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How Do Natural Disasters Affect U.S. Small Business Owners?

Recent research has linked climate change and socioeconomic inequality (see here, here, and here). But what are the effects of climate change on small…

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Recent research has linked climate change and socioeconomic inequality (see here, here, and here). But what are the effects of climate change on small businesses, particularly those owned by people of color, which tend to be more resource-constrained and less resilient? In a series of two posts, we use the Federal Reserve’s Small Business Credit Survey (SBCS) to document small businesses’ experiences with natural disasters and how these experiences differ based on the race and ethnicity of business owners. This first post shows that small firms owned by people of color sustain losses from natural disasters at a disproportionately higher rate than other small businesses, and that these losses make up a larger portion of their total revenues. In the second post, we explore the ability of small firms to reopen and to obtain disaster relief funding in the aftermath of climate events. 

What Factors Contribute to Disaster Vulnerabilities?

Disaster vulnerability, defined as the susceptibility to severe climate events, is linked to economic, social, and locational factors. For example, people of color and those with low incomes are more likely to reside in high-risk flood zones. And in states like Florida, a growing preference for high elevation is increasing housing prices in areas with lower flood risk that were traditionally inhabited by people of color. To the extent that firms owned by people of color are more likely to be located in communities of color, these trends imply that they may be priced out of areas with lower climate risk.

Disparities in the impact of natural disasters, among those who are exposed to them, are also related to existing inequalities. Practices like “redlining” have continued to keep home values in low-income and predominantly Black areas lower. This may reduce the capacity of communities to finance disaster-resilient infrastructure if, for example, government programs favor areas with higher property values in the allocation of disaster mitigation grants. Indeed, individuals living in formerly redlined districts—many of whom are people of color—remain vulnerable to greater flood risk as compared to non-redlined districts.

Are Small Businesses Owned by People of Color More Likely to Report Disaster-Related Losses?

We use data from the SBCS for the period 2019-21 to document the impact of natural disasters on small businesses. The annual survey provides detailed information on the operations and financial conditions of businesses with fewer than 500 employees and records the demographics of firm owners. Notably, this information allows us to relate climate outcomes to race directly, rather than to the racial profile of geographic areas, as in some existing research.

The 2019, 2020, and 2021 surveys included 9,315, 15,234, and 18,190 respondents, respectively. The natural disaster module of the survey asks respondents whether their business sustained any direct or indirect losses from a natural disaster in the past twelve months. The fraction of firms experiencing disaster-related losses rose from 7 percent in 2019 to 14 percent in 2021 (see left panel of the chart below). The racial disparities in these losses increased as well. While there were few disparities in 2019, in 2021, 19 percent of Black-owned firms, 21 percent of Hispanic-owned firms, and 17 percent of Asian-owned firms reported disaster-related losses while only 12 percent of white-owned firms did (see right panel below).

The incidence and racial disparity of losses appear to move together, a pattern that exists even outside our sample period. For example, in 2017 (a year with widespread hurricanes and severe storms), there were large disparities between Hispanic- and white-owned firms in reported losses among SBCS respondents.

Fraction of Firms with Losses and Disparities in Losses Have Both Increased since 2019

Two-panel trend chart showing the percentage of all firms with disaster-related losses on the left and the percentage of Asian-owned, Black-owned, Hispanic-owned, and white-owned firms with disaster-related losses on the right, from 2019 to 2021. Both the fraction of all firms with losses and the disparities in losses between white-owned and minority-owned firms increase over the period.
Source: Federal Reserve Banks, 2021, 2020, and 2019 Small Business Credit Surveys.

