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Megatrend

Thematics Outlook The future is green and highly connected“We tell ourselves stories in order to live”, Joan Didion (writer and journalist). Thematic investing brings this notion to the fore. Avenues of investing aligned with megatrends are inherently predicated on visions of the future. But what makes thematic investing a lot more palatable than prophesising is that certain megatrends are already in motion. Thematic investors, therefore, need only observe the direction of the current and swim with the tide. The stories they tell themselves reveal what places they will witness along the way. But, of course, timing does matter and the bear market in 2022 has created an attractive entry point for long-term investors. Moreover, the investment industry now offers discerning investors ways to access differentiated themes aligned with unique megatrends. For investors, this means more stories to choose from and two themes appear especially interesting at the present juncture. The future is green – the inevitable energy transition Following 18 months of intense wrangling, the US has passed a $700 billion economic package deemed by many as a monumental step in tackling climate change. The bill includes $369 billion for climate action including tax credits for households to buy electric vehicles and support for renewable energy, carbon sequestration research, hydrogen power, and small-scale nuclear reactors1. Creating an energy sector that is both sustainable and sufficient will require major investment across all forms of clean energy including renewables, hydrogen, biofuels, hydro, and even nuclear. Most recently, the European parliament has moved to classify future investment in natural gas and, more notably, nuclear power as environmentally sustainable (under certain conditions) in a pivotal shift recognising the need for an ‘all of the above’ approach to phasing out fossil fuels. Low hanging fruit The energy sector accounts for around three quarters of global greenhouse gas emissions with road transportation accounting for the largest share at 11.9%2. It therefore makes sense to start where most progress can be made and can have the greatest impact. According to Bloomberg New Energy Finance’s Long Term Electric Vehicle (EV) Outlook 2022, the EV market represents an $82 trillion market opportunity between now and 2050 in a net zero scenario. This is on account of not just the vehicles but the ecosystem of industries surrounding them, which includes battery technology, commodities, charging infrastructure, and recycling to name a few. No half measures The electrification of road transportation could create a 27% increase in electricity demand by 20503. It is therefore crucial that the electricity itself is also clean. Among renewables, offshore wind is all the rage right now - and for good reason. According to Wood Mackenzie, almost $1 trillion is expected to flow into the offshore wind market over the next decade, given its scalability. But more renewable power will also require more energy storage. Battery technology again comes into play. Lithium-ion batteries, effective for shorter duration storage, will be complemented by emerging longer duration storage technologies. This will ensure the energy supply is not only reliable for a few hours, but days and weeks. The future is highly connected – the ongoing digital transition According to Statista, the number of internet of things (IoT) connected devices worldwide rose from 8.6 billion in 2019 to 11.3 billion in 2021 and will likely reach 29.4 billion by 20304. The world is becoming increasingly connected, and there are many facets to it. Every cloud has a silver lining The world has shifted quickly from renting cassettes and DVDs to cloud-based streaming services which use artificial intelligence to offer a personalised experience. Video streaming is not just occupying our television screens. It dominates our mobile phone usage as well. According to Ericsson, global mobile data traffic has risen from 10.9 exabytes (EB) in 2017 to 90.4 EB in 2022 and expected to reach 282.8 EB by 2027 with video being the primary driver of this data binging Gartner forecasts that public cloud end user spending will grow by 20.4% in 2022 to 494.7 billion, up from 410.0 billion in 2021. This number will reach nearly $600 billion in 20235. Now, for end users sitting in their homes streaming content, movies, and TV shows, everything may be in the ‘cloud’. But for YouTube, Netflix, and Spotify this data needs to be physically stored somewhere. The explosion in data usage will require more data centres and ever-increasing internet speeds. For investors looking at cloud computing as a megatrend, the opportunity is not just in the software, but also the real estate that provides the necessary infrastructure. This megatrend is not optional If a business hastens to shift to the cloud, collect all the necessary user data to improve its service, but then bungles it all up by falling victim to a cyber-attack, the result could be catastrophic. More connectedness means more points of vulnerability for the nefarious types to exploit. Cybersecurity Ventures expect global annual cybercrime costs to reach $10.5 trillion by 2025, up from $3 trillion in 2015. As a consumer of any product or service, cybersecurity is something you never want to hear about. If everything is in order, nothing happens. But that is only possible if businesses ensure robust guardrails are in place. Cybersecurity, therefore, is a megatrend that is not optional, but mandatory. It is what makes a connected world sustainably possible. But what about the risks? Yes, further hawkishness from central banks could create more turbulence. Nevertheless, monetary policy shouldn’t alter the direction of travel. So, keep an eye on those inflation prints and the response from central banks. Deglobalisation can also pose a challenge, especially for the energy transition which depends on certain commodities. Supply chains span across the globe and a coordinated effort to tackle climate change would be more fruitful than a fragmented one. Conclusion The protagonists will change, the antagonists will change, and there will be unforeseen twists and turns. And for each investor, the plot may thicken somewhat differently. But the stories are underway. And now is an excellent time for investors to not only observe that the world is becoming greener and more connected but help drive the change they want to see. Sources 1 Source: Financial Times 8 August 2022. 2 Our World in Data based on 2020 figures. 3 Bloomberg New Energy Finance Long Term Electric Vehicle Outlook 2022. 4 Source: Statista in cooperation with Transforma Insights, May 2022. 5 Source: Gartner April 2022.
