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Bakhmut on a knife-edge as Russia claims its soldiers are in the city

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Ukrainian military vehicles drive along a road outside of the strategic city of Bakhmut on January 18, 2023 in Bakhmut, Ukraine. Russia has stepped up its offensive in the Donetsk region in the new year, with the region’s Kyiv-appointed governor accusing Russia of using scorched-earth tactics.

Spencer Platt | Getty Images News | Getty Images

Ukraine could soon face a tough decision over tactically withdrawing from Bakhmut in the eastern Donetsk region, as the fate of the city hangs in balance.

Bakhmut has been intensely fought over by Russian and Ukrainian forces for months, with Moscow viewing its capture as a strategic goal and a way to cut Ukrainian supply lines in Donetsk. Russian officials recently claimed that Moscow’s forces have almost entirely encircled Bakhmut. On Wednesday, one special forces commander said Russian troops now occupied several streets in the city.

Ukraine disputes how far Russia has advanced into Bakhmut, although it concedes – in line with Western defense analysts – that Russian forces are edging in on the city, after making small but incremental advances in the surrounding area.

Still, Kyiv is vowing to fight on for now, with Ukraine’s President Zelenskyy stating last week that “nobody will give away Bakhmut. We will fight for as long as we can. We consider Bakhmut our fortress.”

Russia is meanwhile throwing all the manpower and artillery it can muster at Bakhmut, as it looks to present a victory to the Russian public ahead of the first anniversary of the Moscow-styled “special military operation” on Feb. 24.

“The Russians are desperate to advance ahead of the one year anniversary of this aggression. They are really using everything they have in and around Bakhmut,” Yuriy Sak, an advisor to Ukraine’s defense ministry, told CNBC Wednesday.

“We take it seriously, we understand that the enemy is not going to stop,” he noted, adding that “the Russians are hoping that [they] will break through our defense lines, and that they will move further [into Donetsk].”

Ukrainian soldiers outside the strategic city of Bakhmut on Jan. 18, 2023, in Bakhmut, Ukraine.

Spencer Platt | Getty Images News | Getty Images

Sak said Russian forces were taking “staggering losses” in the process, as they deploy newly mobilized and inexperienced soldiers — many of whom were called up in the partial mobilization announced by Russian President Vladimir Putin last September — into the fighting around Bakhmut.

“They don’t have time to even prepare the newly mobilized soldiers. So they’re throwing them [in] as cannon fodder and there are so many images of fields around Bakhmut littered by the corpses of Russians,” he noted.

Ukraine acknowledges the scale of the fight in Bakhmut, and this week sent the commander of Ukraine’s ground forces, Colonel-General Oleksandr Syrskyi, to take charge of local military operations.

While Ukraine has previously deemed withdrawing from a settlement as a rational strategy in the wider war, it is not yet ready to give up Bakhmut, Sak said. “This is not something that has been discussed. For now, the defense of Bakhmut continues.”

“The next couple of weeks will really be decisive, that’s one thing we can say with certainty,” he added.

How long to hold on?

Bakhmut’s strategic value to Russia is disputed, but analysts say that Moscow sees its capture as a way of cutting Ukrainian supply lines in the east, and as gateway to advancing toward the nearby larger cities of Kramatorsk and Sloviansk.

Bakhmut was once a busy industrial hub with a thriving salt-mining industry, which encompassed the nearby small town of Soledar that was fully seized by Russian forces in January. It is largely uninhabitable now, its former population of around 73,000 reduced to just a few thousand residents living without power and heating.

In December, President Zelenskyy said the city had been turned into “burnt ruins” after months of intense fighting.

Ukraine’s former Defence Minister Andriy Zagorodnyuk told CNBC that defending every village, town and city in Ukraine was vitally important but that sometimes strategic, unemotional decisions had to been made with regards to whether to keep on fighting in some places, as had been the case with Soledar.

“Certainly, at some point of time, there might be a question whether, in Bakhmut, it’s worth keeping the troops there,” he said. Zagorodnyuk said that Ukraine’s forces in Bakhmut were high skilled and could avoid encirclement, but stressed that Ukraine wanted to preserve its military personnel.

“Russians also accept any losses at the moment, their tolerance for losses is unlimited so they don’t care how many people they lose. At all,” Zagorodnyuk, the current chair of the Kyiv-based Centre for Defense Strategies think tank, said Wednesday.

“For us, it’s a totally different situation. We do care how many people will lose, because it’s our people … So essentially, at some point of time, there will be the question [over whether to pull out of Bakhmut],” he said, noting that point had not yet been reached.

Ukrainian servicemen of the artillery unit of the 80th Air Assault Brigade talk near Bakhmut, Ukraine, on Feb. 7, 2023.

Yasuyoshi Chiba | Afp | Getty Images

If Ukraine lost Bakhmut, it would not be “the end of the world,” he observed. “It’s not like losing Bakhmut means the whole Donbas [eastern region of Ukraine] goes, we definitely cannot say that.”