Notes: For respondents in each year and race/ethnicity category, the lines show the percentage of firms who answered yes to the question “Within the past 12 months, did your business sustain direct or indirect losses from a natural disaster other than COVID-19 (e.g., hurricane, wildfire, earthquake, etc.)?” A firm is considered Black-, Hispanic-, or Asian-owned if at least 51 percent of its equity stake is held by owners identifying with the group. A firm is defined as white-owned if at least 50 percent of its equity stake is held by non-Hispanic white owners. Race/ethnicity categories are not mutually exclusive. An observation is excluded from the sample if it is missing a response to the question or if the owner’s race is not observed. The sample pools employer and nonemployer firms. Responses by employer and nonemployer firms are weighted separately on a variety of firm characteristics to match the national population of employer and nonemployer firms, respectively. To construct a pooled weight, we use the employer (nonemployer) weight if the firm is an employer (nonemployer).

Among those in disaster-related areas, more firms owned by people of color face damages than white-owned firms. We show this by focusing on the subsample of small businesses located in counties designated as disaster-affected by the Federal Emergency Management Agency (FEMA) in the period of the survey. We find that 24 percent of Black-owned firms, 23 percent of Hispanic-owned firms, and 22 percent of Asian-owned firms reported disaster-related losses in 2021, compared to 17 percent of white-owned firms.

Existing disparities, such as the location of communities of color in low-lying areas with poor disaster-resilient investments, can vary within counties. Using county fixed effects regressions, we find that in 2021, Black-owned small businesses were 5 percentage points more likely than their white-owned counterparts to report disaster-related losses, supporting the disparity in climate effects even within relatively small geographic areas.

Are Business Owners in Some States More Vulnerable to Disaster-Related Losses?

States and cities located in the Southern U.S. are particularly susceptible to disasters, as they have older infrastructure and are disproportionately located in floodplains; as the map below shows, the fraction of firms reporting natural disaster-related losses in 2021 is especially high in states along the Gulf Coast. States in the Middle Atlantic (New Jersey and New York) and on the West Coast also have a high fraction of small businesses reporting disaster-related losses. In 2020 Census data, the states with the highest concentration of African Americans—Mississippi, Georgia, and Louisiana, and also Washington, D.C.—overlap with these high-risk areas. This suggests that businesses owned by people of color (also concentrated in these four localities, according to the SBCS) may be vulnerable due to their concentration in particularly susceptible states. When looking within Census Divisions, we find that a greater fraction of Black-owned firms report disaster-related losses than white-owned firms, and this disparity has increased between 2019 and 2021. Thus, regional disparities have increased pari passu with national disparities.

Fraction of Firms Reporting Disaster-Related Losses by State, 2021

Heat map showing the fraction of firms reporting disaster-related losses, by state, in 2021. States along the Gulf Coast are shown as having the highest fraction of firms that suffered losses. States in the Northeast and on the West Coast also show high fractions.
Source: Federal Reserve Banks, 2021 Small Business Credit Survey.

Notes: The heat map shows the fraction of firms in a given state that answered yes to the question “Within the past 12 months, did your business sustain direct or indirect losses from a natural disaster other than COVID-19 (e.g., hurricane, wildfire, earthquake, etc.)?” All observations that are missing a response to the question are excluded from the sample. The sample pools employer and nonemployer firms. Responses by employer and nonemployer firms are weighted separately on a variety of firm characteristics to match the national population of employer and nonemployer firms, respectively. To construct a pooled weight, we use the employer (nonemployer) weight if the firm is an employer (nonemployer). The survey was fielded September-November 2021.

Do Firms Owned by People of Color Suffer Larger Disaster-Related Losses?

The 2020 and 2021 surveys ask respondents that report disaster-related losses to estimate the value of those losses. We note that, since responses are voluntary (with 78 percent of eligible respondents opting in), firms with lower losses may be less likely to complete the climate-related questions, implying an upward bias in the reported losses. However, there is no reason to think that less-impacted firms owned by people of color are more likely to skip these questions than less-impacted white-owned firms.

We normalize these losses as a percentage of a firm’s total revenue in the year prior. Because people of color faced greater revenue losses as a result of the COVID-19 pandemic, we rely on disaster-loss data from the 2020 survey, which is normalized by total revenues from 2019, before the onset of the pandemic.

