Hi, welcome to Making Sense with Ed Butowsky. Each week we take three headlines that you might have missed during the previous week and explain what they mean to you and your money so here we go.
At the recent United Nations climate change conference India and China put a potential climate change deal on halt by insisting that a commitment to phase out coal be replaced with a commitment to merely phase down coal. One of the biggest reasons for India’s reluctance to get rid of coal is the fear of unmet energy demand. Today 70% of India’s electricity comes from coal. Abandoning it would make it difficult for India to meet its energy demand. Additionally coal is a big part of the Indian economy with approximately 10 to 15 million Indians deriving their livelihood from it this would make abandoning coal a politically dangerous move. Currently the unsubsidized levelized cost of energy is as follows: coal $42 per megawatt hour, nuclear $29 per megawatt hour, solar $30 per megawatt hour, wind $26 per megawatt hour, gas $24 per megawatt hour. From this we can see a few interesting things, first is that coal will continue to be a cheap source of electricity, second and more surprising is that innovation in renewable energy technology has dramatically driven down the cost associated with it. Even after accounting for government subsidies, for investors going forward I would recommend giving a diversified portfolio with exposure to both traditional and renewable energy sources in order to benefit from both the continued use of traditional energy and the improved cost of renewable energy. One business that is primed to profit from the continued advancement of renewable energy technology is Next Era Energy – NEE is the symbol it is the world’s largest generator of renewable energy and has been one of the best performing utility stocks. Given the current state of the equity markets adding to this utility stock would be a great way to potentially protect against any future market downturns.
You may have heard a lot of talk recently about the Metaverse and today I’m going to try to explain what it is and why it might be time to invest. The best way to think of the Metaverse is as a virtual reality or a virtual parallel universe. If you’ve seen the movie The Matrix you can think of the Metaverse as the first step towards building The Matrix. In this virtual world people are able to buy virtual land, buy and sell virtual goods, advertise their businesses, host events and so much more. In fact the virtual plots of land in the Metaverse have been selling for hundreds of thousands of dollars. I did not just misspeak, virtual land is selling for hundreds of thousands of dollars. In these virtual worlds people transact using cryptocurrencies and the way you enter the metaverse is either through your computer or by wearing a virtual reality headset. Now I know this is not intuitive and it does require some imagination to see the future of where we might live and transact in a virtual world but it appears that this is the future we are moving towards and it could present a big investment opportunity. Facebook just changed its name to Meta Platforms in order to signal their rush into the Metaverse and the CEO of Epic Games recently noted that the Metaverse is likely to become a multi-trillion dollar industry. For those interested in the Metaverse, there are a few ways to invest. The best ways are through investing in Facebook stock, grayscale decentralized trust and grayscale Ethereum trust which symbol is ETHE. The dollar recently hit a 16-month high versus the Euro. While the Wan reached its strongest point in more than five months after President Biden and Xi Jinping virtual summit the relationship between the US dollar and the Chinese yuan is particularly important because a weaker one relative to the dollar would make Chinese goods exported to the United States cheaper. Thus increasing U.S demand, while strengthening yuan would make Chinese goods more expensive thus reducing U.S demand.
The dollar index was also slightly lower at 95.44 having rallied to its highest in 16 months after U.S inflation data last week showed consumer prices surged to their highest rate since 1990. Fueling speculation that the Federal Reserve may raise interest rates sooner than expected. With U.S retailers expected to do well this holiday season and with the Federal Reserve expected to raise interest rates possibly in the near future, it appears that the dollar is set to increase in value. For investors with large exposure to foreign bonds and equities, it’s important to account for currency risk. Currency risk is the risk of losing money to unfavorable changes in exchange rates. As you can see the value of currencies fluctuate every day and if you’re invested in emerging markets or countries with unstable governments, you run the risk of losing money due to the country’s currency decline. Currency risk can be managed in a few ways, one way is to diversify across different geographies. You can also protect yourself against currency risk by hedging in the forex markets and by using derivatives. All of these are very complicated and many of you don’t have exposure to that but I wanted to bring that up just in case you did have an inclination that you wanted to go into currencies and and play around with foreign currencies.
This has been Ed Butowsky with Making Sense. If you want a complimentary portfolio evaluation please visit www.edbutowsky.com or www.chapwoodinvestments.com, We do a very good job analyzing existing holdings and telling you if what you have is what you need.