(Washington)

Joe Biden has picked Lisa Gomez to head the Employee Benefits Security Administration at the Department of Labor. And speaking to senators this week, she made a comment which clearly signals the direction of the Department. She said “there’s nothing that is more central to ERISA than defining who is a fiduciary”. Speaking about her pending work for the DOL, she said she plans “to be briefed on the efforts of looking at the definition of a fiduciary in different contexts, and taking another look at the conflict of interest rule and how it would apply in different situations”. She continued “Determining exactly who is a fiduciary in different contexts … has been the source of disagreement and it’s been a long road to get there”.

FINSUM: The writing is on the wall at the DOL and SEC. The Biden administration is starting to flex its muscle and will beef up regulation.

(Washington)

Every scary dream about regulations that broker-dealers have had since Biden got elected might be coming true, at least based on new comments out of the SEC. According to Gurbir Grewal, “We must design penalties that actually deter and reduce violations, and are not seen as an acceptable cost of doing business”. Grewal is the former Attorney General of New Jersey who is now the Director of the Division of Enforcement of the SEC. He added, “[T]o achieve the intended deterrent effect, it may be appropriate to impose more significant penalties for comparable behavior over time … Doing so will make it harder for market participants to simply ‘price in’ the potential costs of a violation”.

FINSUM: All signs point to things getting much tougher over the next couple years.

Whether the US’ current bout of inflation is caused by transitory supply-side factors, or trillions of dollars poured into the economy by policymakers, is irrelevant because investors are now tasked with finding a way through the stock market jitters. As inflation rises it eats at yields and the value of fixed coupons falls. To avoid the pitfalls of rising prices look to dividend stocks, whose yields are pushed higher by inflation. Of course not all dividend stocks are created equal and some will outperform in an inflationary environment. The best income stocks are in the financial sector because they benefit from rising interest rates, as their interest rate margins expand in such environments. Energy is next, at least currently. Higher demand boosts prices of oil and gas, which benefits energy sector investors as it is one of the highest dividend payers. These sectors are the most likely to boost their dividends in the rising price environment.

FINSUM: Dividend stocks have no doubt outperformed just about every segment of the bond market, and expanding your dividend holdings may be a good idea as inflation comes in at 20-year highs. 

September saw the Vix creep to a 4-month high as the S&P 500 blew off 4.8% of its value. Most investors were hoping for a bounce-back month in October, chalking up September’s poor performance to a checkered history for the opening of autumn. However, they are likely to be remiss as volatility indexes are still climbing. The pullback in September was the largest since March of 2020, when the pandemic began.BofA said that while October is generally a well-performing month when it trails a struggling September, October can drag as well. Debt ceiling negotiations, oil price spikes, and Fed tapering are just a few of the onslaught of headlines which are giving the market fits.

FINSUM: While volatility has yet to hit the peaks of September it is already consistently above its 200-day moving average, which could be a sign of even more volatility to come.

Facebook was blacked out on Monday October 5, 2021, which they claim was related to technical issues on their backbone routers. This came just before Frances Haugen, former product manager for Facebook’s civil integrity team, said that regulators need to intervene in the ‘crisis’. Haugen told ‘60 Minutes’ that she saw Facebook consistently choose profits over public safety at Facebook.She took with her tens of thousands of documents that prove these claims. Additionally, she filed complaints with the SEC that Facebook misled investors and advertisers by not sharing the whole picture about its platform.

FINSUM: This was a huge hit to Facebook stock on Monday, but it piggybacked on the rest of tech’s rally Tuesday morning to see some recovery. It is difficult to tell how long this may loom over the stock.

Federal Reserve Bank Chairman Jerome Powell spoke last week on a panel hosted by the ECB, and relayed his frustration about the ongoing inflation pressures in the US economy. Powell said the economy’s most important concern is getting people vaccinated and containing Covid’s delta variant. Powell said the key inflationary pressures remain supply chain bottlenecks in the US economy. These supply constraints have the U.S.’s key inflationary measure (core personal consumption expenditure) elevated to its highest level in 30 years. The FOMC has raised their expectation for inflation from 3% to 3.7%, and Powell said this could continue into 2022. Powell’s Analysis was backed up by both Japan and the ECB’s respective leaders.

