Declaration of War

MARKETS

• Economic data: Finally, some good news. The U.S. services sector (home to banking, restaurants, and more) grew at its fastest rate in three months in February. Plus, new home sales in December increased 3.7% from a month earlier.
• U.S. Treasury: In the first four months of the fiscal year, the government ran a $310 billion deficit—a 77% year-over-year increase. That debate we highlighted a few days ago is only getting more urgent.

ENERGY

Shale We Dance?

After crashing on a friend’s couch in West Texas for years, oil giants have decided that with business in the region this good, it’s time for an upgrade.

• ExxonMobil (-0.15%) is projecting output of oil and gas will hit 1 million barrels a day in the region as early as 2024. Previous projections were 600k a day.
• Chevron (+0.92%) raised its 2023 forecast to 900k barrels a day from 650k.

Of course, while the big guns up their presence in the lucrative area known as the Permian Basin, the small- and mid-sized oil companies that pioneered fracking—a new drilling technique—will probably get squeezed.

Exxon and Chevron aren’t reaching for the tissues

As the FT notes, the announcements show that the rivals anticipate tripling Permian production from current levels. In five years, they could control over 30% of production in the shale-rich region.

• Here’s the potential: By 2023, IHS Markit projects output in the Permian Basin will top that of every single OPEC country besides Saudi Arabia.
• Here’s Chevron CEO Michael Wirth: “Shale returns are the highest in our portfolio” even at low oil prices. “There’s nothing we can invest in that delivers higher rates of return.”

The shale boom is causing all sorts of changes in West Texas

The WSJ paints the scene of a Wild West-style gold rush: Barbers making up to $180,000 per year, companies paying $6,000 or more for tables at a bar, dozens of workers waiting 30 minutes for BBQ.

But rapid growth comes at a cost. Schools are desperate to find teachers, who in turn are desperate to find affordable housing. We’re not sure “man-camps,” or impromptu housing communities for oil workers, do the trick for anyone outside the industry.

Bottom line: A “gusher of crude production” has turned a “remote stretch of towns...into an industrial zone, seemingly overnight,” writes the WSJ. And given the latest ambitious projections from Chevron and Exxon, we can expect the money to keep flowing in.

MEDIA

Everyone in Media Right Now

And they’re not sweating because Cops was on. There’s a battle royale brewing in the industry, and enemy No. 1 is Netflix.

Steven Spielberg’s ‘declaration of war
The legendary director is reportedly looking to block Netflix (+0.93%) and other streamers from being included in the Oscars race...unless they give their films more traditional theatrical releases.

Remember, Netflix’s Oscars contender Roma was only released in theaters for about three weeks before it went live on the streaming platform. Spielberg’s arguing there’s a difference between that and cinema.

But when they go low, Netflix goes on Twitter.

Zoom out: As NBC’s Daniel Arkin writes, “In the eyes of many...this is not some obscure bureaucratic squabble but a high-stakes fight for the future of the medium.”
HBO piles on
“Netflix doesn’t have a brand,” new WarnerMedia Entertainment head Bob Greenblatt told NBC’s Dylan Byers. “It’s just a place you go to get anything—it’s like Encyclopedia Britannica.”

Translation: Netflix can reach as many people as it wants (117.6 million last quarter), but HBO will always position itself as the premium option.

CRIMINAL JUSTICE

For JPMorgan, Orange Is Not the New Green

The biggest bank in the U.S. is cutting ties with private prisons after deciding the risk/reward ratio wasn’t worth it. JPMorgan will no longer extend new financing to private prison players, and it’s looking to get rid of its credit exposure in the space ASAP, too, per Bloomberg.

JPMorgan (-0.08%) has faced criticism for lending to Geo Group Inc. and CoreCivic Inc., two firms that run prisons and detention facilities accused of holding immigrant families.

• FYI, both Geo Group and CoreCivic have said their facilities do not house unaccompanied minors.

But that hasn’t stopped the public outrage. JPMorgan CEO Jamie Dimon’s been berated for brokering prison finance deals. Example: On Valentine’s Day, demonstrators showed up outside his Manhattan apartment with a mariachi band and urged him to “break up with prisons.”

It’s not just JPMorgan in the prison finance biz, though. In 2018, banks including Bank of America and Wells Fargo raised about $1.8 billion in debt for CoreCivic and Geo Group. Their reckonings could be next.

AI

Artificially AI

We’re going to let our Emerging Tech writer Ryan Duffy take this one...

You know those friends who say they really get AI but can't tell the difference between a naive Bayes classifier and a generative adversarial network? According to one report, 40% of European AI startups are like your friends.

MMC Ventures, a U.K. investment firm, sifted through the products and services offered by 2,830 European “AI startups,” looking for any sign of artificially intelligent life. And by the company’s estimate, only 1,580 fit the bill.

Of those 1,250 non–AIers…many were misclassified by third-party analytics firms, MMC’s David Kelnar told Forbes, adding that some probably knew they were being listed as an AI startup and didn’t care to clarify.

• The reason? AI is a good PR bandwagon to hop on and it brings more investment.

Bottom line: Sneaking “We use machine learning to do X” into a pitch deck may have worked in 2009. But a decade later, investors are wising up and doing more research.

+ We promise our brand new Emerging Tech newsletter is actually about AI...and crypto, 5G, drones, and more.

CURRENCY

Feast Your Eyes on the Swiss National Bank’s New 1000 Franc Note

Ain’t she a beaut? This just-revamped note is impressive in other ways, too. Worth about $1,000, it’s one of the world’s most valuable banknotes.

But for some, that’s too valuable.

• Critics of large banknotes (including former Treasury Secretary Larry Summers) argue they contribute to criminal activity.
• That’s one reason why the European Central Bank stopped issuing a 500-euro ($566) note.

There’s just one problem: The Swiss may love cash more than they love Roger Federer. Unlike in some countries (Sweden) where cash is going out of style, in Switzerland cash in circulation is increasing.

• At a news conference, SNB Vice Chairman Fritz Zurbruegg emphasized, “The 1,000 franc note is used for payments and also has a function as a store of value. Cash is still very popular in Switzerland, it is a cultural phenomenon.”

+ Ask the audience: What’s your favorite banknote from around the world? Share your responses here and we’ll put together a list with pictures.

WHAT ELSE IS BREWING

• Michael Bloomberg said he won't run for president, but he is expanding his efforts to combat climate change.
• FDA Commissioner Scott Gottlieb, known for his responses to e-cigarettes and the opioid epidemic, will resign after nearly two years on the job.
• Target’s (+4.58%) 2018 was its best year since 2005.
• GE CEO Larry Culp said that the company’s industrial free cash flow will be negative in 2019. Shares also went negative 4.81% on the day.
• Papa John’s (+5.00%) founder John Schnatter is leaving the company’s board of directors.

BREAKROOM

Real Estate Appraiser
Let’s head deep into the heart of West Texas oil country for today’s edition. You’re looking at 457 County Rd #339, Pecos, TX 79772.

The specs:

• 3 bed, 2 bath in 1,792 square feet
• Home is permanently fixed as hitch and wheels have been removed
• Lot size is one-fourth acre and includes a storage building
• Located on CR 339 by all the oilfield activity; perfect place for employee housing

So, what’s its for-sale price?

Breakroom Answers