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Political risk is back to haunt European stock markets




White House rebuffs pressure to punish Saudi crown prince over Khashoggi murder



The White House is holding firm on its decision not to punish Saudi Crown Prince Mohammed bin Salman over the murder of journalist Jamal Khashoggi, even as some critics accuse President Joe Biden of failing a crucial test of leadership.

“Our national security team believes that going after the network responsible for these actions is the best way to prevent a crime like this from ever happening again,” White House press secretary Jen Psaki told reporters Monday.

“That is our objective,” Psaki said, pointing out that the Biden administration has levied sanctions and restrictions against a slew of Saudi figures.

But so far, the White House is not going after one prominent figure involved in Khashoggi’s murder: the crown prince himself.

The 35-year-old Saudi leader approved the October 2018 operation to kill the Washington Post columnist Khashoggi, according to a U.S. intelligence report released Friday.

That report, which had previously been classified, matched the conclusions of other investigations into Khashoggi’s death and sparked a new wave of outrage against bin Salman.

Shortly after the report was made public, Secretary of State Antony Blinken imposed visa restrictions on 76 Saudi individuals “believed to have been engaged in threatening dissidents overseas, including but not limited to the Khashoggi killing.” The Treasury Department on Friday imposed sanctions on the crown prince’s security detail and other Saudi figures.

Former President Donald Trump, in power at the time of the murder, had sought to cast doubt on bin Salman’s involvement in the operation. Trump asserted that Saudi Arabia would remain a “steadfast partner” of the U.S., even after multiple outlets reported that the CIA concluded bin Salman himself ordered the journalist’s killing.

In late 2019, Biden had signaled that he would penalize bin Salman and his regime over Khashoggi’s death.

“Khashoggi was, in fact, murdered and dismembered, and I believe on the order of the crown prince,” Biden said then. “I would make it very clear we were not going to, in fact, sell more weapons to them, we were going to, in fact, make them pay the price and make them the pariah that they are.”

Once in office, Biden quickly worked to shift the U.S.-Saudi relationship away from Trump’s warm stance toward the crown prince. Biden made clear he sees the 85-year-old King Salman bin Abdulaziz al-Saud, not his son, as his counterpart in the kingdom.

But it seems Biden’s White House will stop short of targeting the crown prince with sanctions or other penalties, sparking blowback.

“It appears as though under the Biden administration, despots who offer momentarily strategic value to the United States might be given a ‘one free murder’ pass,” Washington Post publisher Fred Ryan wrote Monday in a scathing opinion piece.

The New Yorker’s Robin Wright accused Biden of having “betrayed his promise to defend human rights.”

“Biden has done nothing to punish [bin Salman]. Absolutely nothing—to the astonishment of human-rights groups, foreign-policy experts, Saudi activists, and even some on his own staff,” Wright wrote Monday.

Psaki in Monday’s briefing, pressed to explain why Biden won’t sanction the crown prince himself, repeated that the administration made “the right steps to prevent this from ever happening again.”

She noted the new administration’s efforts to “recalibrate” the relationship with Saudi Arabia following the kingdom’s coziness with Trump. She highlighted that Biden halted U.S. support for offensive operations in Yemen.

Psaki said that also includes “not holding back and voicing concern and pushing for action as it relates to dissidents or journalists or others being held.”

But it’s unclear if Biden mentioned Khashoggi at all during his first conversation with King Salman last Thursday, according to a readout from the White House.

Rather, the readout says Biden “noted positively the recent release of several Saudi-American activists and Ms. Loujain al-Hathloul [a Saudi women’s rights activist] from custody, and affirmed the importance the United States places on universal human rights and the rule of law.”

Psaki in a CNN interview Sunday also argued that it’s historically rare for administrations to sanction foreign leaders with whom the U.S. has diplomatic ties.

“We believe there are more effective ways to make sure that this doesn’t happen again and also to leave room to work with the Saudis on areas where there is mutual agreement,” Psaki said.

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Tesla isn’t the only EV stock set for gains this year, says analyst



CEO of Tesla Motors Elon Musk.

Brendan McDermid | Reuters

Electric vehicle stocks could climb up to 50% this year, according to Wedbush analyst Daniel Ives, who thinks there’s enough room in the market for more than just Tesla.