“It is a historical city, which means it is on the crossroads of the key roads there. So yes, its geographic position is important. And that’s one of the key reasons why it was decided that it needs to be kept longer. But it’s not like we should be accepting any losses to keep it, absolutely not.”

Russia quietly confident

Ukrainian servicemen make a trench near Bakhmut on Feb. 1, 2023, as they prepare for a Russian offensive in the area.

Yasuyoshi Chiba | Afp | Getty Images

Many analysts have likened the “battle of Bakhmut” to the bloody and muddy warfare of attrition of World War 1, as Russia tries to slowly but surely wear down Ukraine’s troops — a tactic that has arguably had some success, according to Jamie Shea, a former NATO official and international defense and security expert at think tank Chatham House.

“Russia has learned during the war that the best tactic is this sort of slow, heavy casualty [conflict] …that tries to grind the Ukrainians down village by village, which is what we see now in the Donbas,” he told CNBC Tuesday.

“They pay a price for it — they lose a lot of men, probably equipment as well. But at the end of the day, they got Soledar and they seem quite close to capturing Bakhmut, maybe surrounding the Ukrainians who are defending Bakhmut. And, to be frank, and it’s not nice to say, they’re killing also a lot of Ukrainian soldiers.”

Ukrainian security forces talk to an elder woman while the first anniversary of Russia-Ukraine war approaches in Bakhmut, Ukraine on January 25, 2023. The majority of the population has been evacuated as civilians struggle to carry on with their daily lives in Bakhmut, one of the most intense frontlines of war.

Anadolu Agency | Anadolu Agency | Getty Images

Shea said that the balance of forces was obviously tipped in Russia’s favor, noting that “the Ukrainians can less afford to lose troops than Russia. Russia is sacrificing conscripts in all this, whereas Ukraine has its best troops in the Donbas, their battle-hardened troops.”

Ukraine has denied its soldiers are in danger of being imminently surrounded in Bakhmut. On Thursday morning, the General Staff of Ukraine’s armed forces said in an update that Russian troops were “trying to take full control of Donetsk and Luhansk,” but that the Ukrainian contingent had repelled attacks on Bakhmut and nearby settlements.



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Pressure on China’s factories grows as U.S. demand falls

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Employees work on an electronics production line on Feb. 2, 2023, at a factory in Longyan, Fujian province in China.

China News Service | China News Service | Getty Images

BEIJING — For some factories in China, it’s not full steam ahead after the end of zero-Covid.

All the factories that U.S. toy maker Basic Fun works with in China — about 20 of them — told workers not to return immediately after the Lunar New Year holiday, said CEO Jay Foreman.

That’s because of a flood of inventory in the first half of last year, which didn’t get sold as consumer prices in the U.S. surged over the summer and into the fall, he said. Basic Fun’s products include Care Bears and Tonka Trucks.

The official Lunar New Year holiday in China ended Jan. 27, but the travel period runs until Feb. 15. The festival is typically the only time each year that migrant workers — more than 170 million people in China — can visit their hometowns.

“Every factory I spoke to said they’re going to have less people employed this year than last year,” Foreman said. He expects U.S. consumer demand to pick up later this year.

We are long on China, says Deutsche Bank

China’s exports to the U.S. in the toys, games and sports category account for about 6% of all exports to the country, according to China customs data accessed through Wind Information. That category of toy exports to the U.S. saw a slight drop in 2022, the data showed.

“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

He said consumer electronics was seeing a similar situation.

“For other industries, the picture is much better. Some are struggling to keep up with trailing orders and catch up with everything they had to deliver last year,” he said.

China abruptly ended its zero-Covid policy in December. But restrictions on business activity were tight for most of 2022, including a lockdown of Shanghai for about two months in the spring.

U.S. demand slows

Retail sales in the U.S. — China’s largest trading partner on a single-country basis — have slowed in the last few months. China’s exports to the U.S. barely grew in 2022, and the U.S. economy is expected to slow further in 2023.

That’s on top of tariffs and bilateral tensions, which have escalated over the last several years.

“We expect we will continue to grow, but the pressure is very great,” Ryan Zhao, director of Jiangsu Green Willow Textile, said in Mandarin, translated by CNBC.

“What I heard about the market, 2023 will be very hard. U.S. demand is declining. The Russia-Ukraine war hasn’t ended.”

Read more about China from CNBC Pro

Some U.S. clients’ orders have disappeared.

Zhao said his company was working with a high-end bedding and textile brand in New York that filed for bankruptcy last year. To survive in the “shrinking” market, he said the company is shifting to lower-priced products popular with younger consumers.

That means in order to grow revenue, Zhao has to sell more items than before – and he plans in the next few months to hire 10 more workers locally for his factory of 30 people in China.

How China came to dominate the U.S. in smartphone manufacturing

When asked by CNBC in January, China’s customs administration acknowledged the pressure on China’s exports from slowing external demand, and noted rising risks of a global recession.

Trade data show demand for Chinese goods is going up in other markets, such as Southeast Asia.

Since China’s Covid wave ended, employers have increased the share of part-time positions and manufacturers are increasingly paying workers every week, instead of once a month, according to Qingtuanshe, a job search platform within the Alipay mobile app.