For most small businesses of color, disaster-related losses were a large share of their revenues. For example, 20 percent of Black-owned businesses reported losses that amount to more than 60 percent of 2019 revenue, while just 4 percent of such firms had losses of 0-5 percent of 2019 revenue (see chart below). In contrast, for most white-owned businesses, disaster-related losses were a relatively small share of revenues. For example, 25 percent of white-owned firms experienced disaster-related losses of 0-5 percent of 2019 revenue and 39 percent had losses of 5-30 percent, while only 13 percent had losses of more than 60 percent of total revenue.

Black-Owned Firms Have Higher Revenue Shares of Disaster-Related Losses

This Liberty Street Economics bar chart shows disaster-related losses as a share of revenue for Black-owned firms and white-owned firms, using 2020 revenue losses normalized by total revenue in 2019. It shows larger shares of white-owned firms than Black-owned firms with losses of 0-5% and 5-30%, and larger shares of Black-owned firms than white-owned firms with losses of 30-60% and more than 60%.
Source: Federal Reserve Banks, 2020 Small Business Credit Survey.

Notes: Among firms that reported disaster-related losses, the 2020 SBCS asks “What is the estimated value of your business’s losses as a result of the natural disaster?” Respondents can select from six categories. Firms are also asked to report their total revenues from 2019 by selecting from eight ranges. To compute the normalized revenue loss, we divide the midpoint of the disaster-related losses range by the midpoint of the firm’s revenue range. The normalized losses are grouped into four bins, which are shown on the x-axis. The bars show the percentage of firms in each race/ethnicity category with normalized disaster-related losses in a given bin. A firm is considered Black-owned if at least 51 percent of its equity stake is held by owners identifying as Black. A firm is defined as white-owned if at least 50 percent of its equity stake is held by non-Hispanic white owners. Race/ethnicity categories are not mutually exclusive. An observation is excluded from the sample if it is missing a response to the question or if owner race is not observed. The sample pools employer and nonemployer firms. Responses by employer and nonemployer firms are weighted separately on a variety of firm characteristics to match the national population of employer and nonemployer firms, respectively. To construct a pooled weight, we use the employer (nonemployer) weight if the firm is an employer (nonemployer). The survey was fielded September-October 2020.

It is important to note that, when we compare disaster-related losses on a dollar basis, rather than as a percentage of revenues, there is little evidence of racial disparities. This suggests that our result is driven by the lower revenues of Black-owned firms, implying that natural disasters are a greater burden for firms owned by people of color through their interaction with existing racial disparities that have a negative effect on small business revenues. For example, relative to white-owned firms, Black-owned businesses are younger, have less access to startup capital, employ fewer people, have a harder time accessing credit, and lack experience in family businesses—all of which are associated with lower revenues. 

Looking Ahead

Our findings suggest that small businesses owned by people of color and located in particular geographic areas are especially vulnerable to natural disasters. Moreover, these disparities have increased over the three years in our sample, in tandem with the frequency and severity of disaster events. These disparate outcomes are likely to be closely linked to the broader challenges faced by small businesses of color in accessing credit as well as to underinvestment in climate infrastructure in areas where low-income and high-minority communities live. As such, addressing these challenges may prove especially effective in ameliorating disparities in climate outcomes. In our next post, we examine the resources that small businesses can rely on to cope with losses following disasters, such as access to disaster relief.

Martin Hiti was a summer research intern in the Federal Reserve Bank of New York’s Research and Statistics Group.

Claire Kramer Mills is a Communication Development Research Manager in the Federal Reserve Bank of New York’s Communications and Outreach Group.

Asani Sarkar is a financial research advisor in Non-Bank Financial Institution Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:
Martin Hiti, Claire Kramer Mills, and Asani Sarkar, “How Do Natural Disasters Affect U.S. Small Business Owners?,” Federal Reserve Bank of New York Liberty Street Economics, September 6, 2022, https://libertystreeteconomics.newyorkfed.org/2022/09/how-do-natural-disasters-affect-u-s-small-business-owners/.


Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

The Gall Of Lockdowners Who Support China’s Anti-Lockdown Protests

Authored by Michael Senger via ‘The New Normal’ Substack,

If the intent…

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The Gall Of Lockdowners Who Support China's Anti-Lockdown Protests

Authored by Michael Senger via 'The New Normal' Substack,

If the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then Xi Jinping has certainly made his point...

Across the political spectrum, voices have risen up in support of the Chinese people who’ve launched protests of unprecedented scale against the Chinese Communist Party’s indefinite Covid lockdown measures.

As well they should. Even by Chinese standards, the lockdowns that Xi Jinping pioneered with the onset of Covid are horrific in terms of their scale, their duration, their depravity, and the new totalitarian surveillance measures to which they’ve led. Anyone who participates in a protest in China runs a risk of being subject to cruel and arbitrary punishment. For ordinary Chinese people to brave that risk in defiance of this new form of inhuman medical tyranny is an act of courage worthy of admiration.

There are notable exceptions to the otherwise widespread support the protesters have received. Apple has been silent about the protests, and had the gall to limit the protesters’ use of a communication service called AirDrop in compliance with the CCP’s demands, even as it threatens to remove Twitter from its app store over Elon Musk’s free speech policy. This comes even after Apple has long ignored requests by FCC officials to remove the Chinese-owned app TikTok from its app store over unprecedented national security concerns. So Apple complies with requests by the Chinese government, but not the United States government. Let that sink in…

Apple is, unfortunately, far from alone in its CCP apologism. Anthony Fauci told CNN that China’s totalitarian lockdowns would be fully justified so long as the purpose was to “get all the people vaccinated.”

This kind of apologism for the CCP’s grisly bastardization of “public health” is horrific, especially coming from the man most widely seen as the leader of America’s response to Covid.

But what may be even more galling than this apologism is the widespread support China’s anti-lockdown protesters have received even among those who demonized anti-lockdown protesters in their home countries and wished their lockdowns were more like China’s.

In 2020, the New York Times denounced anti-lockdown protesters as “Anti-Vaxxers, Anticapitalists, Neo-Nazis” and urged the United States to be more like China.

But in 2022, the New York Times admired the bravery of China’s anti-lockdown protesters fighting Xi Jinping’s “unbending approach to the pandemic” that has “hurt businesses and strangled growth.”

In 2020, CNN published an open letter from “over 1,000 health professionals” denouncing anti-lockdown protests as “rooted in white nationalism” while admiring “China’s Covid success compared to Europe.”

But in 2022, CNN admired China’s anti-lockdown protesters as “young people” who “cry for freedom”

In 2020, the Washington Post denounced anti-lockdown protesters as “angry” populists who “deeply distrust elites,” and wished the United States was more like China.

But in 2022, the Washington Post celebrated global “demonstrations of solidarity” with China’s anti-lockdown protests.

In 2020, the New Yorker denounced anti-lockdown protesters as “militias against masks” while marveling at how “China controlled the coronavirus.”

But in 2022, the New Yorker admired the protesters standing up to Xi Jinping.

Earlier this year, Amnesty International issued a statement of concern about Canada’s anti-lockdown Freedom Convoy protests being affiliated with “overtly racist, white supremacist groups,” even as Justin Trudeau invoked the Emergencies Act to crush the protests.

But now, Amnesty International has issued a statement urging the Chinese government not to detain peaceful protesters.

These headlines are, of course, in addition to the hundreds of other commentators, influencers, and health officials, such as NYT journalist Zeynep Tufekci, who used their platforms in 2020 to urge for lockdowns that were even stricter than those their governments imposed, but now join in support for those in China protesting the same policies they were urging their own countries to emulate.

Etymologically, Zeynep’s latter comment makes no sense. Lockdowns had no history in western public health policy and weren’t part of any democratic country’s pandemic plan prior to Xi Jinping’s lockdown of Wuhan in 2020. Though some countries, such as Italy, imposed lockdowns shortly before the United States, their officials too had simply taken the policy from China. Thus, because no other precedent existed, any call for a “real lockdown” or a “full lockdown” in spring 2020 was inherently a call for a Chinese-style lockdown.

