Page 71 – Kanebridge News

May 28, 2021April 20, 2022

Big Oil’s Transition to Cleaner Energy Is Risky

Occidental Petroleum, one of America’s largest oil companies, plans to break ground next year on a new facility to pull carbon dioxide from the atmosphere and bury it—a novel solution to addressing global warming. Houston-based Oxy is already a leader in injecting CO2 extracted from gas and other natural sources into its oil reservoirs to improve pumping. It also plans to start piping in CO2 emitted by factories. But its new carbon-capture project in the Permian Basin is especially ambitious, aiming to pull one million tons of CO2 out of the air each year. Initially Oxy will use the gas in its own oil fields. Eventually, other companies will pay the oil producer to bury it in the ground to offset their own emissions.

“It’s going to be a huge industry,” says Vicki Hollub, Oxy’s CEO, who forecasts that carbon capture’s contribution to earnings and cash flow could approach that of the oil and gas business in 20 years. Four more Oxy carbon-capture plants will follow in the next few years. Occidental Petroleum (ticker: OXY) will receive tax credits for the carbon it extracts, and tax incentives will also encourage potential customers to use its carbon-capture service, much as they have encouraged customers to use solar power. “The incentives will spur investment in the space, and bridge the gap until the uneconomic asset becomes economic,” predicts Kyle Seipert, a consultant at Alvarez & Marsal who specializes in energy mergers and acquisitions.

One new investor in the project is United Airlines (UAL), and no wonder: Global aviation emits about a billion tons of CO2 annually. Eventually, Hollub sees Oxy morphing into “a carbon-management company, where we’re not only using the oil and gas business to generate value for shareholders, but also helping others achieve their goals.”

As Oxy’s example suggests, Big Oil is in transition. The world is moving to reduce its dependence on hydrocarbons amid growing anxiety about environmental damage. Yes, fossil fuels will remain a major driver of cash flows for the global energy industry for many years, even decades. But many companies will supplement their oil and gas businesses with substantial investments in renewable energy, carbon capture, and other technologies that help to speed the transition away from oil. The road ahead will be bumpy, with plenty of risks. Yet the transformation could also bring enormous opportunities for the companies involved, and their investors.

So far, the European and U.S. oil majors have followed different paths toward the future. BP (BP) and Royal Dutch Shell (RDS.A) have unveiled ambitious plans to reduce oil output and expand their renewable and low-carbon businesses, while curtailing emissions. Exxon Mobil (XOM) and Chevron (CVX), on the other hand, have announced plans to cut emissions but have been clear that they won’t get involved in large-scale solar or wind production, betting instead that the runway for oil remains long. The two U.S. giants reportedly discussed a megamerger last year to improve operating efficiencies during the industry’s pandemic-fueled downturn and to prepare for an uncertain future.

Says Daniel Yergin, the veteran oil analyst and vice chairman of IHS Markit: “You’re seeing the biggest difference in strategies among major oils that we’ve had in decades.”

Investors seem sceptical of the Europeans’ plans. The Stoxx Europe 600 Oil & Gas index is up more than 35% in the past 12 months and about 9% this year, trailing gains of 62% and 47%, respectively, in the S&P Oil & Gas Exploration & Production Select Industry index. The main thing that has mattered, it seems, is dividend preservation. While Exxon and Chevron maintained their payouts during the Covid pandemic, many other oil companies pruned theirs. BP halved its quarterly dividend to 5.25 cents a share last August, its first cut in 10 years, and Shell slashed its payout in April 2020 by 66%, its first reduction since World War II.

“They’ve lost their old audience and have yet to find a new one,” says Erik Mielke, global head of corporate research at Wood MacKenzie, a global energy consultancy.

Exxon sports a current yield of 5.9% and Chevron, 5.1%, while BP now yields 4.8% and Shell, 3.5%.

All four companies, and the rest of the oil patch, have been helped in the past year by a sharp rebound in crude. The price of oil sank last spring as the global economy retrenched, causing demand to crater; West Texas Intermediate, the U.S. benchmark crude, briefly turned negative as storage capacity dried up. Today, WTI fetches $62 a barrel, up about 30% on the year. The rally has restored energy companies to profitability after last year’s huge losses. Soon, demand could return to 2019 levels, and even higher prices could be in store.

Energy is the S&P 500’s best-performing sector this year, up 36%, well ahead of the No. 2-ranked financials’ 27% gain and the index’s rise around 10%. But focusing on near-term returns obscures the bigger picture: Energy stocks have been losing favor with investors for years. The SPDR S&P Oil & Gas Exploration & Production exchange-traded fund (XOP) is trading 65% below its level of 10 years ago, and energy stocks now represent just 2.7% of the S&P.

In comparison, shares of NextEra Energy (NEE), America’s largest generator of wind and solar power, are up sevenfold in the past decade, while electric-vehicle manufacturer Tesla (TSLA), the ultimate green play, has soared 17,000% since its 2010 IPO.

Mighty Exxon, meanwhile, was ejected last August from the Dow Jones Industrial Average after a tenure stretching back, via its predecessors, to 1928. The company will face a challenge at its annual meeting on May 26 from activist investment fund Engine No. 1 to refresh its board with directors more familiar with the carbon transition, such as the former CEO of Vestas Wind Systems (VWDRY), one of the world’s largest suppliers of wind turbines. Both Glass Lewis and ISS, prominent proxy advisors, have recommended voting for some of Engine No. 1’s nominees.

Investors’ concerns about Big Oil aren’t hard to understand. Governments, companies, and environmental activists around the world are pushing to slash greenhouse gas emissions, a byproduct of burning hydrocarbons. The Biden administration restored the U.S. to the Paris Agreement to limit global warming and has vowed to cut U.S. emissions to net zero by 2050. This month, the International Energy Agency said a halt to new oil and gas projects is necessary for the world to achieve the agreement’s goal of net-zero emissions by that year.

S&P Global put the debt of a swath of oil and gas producers on CreditWatch earlier in 2021, partly due to concerns about competition from renewable energy, reflecting its credit analysts’ view that hydrocarbon prices would be under pressure for many years.

