Page 94 – Kanebridge News

December 17, 2020December 17, 2020

From Airbnb to Tesla, It’s Starting to Feel Like 1999 All Over Again. It May End the Same Way.

Maybe this time is different. Those words, supposedly the most dangerous to utter in the investing realm, came to mind amid the frenzied pops in the highly anticipated initial public offerings of the past week.

They recalled the wild IPOs at the end of the last century, when the public’s enthusiasm for all things dot-com had investors paying crazy prices for new stocks that often lacked earnings, revenue, or, in some cases, actual operations. After the calendar turned over to the year 2000—without the world descending into chaos from the Y2K computer bug, remember that?—the bubble popped, especially after Barron’s published its seminal cash-burn story that March, which showed that the dot-com kids were rapidly running through the liquid assets compliant capital markets had provided to them. As it turned out, the Nasdaq Composite had posted its top tick a bit more than a week earlier, although we only learned that in retrospect.

What is different this time is that the current highflying IPOs are coming from innovative companies that have become major businesses, nurtured by their private-market investors while attracting throngs of fans who wanted to become shareholders as well as customers. So they clamoured for DoorDash (ticker: DASH) and Airbnb (ABNB), sending their shares soaring in their first day of trading by 86% and 113%, respectively, over their respective IPO prices.

So great was the frenzy that there was furious buying of the call options of ABB (ABB), the big European industrial company out of confusion with the ticker for Airbnb, our former Barron’s colleague Mike Santoli amusingly reported on CNBC. That wasn’t the first case of mistaken identity with a hot IPO. Instead of getting in on the 2019 IPO of Zoom Video Communications (ZM), which has become one of this year’s stay-at-home winning stocks, punters mistakenly chased penny stock Zoom Technologies (ZTNO) ahead of the former’s IPO.

What does recall the dot-com bubble era are the valuations accorded these IPOs. In his preview of the Airbnb offering last week, colleague Andrew Bary quoted New York University professor and tech entrepreneur Scott Galloway bullishly predicting a US$100 billion market value—by the end of 2022. At the end of its first day trading on Thursday, its market cap already topped Galloway’s no longer outlandish projection, which was three times what had been estimated just a week earlier.

Another blast from that past is Tesla‘s (TSLA) 50%-plus jump since Standard & Poor’s announced last month the electric-vehicle stock’s inclusion in the S&P 500 index. That recalled the 64% jump in then-dominant internet search company Yahoo! in December 1999 ahead of its addition to the benchmark index, just a few months before the Nasdaq’s peak.

S&P 500 index funds and portfolios that followed the benchmark will have to buy Tesla without regard to the stock’s value, as colleague Evie Liu reports. But the slavish adherence to this particular market gauge belies the tenet of index investing—that the efficient market distills the reasoned assessments of buyers and sellers of the value of a security. “Whether or not [Tesla CEO] Elon Musk will ever deliver autonomous driving, we are drifting closer to autonomous investing,” writes Jim Grant in the current Grant’s Interest Rate Observer.

Even if that’s the case, this episode demonstrates that the S&P 500 doesn’t represent the entirety of the U.S. stock market. For instance, the Vanguard 500 Index fund (VFIAX) has significantly lagged the Vanguard Total Stock Market Index fund (VTSAX), 15.64% to 17.8% in the year through Wednesday, according to Morningstar data. Over the past 12 months, the gap is 17.41% to 19.14%.

For his part, Musk decried the “M.B.A.-isation of America” to The Wall Street Journal this past week for U.S. corporations supposedly focusing too much on financials. Which is ironic given Tesla’s adept financial engineering, including its announcement this past week of a $5 billion sale of stock, its third equity financing this year, for a total $12 billion.

Musk’s criticism seems directed at those skilled at analyzing the EV maker’s income statement and balance sheet, such as Vicki Bryan, who pens the Bond Angle research letter. Tesla’s addition to the S&P 500 followed its reporting of a requisite four consecutive profitable quarters, which can be “traced entirely to energy credit sales plus noncash account and unusual items—none of which are its core business,” she writes.

These items provided a $1.6 billion boost to reported free cash flow of $1.93 billion in the four quarters through Sept. 30, which, however, ignored $100 million for solar-equipment capital expenditures and $1.1 billion in capex funded by leases. Taking all that into consideration, operations actually consumed more than $800 million in cash, she concludes.

