It's Not Cheap Being Green
Shares of Renewable Energy Group Inc. (REGI) spiked 40.45% in Monday's trading session following an announcement that they have agreed to be acquired by multinational energy corp Chevron (CVX). The deal will allow Chevron to quicken its progress in reaching its goal of producing 100,000 barrels/day of renewable fuels by 2030. Somewhere Greta Thunberg is nodding in approval. CVX CEO Mike Wirth stated, "REG was a founder of the renewable fuels industry and has been a leading innovator ever since. Together, we can grow more quickly and efficiently than either could on its own." Shares of CVX closed Monday's session up 2.43%.
- Chevron will pay $61.50/share for all outstanding shares of REGI. The all cash transaction is valued at $3.15B and represents a 57% premium based on the 30-day average closing price of REGI ended February 25th.
- The transaction is expected to be closed in the second half of 2022 with Chevron's renewable fuels business to be headquartered in Ames, Iowa. Go Cyclones!
- The Board of Directors of both companies have approved the transaction but the deal is still subject to REGI shareholder approval and regulatory approval.
The energy sector was on a steady move higher since March 2020 but has exploded further to the upside due to madman Putin's invasion of Ukraine and the geopolitical consequences associated with it. Shares of CVX are at all time highs which makes it challenging for many shorter term traders to go long or short as you don't want to buy the top, yet you don't want to be run over to the upside. Another way to get exposure to the energy sector without the single-stock risk is to take a look at the Select SPDR Energy ETF (XLE). Fun side note, XLE is up 209% since March 2020 as of Monday's closing price. Anybody else miss that move like me?
You down with GDP?
Simpsons is too accurate sometimes
Well, we have good news and bad news. The good news is that the American GDP is growing at a better pace than expected. The bad news is that the US trade deficit continues to hit record levels, as we're still still importing more than we're exporting. Sounds like we need someone that works in importing and exporting. That might sound grim but for the time being it could actually reflect the fact that the US' economy is doing better than those of our competitors.
- Initial estimates of the January trade deficit were in the neighborhood of $99.6B but analysts didn't anticipate the American lust for imported junk, so it actually widened +7.1% to $107.63B. For context: December's was $100.47B... Oops.
- Overall imports of goods increased +1.7%, being led by food and motor vehicles. Exports on the other hand, dropped -1.8%, weighed down by... food and motor vehicles?
So why is the US importing so much while exporting so little? Well the answer is two-fold: Firstly, consumer demand is healthy so all those empty inventories have to be stocked ASAP. Second, the American economy might be bouncing back quicker than others, so while demand is high here, other countries can't really afford to import American goods at the time. These factors are expected to rebalance over time as pandemic pains subside, but the timeframe is unclear, especially as the global community remains volatile to say the least. But more on that below.
Russian to the Bank
In response to the continuing sanctions being heaped upon Russia by Western powers, the Russian ruble cratered Monday in its worst one-day selloff since 1998. Down more than 30% at one point, the ruble's March futures contract finished Monday down 18.63%, putting the ruble at less than one cent per U.S. dollar. The U.S. Treasury Department said Monday, "Today, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) prohibited United States persons from engaging in transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation." Switzerland left their neutrality behind as they too imposed sanctions which will freeze Russian assets in the country. Like trying to put a band-aid on a severed limb, the Bank of Russia took the following steps:
- They hiked their key interest rate from 9.5% to 20%
- Banned foreigners from selling Russian securities
- Ordered exporters to convert most of their foreign-currency revenues into Rubles
- Closed the Moscow stock exchange for the day
As Ukraine President Zelenskiy appealed to the European Union early Monday to be fast-tracked for EU membership, it is becoming clearer by the day that Putin's invasion of Ukraine was a monumental miscalculation. It is also becoming clear that Austin Power's Dr. Evil is exactly who Putin has become, and I for one cannot wait to see a photo of him with a hairless cat. The best way for us to speculate on the current situation is either through ruble futures contracts as mentioned above or via RSX, the Van Eck Russia ETF. The fund, which has lost roughly 56% of its value since February 16th, closed Monday's session at $10.85. Keep an eye on RSX and the ruble for clues as to how the situation in Ukraine may play out moving forward.
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