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by aneekaguptaWTE
We need energy storage…and companies are respondingRecently, the following headline caught my eye: ‘Tesla Supplier Panasonic Plans Additional $4 Billion EV Plant in U.S.’ 1 Even in an environment with significant inflation, and a monetary policy that may continue raising rates for some time, significant capital expenditure continues within the battery space. Panasonic is particularly notable because, in July 2022, it announced a plan to build a roughly $4 billion plant in Kansas. Now, it is announcing another plan for a roughly $4 billion plant in Oklahoma2. The concept of securing certain supply chains globally has been a major theme in 2022, even if it’s been obscured by inflation, US Federal Reserve activities or the possibility of a recession. Semiconductors have been a big focus on that list, but so have the batteries that support the ongoing adoption of electric vehicles. Geopolitics are always in the background of these supply chain considerations. While Panasonic (Japan) and LG Energy Solution Ltd. (South Korea) have made announcements in 2022 about plans to build plants directly in the US, Contemporary Amperex Technology Co. (CATL)—China’s top electric vehicle (EV) battery maker—has not been able to do the same. There was a plan in place, but US-China tensions have recently intensified, leading to postponement3. Whilst drafting this blog, another headline appeared: ‘Honda, LG Energy Plan $4.4 Billion EV Battery Factory in U.S4.’ It’s certainly an area in focus. Where is EV adoption in the US currently? For the full US market, roughly 6% of new vehicles are electric. In California, this number was 16% in the second quarter of 20225. There is an interesting contrast between California and other states in the US. The European Union (EU) announced that new cars must be free from emissions after 20356. Many of the individual countries had already made similar plans. Norway’s government has a plan to not sell any new petrol or diesel cars from 2025 onwards, and 70% of new cars sold in Norway in 2020 were electric7. The individual states across the US, on the other hand, have not signalled commitments anywhere close to this, at least not yet…with the exception of (you guessed it), California! New regulations applying to new cars, pickup trucks and SUVs would establish annual thresholds for the share of zero-emissions vehicles automakers must sell in the state each year8. 35% in 2026 68% in 2030 100% in 2035 The Clean Air Act of 1970 granted California a waiver to set its own environmental rules, and this allows for stricter standards than other states across the US. Other states can adopt California’s rules. For those following politics9: The Trump Administration in 2019 stripped California of its waiver. Some companies still voluntarily sought to meet California’s stricter standards, but there was a division. The Biden Administration then gave California back its waiver in March 2022, which allowed for these new rules. Depending on the path of US politics, we’ll have to see how the story continues to evolve but, with each passing year, it is doubtful that politicians would be able to fully stop the trend of EV adoption. Maybe it would slow and certain states would hold out, but even the automakers themselves are noting a desire to go fully electric in their production within the coming decades. Hydrogen? One thing we know about hydrogen is that the market loves to ‘hype’ this concept. Even though the full development of an