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September was a noteworthy month for the cryptocurrency space, with El Salvador being the first country to adopt bitcoin as legal tender. The country now holds 550 bitcoin.1 Domestically, SEC chairman, Gary Gensler, made multiple comments on the need for an aggressive approach towards regulating cryptocurrencies, raising concerns for the need to better protect investors and consumers from the “Wild West” mentality within the crypto space.2 Furthermore, Chairman Gensler assured lawmakers that the SEC was dedicated to establishing rules and guidance for the industry.3 Additionally, the Federal Reserve Chairman, Jerome Powell clarified previous comments around crypto, stating that do not intend to ban the use of cryptocurrencies.4
Evergrande crisis not a Lehman moment
Global financial markets were rattled recently by the struggle of Evergrande, one of China’s largest real estate developers, to pay back its creditors. With over $300 billion in liabilities, many worried that the potential collapse of Evergrande may wreak havoc on the global financial markets like the collapse of Lehman Brother in 2008.5 In our opinion, however, the Evergrande contagion fear is overblown.
To start with, among Evengrande’s $300-plus billion liabilities, only about $20 billion is off-shore debt owned by foreign investors. The vast majority of its liabilities are payables to suppliers/contractors and onshore debt owned by Chinese investors, so it is a very much a Chinese domestic problem. To prevent potential social unrest caused by Evergrande, its paramount governing goal, the Chinese central government has already stepped in, ordering local governments and banks to support Evergrande and stabilize real estate markets.6 Although foreign investors are most likely to lose out, most of them are giant U.S. hedge funds/mutual funds and Evergrande debt is only a small fraction of their investment portfolio.7
Moving from carbon to nuclear amid energy shortages
Uranium, a key metal used in nuclear power plants, saw its futures price surge roughly 30 percent this quarter. It has been garnering the interest of Meme stock investors who have been pouring money into mining companies and futures contracts based on a bet that demand for Uranium will increase because of the move to clean energy.8 This comes at a time when surging power costs and energy shortages continue to plague countries around the world due to supply-chain disruptions, skyrocketing input costs, and insufficient output from windmills and solar farms.9
Nuclear energy could offer an integrated solution to our problems due to its cleanliness and superior capacity factor compared to other energy sources. This has been acknowledged by governments around the world who have been pushing nuclear power to play a pivotal role in the environmental clean-up. However, a potential move to nuclear energy demonstrates just how hard it is to balance the E, S, and G of sustainability. It has only been a decade since Fukushima faced the worst nuclear meltdown since Chernobyl and the disposal of radioactive waste is still a contentious debate as the purity of our oceans, marine life, and food supply may be at stake.10, 11
Giants enter the rental market
The price of homes has risen dramatically since 2010, creating issues for not only those looking to buy, but for those renting as well. Some of the blame has been placed with institutional investors. Over the first half of the year, approximately $87 billion in institutional money flowed into the rental home market. Blackstone recently spent about $6 billion to acquire Home Partners of America, a firm that has more than 17,000 homes. Wherever the blame ultimately falls, rental prices have increased. In some areas, like Phoenix and Las Vegas, rental prices have increased by double digits year-over-year.
- Santiago Perez and Caitlin Ostroff, “El Salvador Becomes First Country to Adopt Bitcoin as National Currency,” Wall Street Journal, September 7, 2021, https://www.wsj.com/articles/bitcoin-comes-to-el-salvador-first-country-to-adopt-crypto-as-national-currency-11631005200
- “Transcript: The Path Forward: Cryptocurrency with Gary Gensler,” Washington Post, September 21, 2021, https://www.washingtonpost.com/washington-post-live/2021/09/21/transcript-path-forward-cryptocurrency-with-gary-gensler/
- Thomas Franck, “Senators demand cryptocurrency regulation guidance from SEC Chair Gary Gensler,” CNBC, September 14, 2021, https://www.cnbc.com/2021/09/14/cryptocurrency-regulation-sec-chair-gary-gensler-grilled-by-senators.html
- Caitlin Ostroff, “Bitcoin Price Jumps After Powell Says U.S. Has No Plans to Ban Crypto,” Wall Street Journal, October 1, 2021, https://www.wsj.com/articles/bitcoin-price-jumps-after-powell-says-u-s-has-no-plans-to-ban-crypto-11633094452
- Peter Santilli, “China’s Evergrande Debt Crisis: Sizing Up a Big Mess,” The Wall Street Journal, October 3, 2021, https://www.wsj.com/articles/chinas-evergrande-debt-crisis-sizing-up-a-big-mess-11633253402?mod=searchresults_pos1&page=1
- Matthew Loh, “Beijing is working behind the scenes to pull Evergrande out of danger, urging state-owned firms to buy the property developer’s assets,” Business Insider, September 29, 2021, https://www.businessinsider.com/china-negotiates-state-firm-purchase-of-evergrande-assets-2021-9
- Mara Dobrescu, “Which Bond Funds Are Most Exposed to Evergrande?” Morningstar.com, September 27, 2021, https://www.morningstar.com/articles/1059711/which-bond-funds-are-most-exposed-to-evergrande
- Will Horner, “Uranium Stocks Jump as Reddit’s WallStreetBets Goes Nuclear,” The Wall Street Journal, September 13, 2021, https://www.wsj.com/articles/uranium-stocks-jump-as-reddits-wallstreetbets-goes-nuclear-11631538583
- “Explainer: Global energy shortage or a coincidence of regional crises?” Reuters, October 1, 2021, https://www.reuters.com/business/energy/global-energy-shortage-or-coincidence-regional-crises-2021-09-29/
- Southwest Fisheries Science Center, “Fukushima Radiation in U.S. West Coast Tuna,” NOAA Fisheries, September 8, 2021, https://www.fisheries.noaa.gov/west-coast/science-data/fukushima-radiation-us-west-coast-tuna
- Myra P. Saefong, BARRON’S ADVISOR NEWSLETTER, updated September 12, 2021/original September 9, 2021
- “Beware the backlash as financiers muscle into rental property,” The Economist, September 25, 2021, https://www.economist.com/finance-and-economics/2021/09/25/beware-the-backlash-as-financiers-muscle-into-rental-property
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