Category Archives: Current Affairs

Biden sanctions Russia over belligerent foreign policy

Last Thursday, the White House announced that sanctions are to be placed on Russia for its “harmful foreign activities”, interference in US elections and sweeping cyber-attacks on US government and corporations. The impositions also follow strong international condemnation of Russia’s heavy military deployment at the Ukrainian border. The actions target 32 Russian entities and involve the expulsion of certain diplomats. Biden’s sanctions align with his rhetoric in recent months, during which he has promised to make Putin “pay” for attempting to undermine the American democratic process and accused the Russian government of poisoning Alexei Navalny. The sanctions also sharply contrast from recent American policy towards Russia, a period during which Donald Trump rarely criticised Russia or Putin’s belligerent behaviour on the world stage.

What do the sanctions entail?

The wide-ranging sanctions imposed by Biden’s executive order includes “long-feared” restrictions that ban U.S. financial institutions from participating in the primary market for Russian sovereign debt, effective from June 14th. Once news of the sanctions broke, Russian bonds suffered their largest fall in value for months and the rouble dropped by 2.2%, before making a slight recovery later in the day. Still, a large sell-off of Russian assets was sparked. Nonetheless, one senior Russian official said that the new debt restrictions were the “least painful” option, as they will not affect the secondary debt market, while others have said that a reciprocal response is “inevitable”.

In addition to this, 32 entities and individuals have been sanctioned by Biden’s order. The list includes Russian government and intelligence officials, as well as six Russian companies involved in the Kremlin’s hacking activities. Ten Russian diplomats in Washington are also to be expelled. Some worry that the expulsion of diplomats will worsen intergovernmental dialogue between the two nations, but Putin is still thought to be considering Biden’s offer of a US-Russia summit in the near future.

National Security Advisor Jake Sullivan says that the measures taken by the White House are “proportionate” and that their goal is “to provide a significant and credible response but not to escalate the situation”. Indeed, Biden’s sanctions are consistent with America’s handling of Russian transgressions since its annexation of Crimea in 2014: to punish illegal Russian behaviour but not to escalate tensions further, particularly given the anxiety surrounding Russia’s military build-up at the Ukrainian border.

What has inspired the sanctions?

The US has threatened to place additional sanctions on Russia for a throng of misdeeds over recent years. However, the introduction of these specific restrictions has occurred in close proximity to a recent US intelligent report confirming attempts by the Russian government to rig the 2020 presidential election. Additionally, the order follows a review, ordered by Biden, into other key areas of concern with Russian behaviour that include reports of Russian bounties on U.S. soldiers in Afghanistan, the historic SolarWinds cyber-attack and the poisoning of Putin’s pro-democracy rival Alexei Navalny.

The sanctions are viewed as a single, sweeping response to these various Russian wrongdoings, rather than to one particular incident. This is likely the case for two main reasons. Firstly, the US does not wish to escalate tensions with Russia, but rather wishes to signal that the Biden administration has adopted a harder line than his predecessor. Secondly, devising an individual response to the major SolarWinds cyber-attack would be politically difficult for Biden. Some members of Congress described the attack as “an act of war”, while some highlighted that the US conducts similar operations abroad. Treating Russia’s various offences with a single package of sanctions has allowed Biden to maintain his election promise of a strong stance on Russia while avoiding an image of hypocrisy (i.e., sanctioning Russia for activities similar to those that the US partakes in).

Will Biden’s order result in further US-Russia divergence?

The extent to which the sanctions will damage US-Russo diplomatic relations is still unclear. Many believe that overly harsh sanctions on Russia would be inconsistent with Biden’s offer to hold a summit and normalise relations between the two countries. Given that the sanctions are not disastrously severe, and that Putin is still thought to be mulling over the prospect of a US-Russia summit, it seems that relations between the White House and Kremlin will remain similarly strained. However, Biden signalling a firmer approach to Russia than Trump is not a welcome prospect for the Kremlin, and will likely reduce the belief that they can act with impunity. Indeed, a Kremlin spokesman seemed to explain the increased Russian military activity on its Ukrainian border as a kind of bargaining tool in the case of US action, like sanctions.

Overall, it is difficult to know how the sanctions will affect US-Russo relations. If they are enough to prevent Putin from joining Biden at a summit, then they will have had a clearly negative effect. Otherwise, even in the case of roughly equivalent Russian retaliation, the two countries’ relationship will likely remain as it has been over recent years: strained.

“Nowhere close” to enough climate action?

