What's up Sustainable Finance?

Dear Reader,

The Market. More than a billion tons of essential and nutritious food goes to waste each year. In today’s economy, it can be cheaper for farmers to leave perfectly good food in the fields than to sell it. The number of people with no health insurance has been increasing. Oil companies are starting to invest in clean energy due to shareholder pressure, new technology, and the up-and-coming consumer preference from the new generations. Health authorities are urging people to stop vaping and using e-cigs until they can investigate the 5 deaths caused by a mysterious lung illness. In 2018, only about 70% of the high school students enrolled college, but less than half will graduate with a BA. What is the most effective way to increase the graduation rate? By lowering the costs of colleges or by giving schools more money to fund their students. The four tools of discipline: delaying gratification, accepting responsibility, dedication to reality, and balancing everything in your life. 800,000 people die by suicide every year, meaning one person dies every 40 seconds. Coal is being phased out of the US. Natural gas consumption is rising. Trump wants the US’s interest rates down to “ZERO OR LESS”. Natural gas production is increasing even when natural gas prices are declining (the new alternative to coal).

Sustainable finance. Sustainable investing is the practice of investing in companies or funds that aim to achieve market-rate financial returns while pursuing positive social, environmental, and governance impact. 85% of investors are interested in sustainable investing (mostly millennials). Investors want products that match their interests and they want more product choices. They care about plastic reduction, climate change, community development, multicultural diversity, and gender diversity. 

Worries in finance. Equity is way too expensive, earnings are declining and becoming weaker, multiples are 16x their 12-month earnings, and US margin trading is near its peak level. Consumers are still buying and the top-line (revenue) is still growing, but profit margins are dwindling because operation expenses such as labor is becoming more expensive. Nobody knows what is going to happen. We can either go into a recession because key economic indicators say so or because the talks of recession start increasing and the overall fear of investors brings down the market… OR the US can sidestep the recession through strategic quantitative easing, monetary policy, and continued market manipulation.
 
BREXIT event study. Did the BREXIT announcement have a significant effect on the stock markets around the world? An event study is an empirical analysis performed on securities or markets that examines the effect of a significant event on that security or market. On June 24, 2016, the UK voted in favor of leaving the EU. According to the MCSI Global Market Index, global markets dropped -4.762% on that Friday, decreased another -2.19% on the following Monday the 27th, and rebounded 1.72% on Tuesday the 28th. But some countries were more affected than others. Below is an event study analyzing France’s stock market to the global market on the Friday, Monday, and Tuesday. You take the regression of the previous 100 days of stock market returns of the MCSI Global Market Index and France’s CAC 40 and see if there is a significance (A t-Stat greater than 2) on the Friday, Monday, and Tuesday. According to the table, a 1% increase or decrease in the global stock index will lead to a 1.29% increase or decrease in the France stock market. On Friday, there was a significant return of -4.06% on France’s stock market. We can now say that the announcement of BREXIT significantly impacted France’s market- and it could have been due to France’s close trade relationship with the UK and how BREXIT could hurt that relationship.

The shadow economy. Known as the underground economy or the black market, shadow economies are the economic transactions that are deemed illegal like untaxed labor, untaxed sale of goods, and the smuggling of goods into other countries without paying duties at the border. In 2013, the American underground economy represented approximately $2 trillion. The mean value of the shadow economy across all nations was 31.9% of GDP in 2018. The nations with the largest shadow economies are Zimbabwe (60.6% of GDP), Bolivia (62.3% of GDP), and Georgia (64.9% of GDP). Countries with relatively low tax rates, fewer laws and regulations, and a well-established rule of law tend to have smaller shadow economies.Black markets are considered unethical, illegal, and considerably dangerous, but there are also some pros: resources not being used in the official economy can be used in the shadow economy to increase overall supply, and governments try to encourage firms to move out of the shadow economy by improving public institutions and funding public services. Organized crime, corruption, and illegal employment can be fought through stricter controls and enforcement.

“I always pass on good advice. It is the only thing to do with it. It is never any use to oneself,” (Oscar Wilde). Go deep on things, become an expert. Find what things you enjoy doing. Aim to read a lot. Don’t make the mistake of judging your success based on your current peer group. Learn to think for yourself. Don’t fear fear. Be playful. Speak your mind. Do not limit yourself. If she/he’s interested in you, they will go after you. Be careful with who you disclose your feelings to. Don’t lie to yourself. Smile your way through life.

Back to $1 trillion dollars. Following Apple’s annual September product reveal, the company’s market cap jumped back up to $1.01 trillion. This year Apple doubled down on its plan to branch out to several new multi-billion dollar markets by leveraging its massive base of dedicated product users. Over the few years, Apple has acquired some of the biggest actors, directors, and producers in Hollywood to launch Apple TV+ and now the subscription is set to launch on November 1st. To break into a massive market dominated by Netflix, Amazon Video, and HULU, Apple has set the subscription price at an extremely competitive $5 a month and has included the service free for a year for anyone who buys a new Apple hardware. Apple is using a strategy known as “penetration pricing”, which is when a firm enters a market by offering a product or service well below the market price with the goal of attracting a new customer base and later raising prices to a competitive level. Apple has also entered the mobile gaming market with Apple Arcade and announced 100 new games will be released this year. Several new products were introduced starting with the new iPad Pro which starts at $329 and was touted as “two times faster than the bestselling PC”. The new Apple Watch Series 5 features a new screen and power management system that allows it to stay on all of the time. Lastly, Apple revealed three new iPhones that followed its previous product lineup. The iPhone 11 ($699), 11 Pro ($999), and 11 Pro Max ($1099) are all set to release this month. The main improvements are increased battery life and an improved neural engine camera system. The iPhone 11 has a wide camera and an ultra-wide camera on the back, and the pro models have an additional telephoto camera on the back. These additional cameras combined with the new neural engine creates one of the most powerful cameras of any smartphone, with each picture you take, the camera actually takes 8 images and selects the best pixels from each image to create a single beautiful image. The new iPhones feature the fastest CPU and GPU in any smartphone and a new neural engine with machine learning accelerators that allow for over 1 trillion operations a second. Overall, Apple released new products and services that are likely to sell well and for the first time in years, lowered the cost of many of their new products. The only thing missing was the highly anticipated Apple glasses which are rumored to realize next year.

Great read on sunscreen. https://www.health.harvard.edu/staying-healthy/the-science-of-sunscreen
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Keep Climbing,


The Alchanati Campbell and Associates Team