The entire $9.18 billion year-over-year increase in reported cash, to $14.53 billion on Sept. 30, resulted from net borrowing of $1.5 billion and the sale of $7.7 billion in stock and equity equivalents, Bryan adds. The ebullient stock market, augmented by the index effect, provides the cheap capital to keep the Musk magic going.

That’s what’s different this time from the dot-com era. There seems to be a seemingly limitless font of money to be tapped by hypergrowth companies that promise to change how we work, live, and get around. The question is whether it will end differently.

December 17, 2020April 20, 2022

Bitcoin Shoots Past $20,000. Why It’s the Best-Performing Investment of the Year.

Bitcoin crossed US$20,000 on Wednesday for the first time, the latest milestone in a rally that has made it the best-performing investment of 2020. Bitcoin was trading just above $20,500 on Wednesday morning, up 180% for the year.

Bitcoin has crossed $19,000 several times this year, after first hitting that number in 2017. But it consistently faltered just before hitting $20,000 and had fallen below $4,000 as recently as March.

It is nearly impossible to explain Bitcoin’s price changes, but analysts had described $20,000 as a key psychological level—like other big round market numbers that don’t mean very much on their own.

The rise has been fueled this year by institutions, which have been growing more comfortable with Bitcoin and even holding some on their balance sheets. Massachusetts Mutual Life Insurance Company (MassMutual), an institution that has been around for 169 years, announced last week that it had bought $100 million in Bitcoin, joining companies like Square (ticker: SQ) that have already bought in.

The enthusiasm is filtering down to retail investors, who now have more options to buy crypto, including through their PayPal Holdings (PYPL) accounts.

News that big companies are buying in “swells consumer interest,” says Nigel Green, founder and CEO of deVere Group, a financial advisory and fintech firm.

There is no generally accepted way to value Bitcoin, and it produces no cash flows. But high demand can spur price increases, because the cryptocurrency’s software limits its supply to 21 million. More than 18.5 million Bitcoins have already been created.

If Bitcoin can hold this level, some analysts are predicting sharp moves higher.

“If Bitcoin is able to stay meaningfully above $20,000 for a few days, we would expect prices to move significantly higher over the next six months,” says Greg King, CEO of Osprey Funds, the digital asset subsidiary of REX Shares.

But exciting numbers like $20,000 can be dangerous with a volatile asset like this. Cryptocurrency exchange OKEx and blockchain data firm Kaiko released a report this month showing that large traders tend to sell their positions just as smaller traders jump in — meaning the “smart money” may be unloading crypto as soon as they see hype-fueled rallies like this. And with selling pressure, the price can turn south in a hurry.

“When Bitcoin rallies, the market tends to forget previous, long-drawn-out bearish stretches, and the sentiment shifts to manic euphoria,” the report notes.

December 16, 2020

Metals Markets Steel For Price Rises As Australia Pushes To Save Cultural Sites

SYDNEY—Rio Tinto PLC’s destruction of two ancient caves in Australia to expand an iron-ore mine could have ramifications for global commodity markets if local lawmakers intensify scrutiny of mining activities that threaten heritage sites.

Among the most controversial recommendations made by a federal-government inquiry into the destruction of the rock shelters at Juukan Gorge in Western Australia in May is a moratorium on expansions of existing mines or new pits that encroach on sites of cultural or historical significance. Even if lawmakers opt for a less hard-line approach, experts warn of potential delays to production and higher costs that could affect supply of key raw materials such as iron ore, used to make steel.

None of the recommendations handed down by the inquiry in its interim report on Wednesday are binding, but miners risk inflaming tensions with some investors who feel the industry needs to show greater sensitivity to environmental and cultural issues if they don’t accept them. They also face sensitive negotiations with indigenous groups that are the traditional owners of the land.

Metals prices have been rallying as China’s economy bounces back strongly and other major markets recover from the coronavirus crisis. Copper prices have risen to their highest level in almost eight years. Iron ore is one of the best-performing assets this year, fetching $150.75 a metric ton on Wednesday, its highest price since early 2013.

China’s unexpectedly strong appetite for these commodities has raised concerns over whether there’s enough supply, with many analysts predicting market deficits for iron ore and copper through at least the middle of next year.

Delays to mining projects in Western Australia, where companies dig up metals including copper and gold, could push commodity prices higher and exacerbate shortages already worsened by pandemic-driven disruptions to operations elsewhere. Iron ore is considered to be most at risk because Australia accounts for more than half of the world’s trade in the commodity by sea.

