2021_12_13 — THEME: Giving and Taking — Impact vs ESG (ecological, social, and governance) Investing; and Conflict

December 13, 2021

Michael’s CIO (Check It Out) Report on the week just past — events, sarcasm, and global macro reflections

Credit: “Palm Drive” resin art by Kristina Grace
https://www.kristinagraceart.com/; photo and graphics by Michael Ashley

THEME: Giving and Taking — Impact vs ESG (ecological, social, and governance) Investing; and Conflict

TAKING

• bOrders: As over 100,000 Russian troops amass along Ukraine’s border, Biden threatened Putin with financial and other sanctions from NATO if Moscow invades — confirming that physical force is unlikely. As mentioned last month, who will risk war with Russia “to defend Ukraine (a non-NATO and non-EU country)…?” — At this point in the 8-year long war, another incursion wouldn’t be a complete surprise, but it could be especially negative for European and multinational stocks
• A Yen for Taiwan: Japan would treat a Chinese invasion of Taiwan as a security crisis, and participate in any armed defense, said former prime minister Shinzo Abe, “A Taiwan crisis would be a Japan crisis and therefore a crisis for the Japan-U.S. alliance. People in Beijing, President Xi in particular, should never misunderstand this.” — In such a situation, the Japanese Yen (which is normally considered a hedge or flight to quality safe asset for investors) could get crushed💴
• ChinAtlantic: China wants to establish its first permanent Atlantic coast military base in the small Central African country of Equatorial Guinea, where they have been investing since 2006 — ⚓️longitudinally parallel with northern Brazil, a base there could technically be a threat to Atlantic shipping and the U.S. East Coast

GIVING

• Celebrate: Take time to think about and celebrate all you’ve done in 2021! As Embodied Leaders for Sustainability says, “Before you move onto 2022 — digest what you have done and felt through. No matter how small or big.”🎊
• Impact vs ESG: In this season of giving, we were asked to compare Impact investing versus ESG (ecological, social, and governance) investing and clarify the differences — Simple😊, ESG is backward looking and Impact is forward looking
• ESG — Current behavior: ESG investment criteria (which is often applied to publicly traded companies) tends to screen out companies based on a current snapshot, thereby avoiding companies that pollute, have undiversified boards, don’t uplift employees, or fail in other areas, and overweights companies that already score well on the ESG factors — 🔬thus ESG tends to reward companies that have already moved the needle
• Impact — Future behavior: Impact investing (which is often applied to private initiatives) often looks to actively improve a company, community, or area that has troubles or issues; thus an impact investment could be in a fossil fuel company and seek to clean it up and transition it towards renewables, or could help a company without an active employee growth program reward from within with employee living-wages, education, training, and promotion programs — 🔭thus Impact tends to help entities improve and up their game
• Hot Gifts this year include digital wallets with small amounts of crypto tokens or NFTs (digital images with a digital fingerprints) as well as custodial and 529 accounts for children, all of which can help teach them about finances as well as hopefully save and grow for the future — also, none of these gifts are subject to empty shelves or supply chain issues, so there’s that🤨

PEOPLE

• Where did all the workers go? Lots of little reasons add up to a sizeable decrease in U.S. labor since the pandemic began: 1) 2.4MM early retirements, 2) 2MM decrease in net immigration since 2016, 3) Increased mortality from pandemic and drug overdoses, 4) Workers sidelined because of long-Covid effects, 5) Increased savings from stimulus programs, unemployment benefits, rent moratoriums, day-trading, and rising home, crypto, and stock prices mean some can delay returning to work; 6) Increase in daycare cost mean more stay at home parents, 7) Some scared to return to the labor force, 8) A record number of new business registrations translates to many people taking the independent, entrepreneurial, or consultant route, 9) A rebound in college applications, and 10) Those not allowed to work because they are not vaccinated — it adds up😒
• Leaks: U.S. wins extradition of Australian editor and WikiLeaks founder Julian Assange from Britain to stand trial for espionage on the promise that if sentenced, he can serve out his time down under in Australia
• RIP Mr. Big: After a vigorous Peloton ride, the fictional Sex in the City character succumbs to a massive heart attack at the end of episode 1 of HBO Max’s And Just Like That… — 🚴🏼Peloton stock coincidentally was down -5% the next day as an investment bank also downgraded it
• 227 miles🌪 More than 80 dead and 100s of lives uprooted by deadly tornadoes that ripped across Kentucky and 5 other states — one tornado stayed on the ground for 227 miles — the pictures are apocalyptic; in some areas, only concrete foundations and asphalt roads remain in place

CURRENT

• nEvermore, nevermore: Months after initial global headlines about Chinese real estate development woes, China continues to be embroiled in a massive property value decline as several developers have defaulted on debt payments and Evergrande (with $300B of liabilities) finally defaulted — Why it matters? ¼ of China’s economy is tied to real estate, ¾ of personal Chinese wealth is in housing, and China drives ¼ of the world’s growth
• More Talk, Less Action: Netflix recently acquired an e-game studio, Glendale based Night School (maker of the supernatural thriller Oxenfree), that focuses on storytelling, interactive dialog, and player choice — 👩🏽‍💻interactive video streaming anyone?
• Toyota will spend $1.3B on an electric vehicle (EV) battery factory in North Carolina — their first long-range EV, the sleek looking (but strangely acronymed) bZ4X compact SUV, should be available by late 2022 — bZ stands for “beyond zero”
• Global🌍 Syria’s largest export is illegal amphetamines that raise cash for president Assad’s regime. In Myanmar, deposed democratic leader Aung San Suu Kyi was sentenced in sham trials to four years in prison for breaking Covid-19 rules and incitement. Japan is establishing protocols for its own crypto stable coin in 2022 — the monetary possibilities are endless
• StayFlation: U.S. inflation reached a nearly 4 decade high, but we’ve talked about inflation for a while; within a few months, the growth rate of inflation should decrease
• Spoke🎙 I was excited to join distinguished peers on the keynote panel at Opal Group’s “Alternative Investing Summit” on 8 December 2021 in Dana Point, California. James Rosebush (growth-strategy expert) moderated and Ann Lee (a specialist on China), Mustafa Saiyid (from the International Monetary Fund), and Chris Campbell (former Assistant Secretary, U.S. Dept. of Treasury) joined me for a terrific discussion on “The Winds of Change: Macroeconomic and Geopolitical Trends”

Best wishes for the week ahead😃,
Michael
~~~

Michael Ashley Schulman, CFA
Partner / Chief Investment Officer

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