Though by “full lockdown” Zeynep may have intended somewhere in between the strictness of lockdowns in the United States and China, there was no way for any reader to know what that medium was; it existed only in her own head. Thus, the reader is left only with a call for a “full lockdown,” and the only example of a “successful” “full lockdown” that then existed was a full Chinese lockdown.

Zeynep’s latter comment further illustrates the efficacy of what was arguably some of the CCP’s most effective lockdown propaganda in early 2020: The ridiculous viral videos of CCP cadres “welding doors shut” so poor Wuhan residents couldn’t escape.

CCP apologists have argued that these videos prove the CCP was not trying to influence the international response to Covid, because they make the CCP look so bad. But on the contrary, the over-the-top inhumanity of the idea of welding residents’ doors shut was precisely the purpose of this propaganda campaign. The idea had to be so absurd that no decent government would ever actually try it. It thus gave the CCP and its apologists an infinite excuse for why lockdowns “worked” in China and nowhere else—because only China had ever had a “real lockdown” in which residents were welded into their homes.

When those with a decent knowledge of geopolitics or a bit of common sense see a graph like this, which looks nothing like that of any other country in the world, from a regime with a long history of faking its data on virtually every topic, the conclusion is obvious: China’s results are fraudulent. But to simple minds, a weld is a strong, durable bond capable of incredible feats, from supporting skyscrapers to spaceships. Surely, if a weld can do all that, then it must be able to stop a ubiquitous respiratory virus?

The entire concept is, of course, utterly asinine. You cannot stop a respiratory virus by indefinitely suspending everyone’s rights. But this idea that lockdowns had worked in China because the CCP had gone so far as to weld people into their homes was invoked over and over again during Covid, creating a limitless “No-True-Scotsman” out for lockdown apologists as to why lockdowns weren’t “working” anywhere except China. Whether COVID-19 cases went up, down, or sideways, the solution would always be the same: “Be more like China.”

The use of this darkly humorous propaganda campaign of welding residents into their homes speaks to two key points as to how Xi Jinping and CCP hawks like him view China’s relationship with the west. The first is that westerners will never respect the CCP; thus, you can make westerners believe anything so long as it confirms westerners’ prior belief that the CCP is barbaric.

Second, Xi Jinping sees the concepts of democracy and human rights as mere propaganda that western elites use to further their own self-interest. So long as they approve of a policy, then it’s not a human rights violation, but if they oppose it, then it is. It remains to be seen whether the response to Covid will, in the long run, ultimately advance Xi’s goal of making the world China. But insofar as the intent was to get western elites to simultaneously support totalitarianism in their own countries while pretending to oppose it in China, then he’s certainly made his point.

*  *  *

Michael P Senger is an attorney and author of Snake Oil: How Xi Jinping Shut Down the World. Want to support my work? Get the book

Tyler Durden Mon, 12/05/2022 - 15:53

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Correction in Energy Provides High-Yield Buying Opportunity

By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields…

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By now, most investors have heard and come to understand how the yield curve for the bond market is inverted — where the two-year Treasury Note yields considerably more than the 10-year Treasury Bond.

An inverted yield curve historically marks a very difficult time for the economy in the coming months. Examples include major events like 13% inflation in 1979, the dot-com blowup of 2000, the housing crisis of 2008, the COVID-19 outbreak in 2020 and, in the current case, aggressive rate hikes to force a slowdown in demand after massive spending triggered rapid inflation.

As of Dec. 1, the yield on the two-year T-Note stood at 4.27% while the yield on the 10-year T-Bond paid out 3.54%. The difference between the two yields is 0.73%, or 73 basis points, as illustrated by the graph below. This is the widest 2-10 spread since 1980, when the economy was in a deep recession. While there is one camp that argues such an inversion is a precursor to a hard-landing-type recession, others would contend that it marks a bottom for the economy followed by a gradual recovery.

