Wall Street Breakfast: Crisis on the Rhine
Crisis on the Rhine
New episode! Weekend Bite, an original series from Seeking Alpha. This week, Sam Ro, CFA, founder of the TKer newsletter, joins us to discuss labor hoarding, the inflation report, and the resurgent craze for meme stocks. Kim Khan also shares what investors need to watch next week when it comes to the housing market in Catalyst Watch.
An economic slowdown in Germany is now more likely than ever, as further unrest on the Rhine poses a headache for shipping and heavy industry. Levels at Kaub, a key point on the waterway west of Frankfurt, are set to top 40 centimeters (15.75 inches) on Friday and will continue to decline in seaworthiness in the coming days. Below this mark, it is uneconomical for many barges to transit the river, which is used to ship everything from oil and gas and coal to chemicals and grain.
What happened? Weeks of dry weather have weighed on Europe’s main waterway, with shallow depths preventing barges from loading their full volume. The effects could ripple across the continent for months as the region teeters on the edge of recession due to war in Ukraine and runaway inflation. Economists estimate the Rhine disruption could shave half a percentage point off Germany’s growth this year, adding to the severe price pressures seen in many western European countries.
“We expect this situation to continue towards the end of the year,” noted Toril Bosoni, head of the IEA’s oil market division, adding that conditions could be more precarious for landlocked countries in the world. Central and Eastern Europe which normally receive energy deliveries via the Rhine.
Make preparations: Chemical maker BASF (OTCQX:BASFY) has not ruled out production cuts as it has placed orders for shallow-water barges and uses more rails to transport goods. Utility Uniper (OTC:UNPPY) has warned it cannot bring in enough coal by train to run its factories at full capacity for an extended period, threatening output from Germany’s coal-fired power stations. Thyssenkrupp (OTCPK:TKAMY) crisis teams also meet daily, as the steelmaker uses shallow draft vessels to maintain its supply.
Return of the Big Mac
Almost six months ago, McDonald’s (MCD) closed all of its restaurants in Ukraine due to the Russian invasion. Now he plans to reopen them, following in the footsteps of other Western brands that opened earlier this month, like KFC and Pizza Hut owner Yum! Trademarks (MIAM). To restart its 109 locations across the country, McDonald’s is working with suppliers to get products to restaurants, while initiating stricter safety protocols as war still rages in eastern Ukraine.
Quotation: “We spoke extensively to our employees who expressed a strong desire to return to work and see our restaurants in Ukraine reopen,” said Paul Pomroy, senior vice president of international markets. “In recent months, the belief that this would support a small but important sense of normalcy has grown stronger.”
McDonald’s has continued to pay its more than 10,000 employees nationwide throughout the crisis and set up an employee relief fund several months ago. The latest initiative aims to help restore a “small but important sense of normalcy” and will be carried out as part of a phased reopening in Kyiv and western Ukraine. McDonald’s decision will also help Ukraine’s economy, which is expected to shrink by 35% this year, according to the IMF.
In Russia : McDonald’s and other global brands have found themselves in deep trouble after suspending operations due to the humanitarian crisis and the unpredictable operating environment caused by the Kremlin. In response, Mickie D’s sold its business to an existing licensee in May, offloading a portfolio of 850 restaurants to local franchise owner Alexander Govor, who renamed the chain “Vkusno & Tochka”. Prior to the sale, McDonald’s noted that closing its Russian sites had cost the company about $55 million a month. (5 comments)
Will Rivian (RIVN) eventually become a formidable competitor to Tesla (TSLA)? Investors are trying to gauge that after the electric vehicle maker’s second quarter results. The shares oscillated between gains and losses after hours, although they remained largely near the $40 level, in a similar story that has played out since the company went public in November. The IPO hype first saw the stock hit $180, before starting to gradually decline to a lower valuation, even hitting lows under $20.
Mixed feeling: First, Rivian lost $1.7 billion in the quarter, which is a lot of money even for a company in the early stages of production. That puts it in a spot to save money and scramble to fill customer purchases, with around 98,000 pre-orders on its customer books in the US and Canada. Looking ahead, Rivian still expects to post a huge $5.5 billion EBITDA loss in 2022, up from the $4.8 billion estimate disclosed three years ago. month.
“We have seen unprecedented levels of inflation, particularly for our raw material inputs and lithium prices,” Chief Financial Officer Claire McDonough said. “We have also experienced a cost increase with respect to our expedited freight charges.”
Outlook: Despite building less than 7,000 vehicles in the first half, Rivian reaffirmed its goal of producing 25,000 electric vehicles this year (a second factory shift will be added by the end of the current quarter). The electric vehicle maker also said its current models would not be eligible for new federal tax incentives passed in the Cut Inflation Act, but could get grants of up to $40,000 per vehicle. for the large electric commercial vans he builds for Amazon (AMZN). Rivian currently produces the R1T electric pickup, while the smaller and cheaper R2 SUV is due out in 2025. (21 comments)
The CDC has revised recommendations for COVID-19, relaxing guidelines on isolating unvaccinated people when exposed to the virus. According to the latest advice, the agency no longer recommends that unvaccinated people quarantine after exposure, the same guidelines previously issued for vaccinated and boosted people who have been exposed to COVID. Those who have not been vaccinated or given a booster can instead wear a mask for ten days and get tested on the fifth day after exposure.
Instantaneous: The updated guidelines put more responsibility on individuals, rather than schools, businesses and employers. Americans also no longer have to social distance or stay six feet apart, as 95% of Americans have some level of immunity, whether from vaccinations, exposure to COVID or both. Immunocompromised people, or those who have had shortness of breath due to the virus, should always isolate themselves from others for 10 days.
“We are in a stronger place today as a nation, with more tools – like vaccinations, boosters and treatments – to protect ourselves and our communities from serious illness from COVID-19” , said Dr. Greta Massetti, chief of the field epidemiology and prevention branch of the CDC. “This guidance recognizes that the pandemic is not over, but also helps us reach a point where COVID-19 is no longer severely disrupting our daily lives.”
Go further: The CDC is ending the Test to Stay Policy, which allowed students from close contacts who tested positive for COVID to stay in schools only if they tested negative and remained asymptomatic. The agency no longer recommends testing people in schools who don’t show symptoms of COVID, which was a previous strategy to avoid potential outbreaks. (63 comments)