Amid a resurgent US housing market, it is perhaps no surprise that Case-Shiller reports that August (the latest lagged data) saw a serious surge in home prices across the 20 largest US cities. Against expectations of a 4.2% YoY rise, Case-Shiller reported a 5.18% YoY gain - the fastest pace of acceleration since August 2018.
Phoenix, Seattle and San Diego reported the highest year-over-year gains among the 19 cities (Detroit excluded from report due to virus-related reporting constraints). Chicago and New York reported the weakest YoY gains.
We have been taking exception with the environmental, social and governance (ESG) con for the better part of the last few months, inconveniently pointing out that the funds that make "woke" investors feel warm and fuzzy on the inside are turning around and pouring their money into the very same corporate giants many investors likely think they are avoiding by investing in ESG funds.
But, since regulators haven't weighed in on use of the term "ESG", the con continues to roll on.
Inflows to ESG funds have skyrocketed to $22 billion in 2020 so far, which is about 3x the total inflows in 2019, according to Bloomberg. This is despite the fact that funds like BlackRock Inc.’s iShares ESG Aware MSCI USA ETF (ESGU) include names like Exxon and Chevron. In fact, its largest holdings are big tech companies under investigation for antitrust violations, Bloomberg notes.
Eric Balchunas, ETF analyst for Bloomberg Intelligence, said: “If you go in there thinking that you want to ‘woke’ up your portfolio, and you see those companies, you’re going to be like, ‘What? That’s not what I signed up for.’”
The ESGU, ESGE and ESGD make up $13.4 billion of those $22 billion. MSCI helps set inclusion and exclusion rules for the ETFs. The ESGU apparently tries to rule out "civilian firearms, controversial weapons, tobacco, thermal coal and oil sands" while Vanguard's ESGV steers clear of "adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power".
But the "social responsibility score" of other names included in many funds - even names like Amazon, who has been accused of poor work environment - can be easily challenged.
Ben Johnson, Morningstar’s global director of ETF research, said: “The preponderance of assets in ESG funds are in ESG light funds. The level of spiciness, if you will, goes from mild to medium to hot -- in terms of where the assets are right now, it’s all in pico de gallo.”
And until the SEC decides to weigh in with criteria on what constitutes an ESG fund, there is going to continue to be subjective differences in how ESG rating companies rate funds. One analyst for Bloomberg, who is developing an ESG rating service, said: “The question on everybody’s mind now revolves around green washing.”
Dylan Tanner, executive director of InfluenceMap, said: “Some of the data providers who rate companies on ESG tend to firstly rely on a company’s own disclosures and sustainability reports too much. How meaningful those numbers are, when you’re blending climate with labor, should be questioned.”
We documented back in September what some of the most popular ESG fund holdings were. The list included many of the same massive corporations one would find in the SPY or QQQ funds: Microsoft, Apple, Google, Cisco, Verizon, Nike, Pepsi and many other massive corporate conglomerates associated with all types of "socially responsible" behavior, including overseeing sweat shops and employing underpaid Foxconn workers who routinely hurl themselves off of the top of skyscrapers due to their work environment.
As we noted then, the ESG term is just a brilliant hook with which to attract the world's most gullible, bleeding-heart liberals and frankly everybody else into believing they are fixing the world by investing when instead they are just making Jeff Bezos richer beyond his wildest dreams.
Here is Bank of America's summary of the 50 most popular ESG funds. Try not to laugh:
As confirmation here are the Top 10 Holdings of the purest ESG ETF available: the FlexShares ESGG fund. Below we present, without further commentary, its Top 10 holdings:
As we said in September:
Two centuries ago, PT Barnum said "there's a sucker born every minute."
Little did he know how appropriate that phrase would be more than a hundred years later to describe investors in the virtue-signaling craze that has taken over markets today.
Nearly a year ago we highlighted a schism in generational views toward "fiat alternatives": whereas older Americans would buy physical gold and precious metals, younger generations, including Millennials and Gen-Zers would primarily purchase cryptocurrencies such as bitcoin. To this point, Charles Schwab showed that the Grayscale Bitcoin Trusts is the 5th largest holding in Millennials retirement accounts (including 401(k)s) with almost 2% of their assets tied to the success (or failure) of the largest cryptocurrency.
And now that Bitcoin is back over $13,000 for the first time since the infamous "spike" of Dec 2017, breaching the previous high of June 2019, following this week's endorsement by Paypal - which in turn followed corporate support from Square and MicroStrategy - none other than JPMorgan's quant Nick Panigirtzoglou writes in his closely followed Flows and Liquidity that all of this "is another big step toward corporate support for bitcoin, which in our opinion would facilitate and enhance over time Millennials’ usage of bitcoin as an “alternative” currency."