Lenders are also moving to decarbonise their portfolios. J.P. Morgan, which has arranged more loans to, and bond sales for, Big Oil than any other U.S. bank, recently said it would align its lending with the Paris Agreement and push to decarbonize its lending portfolios by helping clients reduce emissions and pursue solutions such as business diversification. This coincides with actions from major investors such as Vanguard Group, State Street (STT), and BlackRock (BLK), all of which have pledged to support the goal of net-zero emissions by 2050 or sooner.

“Once banks understand that demand won’t grow to the sky, oil flips from an appreciating asset to a depreciating asset,” says Andrew Logan, senior director of oil and gas at Ceres, a shareholder advocacy organization.

So, what lies ahead for the industry, and investors? Dirty and unpopular though fossil fuels may be, they remain critical to the world’s energy transition, just as oil companies remain a part of many investment indexes. For those willing to bet on an energy transition, the European majors look particularly compelling, both because of their environmentally friendly initiatives and the sharp discounts their stocks fetch relative to their U.S. counterparts. The European majors trade for about 10 times next year’s expected earnings, versus 17.6 times for their American rivals. In the U.S., ConocoPhillips (COP) also looks like a winner, based on its focused spending and emphasis on returning capital to shareholders.

Among the European leaders, BP believes global oil demand could fall by 10% in the current decade. The company plans to cut its own oil and gas production by 40% by 2030, and to invest $5 billion in wind, solar, and biopower, using the cash flow from its legacy businesses to fuel its low-carbon endeavors. Royal Dutch Shell wants to bolster clean-energy trading, sell electricity to consumers, and build electric-vehicle charging stations as it aims to reach net-zero emissions by 2050. This month, Shell became the first oil major to put its climate strategy to an advisory vote. Nearly 89% of shareholders approved its plan.

J.P. Morgan analysts estimate that European oil companies will devote 15% of their capital spending to new energy over the current decade, up from around 5% two to three years ago. Yet investors have been wary, despite the recent shareholder vote. Since Shell announced its transition plan on Feb. 11, its shares have risen about 6%, while Chevron is up 15% in the same span. “Paradoxically, even though Shell and BP and Total [TOT] may be investing in renewables, which arguably have a less risky future, their ability to execute is more questionable,” says Allen Good, an analyst at Morningstar.

France’s Total maintained its dividend, at least, even as it committed to renewables. Total has been buying battery assets since 2016, and recently purchased solar-power and battery-storage assets in the U.S. It also launched a venture with European auto maker Groupe PSA to make automotive batteries. Its shares have risen 31% in the past year; they trade for 10.9 times 2022 estimated earnings and yield 6.34%. “[Total] has been very disciplined,” says Shawn Reynolds, manager of the Van Eck Global Resources fund.

J.P. Morgan analyst Christyan Malek thinks Total shares could rise to 51 euros ($62.15) from a recent €39.69 as the company uses its cash flow to produce lower-carbon gas and invest in renewable power. “Add a 7% yield, and you get a 37% return in 12 months,” says Malek.

While Total’s business is 55% petroleum and 45% natural gas today, it will look very different in 10 years. Total says its sales mix will be 30% petroleum, 15% electricity, primarily from green sources, 5% biofuels, and 50% natural gas. Total also is preparing to change its name to TotalEnergies. “We want to anchor the strategy,” CEO Patrick Pouyanné told Citigroup clients this past week. “Total has the financial capacity, technology capacity, and the will to become a strong player in the emerging transition.”

Legacy oil companies also have unique skills. One is running offshore drilling platforms, whose floating foundations can be used as sites for wind turbines. Norway’s Equinor (EQNR), formerly Statoil, is operating wind turbines offshore.

The company cut its dividend last year and now yields just 2.1%, but investors apparently forgave the move; the stock is up 41% over the past 12 months. “They’re doing the best job of balancing traditional fossil fuels and the decarbonized energy system,” says Van Eck’s Reynolds. “Over the next five years, there’s a pathway to a double” in the stock price.

Equinor invested in renewable energy earlier than its peers, and its investments are expected to yield profits sooner. Analysts see revenue rising 48%, to $67.8 billion, this year, while it is expected to earn $1.87 a share, versus a loss in 2020. Yet Equinor trades for just 11 times 2021 estimated earnings, compared with 18.9 times for Chevron. “When the returns begin from their energy-transition investments, they should easily justify Equinor’s trading in line with, if not at a premium to, peers,” Reynolds says.

As for the U.S. majors, Exxon and Chevron, too, have announced plans to cut emissions and unveiled additional steps to prepare for the industry’s transition. Exxon said last month that it would build a major project for carbon capture along the Houston Ship Channel that could be fully operational by 2040. Chevron is making venture investments in areas such as carbon capture, hydrogen, and nuclear fusion. Still, neither company plans to get involved in major solar- or wind-energy production, and neither has committed to a net-zero target.

Both posted steep losses in 2020: Exxon’s was $5.95 a share; Chevron’s, $2.96. Exxon also is heavily indebted, having borrowed as oil plunged last year. Long-term debt topped $47 billion at year end, up from $26.3 billion a year earlier. Exxon plans to cut capital spending by 11% to 25% this year amid an uncertain price environment. CEO Darren Woods said last year that oil and gas would still be 46% of the world’s energy mix in 2040, even under the Paris accord’s goal of limiting global warming to two degrees Celsius above pre-industrial levels. Wood reminded employees that it took roughly 100 years for oil to replace coal as the world’s dominant form of energy.

Chevron’s debt has also climbed—to $44.3 billion from $27 billion in 2019, after it borrowed to purchase Noble Energy last year. But neither the increase, nor the turmoil in the energy market, has threatened the dividend. Indeed, Chevron hiked its payout in the first quarter of 2021 by 4%, to an annualized $5.36 a share.

Given their continued reliance on oil, Exxon and Chevron both could face long-term pressure from Saudi and Russian suppliers, who can produce crude more cheaply. The companies could also find themselves under increasing duress from shareholders and activists demanding that they decarbonize.

