, they front for these Flettner rotors, they make some pretty sophisticated power and propulsion equipment, I don't understand why they don't make more money. 

December 2019:  Shipping: "Forced boil-off gas—The future of LNG as a fuel for LNG carriers"

It seems like a natural. As the folks at Wärtsilä tell us:
    Boil-off gas (BOG)LNG tankers are designed to carry natural gas in liquid form at a temperature of – 163°C, close to the vaporization temperature. Despite tank insulation designed to limit the admission of external heat, even a small amount of it will cause slight evaporation of the cargo. This natural evaporation, known as boil-off is unavoidable and has to be removed from the tanks in order to maintain the cargo tank pressure.
So you're going to have LNG going through the phase change back to a gas, even on those arctic tankers Novatek is running in -20°C weather.

March 2020: Hydrogen: "Wärtsilä Testing Ammonia Fuel for Shipping"

March 2021:  Hydrogen: "Why the Shipping Industry Is Betting Big on Ammonia"

October 2021: Shipping: "Wärtsilä to investigate use of ammonia in LNG-powered engines"

You know CMA CGM has to be all over this research, what with trying to do the right thing carbon-wise by buying their fleet of gargantuan LNG-powered ships, as we said in "Shipping: The U.N. Appears To Be Trying To Sink French Flag Carrier CMA CGM" under the watchful eye of the U.N.'s International Maritime Organization.