FINSUM: The supply shock to the economy remains as chip shortages still persist. As long as supply chains remain disrupted the unemployment/GDP and inflationary goals of the Fed will remain in conflict.

The Fed is beginning to talk tapering and that has sent treasury yields spiking to 3-month highs (since before delta was spreading rapidly). The treasury yield spike has sent Growth stocks, such as in the technology sector, tumbling. Investors caught in the middle have flocked to value stocks, such as energy and financials. These stocks have cyclical reopening qualities and investors are singing the same reflationary trade song from back in May. However, growth doesn’t look quite as sluggish, and this might keep these stocks rolling a bit longer. Supply side factors in energy in particular will keep value strong beyond interest rates falling or inflation being more than transitory.

FINSUM: Value needs this middle zone of moderate inflation and moderate growth. If either fall off or pick up too much it could push investors back into growth or push the whole market down!

(Washington)

The House Democrats’ update of the Biden Administration’s tax proposal hit airwaves yesterday, and it is just now starting to sink in. One of the elements that was immediately apparent to one senior tax professional was that the updated capital gains tax proposal is effectively a “marriage tax”, according to Nicole DeRosa, senior tax manager at Wiss. Note that increased rates (5% plus the 3.8% surtax) start at $400,000 of income for individual filers, but $450,000 for joint filers. Many times the joint filing limit would be double the individual limit, but in this case it is barely above. This effectively means married couples are being taxed for their matrimony.

FINSUM: This is illogical and unfair to married couples. Hopefully this does not make it into law in its current form.

(Bangkok)

Southeast Asia is bursting on to the Fintech scene with a host of new companies. Ascend Money, is one of Thailand’s darlings and just became the country’s newest unicorn. Ascend found early funding from Jack Ma’s Ant Group Co. and Charlene Pokphand Group, and just secured $1.5 billion in its latest round of funding. Ascend plans to use the funding to improve its mobile wallet app TrueMoney. They view this latest funding as a testament to the positive ecosystem in Thailand for start ups and financial technology companies. Still Ascend’s $14 billion operation that spans Cambodia, Indonesia, Myanmar, the Philippines, Thailand, and Vietnam, faces competition from established financial firms in the region like Siam Commercial Bank Plc and other financial start ups.

FINSUM: This story is a reflection of the bourgeoning Fintech industry in the South East Asia region, no doubt the leader in emerging markets for new technology companies.

The UN's new report on climate change paints an alarming picture, warning that temperatures are rising faster than previously expected^[1]. It adds impetus to President Biden's infrastructure plan, expected to be approved by the Senate this weekend^[2], which includes significant dollars ringfenced for investment in green fuels.

But ramping up renewable fuels isn't the only way the infrastructure plan could combat climate change. The bill also plays heavily on 5G connectivity, which some opinion-makers hope could prove good for the planet. Erik Ekudden, CTO and Head of Technology & Strategy at the 5G stock Ericsson, says that "[5G] uses, applicable across various sectors, can drive down costs, energy usage, emissions, waste and mitigate climate change."^[3]

5G can reduce emissions

By connecting remote devices through internet of things (IoT) sensors; collecting, sharing, and storing the data they gather; and powering artificial intelligence (AI) and machine learning (ML) engines, 5G can help cut emissions across a number of sectors. An earlier UN report estimated that taken together, advanced 5G-powered ICT solutions could lower greenhouse gas emissions by 20% by 2030^[4].

• In cities, tracking and charging for solid waste disposal could cut solid waste by 10-25% per capita by 2030^[5], with a commensurate drop in energy used to process it.
• Live traffic updates enable smart traffic lights to refine sequencing in real time, improving traffic flow and cutting emissions from vehicles idling in holdups by up to 21%^[6].
• 5G is a key technology behind driverless cars, which have fewer sudden braking and accelerating incidents that burn more fuel.