Which brings us to the focus of the JPM quant's note, which is rather familiar as it is precisely what we discussed back in 2019: namely the divergence between the behavior of the older vs. younger cohorts of the retail investors’ universe in their preference for “alternative” currencies.
As the JPMorgan strategist writes, echoing was we said last December, "the older cohorts prefer gold, while the younger cohorts prefer bitcoin as an “alternative” currency. Both gold and bitcoin ETFs have been experiencing strong inflows this year, as both cohorts see the case for an “alternative” currency."
Panigirtzoglou then notes several correlation shifts as a result of this concurrent inflow:
it has caused a change in the correlation pattern between bitcoin and other asset classes, with a more positive correlation between bitcoin and gold but also between bitcoin and the dollar (Figure 2).
In addition, the simultaneous buying of US equities and Bitcoin by Millennials has increased the correlation between bitcoin and S&P500 since March, so it is more appropriate to characterise bitcoin as a “risk” asset rather than “safe” asset also, given its still very high 50%-60% volatility.
It's not just bitcoin though: gold’s correlation with the S&P500 has been predominantly positive this year and its volatility at 20% is more similar to that of equities than currencies or bonds (Figure 3).
In other words, according to JPM, both bitcoin and gold could be increasingly characterized as “risk” rather than “safe” assets based on their behavior this year and (mostly young) investors’ preference for them is likely more of a reflection of a need for an “alternative” currency rather than a need for a “safe” asset or “hedge”.
This means that when it comes to millennials, there is an entirely "untapped" market from the perspective of utility, and as the JPM strategist predicts, bitcoin could compete more intensely with gold as an “alternative” currency over the coming years given that millennials will become over time a more important component of investors universe .
Whether or not that would result in weakness for gold is a different matter, but given how big the financial investment into gold is at the moment, a crowding out of gold as an “alternative” currency implies big upside for bitcoin over the long term.
Here, Panigirtzoglou calculates the total market capitalization for bitcoin is $240bn. While superficially this makes it comparable to the total size of gold ETFs at $210BN, this is erroneous since the bulk of gold as an investment is not in the widely derided "paper gold" class but physical. And indeed, as JPM notes, gold ETFs is not the main way wealth is stored via gold; instead wealth is mostly stored via gold bars and coins the stock of which, excluding those held by central banks, amounts to 42600 tonnes or $2.6tr including gold ETFs.
This means that mechanically "the market cap of bitcoin would have to rise 10 times from here to match the total private sector investment to gold via ETFs or bars and coins", and while that may be optimistic (it would send the price of bitcoin to $130,000), even a modest crowding out of gold as an “alternative” currency over the longer term would, according to JPMorgan, imply "doubling or tripling of the bitcoin price from here."
In other words, as Panagirtozglou summarizes, "the potential long-term upside for bitcoin is considerable as it competes more intensely with gold as an “alternative” currency we believe, given that Millennials would become over time a more important component of investors’ universe."
Furthermore, as recent corporate forays into the cryptcurrency demonstrate, the market value of cryptocurrencies could eventually rise beyond what could be justified by only valuing them as a store of wealth; as JPMorgan explains, unlike gold cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment: "The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value."
Contrary to Bloomberg's traditionally myopic take on cryptos (which just today was out with the amusing "Bitcoin Resurgence Leaves Institutional Acceptance Unanswered"), the JPM quant then writes that Millennials and corporates endorsement of bitcoin have also induced greater interest by institutional investors as evidenced by the spike in activity across both bitcoin futures and options at CME, and that was before Paypal’s announcement this week.
JPM calculates that CME bitcoin futures open interest averaged a record of 10.5K contracts per day in Q3, up 32% compared with Q2 and up 127% vs. Q3 2019. Institutional flow in particular saw strong growth, with 692 new accounts added. The number of large open interest holders averaged 79 in Q3, up 64% compared to Q3 2019.
Meanwhile, JPM's proxy for CME futures contacts is shown in the next chart. This position proxy spiked to a new high for the year as the bitcoin price breached $13k following Paypal’s announcement. In other words, JPM warns that for the near term, bitcoin looks "rather overbought and vulnerable to profit taking."
Of course, the near-term selling would be only temporary, because as JPM concludes "the potential long-term upside for bitcoin is considerable we think as it competes more intensely with gold as an "alternative" currency given that Millennials would become over time a more important component of investors’ universe."