While there’s no clear change in wages since the reopening, Qingtuanshe noted the pay range for factory jobs declined sharply during the pandemic.

Skills mismatch

For China’s domestic economy, the drop in overseas demand reveals a more widespread employment problem: lack of highly skilled factory workers.

“It’s generally becoming more difficult to find workers and to find the right workers,” Annell said.

“You have some high youth unemployment and there is a pool of labor, but when you start looking into it in a specific city, it’s hard to find both the qualified supervisors” and technical workers, he said.

Manufacturing accounts for 18% of China’s labor force, and construction workers another 11%, said Dan Wang, Shanghai-based chief economist at Hang Seng China. However, the majority only have at best a middle school education, making it hard for them to change to another industry, she added.

She expects there will be more than 1 million unemployed people in rural areas — who are not counted by official statistics on urban unemployment. She attributed it to the decline in exports and a push for automation in China, while the real estate sector’s demand for construction workers declines.

Lackluster growth in consumption also limits how much the services sector can absorb new workers, as it had prior to the pandemic, Wang said.

“It looks like the ultimate solution is still on some government-sponsored training. As time goes by, more of those workers need to be trained to actually earn a living.”



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FTX bankruptcy fees near $20 million for 51 days of work

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The FTX logo on a laptop screen.

Andrey Rudakov | Bloomberg via Getty Images

FTX’s top bankruptcy, legal, and financial advisors have billed the company more than $19.6 million in fees for work done in 2022, according to Tuesday bankruptcy court filings. More than $10 million of that was for work done in Nov. 2022, as Sam Bankman-Fried’s crypto empire entered bankruptcy protection in Delaware.

The firms will initially only be paid a little over $15.5 million, or 80% of the value of their work, under a court-ordered interim compensation plan.

The law firms that billed FTX are Sullivan & Cromwell, Landis Rath & Cobb, and Quinn Emanuel Urquhart & Sullivan. Professional advisor Alvarez & Marsal and financial advisor AlixPartners also billed the company.

Some of the work that the firms billed for involved meetings with other companies that also were billing FTX for their time, or involved corresponding with former and current executives, including Caroline Ellison, the former CEO of Bankman-Fried’s hedge fund, Alameda Research.

Landis Rath & Cobb and Sullivan & Cromwell, FTX’s primary legal firms, billed the company a combined $10.7 million for over 8,400 hours of work. Landis Rath & Cobb billed $1.16 million for work done between Nov. 11 and Nov. 30.

Sullivan & Cromwell, a target for both lawmakers and Bankman-Fried over their pre-petition work with FTX, sought over $9.5 million in compensation for over 6,500 billable hours, in the period between Nov. 12 and Nov. 30. Over a third of those billable hours, totaling over $4.8 million, were for the work of partners, who typically charge the highest hourly rate.

Sullivan & Cromwell assigned over two dozen partners to FTX’s case, according to the filings. Jim Bromley, a partner at Sullivan & Cromwell and a lead attorney on the case, billed over 178 hours for the weeks between Nov. 12 and Nov. 30.

The legal filings offer a glimpse into the ferocious work done by advisors to untangle FTX’s complex web of accounts and slipshod accounting standards. Sullivan & Cromwell lawyers spent over 1,900 hours in November alone on work related to analyzing and recovering FTX’s global asset base, according to the filings.

Alvarez & Marsal, an advisory firm, billed $1.9 million for over 2,300 hours of work on “business operations,” meeting with lawyers, FTX executives, analyzing FTX’s holdings using blockchain explorers, and reviewing “cybersecurity scenarios.” Those operations included multiple hours in November corresponding with and calling Ellison, 5.3 hours in a single day imaging iPad files and other electronic devices, and a first-day hearing conference call that lasted 2.5 hours.

Quinn Emanuel, which billed over $1.5 million for work done between November and December, assigned over a dozen lawyers to the case, nine of whom were partners. One of those partners, Sascha Rand, billed over $13,000 for a single day’s work in November, corresponding and reviewing first-day issues. Another Quinn lawyer filed for over $17,000 on a “non-working travel” day trip beginning Nov. 21, returning on Nov. 22.

AlixPartners, a financial consulting firm, billed $1.1 million for work done over the course of a little more than a month, from Nov. 28 to Dec. 31.

FTX’s advisors aren’t entitled to their full fees yet. Under an interim compensation order, professional advisors are paid 80% of their filed fees, provided that no objection is filed. Full compensation for legal and advisor fees will not occur until a final fee application is filed, whenever FTX’s bankruptcy saga concludes.

That doesn’t mean that advisors won’t get their due, however. A 2019 Federal Reserve study said professional and consulting fees in Lehman Brothers’ bankruptcy were over $2.56 billion.

Lawyers for Sullivan & Cromwell did $40,000 worth of work just to appear in FTX’s first bankruptcy hearing on Nov. 22, based on court filings of hours billed and hourly rates.

Prosecutors say Sam Bankman-Fried's contact with FTX employees suggests witness tampering



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