Good morning! Today’s word count is 2,061 words, or a 10-minute read. Let’s get to it:
“Democrats unveiled a revised spending bill, but investors see dim prospects for additional relief from the government before the November elections,” WSJ writes.
- S&P 500: $3,349.68
- Nasdaq: $11,070.71
- Bitcoin: $10,912.11
- U.S. 10-Year: 0.665%
Justin Oh’s Quick Read
It’s hard to tell where the stock market will go over the next three to five months, but we’re expecting continued volatility and whipsawing back and forth. But given the economic backdrop and elevated valuations, we believe there is a higher likelihood of downside than upside, which is why we are keeping Target Allocations the same.
Here are some critical things on the horizon to watch for:
- Who will win the election? See the No. 2 for the Trump-Biden debate primer.
- Will enough additional stimulus be passed? Democrats want $2.2 trillion in stimulus to support citizens, restaurants, airlines, child care, and local governments, while Republicans resist large, untargeted amounts of deficit spending. The more stimulus created in the short term, the better the stock market will perform because of increased consumer spending and asset inflation. But too much spending and debt could hinder the economy and threaten the U.S. dollar long-term.
- Will there be a fall or winter Covid-19 spike that renews harder quarantine lockdowns? If yes, not only could abruptly higher case and death numbers spook the markets, but it could worsen an already weak labor market and cause a deeper recession.
- Will an approved vaccine or therapeutic be adopted? We may have approved vaccines by early 2021, but convincing people to be early-adopters will be tough.
How Trump and Biden Compare on the Key Issues
Election Day is five weeks away as President Donald Trump and Democratic Nominee Joe Biden take the stage Tuesday night for the first presidential debate. Here’s where each candidate stands on some of the significant issues:
- The current administration would likely continue intense regulatory scrutiny of technology companies. Trump’s efforts include allegations of anticonservative bias online, antitrust probes of Google and Facebook and actions against TikTok and WeChat.
- The former vice president has also been “critical of Big Tech’s market power.” He’s said he would support stricter antitrust laws and online privacy rules.
- President Trump is pushing to continue the 2017 tax law, which “lowered taxes on businesses and individuals while increasing budget deficits.”
- Biden has proposed funding social programs through significant tax increases on corporations and the wealthy.
Immigration, Border Wall and ICE
- A core theme of Trump’s 2016 campaign and first term in office has been reducing basically every form of immigration. Some changes include border wall construction, travel bans and a temporary closure on the southern border to asylum seekers during the pandemic.
- Biden’s plan is built around undoing most of the changes the Trump Administration has made.
- “President Trump and Joe Biden have profound differences in key areas of U.S. foreign policy, including alliances, Saudi Arabia and Iran. But the pair hold similar views about some major goals, including limiting troop deployments to the Middle East and Afghanistan.”
- Trump has laid out a more “confrontational” policy against China than his predecessors.
- Biden would likely maintain that hard-line if elected president.
- Trump piled on tariffs and eschewed alliance-building, the most significant shift in U.S. trade policy since World War II.
- Biden intends to “reverse direction” if elected, saying he will “woo allies battered by Trump trade sanctions, rethink the use of tariffs and try to create a united front to confront China.”
- When: 9 p.m. ET
- Where: Case Western Reserve University and Cleveland Clinic in Cleveland
- The Format: Fox News’ Chris Wallace will moderate the 90-minute debate
- How To Watch: Fox News, ABC News, CBS News, NBC News, PBS, C-SPAN, Online (all of the above, plus Facebook, Twitter, Instagram and YouTube) and Radio.
Justin Oh’s Two Cents
This election is a mixed bag, with Trump scoring high marks for the economy, but Biden seeming more stable on foreign policy and trade. The market generally dislikes uncertainty and likes a split government where not much gets done. So either a Trump or Biden presidency plus a split congress would be favorable. Our view is that the most significant downside risk for the markets is if Biden wins and Democrats sweep Congress, allowing for the passing of higher taxes and social programs.
Read More: (WALL STREET JOURNAL)
Spotify CEO Backs Tesla Rival After European “Moonshot” Pledge
Spotify founder and CEO Daniel Ek, has invested in Swedish battery firm Northvolt, which is constructing a Gigafactory in Sweden’s Lapland region.
Why It Matters
Northvolt was born out of Tesla itself.
- The company was founded in 2016 by two former Tesla executives, aiming to develop the “world’s greenest lithium-ion battery.”
- With about 800 employees, it sees its batteries “being used to power new electric cars built by some of Europe’s biggest automotive manufacturers.”
Ek became involved less than a week after his “moonshot” pledge.
- The Swedish billionaire promised to invest $1.2 billion his nearly $4 billion personal fortune in European startups focused on deep technology and scientific innovation.
- Ek cited the challenges in accessing capital in his announcement, adding his desire to achieve a “new European dream.” He also expressed his frustration on seeing European entrepreneurs give up on “their amazing visions early on to non-European Companies.”
Northvolt pulled in $600 million from Ek and other investors, but it raised substantially more in the past.
- In June 2019, the company raised $1 billion from BMW, Volkswagen and others.
- A few months ago, Northvolt raised $1.6 billion in debt “consortium of commercial banks, pension funds and public financial institutions,” including a $350 million loan from the European Investment Bank.
Northvolt has grand plans for the European EV market.
- “It is in the process of building a Gigafactory to produce the batteries in Skelleftea, northern Sweden, and it expects to start production in 2021.”
- It’s also applying for permission to construct a second Gigafactory in Salzgitter, Germany, which, if all goes to plan, will begin operations in 2024.
- In July, the company agreed to a €2 billion deal (euros) to provide BMW with battery cells.