After all, even the oil companies that have announced transition plans have been criticized for not doing enough. The Church of England Pension Board urged Shell this month to do more about emissions cuts, and warned that if Shell doesn’t meet its 2023 targets, the fund would divest its shares of the oil giant.

James West, an Evercore ISI analyst, sees wind and solar taking “considerable” share from coal, oil, and nuclear, with the solar market growing by 7.2% a year, and the wind market by 3.9% a year between now and 2050. He notes that renewable power, mostly wind and solar, is now the cheapest new power option for over 70% of global GDP.

Still, don’t count Exxon’s enormous resources out. Recently, the company brought activist Jeffrey Ubben, and the former CEO of Comcast, onto its board. A month later, Exxon unveiled a $100 billion plan to enter the carbon-capture business. Ubben, a proponent of ESG investing—or investing with an environmental, social, and corporate governance orientation—told CNBC: “I really believe that the return dynamics for Exxon from here are spectacular. They are part of the solution, not part of the problem.”

Says Renee Klimczak, a consultant with Alvarez & Marsal who focuses on improving energy-company operations: “Even if Exxon is late to the game, they have the resources [to transition] in a big way.”

But ConocoPhillips, which yields 3%, might be a better bet for now. It bought Concho Resources last year for $9.7 billion in stock. The company has a strong balance sheet and is committed to returning at least 30% of operating cash flow to shareholders. And it was the first big U.S. oil company to announce a net-zero plan. Safeguarding climate-conscious investors is director Jody Freeman, a nationally renowned scholar of environmental law and an expert on federal energy regulation and climate change in the Obama administration.

Occidental, for all its aspirations, remains distrusted by some investors after loading up on debt in 2019 to buy Anadarko Petroleum for $57 billion. CEO Hollub championed the deal over the objections of many shareholders. Oxy slashed its dividend by 86% last year and cut capital spending. Today, it yields a paltry 0.2%.

Oxy beat first-quarter earnings estimates, however, and has made progress on divestitures and debt repayment. It has reduced its cash-flow break-even to the mid-$30 level on oil prices from the high $30s, boosting its profit margins. The stock has zoomed higher, and John Freeman of Raymond James thinks it could be worth $40, versus a recent $26.

Big Oil’s transition to a low-carbon future won’t happen quickly, and the risks are daunting. “We look for management teams that understand the [carbon transition] issue and take it really seriously,” says Nick Stansbury, head of climate solutions at Legal & General Investment Management.

For investors attempting to navigate the changes ahead, that seems to be a good place to start.

May 28, 2021

Stop With the Video Chats Already. Just Make a Voice Call.

Dear colleague and/or friend:

I’d love to do a call about this. And by “call” I mean absolutely NOT a video call. Let’s do a call-call. You know, those old things where we just hear each other’s beautiful voices. Whatever you do, don’t touch that webcam.

Looking forward to (audio) chatting,

Joanna

The time has come to be bold: Stop the nonstop video calling.

Allow me to remind you of the BPE (you know, the Before-Pandemic Era), a time long ago when every call didn’t require colour-coding your bookshelf background, firing up the webcam and staring into a human tic-tac-toe board for hours on end. Video calls used to be a rare treat. Now, they’re everyday soul suckers.

Really. There’s vampirical—I mean, empirical—proof. A high frequency of video calling can cause general, social, emotional, visual and motivational fatigue, researchers at the University of Gothenburg and Stanford University found in a recent study. Even Zoom’s chief executive, Eric Yuan, says he suffers from the dreaded “Zoom Fatigue.”

Look, I’m not saying all video calling must stop. I love video calling. Instantly see and hear people with little to no delay? It’s miraculous. My mom, who is hearing-impaired, struggled throughout my childhood to hear me on the phone. Now, she can see my son wherever she is, and the visual cues help her tremendously.

I’m just saying audio calls can be more productive—and they can sound better than ever.

But how do you know when to pick voice over video? And how do you make it happen without being the meeting jerk who just refuses to turn on the camera? After talking to researchers and technologists—and cutting back on my own video calls—I present you with five steps to regain your sanity.

Step 1: Ask, should this meeting just be an email?

Fact: There are too many meetings. So I beg of you, before deciding on the technological format, simply ask: Do we really need to meet at all?

Step 2: Understand the benefits of audio vs. video

Géraldine Fauville, an assistant professor at the University of Gothenburg in Sweden and the lead researcher on that aforementioned study, mapped out the main reasons video can be so cognitively draining:

• It’s a lot of looking at ourselves, which is unnatural and comes with self-evaluation and scrutiny. Called the mirror effect, this can be particularly intense for women. You can combat this with the self-hide option available in Zoom and Google Meet. Google has just added a number of features to address this specifically. Microsoft Teams’ new Together Mode was built to combat this, too.

• It’s a lot of close-up eye contact. In fact, the brain processes that sort of invasion of space as if it should lead to mating or fighting.

• It’s a lot of sitting and feeling trapped. You can’t get up and walk around during a video call.

• It’s a lot of nodding. “For you to communicate cues to the participant, you need to intensify the cues,” Dr. Fauville said. “So people nod more vigorously than if they were in the same room.”

No wonder we’re exhausted. So yes, limiting the number and length of video calls seems like the obvious answer. And as some of us kick-start the hybrid work life, that will happen naturally.

But voice calls aren’t just table scraps from our work-from-home buffet. They allow you to focus on what’s being said and give you real respite from the screen. I now do my weekly call with my boss on the phone. We reserve video for deeper conversations, like performance reviews.

I also still like to do video calls with colleagues I haven’t caught up with for a while, or for important meetings where reading facial expressions is crucial.

Step 3: Be clear it’s an audio call

You’ve decided that voice is the way to go for a call, now you’ve got to convey that to others.

Don’t waste precious meeting time having an awkward convo about this; be straight up before the call. “Hey, I’d like to do voice—no video—for this call. Work for you?” You can even put it on me: “I read this wonderful column in The Wall Street Journal about how too many video calls are bad.”

In a survey of employees, the University of California, Berkeley, found that 77% multitask during video calls. I called that out in a recent calendar invite: “Let’s do voice-only for this one,” I wrote to my colleagues. “We’re all going to cover each other’s faces with other windows on the screen anyway!” (Yep, we can see all of you, looking over at your second monitor!)