What history tells us is that the economy does suffer a material slowing in the year following peak yield curve inversion, meaning 2023 will likely prove to be a challenging time for the U.S. economy that will include higher unemployment, lower housing prices, low gross domestic product (GDP) growth and lower earnings for the S&P 500. For the record, the past week’s rally has raised hopes that the economy will not fall into recession, but simply endure a slow growth environment.

Here is just one example of what’s happening in the housing market. The monthly payment on a 3%, 30-year fixed mortgage for a $400,000 home was $1,349 during December 2021. Today, the monthly payment on a 7%, 30-year fixed mortgage for a $400,000 home is $2,129 – a $780 increase. For a home buyer who wants to maintain that $1,349 monthly payment per their budget, she or he will have to settle on a home priced at $253,000. That’s 37% price differential. Either wages move higher or home prices decline further, or both occur.

History also shows that the year following a steep inverted yield curve, the stock market begins the next leg of the secular bull market. If past is prologue, 2023 should be a pretty good year for stocks. There are those who argue the bottom is in and the next bull leg has just begun. Some of this uncertainty will be sorted out by Dec. 14 at the Federal Open Market Committee (FOMC) meeting.

In another high profile and fluid situation, more volatility in the crude oil market can be expected. On Sunday, OPEC+ agreed to stay put on its production output targets as the energy markets contend with pricing in a slowing Chinese economy and a potential European Union boycott of most Russian oil imports and a price cap of $60 per barrel on Russian exports imposed by the European Union, the Group of Seven countries and Australia.

Some countries won’t sign on, and the policy directive is coming at a time when China and India are content to buy Russian oil at its current $66 per barrel price while WTI crude trades at around $81 per barrel. Russia has been effective at circumventing sanctions to date. If there were any teeth to this new set of sanctions and price caps, oil prices would likely be trading much higher. So, it stands to reason the status quo for an ongoing tight global energy market will persist.

The resurgence of COVID-19 in China has dampened sentiment for demand by oil traders amid a long-term timeline by which demand in China will increase when that economy full reopens. Overt pressure from the Biden administration on OPEC+ to increase supply had also weighed on oil prices heading into last Sunday’s meeting, but that obviously did not work out to the liking of the White House. WTI closed out the week around $80/bbl. and right where the Saudis want to maintain a floor.

Back in June of this year, the Royal Bank of Canada hosted an energy conference in New York with the highlight being a keynote speech by Mohammed Barkindo, the secretary general of OPEC. In his keynote speech, Barkindo warned that “OPEC is running out of capacity,” and that “with the exception of two or three members, all are maxed out.”  Further, “the world needs to come to terms with this brutal fact” and that it is a “global challenge.”

I’ll take that statement at face value. OPEC+ is running out of spare capacity that supports the bull case for a strong pricing environment for crude oil and natural gas into 2023. Amidst all the confusion, most exploration and production energy stocks have pulled back off their recent highs and offer, in my view, some attractive entry points — especially in those stocks with variable dividend policies and those high-yielding domestic infrastructure investments.

Foregoing major capital expenditure (capex) spending in the face of an anti-fossil fuel administration, returning free cash flow to shareholders in the form of variable dividends has turned out to be one of the greatest inflation-fighting asset classes from both fundamental and total return basis in 2022. In the E&P space, Coterra Energy Inc. (CTRA) yields 9.2%, Devon Energy Corp. (DVN) yields 7.9% and Pioneer Natural Resources Co. (PXD) pays out a 10.4% dividend yield. (I have no position in these stocks.)

With oil prices having declined for much of the fourth quarter due to concerns over demand by China, the next round of variable dividends may not be as juicy as recent quarters, but listening to oil execs, their outlook remains bullish. Speaking to the most recent earnings release, Pioneer CEO Scott Sheffield noted, “I still think they will probably get back to $120, sometime mid-next year, once China opens up,” in a Bloomberg Television interview. Sheffield also said China’s growing energy infrastructure could surpass the United States if the country doesn’t invest more in areas such as pipelines and liquefied natural gas terminals.