“In my opinion EV stocks could be up another 40- 50% this year, given what we’re seeing in terms of a green tidal wave globally,” Ives told CNBC’s “Street Signs Europe” Monday.

“I think right now it’s a big enough ocean for more than one boat,” said Ives. “It’s not just going to be Tesla’s world.”

Ives said he expects the electric vehicle industry to grow into a $5 trillion market over the next decade; in 2020, market research firm Fortune Business Insights valued it at around $250 billion.

He’s also bullish on the outlook for traditional automakers, as well as pure electric vehicle makers like Tesla.

“This is really going to be what I believe is a renaissance of growth for these automakers and you’re going to see a re-rating,” he said, pointing to General Motors and Ford.

And it’s not just EV makers that analysts are bullish on. In a February note, Goldman analysts pointed to six EV battery specialists with significant potential upside.  

“This is one of the most transformational growth trends in the last 20 or 30 years in terms of EV, and many are going to play and win in this sector over the coming years,” Ives added.

Tesla and bitcoin

One thing that currently sets Tesla apart from other electric vehicle makers is the $1.5 billion it has put into the world’s best-known cryptocurrency, bitcoin.

Ives said that Tesla is now “tied to the hip a bit” with bitcoin, but that’s not necessarily a bad thing.

“I think that’s a double-edged sword,” he said in reference to the investment. “I still believe it’s a smart strategic move for Tesla to go after Bitcoin … They’ve made more from Bitcoin than they have from selling EV cars last year.”

Ives said he thinks that between 3% and 5% of U.S. corporations will own bitcoin or another cryptocurrency in the next 12-18 months.

“It’s going to be contained until we start to see more regulatory goal posts, but this is not going away,” he said, pointing to recent bitcoin investments from fintech firm Square and software giant MicroStrategy.

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Investors shouldn’t worry about interest rates at these levels



Rising bond yields that shook investors in recent weeks are well short of anything that poses a broader threat to the market, according to Goldman Sachs strategists.

Longer-duration government bond yields have hit levels last seen before the Covid-19 pandemic declaration in March 2020. The rise has triggered worries that faster economic growth could generate inflation and pose a threat at a time when the S&P 500 is at valuation levels not seen since the dot-com bubble.

The S&P 500 fell 2.45% last week amid an increasingly volatile market environment.

However, Goldman insists that while rates indeed have soared, they are not flashing danger signals.

“Investors ask whether the level of rates is becoming a threat to equity valuations. Our answer is an emphatic ‘no,'” Goldman chief U.S. equity strategist David Kostin said in his weekly note to clients.

The 10-year Treasury yield, used as a benchmark for fixed-rate mortgages and some other forms of consumer debt, traded at 1.45% Monday. That’s off of the 1.54% peak hit Thursday but otherwise is around the highest seen since late February 2020 and higher than it started 2021.

That has come at a time when the S&P 500 is trading at 22 times forward earnings, which is in the 99th percentile since 1976, according to Goldman, suggesting that the valuations could be a threat particularly in a rising-rate environment.

But Kostin said investors should view the trend as more of a shift than a danger.

Comparing the S&P 500 divided yield with the 10-year yield shows valuations only in a midrange – around the 42nd percentile.

In this environment, investors should recognize that different sectors will benefit, Kostin said.

Cyclical stocks, with weaker earnings but stronger growth profiles, will win over defensive plays that did well during the pandemic rally. Areas such as energy and industrials tend to perform better when rates rise.

“Unsurprisingly, these cyclical stocks have been positively correlated with both nominal and real interest rates,” Kostin wrote. “In contrast, the ultra long-duration stocks have been negatively correlated with interest rates given they generate no earnings today and their valuations depend entirely on future growth prospects.”

He said rates won’t pose a significant danger to stocks until the 10-year hits 2.1%. For now, the environment of rising yields along with growth is “consistent” with the firm’s 4,300 S&P 500 price target for 2021, a forecast that implies 13% growth from Friday’s close.

“Looking forward, investors must balance the appeal of promising businesses with the risk that rates rise further and the recent rotation continues,” Kostin said. “Although secular growth stocks may remain the most appealing investments on a long-term horizon, those stocks will underperform more cyclical firms in the short-term if economic acceleration and inflation continue to lift interest rates.”

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