Step 4: Make the call

Even though I made my voice-call preferences known to my colleagues, I’m not just reaching for my phone. In fact, I’ve used all the big videoconferencing services—sans video. Zoom, Google Meet, Slack, FaceTime, WhatsApp and Facebook Messenger all produce stable and clear calls if you have a good connection. Most sound better than cellular—especially if you have a good mic. But the best choice is however you can most easily reach your contact.

Slack has become my go-to for work. Since most of the folks already are there all day, it’s great for mimicking the quick desk drop-by. Hit the phone button and it automatically defaults to a voice call. (To add video, you have to tap the video icon.) With Slack audio use surging in the past year, the company has been piloting new group-audio features, an office variation of Clubhouse and Twitter Spaces.

Slack is also looking at ways to improve audio quality and make it easier to switch between desktop and mobile calls, Ali Rayl, the company’s vice president of product and customer experience, told me.

Call-quality-wise, FaceTime audio consistently sounds the best to me. I often talk to my editor via Apple’s service and he sounds crystal clear. The downside? Apple devices only.

Step 5: Try no-video days

“The responsibility of limiting Zoom fatigue is not just on the individuals,” Dr. Fauville told me. “We hope our findings inspire companies to rethink videoconferencing.”

So far, so good. Citigroup CEO Jane Fraser has started “Zoom-free Fridays,” a day free of internal video calls. The University of California, Berkeley, for the past year, has said no recurring meetings—of any kind—on Friday afternoons.

You may want to try a similar policy. Or at the very least start perfecting those extremely polite “You don’t want to see my face and I don’t want to see your face” emails.

May 27, 2021

Sydney Most Affordable East Coast City For Liveability … Apparently

Yes, you read that correctly. Sydney has been declared the east coast’s most affordable city for liveability by PRD Real Estate.

Ignoring the fact that the Harbour City has an entry-level price of $1.2 million for a house within 20km of the CBD, PRD’s research argues that Sydney is indeed “the most affordable city for liveability.”

The firm’s reasoning boils down to Sydney having the greatest cost differential between premium and affordable dwellings in the same metropolitan area.

Residents can purchase a house in a liveable suburb for 87% less than the premium needed to purchase in Sydney Metro, well above the other eastern capitals.

PRD’s considerations for affordable and liveable suburbs include property trends, investment potential, affordability, project development, and liveability factors such as low crime rates, availability of amenities within a 5km radius (i.e. school, green spaces, public transport) and a steady unemployment rate.

According to PRD, Peakhurst in Sydney’s south came out on top for houses.

The suburb’s median house price for the first quarter was $1.2 million while units were among the most affordable at $685,000.

Melbourne Metro is the runner up at 42% less, and Brisbane third at 16% less.

Melbourne’s most affordable and liveable houses are found in Greenvale ($728,000), Bellfield ($800,000) and Mulgrave ($850,000).

Elsewhere, Melbourne’s most affordable units were found in Northcote ($595,000), Lower Plenty and Pascoe Vale (both $630,000)

Brisbane’s best performing suburbs included Springwood $530,000, followed by Rochedale South ($545,000) and Ferny Grove ($653,000).

Warner had the lowest-priced units in the Queensland capital with a median of $290,000, followed by Taigum ($320,000) and Coorparoo ($422,000).

May 27, 2021

CBA Broadens Its Digital Strategy

The Commonwealth Bank of Australia (CBA) will be the first big four bank to allow customers to view account information from rival banks within its app – adding functionality to its digital offering.

“We aim to be the most trusted partner at the centre of our customers’ financial lives by saving them money, giving them more control over their finances, and by making banking simpler and easier,” said CBA CEO Matt Comyn.

The move increases the bank’s usage of the ‘consumer data right’.

Further, the bank aims to increase its use of data and disruptive tech-focused business to improve its digital offering to the customer.

“We are integrating new services into our platform to customise and personalise the digital experience in ways that will increase engagement and bring greater value to our customers,” added Mr Comyn.

The statement is made evident through CBA’s 25% shareholding in Amber, a new energy retailer providing direct access to wholesale energy prices for a monthly subscription of $15.

Consumer data right will soon be extended from banking to energy and Amber will provide CBA with relevant consumer behaviour when buying energy.

“Purchasing a home is a time when customers look for ways to save money, and electricity is a large expense in a household budget. Our partnership with Amber will help to differentiate our home buying proposition …”

Also announced today is a 23% shareholding in Little Birdie, an online shopping start-up designed to help customers find deals online.

“Deals and offers, integrated with CBA’s goal savings products, will help customers save for a special purchase in a completely different way.”

May 26, 2021

Property Of The Week: 6 Desaumarez St, Kensington Park, SA

Located on the quiet, English Oak tree-lined Desaumarez street in the eastern suburbs hot spot of Adelaide’s Kensington Park is this warm, character residence reborn.

Built circa 1926, the home has been extensively renovated and sees 3-bedrooms, 2-bathrooms and 1-garage.

On arrival, one notes the privacy offered through manicured hedges and the handbuilt wooden slate gate. Here, entering into the driveway is a Japanese inspired, professionally landscaped garden, replete with Volcanic Basalt pavers, walls and feature boulders.

Upon entry, the home’s charm and immediate warmth is apparent – provided by the polished Tasmanian Oak floorboards and the sunny aspect.

The home meanders from room to room – echoing the kind of serenity found in the gardens. Here, a wide entrance – replete with feature lighting – guides one through to the dining area, which overlooks the established gardens.

The main living spaces are home to a custom “library wall”, gas fireplace in the main lounge, and German designed Paarhammer custom tilt-and turn windows.

It’s also here the kitchen lands, complete with Falcon gas cooker, oven, overhead pot filler and Miele appliances.

A Sonos audio system serves the rear garden, kitchen and dining area, bathroom and main bedroom.

The home is also privy to three bedrooms, with the master bedroom complete with built-in robe, more custom joinery (which houses VAF speakers).

Kensington Park is close to The Parade’s boutique shops, cafes, cinemas, Burnside Village, Marryatville shopping precinct and elite schools including Pembroke, Marryatville and Norwood Morialta.