infrastructure that would support use of hydrogen at scale will take years—possibly a lot of years—at the end of 2020 and start of 2021 many of the firms focused on hydrogen had sky-high valuations10. The market wanted to price these firms as though the potential had already been realised, so we know that returns have been much harder to come by in the space in most of 2021 and 2022 so far. Plug Power is one such company and, on 25 August 2022, it agreed to provide 10,950 tonnes per year of liquid green hydrogen starting in 202511. ‘Green hydrogen’ refers to hydrogen that has been produced using renewable, carbon-emission-free energy. If Amazon wants to decarbonise its operations and use hydrogen to do it, it’s important that the production of the hydrogen isn’t simply moving the emission generation from Amazon’s operations toward Amazon’s energy suppliers. Amazon has committed to be net-zero in terms of carbon emissions by 2040. As a rough guide, this amount of hydrogen that Plug Power would supply could power between 1,000 and 2,000 heavy duty trucks over the course of a year12. It is an area of active debate and development regarding the best way to decarbonise heavy-duty trucks: Current lithium-ion battery technology could work, but batteries would be very heavy and the need to stop for charging could prove a challenge on longer-haul trips. Charging massive, semi-truck sized batteries could also take much longer than passenger cars. Hydrogen offers interesting alternative benefits but, currently, the discussion should focus on the supply chain. First, the infrastructure of hydrogen fuelling stations needs to be build out, securing the supply of hydrogen on major routes. Second, the production of hydrogen needs to be green, or else all the companies trying to use hydrogen as part of net-zero emissions plans would have to look elsewhere. Our take on hydrogen for the moment is one of reasonable optimism, recognising the benefits but, at the same time, not getting too excited too quickly. Conclusion: countries want to be energy independent Decades ago, the only way countries could be energy independent was to find massive deposits of oil. While we still use fossil fuels globally, energy independence in the coming decades will likely look quite different, and the countries that secure the best possible energy storage technologies could be in the best position as they deploy all sorts of renewable energy technologies to power their needs. To this end, there are going to be a lot of advances in regulations, energy storage technologies and all the while capital expenditures to build out all sorts of infrastructure and production capability. Sources 1 Source: Davis, River & Rebecca Elliott. “Tesla Supplier Panasonic Plans Additional $4 Billion EV Battery Plant in U.S.” Wall Street Journal. 26 August 2022. 2 Source: Davis, 26 August 2022. 3 Source: Davis, 26 August 2022. 4 Source: Davis, River & Dasl Yoon. “Honda, LG Energy Plan $4.4 Billion EV Battery Factory in U.S.” Wall Street Journal. 29 August 2022. 5 Source: Colias, Mike & Christine Mai-Duc. “California Approves Rules to Ban Gasoline-Powered Cars by 2035.” Wall Street Journal. 25 August 2022. 6 Source: eu-agrees-new-cars-must-be-emissions-free-after-2035 7 Source: statista -electric-and-hybrid-cars 8 Source: Colias, 25 August 2022. 9 Source: Colias, 25 August 2022. 10 Source: Bloomberg. 11 Source: Palumbo, Angela & Al Root. “Plug Power Stock Jumps on Hydrogen Supply Deal with Amazon.” Barron’s. 25 August 2022. 12 Source: Palumbo, 25 August 2022.