A new report from the United Nation’s Framework Convention on Climate Action (UNCCF) has announced that the world’s nations are doing “nowhere close” enough to keep the global temperature increases well below 2°C above pre-industrial levels and meet the goals of the Paris Climate Agreement.

What does the report show?

The initial Nationally Determined Contributions (NDC) Synthesis Report measures the progress of national climate action plans. The report described the findings, based on 75 countries that account for roughly 30% of the world’s emissions, as falling “far short” of what is required to meet the goals of the Paris Agreement and marking a “red alert” for the planet. Countries were required to submit their reports by the end of 2020, though many failed to do so due with Covid-19 further backlogging civil services. For this reason, the UNFCCC Executive Secretary insists that the report is just a snapshot, and that a clearer picture will have emerged before the COP26 climate summit in November.

Of those countries that did submit reports, the majority did indeed commit to lowering their emissions by 2030. However, the totality of the 75 countries’ current commitments would result in an estimated 1% total drop by 2030 compared to 2010 levels. The UN’s Intergovernmental Panel on Climate Change predicts that to meet Paris Agreement’s lower-bound of 1.5°C above pre-industrial temperatures, the cumulative reduction should be around 45%.

Why is it important that countries do meet the Paris Agreements standards?

The historic Paris Climate Agreement, signed in 2015, is a legally binding international agreement that mandates signatories to do their part in the common effort to limit global warming. Its goal is to limit global temperature increases to well below 2°C above pre-industrial levels, and preferably only 1.5°C above these.

If temperature levels are allowed to increase by more than this, experts predict that serious and likely irreversible harm will be done to many of the earth’s natural and human systems. While the risks will not be felt equally everywhere in the world, the difference between 1.5°C and 2°C above pre-industrial temperature levels is likely to be significant. These facts are what have urged the UN and many of its members to call for more meaningful commitments from the Paris Agreement’s signatories.

Will 2021 see improvements from the initial report?

The UN’s General Secretary, António Guterres, called 2021 a “make or break” year for global climate action, stressing that global emissions must be reduced by 45% from 2010 to reach the 1.5°C goal, with the landmark COP26 climate summit taking place in Glasgow this November.

The inclination to imagine that reducing emissions by 45% compared to 2010 levels seems unlikely is understandable, given the report’s findings. Three of the world’s largest greenhouse gas emitters failed to submit their NDC reports on time. It is still unclear if China and India will submit reports before the COP26 summits. Additionally, countries such as Japan, South Korea, New Zealand, Switzerland and Australia, failed to improve upon their 2015 plans’ commitment to emission reduction. Meanwhile, Brazil’s plan made no commitment to reducing emissions by 2030.

However, despite the dreary premonitions that the UNCCF’s report may arouse, seeds of hope can be found in the dynamic, if not rocky, field of global climate action politics. The EU27 is the only one of the world’s four largest emitters to submit a plan on time, but Joe Biden’s American government, which has re-joined the Paris Agreement, is expected to submit an NCD plan by April. It is thought that strong American action to reduce emissions will signal to the world that green commitment is the future.

China has also promised to reach carbon neutrality by 2060. Many critics are understandably sceptical of the authoritarian regime’s commitment to the global attempt to mitigate climate change, given the behemoth scale of their brown investment. However, there are others who believe that the Chinese government’s changing rhetoric is not merely verbose signalling, but rather a recognition of the world’s (and its profit-seeking investors’) desire for trustworthy investments that will truly contribute to the fight against climate change.

With this in mind, 2021 may well be a “make or break” year for the effort to reduce global emissions.

Goodbye 9-to-5, Salesforce to offer flexible work schedules to employees

By Matthew Quick

“The 9-to-5 workday is dead.”

Coronavirus has drastically changed the way business is handled since it first began over a year ago, including the way we work.

Last Tuesday, Salesforce announced that the company will no longer expect their employees to follow the 9-to-5 work schedule that has defined the modern workplace. Instead, Salesforce will be introducing a new system in which employees can choose a more flexible working schedule that determines how often they come into the Salesforce offices.

The company has offered three separate options to employees. A flex option will see employees returning to the office one to three days a week, once it is deemed safe to do so. The company states that most Salesforce employees will work via these conditions, as 80% of those surveyed still seek a physical connection to the workplace. A fully remote and a more traditional office-based option will also be offered based upon the employee’s needs.

The changes come after the company surveyed its employees at the start of the pandemic. “We learned that nearly half of our employees want to come in only a few times per month, but also that 80% of employees want to maintain a connection to a physical space,” Brent Hyder, President of Salesforce, wrote in a blog post announcing the changes.