Numbers To Consider
- Spotify stock opened at $237.39 Tuesday, with a market cap of $44.22 billion.
- According to Allied Market Research, the electric vehicle market was valued at $162.34 billion in 2019 and is projected to reach $802.81 billion by 2027.
Justin Oh’s Two Cents
It’s clear that electric vehicles are the future. The more cheap, high-capacity batteries available, the better electric vehicles will compare with gas cars. We are mild bulls of $TSLA, thinking the valuation is overpriced for its current financials, but firmly behind the company’s future success. We believe electric vehicle adoption in 2020 is around where smartphones were in 2008 – one transformational player inventing a new category (Tesla, Apple). And investing in Apple from 2008 to 2020 would have been all you needed to maximize your wealth. But that being said, $AAPL never reached $TSLA levels of hype and overvaluation, and cars will undoubtedly take much longer to adopt than cell phones.
Read More: (CNBC)
Number Crunch: U.S. Retail Bankruptcies, Store Closures Hit Record in First Half
“Retail bankruptcies, liquidations and store closings in the U.S. reached records in the first half of 2020 as the Covid-19 pandemic accelerated industry changes, particularly the shift to online shopping,” WSJ writes.
- Eighteen retailers filed for chapter 11 bankruptcy between January and June, including Neiman Marcus, JCPenney, Stage Store, Pier 1 Imports and GNC Holdings. During the summer, 11 more filed, including Lucky Brand Dungarees, Brooks Brothers and Tailored Brands.
- Retail bankruptcy filings this year have already eclipsed the 22 recorded in 2019. That puts 2020 on pace to rival 2010 when 48 retailers went the chapter 11 route due to the 2007-09 recession.
- Brick and mortar locations are expected to continue to close at high rates. Solvent companies such as Macy’s, Bed Bath & Beyond and Gap, were among a collection of retailers announcing a total of more than 10,000 store closures in the U.S. this year, which already beat 2019’s record-high 9,500 closures. Bankruptcies accounted for almost 6,000 closings so far in 2020.
- Retailers could shut down as many as 25,000 stores in 2020, according to Coresight Research. A huge component of those closures is mall-based department stores. Real-estate research firm Green Street Advisors has “forecast that more than half of all mall-based department stores in the U.S. will close by the end of 2021.”
Justin Oh’s Two Cents
We are in the midst of a brick and mortar store shake out. Retailers have seen the e-commerce threat for a decade and have since tried to move toward “omnichannel.” But they have failed because of a heavy existing infrastructure and lack of capital or innovation. We believe legacy retailers will continue to fail, but that in-person shopping won’t go away. Instead, nimble e-commerce brands and innovative retailers will take their place, providing show-room style experiences and widespread delivery. Before buying a beaten-down retail stock, we should ask ourselves: is this company truly an “undervalued” stock that can recover, or are we “catching a falling knife” with a company that will be much smaller in the future or potentially go insolvent?
Read More: (WALL STREET JOURNAL)
On The Margins
Fly Like an Allbird: Sustainable shoe brand Allbirds has raised another $100 million, increasing its valuation to $1.7 billion. The new money brings the company’s total funding to $200 million. It last raised $27 million in January but paused additional funding plans due to the pandemic. The company plans to use the new capital to open more retail stores and launch new products, which have become increasingly popular among tech workers and venture capitalists.
Tick Tick Tick: “The federal judge who stopped the Trump administration’s download ban on video-sharing app TikTok determined that the government likely overstepped its authority under national security law. Judge Carl Nichols of the U.S. District Court in Washington, D.C., granted a preliminary injunction against the ban late Sunday. In his 18-page ruling released Monday, the judge said the 1970s International Emergency Economic Powers Act—which President Trump invoked to pursue the TikTok ban—prohibits restrictions on exchanges of informational materials.”
Raise The Roof: Exotec raised $90 million for its warehouse robots, XtalPi landed $319 million for its high-tech drug discovery, KKDay nets $75 million for “staycations,” online retailer fulfillment provider Huboo pulled in £14 million, online course platform Thinkific grabbed $22 million, cryptocurrency exchange Bitpanda secured $52 million, PayCargo collected $35 million for its cloud-based platform targeting the freight industry, self-cleaning water bottle company LARQ drummed up $10 million and Trym raised $3.1 million to grow its cannabis cultivation platform.
Space Odyssey: “The United Arab Emirates plans to send an unmanned spacecraft to the moon in 2024, part of an effort to invest in technology and diversify its economy away from oil.”
Pitch Black: “Microsoft says it is continuing to investigate the cause of a major cloud outage that has left users around the world unable to access services such as Outlook email, Teams workplace collaboration software, and Azure services.”
Energy Matches Energy: “Tesla is looking to acquire a stake in LG Energy Solution, soon to be separated by LG Chem, to procure a stable supply of batteries, bank sector sources told The Korea Times, Monday.”
A Whole New World: “U.S.-based venture capital firm GGV Capital is raising a combined $2 billion in commitments for three new funds that will focus on China, the U.S., and Southeast Asia.”
A New Hope: “House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are set to talk Tuesday morning after Democrats unveiled a [$2.2 trillion] coronavirus stimulus plan designed to restart progress toward a relief deal.”
Hard Feelings: “LVMH Moët Hennessy Louis Vuitton SE sued Tiffany & Co over their soured merger deal, saying the U.S. jeweler’s business has been so deeply damaged during the pandemic that their takeover agreement is invalidated.”
Back To The Nest: “NTT Docomo Inc., which broke free of its tradition-minded parent to become a global pioneer of the mobile internet, is returning to its old home in a $40 billion deal that erases its independence.”
Plot Twist: Tony Aquila, chairman of sports data unicorn Sportradar, has left the company to focus on Canoo, an EV startup going public by SPAC.