The listing is headed to auction on June 5 and is managed by Stephanie Williams (+61 413 874 888) of Williams Real Estate. Williamsproperty.com.au

May 26, 2021May 26, 2021

Australia’s Regional Rent Markets Soared

Rent in regional markets has increased at almost three times the rate of capital city markets in the past 12 months.

That’s according to the Corelogic Hedonic rental value index, which tracks the combined value of rent estimates for all dwelling types. The index points out that all dwelling types increased 9.6% for regional rents, while capital city markets increased 3.3%.

“Of the 25 regions analysed, total available rent listings have, on average, halved during the year,” said Corelogic head of research, Eliza Owen.

“Across these regions, the average time a rental property spent on the market has declined from 25 days in the three months to April 2020 to 17 days during April 2021.”

According to Owen, factors that influenced the tightening of the regional rent market included less people leaving the regions – due to COVID-19, an influx of people moving to the regions, boosted domestic tourism markets and rising property values.

“Creating more affordable housing in regional Australia and major cities could ease rental conditions,” added Owen.

“Having well dispersed affordable housing options can also serve to restrict internal migration based on affordability constraints.”

May 25, 2021April 20, 2022

TikTok Crypto Influencers Are Teaching A New Generation of Investors

On March 22, 2020, the day before the United Kingdom announced its first Covid-19 lockdown, Joel Davies joined TikTok, excited by the buzz surrounding it. He was unaware that doing so would lead him toward life-changing money. Davies, 23, had been interested in cryptocurrency since the age of 16, but apart from a small investment in Bitcoin, his curiosity remained on the back burner while he finished his studies in film, television and digital production at Bath Spa University. After graduating in 2019, Davies moved back into his parents’ house in South Wales, stacked savings from his marketing job and, in the evenings, logged on to a Discord server, a communication platform he discovered through Dennis Liu, 26, a leading crypto influencer on TikTok, who also goes by the name VirtualBacon.

“When I found VirtualBacon on TikTok, that spurred me more into investing and learning about [cryptocurrency],” says Davies. Liu’s down-to-earth style and emphasis on research and analysis stood out to Davies in a space that he saw as rife with shilling, scams and hyperbolic price targets. Aided by VirtualBacon’s Discord community and TikTok videos, Davies learned the basics of investing in crypto, including how to trade on centralized exchanges and create a digital wallet, then more advanced skills, such as how to analyze tokenomics and assess the fundamentals of a company. He made his first crypto investment a month into the U.K. lockdown. Over the course of a year, Davies says he transformed his initial investment of 2,500 GBP into nearly 100,000 GBP (about $3,548 into nearly $141,930).

Perhaps no other market is more susceptible to social media’s influence than cryptocurrency, where, for instance, a single tweet from Elon Musk can pump Dogecoin, a meme currency, to all-time highs or send Bitcoin spiralling. One TikTok user created a coin called SCAM (“Simple Cool Automatic Money”) as a joke and it grew to a $70 million market cap an hour after its release. It is currently at an approximately $850,000 market cap.

Newer, self-directed investors are more likely to put their money in riskier investments like cryptocurrency, in part because of the thrill, novelty and social cachet, according to a study commissioned by U.K. watchdog Financial Conduct Authority. Much of cryptocurrency’s buzz, the study found, is due to influencers and hype on social media. An informal coterie of crypto enthusiasts has recently flocked to TikTok because it represents the greatest potential to expand their audience, says Liu. And the audiences they are reaching likely skew young, according to an April survey from Pew Research Center that shows 48 percent of adults under age 30 say they use TikTok, compared to just 22 per cent of those ages 30 to 49. Scams—like meme economies in which online memes are treated like financial commodities and vice versa as well as pump-and-dump schemes—also run rife, according to some influencers on the platform.

“When I started doing crypto [videos] on TikTok, nobody was doing them,” Liu says. Liu’s first foray into crypto was mining Dogecoin—using computers to solve complex mathematical problems in order to introduce new coins into circulation—from his McGill University dorm room in 2014. In 2017, he had some extra cash he wanted to invest and crypto was what he knew best. “It’s a more risky playing field, but, in a weird way, that’s kind of more fair for someone that’s new—a younger audience,” he says. Liu’s most popular TikTok videos are timely analyses, he says, of major price shifts in Bitcoin and Ether, especially when they dip, and other highly traded crypto assets. “People on TikTok are often very new investors, so those types of videos do well,” he says. “It’s not just analysis, but a bit of reassurance to calm their minds in the volatile crypto market.” In his videos, his straightforward delivery, talking over a green screen that displays a coin’s chart or other information, is now a popular format on crypto TikTok.

CryptoWendyO, the TikTok username of a person who says she is a woman in her 30s and declined to give her real name, saying that she has experienced online harassment, makes four to eight TikTok videos a day, analyzing Bitcoin’s price movement, responding to questions in the comments or rounding up the top three daily news stories in crypto. Her most-watched video has over 500,000 views and details a simple investment strategy known as the “moon bag.” “The moon bag strategy is you pull out your initial investment once you’re in profit, and then you take your initial investment and roll it into another project,” she says. “Rinse and repeat.”

CryptoWendyO says she didn’t take TikTok seriously at first but was won over after Ben Armstrong, who goes by BitBoy Crypto, among the most popular crypto accounts with over 2.6 million TikTok followers, encouraged her to join. “TikTok is a great platform to get a large amount of information in a very short amount of time,” says CryptoWendyO. “I can get a lot more on a TikTok video than I can on a Twitter [thread], and more people are going to watch the TikTok.”

Lucas Dimos, 20, known on TikTok as TheBlockchainBoy, says he first heard of Bitcoin from his mom in 2017. “I came for the money, but I stayed for the tech,” he says, echoing a common refrain on crypto social media. Later, he started his own blockchain company, CryptoKnight, to develop an algorithmic trading bot and today runs a Discord server by the same name. Dimos joined TikTok on January 27, 2021 in the heat of the GameStop short squeeze. Since then, he has gained more than 210,000 followers.

