Barron’s Weekend Summary: For those who believe in Bitcoin, El Salvador looks like a crypto paradise.
Cover Story:
-For those who believe in Bitcoin, El Salvador looks like a crypto paradise. It’s one of the few places in the world where you can use Bitcoin to buy a Coke or cerveza on the beach. In theory, you can pay rent in Bitcoin, buy a house, pay off a credit card, or send a payment to a Mayan pottery vendor in the local market. Yet El Salvador is far from a crypto lover’s dream. Instead, it has turned into a cautionary tale of what happens when a country adopts a cryptocurrency, tries to weave it into its economy, and rebrands itself as a tech-friendly haven: It isn’t working as advertised.
Interview:
-Joseph Wang, a former trader on the Fed’s open-market desk and author of the Fed Guy blog and Central Banking 101 discusses the coming quantitative tightening. QT is as ambitious as its impact is uncertain. At full-throttle, the pace of balance-sheet tightening will be much more aggressive than in the past, and come at a time when interest rates are rising quickly. What could go wrong? Potentially, a lot, suggests Wang.
Tech Trader:
-Videogames have become the world’s most lucrative global entertainment medium, but the industry’s top players are unknown compared with film directors and TV show runners. Take Vince Zampella, who is responsible for the creation of three multibillion-dollar franchises, including the original Call of Duty and Modern Warfare, both of which are among the most successful games in history. Zampella also made Apex Legends as the head of Respawn, his independent studio that Electronic Arts EA +1.41% wisely acquired in 2017. Earlier this year, Electronic Arts announced that Apex had surpassed $2B in bookings.
The Trader:
-Traders prefer a volatile market, and they’ve gotten one in 2022. Stocks have declined, rallied, and dropped again, driven by ever-evolving expectations for interest rates and inflation, shifting recession odds, and the outlook for corporate earnings. About the only thing that has been reliable has been the technicals. This past week’s rally lifted the Dow Jones Industrial Average 2.7%, the Nasdaq Composite 4.1%, and the S&P 500 3.6%. That’s after all three saw declines of at least 3% during the prior week, their third straight losing week.
-IHS Holding is the new kid on the block in the cell-tower world—and its stock may be worth buying. Running a wireless network requires a multitude of antennas, cell towers, and the wires that connect them all. Profit margins are wide, recurring revenue is high, and future visibility is clear, given long-term contracts with annual escalators. In developed markets, recent growth has come from upgrading wireless networks to support 5G, which requires larger and heavier equipment that generates more rent, and more antennas to handle the wider range of wireless spectrum bands 5G requires.
Features:
-Queen Elizabeth II, who died Thursday at the age of 96, was Britain’s longest serving monarch. During her reign, British equities returned roughly 12% a year on average—in nominal terms—according to data from Credit Suisse. US stocks returned roughly 11% a year on average—again in nominal terms. (The US experienced lower inflation than the UK over the past 70 years.) The UK nominal numbers turn 100 pounds invested in the early 1950s into pounds worth roughly 300,000 today. That is quite a return that spans periods of war, currency devaluation, and labor unrest.
-The energy crunch in Europe escalated into a full-blown crisis this past week after Vladimir Putin cut off the pipeline that supplies a third of the natural gas that Russia sends to Europe. Natural-gas prices soared 30% at one point, and Goldman Sachs analysts projected that Europeans will see their monthly energy bills triple this winter to an average of EUR500, or almost $500, per family at the peak.
European Trader:
-Inflation is no problem for Evian. Evian, on sale since 1978 in the U.S., was one of the pioneers. Danone, its parent company, bottles it in the French Alps on the south shore of Lake Geneva and sends it all over the world. Sales of Danone’s water products rose 7.7% in the first half, just as inflation was accelerating to the fastest rate in 40 years. That was a big part of Danone’s overall increase of 7.4% in like-for-like sales. Danone also boasts a range of dairy and plant-based products, such as Activia and Actimel yogurts, Delight coffee creamer, and the Silk soy-milk line. It sells a range of baby foods, including Aptamil formula, where its biggest market is China.
Emerging Markets:
-Chile, with 19 million inhabitants, is the world’s dominant copper producer, boasting a third of global output, and No. 2 in lithium. The planet needs much more of both of these metals if EVs and renewable energy are going to save it. Demand for copper will double by 2035, S&P Global research predicts. Chileans’ landslide rejection of their new proposed constitution on Sep. 4 could make the race for supply easier.
Commodities:
Water has become a popular topic these days, given widespread drought conditions around the globe and the water crisis in Jackson, Miss. That doesn’t translate into an automatic win-win when it comes to investing in the sector. “While the megatrends of water continue to roil the headlines, the investment implications are more complicated,” says Deane Dray, managing director and multi-industry analyst at RBC Capital Markets.
Streetwise:
-Jack Hough presents the exciting topic of fertilizer arbitrage. Profits for North American fertilizer companies have exploded higher, and the reason has to do with the war in Ukraine, and a century-old manure workaround that today feeds the planet. Farming depends on reactive nitrogen compounds, like ammonia, made from nitrogen and hydrogen. Dung is filled with the stuff, luckily enough. But if we relied just on manure for fertilizer, the planet would only be able to support a population of maybe 4B, tops. On Nov. 15, we’re projected to hit 8B. Russia has shut off Europe’s natural-gas supply, and since gas isn’t easily shipped overseas, the price in Europe is many times the US price. Gas makes up about 75% of the cost of fertilizer, so European plants have simply shut down, leaving North American ones to supply the market.