Hyder also wrote that offering a more flexible work schedule is aimed at increasing productivity and creating greater equality in both terms of hiring and work-life balance. “In our always-on, always-connected world, it no longer makes sense to expect employees to work an eight-hour shift and do their jobs successfully,” Hyder wrote. “Whether you have a global team to manage across time zones, a project-based role that is busier or slower depending on the season, or simply have to balance personal and professional obligations throughout the day, workers need flexibility to be successful.”

Salesforce is among a growing list of tech giants allowing their employees to have more freedom over their work schedules. Last October, tech giant Microsoft announced that the company would be embracing a more flexible workplace that would allow some employees to work from home even after coronavirus restrictions are lifted. Salesforce is also looking to update its office spaces once employees return to work. Diverting from a more traditional workplace, “community hubs” will replace desks with breakout spaces meant to foster human interaction.

Salesforce employees began working from home in early 2020 and are expected to continue working from home until at least July 31, 2021, the company stated. The latest changes being made by Salesforce and fellow tech companies indicate an evolution brought on by coronavirus. Companies and employees alike have developed different expectations from one another as a majority of the global workforce works from home.

“This isn’t just the future of work, this is the next evolution of our culture. We’re combining the strength of our values, our platform and our people to reimagine the way we work for the better — whether in-person or in the cloud,” Hyder wrote.

Disney+: Is a Netflix streaming war on the way?

The pandemic’s impact on Disney can be seen through the closing of Disneyland parks, its cruise lines, productions, and delays in its upcoming movies. It has also resulted in thousands of redundancies at Disneyland Resort, Walt Disney World, and its retail stores. For the 2020 fiscal year, Disney reported a net loss of $2.8 billion. Its profits decreased by 99% at $29 million this quarter, from $2.1 billion last year. Its costs will also increase by $1 billion this coming year due to the increased spendings on safety precautionary measures to prevent the spread of the virus as parks are slowly beginning to open again in limited capacity, such as the company’s resort in Florida. Overall, its operating income decreased by 67% to $1.3 billion, and could have been $2.6 billion higher had the effects of the pandemic not hit the company. 

Nevertheless, Disney has focused its efforts on its streaming business, Disney+, which uses a subscription model of $7 per month by itself, or $13 a month in conjunction with Hulu and ESPN+ as a package. Disney+ has acquired roughly 95 million subscribers, an increase of 9 million from just December. In fact, the streaming service in conglomeration with Hulu, Hotstar, and ESPN+, has gathered 146 million subscriptions. The company’s fast growth as individuals increasingly indulged in its services during lockdown has solidified its position as a strong Netflix competitor. This positive news of Disney’s progression sent its stock up by 3% in after-hours trading as investors “focused on the promise of streaming instead of the billions of dollars lost to the pandemic.”

The company is now being treated like a tech company as investment in its streaming business continues to rise. However, investors and analysts have raised concerns, wherein they question how the company plans to grow beyond its current “diehard fans.” As a response, Disney plans to invest in and push out more content. Streaming is a very costly business and the company requires high funding to finance new series and movies that are necessary to not only maintain its current subscriber base, but also to lure new subscribers. 

Disney’s future looks bright as it harnesses and further develops its Disney+ platform by doubling investment for its annual content to $15 billion by 2024, at which point its streaming business would begin turning over profit. 

The company forecasts 300-350 million total subscribers worldwide in its streaming services by the end of 2024. On one hand, Bob Iger, executive chairman, said Disney will focus on releasing quality content over quantity. It plans to release around 100 new titles annually across its brands, with attention to its Disney+ library. Disney has revealed its plans to release 10 Marvel series, 10 Star Wars series, and 15 Disney and Pixar series. On the other hand, as Disney competes with Netflix, there is a pressure to increase its volume of content. Netflix was able to release more than 370 shows and movies last year, which roughly equalled a new show everyday! Kareem Daniel, who is in charge of Disney’s creative content, now says Disney’s goal is to release new content to Disney Plus every week. It will be interesting to watch and analyse the strategy Disney uses to continue flourishing its streaming services this year.

To the moon… and back: the inner workings of financial markets

“Our mission is to democratize finance for all. We believe that everyone should have access to the financial markets, so we’ve built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike.”

            – Robinhood Markets, Inc. Mission Statement

Commission free trading is a great thing, right? Any time you can get the same service while paying less, in this case paying nothing, must be a good thing! To this question, one could debate many different perspectives. Yes, on the surface, commission free trading appears to be a clear win for investors, who benefit from lower costs. Fees, including trade commissions can dig into returns even if they are as low as €5 or €10. This eliminates a significant proportion of hard earned capital appreciation which investors desperately crave. Hence, zero commissions should always be of benefit to investment accounts.

