🐂 A World on Edge

Markets

Investors should brace for another week of volatility, with the Israel-Hamas conflict potentially causing significant fluctuations in worldwide currency valuations, oil rates, and bond yields, particularly if the situation escalates to involve additional nations. Market participants are already seeking refuge in "safe haven" assets, as evidenced by the notable surge in gold prices on Friday, marking the most significant increase since March.

AI Could Spur an Economic Boom. Humans Are in the Way.

When asked about the potential timeline for artificial intelligence to enhance the U.S. economy, the response tends to be cautious and non-specific, a sentiment shared by many economists.

The growing popularity of generative artificial intelligence tools, like OpenAI's ChatGPT, which generate new content such as text and images, has led some economists to anticipate a transformative impact on workplaces and economic growth by reviving productivity, measured as output per hour, which has been stagnant for some time.

However, the actual realization of these benefits may vary in size and speed, contingent on multiple factors. These include the widespread adoption of the technology and the development of skills in using it. Furthermore, once adopted, the ability of companies to effectively harness the technology for increased productivity is a crucial determinant.

Among the more optimistic projections is one from Goldman Sachs, where economists estimate that generative AI could contribute a 1.5 percentage point increase in annual U.S. productivity growth over the decade following widespread adoption. This could essentially double the average productivity growth rate since late 2007 and result in a comparable upswing in U.S. gross domestic product growth during the same period. To put it in perspective, Federal Reserve officials have set the U.S. long-term growth rate at 1.8%, so this technological advancement has the potential to boost growth to as much as 3.3%, in theory.

International

World on edge with broader Middle East conflict fears

The human toll of the Israel-Hamas conflict is already devastating, with Hamas's October 7 attack on Israel resulting in the loss of at least 1,300 lives, mainly civilians, and Israel's response in Gaza claiming over 2,300 lives. As Israel prepares for a ground war aimed at dismantling Hamas's rule, the world is closely monitoring the situation, not only out of concern for humanitarian issues but also due to the fear that the conflict could escalate into a larger regional war with global consequences.

One of the potential parties that could become involved in the conflict is the Iran-backed militia, Hezbollah, based in Lebanon. Incidents have already occurred along Israel's border with Lebanon, suggesting the possibility of a proxy war involving Iran. Furthermore, other militia groups funded by Iran in Syria and Yemen may join the conflict as it intensifies, or Iran could directly engage with Israel. Heightening these concerns is Iran's warning that continued Israeli attacks on Gaza could trigger a response from Hezbollah, creating a significant impact on Israel.

Israel and the United States are actively seeking to avert this scenario. Israel's defense minister recently stated that they have no intention of engaging in a northern border conflict with Hezbollah if the group restrains itself. The U.S. has engaged in direct discussions with Arab leaders, called on Qatar and China to help contain the conflict, and even held back-channel talks with Iran.

Apart from the human tragedy, a broader conflict in the Middle East could have worldwide economic repercussions. Given the region's significance as a global energy center, a direct confrontation between Israel and Iran could result in a sharp increase in oil prices. Bloomberg Economics estimates that oil prices could surge to $150 per barrel, potentially triggering a recession that shaves around $1 trillion off the global economic output.

Looking ahead, with many nations still grappling with high inflation, the lingering impact of the pandemic, and the ongoing war in Ukraine, the head of the IMF, Kristalina Georgieva, reportedly referred to the situation as a "new cloud on not the sunniest horizon for the global economy."

Entertainment

Taylor Swift goes to the movies

Taylor Swift seems to have conquered most entertainment venues, as she has achieved a remarkable feat with her concert film, "The Eras Tour." In its opening weekend, the film grossed approximately $95 million, making it the highest-earning concert film in history. It remains to be seen whether "The Eras Tour" will surpass the biggest October opening weekend record held by the 2019 film "Joker," which made $96.2 million.

What sets Swift's box office performance apart is the unique way in which she accomplished it. She opted for an exclusive and direct distribution deal with AMC Theatre and Cinemark, bypassing the traditional studio system due to disappointing negotiations. As reported by Puck, Taylor's father, Scott Swift, invested between $10 million and $20 million to produce the film and enlisted Sam Wrench as the director.

The Puck report also reveals that Swift's agreement with AMC allocates 57% of the substantial profits to the superstar, while the movie theater chain retains 43%. This arrangement could serve as a model for other cinemas seeking to circumvent the studio distribution system and release content independently. Beyoncé recently made a similar deal with AMC for the distribution of her concert film from the Renaissance World Tour.

Swift and AMC encouraged audience members to sing and dance during the film, a call that many heeded. Nevertheless, some prominent experts in concert film theater etiquette have expressed disapproval of this practice.

M&A Deal

Exxon to acquire Pioneer

The protesters will likely need a substantial supply of tomato soup as Exxon Mobil, one of the world's largest oil companies, recently revealed its plans to acquire Pioneer Natural Resources, a Texas-based shale company, in an all-stock transaction valued at approximately $60 billion. This acquisition is scheduled to be finalized in 2024.

This move by Exxon represents a clear vote of confidence in the future of the U.S. oil industry, despite ongoing efforts by the White House to reduce emissions and promote climate-friendly energy. It also goes against the International Energy Agency's projections of a decline in fossil fuel demand by 2030. In addition to significantly increasing Exxon's daily production of oil and gas, this deal will offer several key advantages, including:

1. Granting Exxon access to one of the world's largest inventories of untapped oil, comprising nearly 1.5 million acres in the Permian Basin, which is North America's primary source of crude oil.

2. Enhancing U.S. energy security, as per Exxon's perspective. JPMorgan Chase anticipates that 45% of Exxon's oil will originate from the United States.

Zooming out from this development, after facing challenges during the pandemic, Exxon is now prepared to invest the substantial profits it garnered when oil prices surged following Russia's invasion of Ukraine. This merger represents the largest oil and gas deal since Exxon's acquisition of Mobil in 1999 and could potentially stimulate further consolidation within the industry.