And the punchline: "Mechanically, the market cap of bitcoin would have to rise 10 times from here to match the total private sector investment to gold via ETFs or bars and coins."
Dunkin’ Brands on Sunday acknowledged that it has held talks on a potential sale to Arby’s owner Inspire Brands. Karen Raskopf, chief communications officer for the Canton, Mass.-based owner of Dunkin’ and Baskin-Robbins said the company held “preliminary discussions” with Inspire.
“Dunkin’ confirms that it has held preliminary discussions to be acquired by Inspire Brands,” Raskopf said in an emailed statement. “There is no certainty that any agreement will be reached. Neither group will comment further unless and until a transaction is agreed.”
The comment came in the aftermath of a New York Times report Sunday that Dunkin’ is in talks with Inspire, the Atlanta-based brand operator owned largely by the private equity firm Roark Capital. The Times said the deal would value Dunkin’ at $9 billion.
Dunkin’ currently has a market capitalization of $7.3 billion and an enterprise valuation of $9.8 billion, according to data from the financial services site Sentieo. The company closed trading on Friday at $88.79 per share, an all-time high since its 2011 initial public offering.
A go-private deal involving Dunkin’ has been rumored for some time. The company has long been considered a potential target for a number of large, financially strong brand-collecting companies, though the investment firm JAB Holdings, owner of Panera Bread, was thought to be the most likely buyer.
In addition to Arby's, Inspire's operates Buffalo Wild Wings, Sonic, Jimmy John's and Rusty Taco.
Yet Inspire, created in 2018 when Arby’s acquired the casual dining chain Buffalo Wild Wings, has been on a shopping binge. Since then, the company has bought the burger chain Sonic and folded in the sandwich chain Jimmy John’s, also owned by Roark. Dunkin’ gives Inspire two more brands, notably the beverage concept Dunkin’.
That would be Inspire’s largest acquisition by far and would give the company one of the 10 largest chains. It would be the restaurant industry’s largest deal since the 2014 sale of Tim Hortons to Burger King, a deal that created the brand operator Restaurant Brand International.
Dunkin’, the coffee chain, has been among the industry’s steadiest concepts over the years. Global system sales exceeded $10 billion in 2019, according to data from Restaurant Business sister company Technomic, up nearly 77%. The bulk of that, $9.3 billion, is in the U.S.
It is the eighth largest restaurant chain in the U.S. based on system sales. But it is the fourth largest chain in terms of unit count, with more than 9,600 at the end of last year, according to Technomic.
Yet Dunkin’ has considerable room for growth, both in the U.S. where the company has been expanding further west from its Northeastern roots, and internationally. The company has been locked in an intensifying battle for coffee supremacy with the Seattle-based giant Starbucks.
Ironically, the pandemic has been good for Dunkin’ since then: It gave consumers in many of these western markets reason to try the chain, which has a number of drive-thrus in its newer markets. Customers have flocked to drive-thrus since the outset of the quarantine in March.
ON WEDNESDAY, Human Rights Watch released a troubling report, which it has since walked back, about a phone application made by the Chinese government. The app provides law enforcement with easy, daily access to data detailing the religious activity, blood type, and even the amount of electricity used by ethnic minority Muslims living in the western province of Xinjiang.
The app relies heavily on facial recognition software supplied by Face++, a division of the Chinese startup Megvii, a relationship that sparked questions in the press for Megvii investors. One of the most prominent of these investors is Alibaba Group Holding, which was co-founded by Jack Ma, the wealthiest Chinese billionaire and an icon for the country’s image of entrepreneurship.
The flurry of media reports about private investment in China’s increasingly sprawling surveillance state left out a prominent investor: Hunter Biden.
The flurry of media reports this week about Face++, Ma, and the role of the private sector in building China’s increasingly sprawling surveillance state, however, left out another prominent investor in the company: Hunter Biden.
Megvii has distanced itself from the Chinese government’s mass surveillance of Muslims. The company has since said that about 1 percent of its revenues were generated from Xinjiang-related business in 2018. After publication of its report, Human Rights Watch said that the Face++ code in the police phone application was inoperable and Megvii said that it did not cooperate with the development of the app. The company has not clarified how its technology showed up in the data collection app. BuzzFeed News has reported the company also supplies technology for “a China-wide surveillance program called the Skynet Project, which uses more than 20 million closed-circuit TV cameras to monitor citizens around the country, policing for criminals.”
The son of the former Vice President Joe Biden has spent much of the last decade building overseas investments and business deals, arrangements that could complicate his father’s bid for the presidency by posing an array of potential conflicts of interest.