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by aneekaguptaWTE
Have you experienced ‘Tool Sprawl’ in Cybersecurity?We recognise we have a diverse array of readers, probably some individual business owners, some employees of large companies, some employees of smaller companies and possibly even some people who are retired or between jobs. Whatever your situation—how many different cybersecurity tools are you aware of that you interact with? A password manager? A single-sign-on interface? A specialist tool focused on email? Another specialist tool focused on accessing a cloud computing infrastructure? The fact of the matter is that the more you learn about cybersecurity, the more you are awakened to a large number of providers that each specialise in different types of protection. We saw the term ‘tool sprawl’ used to describe the 2022 cybersecurity landscape—we thought it painted an informative picture1. How many tools are customers using? Enterprise customers may be managing portfolios of 60-80 tools, with those on the extreme higher end of the spectrum possibly managing up to 1402. Imagine managing all of these tools over the course of a normal business operation. One reason why the current environment is characterised by so many tools could relate to the progression of the Chief Information Security Office (CISO) role. 10 years ago, the way a ‘good CISO’ was defined largely had to do with buying and deploying tools. The CISO in 2022 is now much more a top priority for a company’s board and C-suite, and now a ‘good CISO’ is evaluated based on outcomes rather than deploying tools3. A survey conducted by Gartner found that 88% of Boards of Directors view cybersecurity as a ‘business risk’ rather than a ‘technology risk4.’ Of course, the attack surface in 2022 has also massively expanded, and frequently companies may be launched around new types of artificial intelligence and machine learning techniques, to use one example that could also lead to the proliferation of companies. Dealmaking is already taking off in 2022 Through 18 August 2022, private equity sponsors and their portfolio companies have backed 162 cybersecurity deals worldwide, valued at $34.9 billion. If this pace continues, it could surpass 2021’s tally of $36.4 billion across 308 transactions5. One driver—valuations. 2020 and much of 2021 saw the most newly public cybersecurity companies, many of which were focused on the cloud, experience massive multiple expansion and therefore premium valuations. The growth was strong, but the prices were not inexpensive in an environment where the cost of capital had been very low for a very long time. With the rise of inflation and then the shift in policy of many central banks going from expansionary support of growth, many of these companies experienced dramatic multiple compression. This allows private equity players focused on building consolidated product offerings to pick up interesting companies at much lower prices. Thoma Bravo is one such player that has been quite active. Just in the identity space, Thoma has done deals to acquire Ping Identity for $2.8 billion and SailPoint for $6.9 billion6. Consolidation is a big desire from customers—possibly a response to the ‘tool sprawl’ that we mentioned earlier. There is a feeling in the market that there might already be too many companies, so it’s not just about more innovation but also building integrated platforms so customers can go to one place and get more services. Option3 is an example of a firm that has shifted from funding new firms to acquiring late-stage middle-market companies for buy-and-build strategies. They are planning to raise a $250 million buyout fund dedicated to a platform acquisition strategy7. Private equity firms are attracted to cybersecurity companies for many reasons, but it is noted that they have exhibited lower churn rates than other Software-as-a-Service (SaaS) businesses. They also have tended to generate high margins. What about the slowing economic environment? As is the case with many things, historical comparisons can only take us so far. If we think about the state of cybersecurity in 2007-2009, encompassing the ‘Great Recession’, it was totally different. Cybersecurity budgets are much different in 2022 than they were in 2007 heading into that significant slowdown8. One doesn’t need to look too far to see quotes from experts indicating that even if cybersecurity spending could be impacted by a slower economic environment, it most likely wouldn’t be as impacted as other areas. There are many things that are regulatory requirements or viewed as ‘table stakes’ to the ongoing operation of companies, which make them that much more difficult to cut. Regulators are also upping the ante. The Securities and Exchange Commission in the US has explored a rule that would require disclosure of a ‘material cybersecurity incident’ in a public filing. Disclosure would also have to be quite quick after the event—possibly a response to certain types of attacks and breaches like SolarWinds, where months after the fact the scope of potential damage was growing and growing9. Even if regulators do not mandate spending more on cybersecurity, their pursuit of certain types of rules would be likely to have that impact. Conclusion: a megatrend for all seasons? Norges Bank Investment Management, the world’s largest sovereign wealth fund at $1.2 trillion, recently indicated that cybersecurity is their biggest current concern, citing that it faces an average of three serious attacks each day. The fund sees roughly 100,000 attacks per year, and they classify about 1,000 of them as serious10. Firms operating in the financial industry have been increasingly targeted, and firms operating in the Nordic region feel the proximity to Russia during the Ukraine conflict quite tangibly. While many investment themes might be a bit discretionary or susceptible to delays in a slowing economic environment, cybersecurity is not one of them. We may not know the exact companies or services that will grow the fastest but backing away from focusing on security is not an option. Sources 1 Source: Alspach, Kyle. “Thanks to the economy, cybersecurity consolidation is coming. CISOs are more than ready.” Protocol. 17 June 2022 2 Source: Alspach, 17 June 2022. 3 Source: Alspach, 17 June 2022. 4 Source: “Gartner Survey Finds 88% of Boards of Directors View Cybersecurity as a Business Risk.” Gartner. Press Release. 18 November 2021. 5 Source: Shi, Madeline. “PE dealmaking thrives in cybersecurity sector.” Pitchbook. 23 August 2022. 6 Source: Shi, 23 August 2022. 7 Source: Shi, 23 August 2022. 8 Source: Alspach, Kyle. “Cybersecurity spending isn’t recession-proof. But it’s pretty close.” Protocol. 6 June 2022. 9 Source: Alspach, Kyle. “’Game-changer’: SEC rules on cyber disclosure would boost security planning, spending.” VentureBeat. 10 March 2022. 10 Source: Klasa, Adrienne & Robin Wigglesworth.” Financial Times. 22 August 2022.