5G can cut waste and pollution

Advanced agro-tech solutions use 5G and IoT sensors in fields and orchards to give farmers real time, reliable information about disease, hydration, and soil and weather conditions, so they can make better decisions about fertilizer and pesticide use. AI-powered drip delivery systems allow them to apply the chemicals they do use in more accurate ways, reducing runoff into groundwater.

It's a similar story for heavy industry and manufacturing. "Lights off" production uses robotic process automation (RPA) that relies on IoT data, lag-free edge computing, and ML. Without employees on site, there's less need for lighting and temperature control.

Smart factories reduce human error that causes environmental incidents and wastes raw materials and energy. Ericsson estimates that their 5G-powered smart factory uses 5% less energy, produces 5% less waste, and is 24% more efficient overall than the baseline^[7].

5G can increase food production

As well as helping farmers cut pollution, 5G is widely expected to boost food yields^[8]. 5G's stronger connectivity could bring reliable internet to rural areas that are currently severely underserved, so farmers can refine planting and animal husbandry decisions.

IoT devices can detect the early signs of infestation, disease, or changes to soil conditions, enabling farmers to resolve the issue before crops or herds are seriously affected. Real time hydration information can also cut water usage; crucial when water levels are dropping, and agriculture accounts for approximately 70% of the world’s annual consumption of freshwater^[9].

5G can lower energy consumption

Smart buildings use IoT to automatically turn off lights and adjust temperature control systems to use less energy. The Empire State Building in New York, for example, implemented smart meters some years ago to help tenants optimize their energy usage. It's seen energy costs drop by 38%, and reduced CO2 emissions by 105,000 tonnes in one year.^[10]

New smart grids are more reliable and energy efficient, reducing energy wasted through leaks and power surges. Better monitoring of energy consumption through IoT and ML also means energy companies can measure production against demand, and balance consumption needs with output from renewable energy to reduce their use of fossil fuels.

5G can boost disaster management

As made clear in the UN report, the next century will be marked by natural disasters such as landslides, wildfires, and floods. 5G stocks can help us cope:

• IoT sensors can deliver early warnings about wildfires, landslides, avalanches, and flooding, helping speed up evacuation and prevent loss of life and property.
• Edge computing and AI engines predict extreme weather events and plot the path of wildfires and hurricanes.
• Augmented reality (AR) headsets use latency-free video analytics data streamed over 5G to give firefighters visibility into the heart of wildfires, helping them fight them more safely and effectively^[11].
• 5G enables rescue teams to use drones, GPS, and emergency communication to work more efficiently, and to bring aid where it's needed most.

Improve wildlife stewardship

On a more positive note, 5G can help safeguard protected habitats and track endangered species. For example, a pilot project in the UK's Sherwood Forest uses 5G to monitor the health of the trees and the creatures who live in and around them^[12].

5G sensors monitor microbe and acidity levels in water tables to detect changes instantly, so action can be taken before serious incidents occur. IoT sensors in gas, chemical, and water pipes also check constantly for cracks to prevent leaks. It's estimated that 5G sensors and analytics on water systems can reduce water loss by up to 25%^[13].

Is 5G an energy monster?

There are fears that 5G's extra computing power could raise energy consumption. A recent report from France warns that 5G networks could release an extra 3 to 7 billion tonnes of CO2^[14], and in China, power consumption from 5G technology is predicted to increase by 488% by 2035^[15].

But others allay these concerns. 5G networks themselves are around 90% more energy efficient than 4G networks^[16], and it's only the initial stages of the rollout which need more power.  “Once the network is more mature, all energy efficiency features will kick in and energy consumption will be optimised,” said Joop Hazenberg, European External Affairs Director at GSMA^[17].

According to Ekudden, much depends on the choices made by 5G providers and infrastructure contractors. 5G rollout powered by renewable and green energy shouldn't raise emissions noticeable, and once it's in place, it should drive a net reduction in power usage.^[18]

Or the next ESG investment choice?