“This could be a watershed moment for the Western Australia mining industry and could impact Western Australia iron-ore production, and possibly other commodities, in 2021 and beyond,” Goldman Sachs said.

Already there are tensions between miners and some investors following the report into the loss of the Juukan caves, which contained a trove of artifacts that indicated they had been occupied by humans more than 46,000 years ago.

Fortescue Metals Ltd., the world’s fourth-largest iron-ore exporter by volume, rejected the idea of a voluntary moratorium on new heritage consents. “We do not believe that this is either a feasible or practical solution,” Elizabeth Gaines, Fortescue’s chief executive, said.

Fortescue said it had worked with indigenous groups to protect and avoid nearly 6,000 heritage sites threatened by its mining activities.

Miners must balance the need to replace the ore that they unearth with respecting the interests of indigenous groups. Fortescue pointed out that the iron-ore industry has been a pillar of Australia’s economy as it emerges from a first recession in 29 years.

“A moratorium would unnecessarily stall mining, infrastructure and other activities for an unknown and possibly extended period,” said Tania Constable, chief executive of Minerals Council of Australia, an industry group.

Still, many investors feel the industry needs to do more, and have pushed for leadership changes when standards fall short. Rio Tinto Chief Executive Jean-Sébastien Jacques and two other executives were ousted after several investors criticized the company’s initial response to the caves’ destruction because no one had been held accountable.

Hesta, an Australian pension fund for health-care workers, said it strongly supports the recommendation that companies with existing heritage approvals, known as Section 18 permissions, suspend related works until they can verify consent by traditional landowners.

“The inescapable findings of the inquiry are that Aboriginal heritage sites remain vulnerable to destruction,” said Debby Blakey, Hesta’s chief executive. “It would be unacceptable to investors that boards of mining companies are not actively and transparently seeking to understand their exposure to this risk.”

Kim Christie, an iron-ore analyst at Wood Mackenzie, said a near-term squeeze on commodities supply from Australia isn’t likely. The final report from the inquiry won’t be finalized until next year. Still, there is a risk of higher mining costs and delays to expansions or new mines later as miners sharpen their focus on heritage issues and consultation with traditional owners, she said.

“Certainly moving forward if there is going to be that greater level of tightness [in supply] it could support prices higher than we otherwise would have thought,” Ms Christie said.

Scrutiny will especially fall on Rio Tinto. A moratorium on new heritage consents could affect up to 12 projects that Rio Tinto has planned over the next five or so years to maintain its iron-ore production at current rates, Goldman Sachs said. That means there is a risk that Rio Tinto won’t ship 327 million tons of iron ore next year as the bank had earlier forecast.

Rio Tinto said it is reassessing its mining operations in places with identified heritage sites that could be affected over the coming two years.

“I think Rio Tinto would rather forgo a few tons than their reputation,” said Ms Christie, of Wood Mackenzie.

December 16, 2020December 17, 2020

Clean Air: The Next Luxury Apartment Perk

When buyers of real-estate developer John Roe’s seven condos walk into their new Manhattan homes sometime after May next year, Mr Roe wants them to breathe deep and feel good about it. That’s because he has spared no expense on air quality.

The boutique building, called Charlotte of the Upper West Side, is being constructed with an airtight external shell. Fresh air, tempered, filtered and then treated with ultraviolet light, will be constantly pumped into each room, while the same amount of used air is extracted. If a resident is worried—say they muttered “God bless you” to a sniffly dinner guest a worrisome number of times last night—they can boost the air exchange in their unit by 120%. Buyers of Mr Roe’s properties will be well aware of how special their air is: Marketing materials, which typically might describe the amenities and luxe touches, include elaborate diagrams and animations describing how the air system works.

The cost of all this magnificent air? The cheapest unit will list at $11 million (A$14.5 million), while penthouses will hit $18 million (A$23.8 million), Mr Roe says. Those price tags are largely due to the location, size and luxury finishes of the units, but the air system wasn’t cheap, either, Mr Roe says. Still, like everything else in real estate that was once the preserve of the elite—think roof decks, gyms, stainless steel—these technologies were already on a path of increased adoption and lower cost. Covid-19 has poured accelerant on the trend.