A study by Paxful, a cryptocurrency trading platform, analyzed more than 1,200 videos from TikTok finance influencers and determined that one in seven videos misleads viewers by encouraging them to make investments without making clear the content is not meant to be taken as professional financial advice. The study did not conclude whether or not the videos intended to mislead. Dimos describes what he sees as an ecosystem of undisclosed paid promotions. “Developers will go to the influencer and say, ‘We want to give you $3,000 worth of this token—make a video, hype it up and then you can sell for a massive profit,’” he says. (Dimos and CryptoWendyO say they disclose all of the sponsors in their videos, per TikTok’s community standards. Liu did not respond to a request for comment about compensation and sponsorship.)

TikTok declined to comment for this article. Its community guidelines state, in part: “We remove content that deceives people in order to gain an unlawful financial or personal advantage, including schemes to defraud individuals or steal assets.”

Dimos and CryptoWendyO stay away from meme coins, which tend to be online jokes that are turned into cryptocurrencies, like Dogecoin. “By the time the videos circle TikTok’s algorithm, the coin is already pumped and dumped,” says CryptoWendyO. This happened on May 12 with Shiba Inu, a meme coin, which the coin’s website has nicknamed the “Dogecoin killer.” In part thanks to viral TikTok videos targeting investor FOMO—“fear of missing out”—in the wake of Dogecoin’s parabolic rise, $SHIB rocketed in price, increasing 25-fold within the beginning of May, until an approximately $1 billion sell-off by Ethereum co-founder Vitalik Buterin, which he said was a donation to help fight Covid-19 in India, caused $SHIB and several other meme coins to plummet.

Dimos believes all the scamming—what insiders call “rug pulling”—that happens on TikTok in particular, not only takes advantage of new, vulnerable investors, but also tarnishes the image of cryptocurrency. “Every meme coin that exists today feels like a spit in the face to people like me who’ve worked for the professional blockchain industry,” he says.

After becoming an early and active member of VirtualBacon’s Discord server, which has over 20,000 members today, Davies recently joined VirtualBacon in an official capacity, serving as the content marketing lead for BaconDAO, or “decentralized autonomous organization.” Led by Liu, a community of expert contributors shares daily market analysis, picks for low-market-cap “gems” and other insights, while the community can vote on what topics Liu will cover in his TikTok videos, ask questions and chat about their trades. Although it’s not yet publicly listed, those who purchase and hold the $BACON currency will gain access to BaconDAO exclusive content.

TikTok has exposed a class of new investors to cryptocurrency, but for crypto influencers it is now becoming a feeder channel for other online platforms, like the BaconDAO community and Patreon, where many influencers monetize their Discord channels by charging for access. Young crypto investors seem to be particularly mercurial. In March 2021, one year and six figures later, Davies became bored by TikTok and deleted it.

May 25, 2021May 28, 2021

Apple and the End of the Car

Now that the car is evolving into essentially a smartphone on wheels, it’s no wonder Apple is kicking the tyres.

First, there is the transition from internal combustion engines to electric motors, which have far fewer mechanical parts. Now, enabled by that change, a second shift is under way—one that’s a prerequisite for a self-driving future.

For a century, the automobile was a system of interoperating mechanics: engine, transmission, drive shaft, brakes, etc. As those mechanics evolved, electronic sensors and processors were brought in to assist them, but the concepts changed little. The result was cars with dozens or hundreds of specialized microchips that didn’t talk to each other. Now that auto makers are moving to electric motors, elaborate entertainment systems and adaptive cruise control, cars need central computers to control all these things—why not use them to control everything?

At the hardware level, this might just mean fewer chips handling more of a car’s functions. Yet it has profound implications for what future cars will be capable of, how car makers will make money, and who will survive—and thrive—in what could soon be a global automotive industry made unrecognizable to us today.

No one inside Apple is saying exactly what its plans are, but the company has been contemplating a role in autos for years, spending huge sums on hiring hundreds, then eliminating their roles when its priorities change, and almost as quickly hiring other engineers with similar skill sets, then firing yet more engineers, all to realize a still-mysterious ultimate vision.

The company also recently approached auto makers including Hyundai about a potential manufacturing partnership, then saw talks fizzle. It’s just as likely Apple is, as usual, experimenting until or unless it hits on something it thinks it can do better than anyone else.

“We have seen enough echoes in the supply chain that we know Apple is really looking into every detail of car engineering and car manufacturing,” says Peter Fintl, director of technology and innovation for Capgemini Engineering Germany, part of a multinational that works with dozens of auto makers and parts manufacturers. “But nobody knows if what Apple creates will be a car or a tech platform or a mobility service,” he adds.

Many other tech companies, including Intel, Nvidia, Huawei, Baidu, Amazon and Google parent Alphabet, are pushing into the usually staid, conservative and relatively low-margin world of automobiles and their parts. Meanwhile, traditional auto makers like Ford, General Motors, Toyota, Daimler and Volkswagen, plus longtime automotive suppliers such as Bosch, ZF and Magna, are trying to behave more like those tech companies.

Basically, everyone is shifting their emphasis to software—and hiring like crazy to do it. In the past year, almost every major automotive company has advertised that it would like to hire many more software developers. Volkswagen, for example, announced in March 2019 that it would add 2,000 to its technical development team; the company already employs thousands of software engineers.

“Software is eating the world, and cars are next on the menu,” says Jim Adler, managing director of Toyota AI Ventures, a venture-capital fund owned by the car maker.

From hardware to software

Today’s most complicated automobiles have up to 200 computers in them, just smart enough to do their jobs controlling everything from the engine and automatic braking system to the air conditioner and in-dash entertainment, says Johannes Deichmann, a partner at McKinsey whose expertise is software and electronics in automobiles. These computers, made by an assortment of suppliers, tend to run proprietary software, making them largely inaccessible even to the auto maker.

Such modularity is fine up to a point—when building a Chevy Malibu, does GM really need to know how the windshield-wiper computer works? Yet the proliferation of these narrow-minded processors has led to unsustainable complexity, says Mr. Deichmann.