It might be too much to suggest that investors who want to support environmentally friendly causes should put their money into 5G stocks, but at the same time, investors who are excited about being part of the cutting edge of 5G innovation don't need to feel guilty about the impact it has on the planet.

Investing in Defiance's FIVG 5G ETF allows investors who want to join the 5G transformation to mitigate their exposure to risk by spreading their investment over a range of leading 5G stocks, thereby helping balance their portfolio.

 N.B. This is sponsored content and not FINSUM editorial.

^[1] "AR6 Climate Change 2021: The Physical Science Basis", released August 9, 2021 https://www.ipcc.ch/report/ar6/wg1/

^[2] "Infrastructure on track as bipartisan Senate coalition grows" August 10, 2021 https://apnews.com/article/joe-biden-business-c299d5d2a32188989b58cb5feec12f5d

^[3] "Digitalization with 5G enables further acceleration of climate action" January 21, 2021 https://www.ericsson.com/en/blog/2021/1/digitalization-5g-climate-action

^[4] "ICT Sector Helping to Tackle Climate Change" August 12, 2016 https://unfccc.int/news/ict-sector-helping-to-tackle-climate-change

^[5] "The global economic impact of 5G" https://www.pwc.com/gx/en/tmt/5g/global-economic-impact-5g.pdf

^[6] "FEATURE: How 5G will transform smart transportation in cities in 2021" October 14, 2020 https://www.traffictechnologytoday.com/features/feature-how-5g-will-transform-smart-transportation-in-cities-in-2021.html

^[7] "Digitalization with 5G enables further acceleration of climate action" January 21, 2021 https://www.ericsson.com/en/blog/2021/1/digitalization-5g-climate-action

^[8] "Agriculture’s connected future: How technology can yield new growth" October 9, 2020 https://www.mckinsey.com/industries/agriculture/our-insights/agricultures-connected-future-how-technology-can-yield-new-growth  

^[9] "WATER IN AGRICULTURE" May 8, 2020  https://www.worldbank.org/en/topic/water-in-agriculture

^[10] "Achieving sustainability in a 5G world" December 2016 https://www.brookings.edu/wp-content/uploads/2016/11/gs_20161201_smartcities_paper.pdf

^[11] "5 Ways 5G And IoT Could Help Change The World" August 9, 2021 https://www.forbes.com/sites/tmobile/2021/08/09/5-ways-5g-and-iot-could-help-change-the-world/?sh=51adc6085557

^[12] 5G Connected Forest, started March 1, 2020 https://uk5g.org/discover/testbeds-and-trials/5g-connected-forest/

^[13] "The global economic impact of 5G" https://www.pwc.com/gx/en/tmt/5g/global-economic-impact-5g.pdf

^[14] "Deploying 5G will lead to spike in CO2 emissions, French climate council warns" December 20, 2020 https://www.france24.com/en/europe/20201220-deploying-5g-will-lead-to-spike-in-co2-emissions-french-climate-council-warns

^[15] "Superfast but not so clean: China’s 5G network is causing its carbon emissions to soar" June 4, 2021 https://www.euronews.com/next/2021/05/28/superfast-but-not-so-clean-china-s-5g-network-is-causing-its-carbon-emissions-to-soar

^[16] "5G 90% more energy-efficient than 4G, Nokia study finds" December 8, 2020 https://www.smart-energy.com/industry-sectors/digitalisation/5g-90-more-energy-efficient-than-4g-nokia-and-telefonica-find/

^[17] "Friend or foe? The potential climate benefits of 5G" June 4, 2021 https://energymonitor.ai/tech/digitalisation/friend-or-foe-the-potential-climate-benefits-of-5g

^[18]  "Superfast but not so clean: China’s 5G network is causing its carbon emissions to soar" June 4, 2021 https://www.euronews.com/next/2021/05/28/superfast-but-not-so-clean-china-s-5g-network-is-causing-its-carbon-emissions-to-soar