Executives at some of the country’s largest developers say they believe that by 2030 such systems will be commonplace in all residential development. Buildings with a high degree of mechanical ventilation and energy efficiency will be routine. Indoor sensors will identify when air quality has dropped and automatically increase ventilation. Systems will aim to mitigate outdoor air problems, such as general pollution or smoke from bushfires, as well as indoor threats, such as a sick resident, a burned pot roast or overenthusiastic spraying of lemon polish. Homes will feature dynamic air systems with a “crisis mode” that can upgrade filtration and run a disinfection protocol. Once the threat has been neutralised, systems will return to status quo to save energy.

At the same time, questions remain about what technology is most effective and worth the cost in both dollars and energy use. Will home buyers care about air quality when Covid-19 is no longer affecting daily life?

Scott Walsh, a vice president and project director for Lendlease, a global real estate and investment firm, says he believes that, armed with a new understanding about air quality, consumers will demand homes that improve it.

Already, developers are drawing up blueprints with a focus on fresh air flow, filtration and purification.

“Air quality is now front of mind for our buyers,” says Elisa Orlanski Ours, chief planning and design officer at Corcoran Sunshine, the new development wing of the Corcoran Group real-estate brokerage. Her developer clients are currently exploring how to filter and disinfect the air in both public and private spaces, she says.

The most cutting edge technology today, which will gradually become less expensive and more widespread, is an “energy recovery ventilator,” says Andrea Mancino, executive vice president of New York for Bright Power, an energy management consultant. These are ventilation systems that recapture energy from hot air leaving the building to heat or cool the filtered fresh air going back in.

Air quality experts believe that the wide adoption of MERV 13 or 14 air filters—which the ASHRAE trade group, formerly known as the American Society of Heating, Refrigerating and Air Conditioning Engineers, recommended in April—will be sufficient to manage major particle-related problems. MERV, or “minimum efficiency reporting value,” describes the efficiency of a filter at trapping particles of different sizes.

The pandemic has brought a jolt of interest to systems that go beyond filtering undesirable particles out of the air. Instead, they act upon particles to destroy them, through ultraviolet light, UV photo oxidation, ionization and other tactics. Scientific studies are expected to shed light on which methods and systems are most effective in a home.

“All these products work somewhat differently, and for a lot of these new products, we don’t have good studies to know how well they actually work,” says Max Sherman, the residential team leader of ASHRAE’s epidemic task force.

Gandolfo Schiavone, president of Sav Mor Mechanical, an HVAC company, says that since July his company has installed over 300 air purifiers on buildings’ existing ventilation systems around the New York area. Blueair, a Swedish maker of portable air purifiers that Unilever bought in 2016, has seen triple-digit growth this year, says chief product officer Jonas Holst.

Mr Holst believes that the U.S. will eventually buy air purifiers at the same rate as Asia. “In the U.S., the penetration rate for purifiers is about 15%. In Japan and Korea, about 40% of homes have an air purifier,” he says.

Sensor technology that analyzes indoor air quality is already in use in a handful of new luxury homes. Delos, which founder Paul Scialla describes as a “wellness real estate and technology company,” sells a system that monitors and mitigates air, water and light quality. Through an app, homeowners can see when their air quality drops below optimal standards; the built-in system then triggers ventilation.

In the near future, sensor-based technology that not only detects problems, such as cleaning chemicals in the air, but also responds by, say, automatically ventilating a space, will become widespread, as more manufacturers create better and cheaper systems, contractors learn about them and homeowners demand them, predicts Ryan Donovan, senior category manager for indoor air quality at Ferguson Enterprises, a seller of plumbing and HVAC products. Systems will also become more sensitive: “In 10 years, I do think it’s possible that the sensor will tell you there’s a flu virus,” Mr Donovan says.

Insiders compare the current state of the air quality industry to the early days of the organic food movement, before a U.S. Department of Agriculture standard was formalised. Today, there are a handful of voluntary certifications that speak to air quality, including Passive House and the WELL Building standard, founded by Mr Scialla’s Delos. Whether such labelling will eventually cohere into a government-backed standard, or lead to regulation, isn’t known.

At Lakehouse, a 196-unit condo building in Denver, developer Brian Levitt designed features he hopes will help him achieve the WELL certification “gold” level, he says. The apartments are for sale for US$499,000 to US$1.825 million. Mr Levitt says that residents will get their own ventilated air, furnishings were “off-gassed” in a warehouse for months, and he used low VOC paints and glues. “Buyers may not be willing to pay a premium for WELL yet, but we do think it increased our sales absorption,” and lowers resistance to multifamily living, says Mr Levitt, president of NAVA Real Estate Development.