A couple high-yield energy infrastructure exchange-traded funds (ETFs) and closed-end funds that convert the K-1 MLP income into 1099 ordinary taxable income include:

  • Alerian MLP ETF (AMLP), paying 7.34%
  • InfraCap MLP ETF (AMZA), paying 7.14%
  • Kayne Anderson Energy Infrastructure Fund (KYN), paying 9.03%

(NOTE: I have no position in these funds.)

To ramp up domestic production, Sheffield added, Biden needs to speak not just with leaders of companies like his, but also with shareholders and financial players who fund the industry. Personally, I don’t see this dialogue being anywhere near constructive going forward. That reality will keep new development of energy sources limited and prices elevated. To this point, the risk/reward investment proposition continues to look very promising for energy companies dedicated to fossil fuels, as long as there is a major deficiency in supply by renewables.

The post Correction in Energy Provides High-Yield Buying Opportunity appeared first on Stock Investor.

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Disney Has Bad News for Marvel, Star Wars Fans

With Bob Iger back at the Disney helm, the company’s content strategy is already changing.

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With Bob Iger back at the Disney helm, the company's content strategy is already changing.

It's no secret that the last few years have seen a boom in the production of movies and television shows. Thanks to the presence of streaming platforms, audiences have more options than ever when it comes to choosing what to watch. As soon as vaccines made it possible for production studios to pick back up after the covid-19 lockdown, there was a surge in original content.

Leading the pack was Disney  (DIS) - Get Free Report, thanks in large part to its impressive library of valuable intellectual property. Under the leadership of Disney CEO Bob Iger and Head of Strategy Kevin Mayer, Disney acquired major studios Pixar, Star Wars, and Marvel. In 2020, Iger left Disney in the hands of Bob Chapek, who had 26 years of experience with Disney working first in the Home Entertainment department and then as Chairman of Parks & Resorts.

Thanks to political entanglements with Florida Governor Ron DeSantis and an unpleasant legal battle with actress Scarlett Johansson, the last few years of Chapek's leadership have left board members with something to be desired. In a surprising announcement over Thanksgiving weekend, Iger was reinstated as Disney CEO for a period of two years -- during which time, Disney will likely see some changes.

Getty Images/TheStreet

Disney is Trimming Down its Content in 2023

Shortly after the news of Chapek's leaving and Iger's return, Disney released its annual report stating that 2023 will see a reduction in television shows and feature programming. According to the document, "In fiscal 2023, the Studios plan to produce approximately 40 titles, which include films and episodic television programs, for distribution theatrically and/or on our DTC platforms."

To put that in perspective, 2022's annual report set a goal for 50 titles. In the last two years, both Marvel and Star Wars have released several major film and series titles, each of which cost millions of dollars to make and market. Each new addition to the brands' libraries drew praise and criticism alike -- but now it looks like Disney is looking for more precise hits that favor quality over quantity.

For Disney, Less Could Be So Much More

Cutting down production by ten projects next year is a strategy that could bring a lot of benefits to the House of Mouse. There's no such thing as a cheap Disney production, and prioritizing projects that are more likely to succeed at the box office could be a better use of company resources.

Earlier this year, Marvel Studios specifically was plagued by reports of overworked and underpaid graphic designers -- another bit of press that reflected poorly on Chapek's overall leadership. With less pressure to complete more projects and an increased budget per project, Disney and Marvel could work to repair its tarnished reputation among creatives.

Regardless of what the surplus budget is used for, Disney isn't the only streaming service moving toward a more fiscally-conservative 2023. Warner Brothers Discovery  (WBD) - Get Free Report service HBO Max has been itching to slice $3 billion from its own budget, cutting programming and even shopping animated content to Amazon. Meanwhile Netflix  (NFLX) - Get Free Report, it seems, is going full speed ahead into the new year.

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