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by aneekaguptaWTE
Recycling Batteries will be a Big Focus in the Energy TransitionThose of us following the markets in 2022 have tended to hear certain words again and again: Supply chains Energy shortage Inflation Renewable energy metals We need energy. We want to transition from significant emissions of greenhouse gases towards more sustainable, climate-neutral sources of energy. It is difficult to foresee the demand for batteries dropping at any point in the near future. But, there is a problem. Redwood Materials, a company that is focusing on battery recycling, articulates it very clearly in the title of Figure 1 and then in their infographic. The COVID-19 pandemic laid bare the fact that many things have built towards highly globalised supply chains. Batteries are a critical example, and securing supply is a topic that many regions are thinking about today. A circular economy? Intuitively, recycling battery metals makes a lot of sense. Instead of constantly sourcing more raw nickel, cobalt, lithium etc., it would be more efficient to make use of the existing stock of metals already in use in various physical products. The map in Figure 1 also makes another important point—the specific metals used in the manufacture of batteries are not evenly dispersed across the globe. Certain countries and regions have copious amounts, while others don’t have any. It may be the case that we are early, and this is sometimes an issue in thematic equity investing. The concept and idea might be clear but getting the timing of the possible take-off can be tricky. It is simple to picture the idea of electric vehicles (EVs) ending their useful lives and heading to the scrap yard, like any other vehicle. However, we are still early in terms of EV adoption, so we don’t have EVs at scale heading to the scrap yard at the end of their usable lives. That day will come, but not immediately. This is important to understand, in that it tells us that the materials being recycled are not expected to be the actual batteries that were used for multiple years in an EV. Rather, the inputs into recycling will likely be scrap material from the increasing number of gigafactories coming online. This scrap could account for 78% of the pool of recyclable materials in 20251. It is then estimated that in the mid 2030’s, end-of-life batteries will supersede scrap materials from factories, but extracting the valuable lithium, cobalt, nickel and other metals from existing end-of-life batteries will be a more involved process than processing scrap metals from factories2. Geopolitics may offer a natural push towards recycling firms In 2022, when one is trying to analyse the possible forward path of the relationship between certain countries (for example, US vs China) it is very difficult to know what might happen. China is the major processor of some of the most important battery metals (see Figure 2), which will likely be a major source of tension for Western countries. Based on what we can see today, we have to imagine that Western countries would prefer a greater independence of supply away from a dependence on China if that can be a reasonable possibility. Conclusion: recent activities show companies making moves on this front Ascend Elements is a start-up that is aiming to be an emerging centre of battery production in the Southeastern US. Jaguar Land Rover and SK Group have contributed, along with other investors, to put $300 million into the firm. It is seeking to commercialise an efficient method, termed ‘hydro-to-cathode’, to turn used lithium-ion batteries into new components. As of the recent funding, Ascend Elements is valued at $500 million3. The Inflation Reduction Act is also notable, in that it focuses on defining how much battery material is coming from domestic production. ‘Domestic’ in this context means ‘inside the US.’ This creates an immediate incentive for recycling players to ramp up their production and operations in the US, as it would then connect electric-car tax credits for consumers back to batteries that are at least majority-sourced from inside the US4. The primary risk in the space appears to be whether the recyclers can effectively achieve a scale of their operations to bring down unit costs and allow for strong financial performance before waves and waves of existing EV batteries start getting retired. Even if batteries from laptops and smartphones are recycled, it may not be enough material to scale operations and allow the companies to progress towards profitability5. WisdomTree believes in the importance of the global energy transition, of which battery recycling is certainly a part that can grow over time. Diversification across the supply chain may mitigate the risk of being a bit early to certain parts of the picture.