Air quality is a concern across the price spectrum. Michael Bohn, senior principal at Studio One Eleven, an architecture and design firm based in Long Beach, Calif., redesigned an affordable-housing complex in Santa Ana, Calif., after the pandemic struck. It will now include MERV 14 filters and balconies for each unit.

Indoor air quality cannot widely improve until the building industry finds ways to ventilate, heat, cool, filter and purify air in an energy efficient way. Newly-constructed buildings have the best shot, says Dr Sherman: They can be designed to avoid leakage of air and can use the most efficient mechanical systems. Retrofitting existing buildings while meeting green building standards that will eventually become law is harder, says Derek Tynan, a project engineer with Efficient Energy Compliance, a consulting firm for commercial buildings in New York.

Developers and engineers believe one of the answers lies in dynamic systems that can boost air quality mitigations in times of crisis—thus using more energy—and then reset to a more energy-efficient setting when it is safe to do so.

It’s not clear whether pandemic shock will lead to lasting change. Dan Holohan, an author of 24 books about the steam heat industry, has studied engineering manuals during and after the 1918 flu pandemic. Back then, there was lots of discussion of “the fresh air movement,” but once it was all over, so was any mention of infectious disease, says Mr Holohan.

“Once we get vaccinated, people will forget this ever happened and get back to doing the cheapest thing,” he says.

December 16, 2020April 20, 2022

Why Now Might Be A Good Time For Adidas To Sell Its Reebok Brand

Adidas might sell its struggling Reebok brand, potentially taking advantage of the strength of athletic goods, which have been a bright spot in apparel during the Covid-19 crisis.

On Monday, Adidas (ticker: ADDYY) said it was reviewing Reebok’s future, which could include a sale. The news comes ahead of the company’s five-year blueprint, which it is set to present in March, although the German athletic giant said it could ultimately decide to keep the brand.

Adidas purchased Reebok for $3.6 billion (A$4.76 billion) in 2006, as it looked to extend its reach in the U.S. But the process wasn’t a smooth one, and Adidas Chief Executive Kasper Rørsted announced a turnaround plan for Reebok shortly after he took the helm in 2016. On the one hand, that has been a success in that Reebok once again became profitable, two years ahead of schedule, and last year increased U.S. sales by double digits.

In another sense, though, Reebok remains a weak point in Adidas’s portfolio. It has lagged behind during the pandemic, with third-quarter sales falling 12.3%, nearly double the flagship brand’s 6.7% decline. Some analysts estimate that Reebok could sell for as little as $2.3 billion (A$3.04 billion), well under what Adidas paid for it.

While many investors have called on Adidas to divest itself of the brand before, now could be a particularly auspicious time for such a move. The pandemic has decimated demand for clothing and accessories in general, as people work and learn at home, but athleisure has bucked that trend.

Companies such as Nike (NKE) and Lululemon Athletica (LULU) have seen sales shrink much less dramatically than peers this year, and have been rewarded with rallies of 34.5% and 52%, respectively. Partner and third-party retailers, including Foot Locker (FL) and Nordstrom (JWN), have highlighted strength in fitness categories, as well, in recent earnings reports.

Athleisure isn’t a new trend, but consumers’ renewed focus on health and comfort during Covid has been a major tailwind. That has led for renewed calls for other companies to sell their outperforming fitness-focused labels, such as Gap’s (GPS) Athleta, although Gap said it plans to hold on to the brand.

That means that if Adidas were to sell Reebok in the near future, it could fetch a higher price, especially if it can continue to show improvement throughout the holiday season.

That would be welcome news for the stock. Compared with Nike and Lululemon, Adidas hasn’t done as well. Its American depositary receipts are up just over 7% year to date, and the European shares have been laggards.

December 16, 2020

H&M Has Lagged Behind Zara Owner Inditex In Online Shopping. Both Stocks Fell.

The Covid-19 pandemic caused sales to slump at retail giants Inditex and Hennes & Mauritz (H&M) in November, reversing glimmers of a recovery and shining a light on the very different online sales performance between the two companies.

Shares in both companies fell in European trading, with Inditex, which owns Zara, trading near 2% lower and H&M dropping more than 2% on Tuesday.