Furthermore, digital brokers, which includes the likes of Robinhood among others, have provided transparency in financial markets which would once have been inconceivable. Trading apps now make tracking asset prices effortlessly simple in real time, allowing even the smallest of investors the opportunity to capitalise on market distortions. However, while smaller investors have rejoiced in this new found transparency, few have actually taken the time to question why and how digital brokers can offer commission free services. Robinhood’s (not-so) secret is simple: selling their order flow, and thus information about which assets are in demand, to other financial intermediaries.

The payment for its order flow model is very simple. First pioneered by financier and now convicted fraudster, Bernie Madoff, it is a way for market makers such as Citadel Securities and Virtu Financial to outsource the task of finding orders to fulfil. Market makers provide liquidity to financial markets by remaining ready to buy and sell securities at all times of the day. In order to offer free commission on trades, Robinhood sells trades to market makers such as Citadel, who pay a small fee in return, usually fractions of a cent per share. The money maker can then flip the trade by taking the other side of the order and returning the asset to the market, profiting the balance between the buy and sell price.

As J.E. Karla described, “If the service is free, you are the product. Robinhood users thought the service was accountable to them, but actually it exists to serve giant Wall Street institutions like Citadel and other market makers”. Simply put, the payment for order flow system makes a lot of money for everybody except Robinhood’s users. The system worked perfectly for Robinhood, that is until a team of amateur investors on the Reddit discussion board ‘WallStreetBets’ bid up GameStop (GME) shares over 1,700%. Some traders declared war on Wall Street hedge funds that had placed short positions against the company, most oblivious to the fact that the very institutions against which they were feuding were in fact profiting from their actions. Market makers are designed to prosper in times of uncertainty and high-volume trading. January 27th alone saw $29 billion worth of GameStop transactions.

Small investors were also mostly unknowing of the fact that share-price volatility creates a requirement for brokers, like Robinhood, to post cash with a clearing house — and meeting these demands can curb trading. A clearing house is the intermediary between buyers and sellers of financial instruments that ensure both sides honour their contractual obligations. Similar to a brokerage making a margin call to reach a maintenance margin, the National Securities Clearing Corporation (NSCC) required Robinhood to post $3 billion in cash as collateral for the risk that GameStop shares may plummet between when their shares are purchased and when they are cleared two days later.

However, Robinhood simply did not have $3 billion in capital to put down as collateral. Instead, it decided to limit GameStop trading and similar companies targeted in the Reddit movement. This left Robinhood with fewer volatile stocks on its balance sheet while also allowing earlier trades to settle, reducing the company’s overall risk exposure, and thus its collateral requirement. Crucially, this is when theories of Wall Street intervention in markets began to circulate. Many believed that Robinhood’s actions, among others, constituted proof that the capitalist economy is structured to do what is best for the business elite. Jim Chanos, famous American investment manager, summarised the events well in a recent interview with the Financial Times. He remarked that “We’re seeing a level of misunderstanding about how markets work that is being brought on by a whole new generation of investors who have never seen a bear market and somehow think that they’re being held back from their rightful place at the table by these evil hedge funds”.

When it comes to understanding the inner workings of the financial world, individual investors have always been disadvantaged in comparison to the investment powers found on Wall Street and beyond. Nevertheless, newfound transparency in the financial markets, brought about by the creation of digital brokers such as Robinhood, illustrates just how powerful retail traders can be when they rally around certain stocks. This is what happened when a team of amateur traders on a Reddit discussion board decided to wage war upon hedge funds.

Somewhat ironically, amateur traders’ misunderstanding of the extent of transparent relationships within the financial system seems to be exactly why the war appears to have been lost. Rebel investors may have succeeded in forcing short sellers to abandon their positions, but the bubble is beginning to burst, and Wall Street powers are likely making billions from new, and much higher priced short GameStop positions than ever before. To compound the irony, in order to take new short sale positions, institutions have had to borrow shares them from their actual owners, the rebel investors, most of whom won’t realise that their broker contracts allow their shares to be lent to other investors for a fee, which the trader will never see. 

Hence, traders are lending their shares to the exact institutions which will eventually bankrupt them, making Wall Street billions of dollars in the process. The recent GameStop saga is a perfect illustration that retail investors are collectively powerful enough to win the battle, but Wall Street will always win the war.

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