Tesla, as you might imagine, has been instrumental in pushing the auto industry in a new direction. Since the first Model S, Tesla pioneered replacing hundreds of small computers with a handful of bigger, more powerful ones, says Jan Becker, chief executive of Apex.ai, a Palo Alto-based automotive-software startup. Systems that used to require dedicated microchips now run in separate software modules instead.

This is why Tesla can add new capabilities to its vehicles through over-the-air updates, he adds. Want better acceleration, longer range, an enhanced self-driving system, or your in-dash entertainment system to play fart noises every time you flip your turn signal? Tesla has shown they’re just a software upgrade away. It’s very much like the model of continual updates to the software in our mobile devices we’ve come to expect.

Following suit, auto makers are scrambling to build or commission their own whole-car operating systems. The field is still wide open, says Mr. Fintl. Nvidia offers its Drive OS, VW and Daimler have announced they are, like Tesla, working on their own, and Google is insinuating itself ever deeper into vehicles through its Android Auto OS. To date, it’s still focused on in-dash entertainment and navigation, but Ford recently announced that as of 2023, it will use Android in the displays of all models sold outside of China—including the just-revealed Ford F-150 Lightning—and will also use Google to help manage the data streams collected from its vehicles. GM is also using Android in its all-electric Hummer.

This is where Apple might face a tough decision: While it has the chance to flex its enormous software and chip-making expertise to create a next-generation platform for the highest bidder, the company tends to create products for its own brand, not components for others. Besides, the strategy of being just another supplier to auto makers is already being pursued by Intel (via Mobileye), Alphabet (via Waymo and Android Auto), Nvidia and others.

The enormous complexity and expense of making and delivering vehicles by the thousands, much less millions—and making them safe—are why so many tech companies are joining forces with automobile companies, rather than trying to build their own vehicles, says Ryan Robinson, automotive research leader at Deloitte.

While analysts for years predicted that big auto makers would make short work of Tesla, it turns out electric vehicles are more about software than hardware. And auto makers aren’t yet good at the kind of software today’s cars and drivers demand. Volkswagen decided last June that, despite years of development, it had to delay the debut of a flagship electric vehicle because its software wasn’t ready.

Enter Apple

“This is the big industry mystery, if a famous fruit company is entering the game,” says Mr. Deichmann.

Apple already has its CarPlay in-dash interface for iPhones. But it’s limited to functions such as entertainment and navigation, and has nothing to do with the deeper integration and capabilities required of a true vehicle operating system. Apple has also demonstrated tremendous capabilities in designing the kinds of microchips and sensors that a smart automobile would require, though for now they’re mainly found in iPhones, iPads and Macs.

Apple didn’t respond to requests for comment.

Apple could build an operating system for a whole vehicle, and run it on its own silicon. But the company seeks to vertically integrate whenever possible, to control every aspect of the user experience. So the question is: Would a car maker let Apple treat it as the company once treated AT&T, when it first rolled out its iPhone? Or the music labels, when it launched iTunes? At a stroke, it turned the tables and took control of massive markets and significant portions of our lives.

This February, Apple’s partnership talks with Hyundai broke down, possibly over Hyundai’s concerns about being absorbed into the Apple Borg. Immediately after, Nissan signalled it might be willing to work with Apple.

If there is any tech company on earth with the resources to go it alone, building a new automaker from the ground up, it’s Apple. But there is no indication this is the company’s aim. If Tesla is the model here, it’s unclear why Apple’s executives would want to endure the tortuous process of building the manufacturing, testing and service capacities this path would require.

If providing the brains for other auto makers’ vehicles is unlikely, and competing directly with Tesla and every other electric vehicle startup unsavoury, that still leaves another option for Apple. As the automotive industry inches toward self-driving taxi services, Apple’s persistence in both acquiring and developing software and hardware for electric, autonomous vehicles could signal its long-term ambitions. Could an Apple mobility company, instead of an Apple car, make the most sense?

GM’s Cruise, Amazon’s Zoox and many others are already moving down this path. But since no such robot-taxi service yet exists, save for some limited experiments by Waymo in Arizona, there is potential for Apple to create something it controls completely, while also providing significant additional revenue to a struggling automaker such as Nissan.

Apple and others could design and commission vehicles that bear their branding, and operate as part of a service they provide, with no trace of the actual manufacturer on them, says Mr. Deichmann.

Apple, after all, isn’t an electronics manufacturer. In fact, it outsources all of its manufacturing, much of it to Foxconn—which as it happens is building up its own auto-making capabilities. Rather, Apple is first and foremost a customer-focused company that uses technical know-how to develop products physically made by contractors like Foxconn. It just happens that deep technical expertise is how it realizes its leaders’ visions. And because fully autonomous driving is turning out to be much harder than anyone predicted, Apple could have the time it would need to develop its own service.

It’s quite possible that Apple will end up spending billions on attempts to develop an electric car without ever releasing a product. Or maybe it offers a product or service that fizzles. It’s possible that transportation is so different in scope and complexity from personal and mobile computing that the only way to succeed is through the kind of grand-scale collaboration Apple isn’t known for.

Toyota chief Akio Toyoda said in March that Apple should prepare itself for a 40-year commitment if it offers cars to consumers. This makes sense, especially if the goal turns out to be not merely to create a car, but to replace a significant portion of the world’s 1.4 billion cars with a completely autonomous, emissions-free, radically transformed transportation system. In other words, a trillion-dollar revolution—and Apple’s already pulled off one of those.

May 25, 2021May 28, 2021

Dasha Zhukova’s New Real Estate Venture

The future of museum-going and cultural forays could be down in your own lobby, according to Dasha Zhukova, the arts patron and philanthropist who is launching a new residential real estate development firm in New York.

Ray, the name of Zhukova’s new brand, sets out to remedy a blind spot she sees in the residential world: the lack of arts and culture experiences in urban developments. Where other buildings and “co-living” spaces offer perks like golf simulators and dog grooming services, Ray’s buildings will offer cultural programming like master classes, events and workshops drawn from local institutions and artists to encourage creative synergy, says Zhukova, 39, with rents pegged at or below market rate.