The back story. As global coronavirus infection rates slowed through the summer and government restrictions were loosened, shoppers flocked back to stores after months of retail closures. Both Spanish Inditex and Swedish H&M—the largest and second-largest fashion chains in the world, respectively—returned to profitability in the autumn after large losses.

With the Covid-19 pandemic keeping millions of shoppers housebound, Inditex has made a key investment in expanding online shopping. In June, the company announced a €2.7 billion ($4.34 billion) investment plan to improve online operations and increase store footprint, of which €1 billion was earmarked for digital investments.

H&M, still controlled by its founding Persson family, was already struggling before the pandemic hit. The company has been slower to shift to online shopping in favour of its more than 5,000 stores and the low-cost fashion strategy it helped pioneer.

What’s new. Both companies reported results on Tuesday—Inditex for the three months to the end of October, and H&M for the quarter ending Nov. 30 as well as the full year.

Store and online sales grew slowly from August to October at Inditex, with October sales at 94% of 2019 levels at constant currencies. In total, net sales of €6.1 billion in the third quarter were 14% lower than the same period in 2019. However, as coronavirus cases surged in November, 21% of stores remained closed and sales fell to 81% of 2019 levels.

At H&M, net sales for the fourth quarter were 10% lower in local currencies from the same period last year. Much of that came in the final month: sales were down by just 3% year-over-year from Sept. 1 to Oct. 21, but were 22% lower than 2019 in the period from Oct. 22 to Nov. 30.

Looking ahead. The results from the retail giants show the impact the second wave of Covid-19 has brought on sales. Fears over how much this hurts the bottom line for the full year is what may have caused both stocks to fall.

But the results also shine a light on the companies’ different online strategies—a crucial sales platform beyond the pandemic. Inditex reported that online sales grew 76% in the nine months to the end of October, while analysts expect H&M to lag far behind. The Swedish retailer didn’t post any fresh online figures on Tuesday. It had posted online sales growth of 40% in the second quarter and just 27% in the third.

December 15, 2020April 20, 2022

Charitable Gift Annuities Are 0n The Rise

Move over, charitable trusts. Make way for the charitable gift annuity.

Typically viewed as entry-level gifting methods thanks to low minimum contribution amounts, low cost, and simplicity, charitable gift annuities have had a spike in inflows from wealthy donors lately. According to a BNY Mellon Wealth Management study, in 2019, assets in gift annuities were up 21% over the prior year, and the average gift was 56% larger. Assets continued to flow into charitable trusts, but at only a slightly higher level than in 2018.

The surge in popularity in gift annuities is likely a result of people’s desire for a guaranteed lifetime annuity at a time when yields are at historic lows in the fixed-income market, and a hesitation to sock money into a charitable remainder annuity trust (CRAT).

A CRAT is the gift annuity’s equivalent in the trust world, and typically a popular tool. But ultralow interest rates and high valuations in the stock market make for a lousy environment for CRATs, says Crystal Thompkins, national director of gift planning services at BNY Mellon Wealth Management, who expects gift annuities’ popularity to extend through this year.

As winds shift in the economy, the markets, and regulatory environment, it’s not uncommon for the popularity of different charitable planning tools to rise and fall. Given the surge in popularity of gift annuities, it’s worth a look at how they size up these days relative to their closest charitable trust cousin.

Charitable Gift Annuities

A charitable gift annuity is a simple contract guaranteeing that if you give a nonprofit organisation a lump sum, it will pay you a fixed, lifetime annuity based on actuarial factors—a host of market factors combined with your life expectancy. Minimum donations are around $2,000 and, unlike a trust, no attorney is required to set one up (hence no attorney fees).

Even if you live beyond your life expectancy, after your lump-sum equivalent has been paid out, you continue to receive the annuity. Depending on the contract, the annuity can continue to pay out to a surviving spouse. If you and your spouse die before your lump sum has been paid out, the charity keeps the balance in its coffers.

Payments can be deferred, which increases the amount paid out in the future annuity. A partial donation for the gift can be taken upfront. Capital gains taxes on the growth of underlying assets are spread over the annuity payments. When interest rates are low, the future capital gains’ bite out of annuity payments is lower, leaving more intact as income, Thompkins says.

Nonprofit groups that offer charitable annuities have large infrastructures, such as museums and universities. “We’re talking those with hundreds of millions in assets that are segregated to support their annuity programs,” Thompkins says. “These are diverse pools designed to absorb potential risk. It’s like managing a pension.”