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by aneekaguptaWTE
2000Let's take a walk together, near the ocean floor Hand in hand you and I Let's cherish every moment we have been given Cherish the love we have We should cherish every bagholder that gets decimated The collapse of the United States Has been long coming George Soros broke the bank of england to warm up before breaking the us central bank They cannot withstand the assault Goldman Sachs is all in short and they control all the money in the world The herd has not even started to sell usd and buy other currencies (incl gold) All the big (norway, saudi) wealth funds are still holding us stocks and us dollar bags This hasn't even started yet Let's take a look at the big noobs at Goldman Sachs. They recommended NOK. Scandinavian currencies are not very popular with retail because they're not cheap to day trade and not on all retail brokers and the educators never heard of those currencies. The 3 currencies are the NOK DKK SEK from the 3 countries up there. GS has been rather correct, back in March/April Goldman Sachs was saying that it was too early to short sell the usd "the historical rally is not over" They have a podcast from the 07 June explaining the USD weakness, have only listened to the beginning, I can read or watch a video but just listen to audio zzz. www.goldmansachs.com GS said that the usd already was overvalued before March and then the situation caused it to rally even further, being even more overvalued. They said the usd had "poor medium-term fundamentals", and the lower yields (that Powell announced would be maintained 2 days ago). The investment bank in June said it expected the ponzi scheme to lose more than 20% of its valuation in the next years (years?). They said they expected this usd fall to be the start of a sustained long term downtrend (like eurusd 2014). They liked the NOK because of a news I posted a while ago, their mega black hole wealth fund said something about bringing money home in krones. Now I don't know if this is the bank or journalists but they talk about how great the Norwegian lockdown was, and how they saved lives, and oh wow businesses got a stimulus package because that's the same as real wealth creation am I right (real socialism was never tried). I am afraid of looking for more criticism of Sweden than I already saw, I'd risk hitting my head into a wall. I bet they will have a hecatomb and "experts" expected Sweden currency to suffer just like Brexit was guarenteed to destroy the UK economy ( HAHAHA! ) Oh no the coronavirus will destroy Sweden poor fools. Well, I don't believe in hoaxes and I've been short usdsek for more than 2 weeks. How I trade this I feel like a scalper. I remember this guy Dan, from the chart guys, he has a youtube channel, back in the crypto vertical days of late 2017/early 2018 he would just spam orders capture little moves here and there. It's the impression I have because I kept placing orders, I love it. Boom Boom Boom. But I get nice moves not just blips. I am basically adding to my winner each time I make a new trade short on the usd, I see a good pair do something I buy/sell. Funny thing is the only pair I've been in all along is the first one I opened which is you know which one it is, it is USDSEK. I said in old ideas that the swedish currency was great to bet on or against. Must be because all the noobs ignore it, so there are only whales and surfers around, no "ah the rsi is very oversold I will go against the very powerful and obvious trend, and will average down". This currency has not disappointed me. I'm so afraid it reverses now, I don't like taking new risks I want to ride it forever. My target is ZERO. I shorted usdchf when it went to new lows and went parabolic, but that pullback was too much for me I got kicked out :( No regrets here. I have regrets on some pairs such as GBPUSD. I trailed too tightly, should really have some breathing space it's stupid to have really tight stops. Stopped at the very bottom of course :) I'm really hoping next week the eurusd does something like this: By the way, remember Elliot Wave principles? Have still not even bought gold, I tried getting in on a pullback a few weeks ago and then didn't want to chase it so close to ath. And now it's past ath choppying not interesting. I am only interested in chasing very 1 sided moves, grab a couple of days worth moves. April was the month of riding Oil to the ground and even more profiting of the historical insane contango, July (and August?) is really the usd to the ground month. I love it! More of this! We should cherish the life we live For as long as the usdollar shall go to zero Can the us dollar go negative like Oil? Yes. Short the usdollar to -100.
by MrRenev
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