One of the venture’s projects is reimagining Harlem’s three-story National Black Theatre, founded in 1968 by the late Barbara Ann Teer on the corner of 125th Street and Fifth Avenue, and is set to break ground by the end of May. A 21-storey building will take its place, with the new theatre space, retail and an event space spread across the first four floors, which Ray is developing with L+M Development Partners. The final structure will include 222 apartments, as well as artist studios, co-working spaces, communal kitchens, a library and a wellness space, and is slated to be completed in 2024.

Teer’s daughter, Sade Lythcott, now leads the theatre. “This project and partnership has felt [like] kismet from the time Dasha and I first met in 2019, not around aesthetics or Ray’s business model, but around our mothers. What it has meant to be women, raised by fearless matriarchs,” Lythcott wrote by email. “There is an incredible amount of equity created when you first start from a place that recognizes our shared humanity, honours what came before, in service of creating the built spaces of the future.”

Zhukova was inspired to launch Ray after seeing how visitors were drawn to the Garage Museum of Contemporary Art, the Moscow museum she co-founded in 2008. Its current home was designed by acclaimed architect Rem Koolhaas. “Even if [visitors] had seen all the shows that we had on, they would just stay and hang out in our lobby,” she says. “They would hang out in our cafe for hours on end—just come back day after day because they wanted to be in that environment.”

While hotels such as New York’s Gramercy Park Hotel have showcased art collections including names like Andy Warhol, Damien Hirst and Jean-Michel Basquiat, and developers have often staged high-end homes with trendy art to help sweeten the blue-chip price tags, one of Ray’s rental buildings will boast a permanent installation by Rashid Johnson, whose work just fetched a record US$1.95 million at Christie’s on May 11. Johnson will be creating a plant-filled installation for the lobby of a 110-unit building in Philadelphia’s rising Fishtown neighbourhood, which also will have six street-level artist studios, as well as maker spaces, and will be completed in 2022.

“Access to art shouldn’t be for a privileged few,” Johnson wrote by email. “These art and living spaces are aiming to bridge some of this gap, for me that’s exciting.”

The first two Ray ventures in Philadelphia and Harlem are largely financed by Zhukova. Ray recently inked a third deal, in Miami, where the site will expand beyond the 250-plus unit rental building that will anchor it, says Zhukova, with future plans for retail, offices, landscaped walkways and single- and multi-family homes.) With each project, Ray will emphasize new buildings rather than retrofitting existing space: “To truly rethink the space and how we occupy it…you really need to rebuild,” says Zhukova, who is looking to make inventive use of materials and space in part to make up for areas where Ray is spending more freely. “The focus [is] on how our habits have changed, the technological innovation and the cultural change.”

Her team at Ray currently eschews traditional titles—Zhukova calls her colleagues “thought partners”—and includes Will Kluczkowski, a real estate veteran from DDG; Becca Goldstein, a Stanford MBA whose CV includes a stint at a Brooklyn-based whisky distillery; and the design gallerist Suzanne Demisch.

“We are looking for creative solutions,” says Demisch, who says she enjoys the challenge posed by a limited budget. “We are asking why. There’s not a package for all the touchpoints of the experience—it’s about the aesthetic and the culture of each location.” Months were spent developing and perfecting the hand-split bricks for the facade of the Philadelphia project with manufacturers Glen-Gery and architecture firm Leong Leong—and finding the perfect Pantone swatch for the pinkish hue of the Harlem building facade, which is a nod to the historic Nigerian site the Osun-Osogbo Sacred Grove.

Such historic references were a priority of the architect of Ray’s Harlem project, Frida Escobedo, who is based in Mexico City. Art panels, inscriptions and a geometric, rhythmic facade that echo the motifs of the original National Black Theatre all refer to its previous incarnation, but “we’re also putting a great deal of focus on communal spaces, such as the artist studio and constellation of gathering areas,” says Escobedo, who is collaborating on the interiors with designer Little Wing Lee of Studio & Projects.

Zhukova, meanwhile, is partnering with Artspace, the Minneapolis-based nonprofit developer of art spaces, which will receive funding from the Ford Foundation in order to provide housing and studios at the Harlem building. She hopes to do the same in all Ray buildings. Her goal is to create accessible rents that will allow artists to remain in their home neighbourhoods rather than fleeing cities for more affordable live/work options. Zhukova next has her eye on rising cities including Austin, Nashville, Denver and Portland, Oregon, where she says they will focus on neighbourhoods that are a cultural fit for the brand.

“My personal dream is to build in Arizona,” says Zhukova. “I think in that climate and given the less restrictive building codes, you could build something absolutely incredible.”

May 24, 2021

Auction Markets Running Out Of Steam

Home auction markets reported mixed results over the weekend, May 22, as more record-level offerings tested buyer depth.

National listing numbers were again lower on Saturday but stayed within touching distance of the <ay record of 2563 reported two-weeks ago with 2333 auctions this past weekend.

The national average clearance rate increased to 82%, higher than the previous weekend’s 80.8% and the first rise in six weekends. However, despite the lift, it is smaller markets like Adelaide (90.1%) and Canberra (91.2%) carrying the results.

The larger auction capitals of Sydney and Melbourne are showing signs of fatigue and are expected to drift downwards over the next coming weekends.

Sydney reported a clearance rate of 81.5%, again lower than the 82.9% recorded the previous weekend. Saturday’s results were the fifth consecutive weekend of lower rates.

A total of 949 auctions were reported in the Harbour City, again just below the previous weekend’s 990.

Sydney has now recorded an unprecedented four consecutive weekends with more than 900 auctions, with this weekend’s median price of houses sold at auction sitting at $1,620,000, lower than the previous Saturday’s $1,641,000.

Melbourne reported a clearance rate of 76.9% which was again below the 78.6% of the previous weekend and just ahead of the 74,0% recorded over the same weekend last year.

Saturday, May 22 was the lowest clearance rate of the year so far.

A total of 117 homes were auctioned in Melbourne, close to the previous weekend’s 1159 listings.

Melbourne recorded a median price of $995,500 for houses sold at auction on the weekend which was 9.8% lower than the $1,093,000 recorded over the previous weekend, but 9.9% higher than the 906,000 recorded over the same weekend last year.