Hunter Biden’s investment company in China, known as Bohai Harvest RST, has pooled money, largely from state-owned venture capital, to buy or invest in a range of industries in the U.S. and China. Bohai Harvest has put money into an automotive firm, mining companies, and technology ventures, such as Didi Chuxing Technology, one of the largest ride-hailing companies in the world after Uber. (Hunter Biden, Bohai Harvest, and Joe Biden’s presidential campaign did not respond to a request for comment.)
In 2017, Bohai Harvest bought into Face++, part of a $460 million haul in the company’s Series C investment round. Bohai Harvest’s website features Face++ in its portfolio of investments.
BOHAI HARVEST OPERATES and works with a number of funds to make its various investments, a tangled business structure that has brought Hunter Biden into close proximity to influential Chinese government and business figures, according to a review of Chinese business filings by The Intercept.
Bohai Harvest relies heavily on an international subsidiary of the state-owned Bank of China to finance its investments.
Bohai Harvest relies heavily on an international subsidiary of the state-owned Bank of China to finance its investments, referring to itself as an “investment platform under BOC” on its website. The investment fund has also partnered with a subsidiary of HNA Group, a controversial conglomerate that has snapped up investments in a wide range of businesses across the world.
As The Intercept has previously reported, the HNA Group has made unusually extensive efforts to cultivate U.S. officials. The company floated an offer to buy out the hedge fund owned by former White House official Anthony Scaramucci; retained the legal services of Gary Locke, the former U.S. ambassador to China, shortly before his confirmation; and provided financing to a private-equity firm backed by Jeb Bush. HNA Group, notably, also courted Bill Clinton, touting meetings with the former president at philanthropy events hosted by the company.
The Bank of China, one of the largest banks in the country, has also made overtures to U.S. political elites. Shortly after the 2016 presidential election, the company added Angela Chao, the sister of Transportation Secretary Elaine Chao and sister-in-law of Senate Majority Leader Mitch McConnell, R-Ky., to its board of directors.
ALONG WITH A number of politically connected Americans, Hunter Biden’s investment vehicle in China came as a result of a series of deals struck over the last 10 years. In 2008, in the closing days of that year’s presidential campaign, Hunter Biden deregistered as a lobbyist from Oldaker, Biden and Belair, a Washington, D.C., firm he co-founded alongside William Oldaker, a longtime fundraiser and legal adviser to Joe Biden.
The following year, Hunter Biden — along with former Secretary of State John Kerry’s stepson Christopher Heinz; Kerry-Heinz family friend Devon Archer; and former Oldaker partner Eric Schwerin — founded several companies using the name Rosemont Seneca.
In 2014, the partners began setting up operations in China. The “RS” in Bohai Harvest RST stands for Rosemont Seneca, and the “T” stands for Thornton Group. The latter group is an international consulting firm based in Massachusetts that was founded by James Bulger, the son of the longtime Kerry ally and former Massachusetts state Senate President William Bulger.
The company, according to the Wall Street Journal, planned to raise $1.5 billion, taking advantage of Shanghai’s free enterprise zone to convert yuan to dollars to be invested in foreign companies. Business registration filings in China list Hunter Biden, Schwerin, and James Bulger as key officials at Bohai Harvest.
Last year, author Peter Schweizer criticized the timing of Bohai Harvest’s launch, claiming that the exclusive deal coincided with negotiations between then-Vice President Joe Biden and the Chinese government.
Joe Biden has long served as friendly voice for U.S.-China relations, even before his son’s investment ventures.
On Wednesday, the New York Times raised similar concerns with the involvement of Hunter Biden in Ukrainian energy company, Burisma Holdings, which added the vice president’s son to the company board in 2014. Rosemont Seneca Bohai financial filings, made public through a separate fraud investigation into Archer, revealed that the energy company paid Hunter Biden as much as $50,000 per month at a time when the U.S. was closely involved in Ukraine’s response to Russian aggression in the region.
For his part, Joe Biden has long served as a friendly voice for U.S.-China relations, even before his son’s investment ventures. The elder Biden helped lead Democratic support to passing permanent national trade relations with China.
In 2000 remarks in support of the vote, Biden argued that he did not “see the collapse of the American manufacturing economy” as a danger from opening up further trade with China, claiming that an economy “about the size of the Netherlands” could not become “our major economic competitor.” Opening China to further trade, Biden predicted, would create “a path toward ever greater political and economic freedom” for the country’s citizens.
Update: July 1, 2020 This story has been updated to note that Human Rights Watch has subsequently issued a correction related to its report on Megvii. The headline has been updated accordingly.