The downside is that not all nonprofits offer gift annuities, and they aren’t customised, says Pam Lucina, chief fiduciary officer at Northern Trust.

Charitable Remainder Trusts

In contrast, trusts can pay out to a number of different charities, over a specified period of time instead of a lifetime, and can be used to transfer assets to heirs. The CRAT is the most similar to a gift annuity: It turns a lump sum into an annuity, and what’s left at the end goes to charity—at least 10% of assets transferred to the trust is required to be left as a gift.

But the CRAT has lost its luster lately, Thompkins says. The annuity and future gift are dependent on the high probability of the underlying invested assets performing within certain parameters. With stock market valuations high, and the economy in ragged shape due to Covid-19, there’s good reason for concern that the market could enter a sustained bear market.

“In 2008 and 2009, there were trusts that were exhausted with no benefit to either the charity or the donor,” Thompkins says. “Many people are leery now.”

December 15, 2020December 17, 2020

Book Recommendations From Business Leaders and Cultural Influencers

Jenny Johnson

President and CEO, Franklin Templeton

A Woman of No Importance: The Untold Story of the American Spy Who Helped Win World War II, by Sonia Purnell

“This is a remarkable story of an American woman who served as a secret undercover agent in France during World War II—first as a spy for the British Intelligence agency SOE, because the U.S. state department refused to let her join, and then later for the U.S. She had unbelievable success in mobilizing the French resistance—fortunately, unconscious bias worked in her favor, as the Germans could not imagine that a woman with a disability could be so effective at undercover work—including bold prison breaks! Despite her success, the SOE refused to promote her, until finally it became abundantly clear that she was far more effective than her

superiors, and she was appointed to a leadership position.”

Greg Norman

World Golf Hall of Famer, Chairman and CEO, Greg Norman Co.

Rise and Kill First: The Secret History of Israel’s Targeted Assassinations, by Ronen Bergman

“The book was recommended by a few of my friends. I recently went on a trip to Israel and was fascinated by how such a small nation has had such a difficult history. This book really showcased how hard Israel has fought and continues to do so for its sovereign rights.”

David Hunt

President and CEO, PGIM

The Third Pillar: How Markets and the State Leave the Community Behind, by Raghuram Rajan

“While the globalization of capitalism has been responsible for lifting millions of people out of poverty, in an age of rising inequality, many are rightfully questioning the system as a whole. Rajan’s The Third Pillar offers an

excellent framework to understand the problems associated with market-based economic systems and help us think about solutions.”

Dana Canedy

Senior Vice President and Publisher, Simon & Schuster

White Ivy, by Susie Yang

“I absolutely love fiction with characters that are so richly realized and that defy stereotypes and show us new ways to see cultures and the people who make them so complex and vibrant. Yang does not disappoint, with this brilliant work of literature that offers a unique view of the immigrant experience and left me thinking about class and character in unexpected ways.”

Cristina Mariani-May

CEO, Banfi Vintners

Can’t Hurt Me: Master Your Mind and Defy the Odds, by David Goggins

“I was inspired by Goggins ’ perseverance and drive. As a working mom who recently reorganized her business after 100 years of being family owned and operated and who worked to reposition it for today and the next generation, I really loved the role model I found in Goggins. I am also an ultra-marathon runner, and David tells amazingly detailed stories of long-distance trail runs. If you want to feel empowered, read this book!”

December 14, 2020December 17, 2020

Fighting Bushfires Goes High Tech With Laser Drones, Sensors And Satellites

SYDNEY—In October, a sensor mounted on an 8.5-metre pole in the Australian countryside detected small particles in the air near a timber plantation and sent out an alert.

When plantation staff arrived, they found a small man-made fire that was already under control, but the incident offered a glimpse of how authorities hope to use new technology to battle bushfires that have grown increasingly intense in recent years.

As a new fire season begins in Australia—a recent bushfire ravaged about half of Fraser Island in the country’s east—researchers are looking to rely more on technology to find blazes quickly and better predict their path.

A monthslong government inquiry into the devastating 2019-2020 fire season in Australia, which killed more than two dozen people and burned an area bigger than Washington state, concluded that authorities need to be better prepared and recommended that officials work with the private sector to develop new technology.

“We’re still detecting fires with people in towers and binoculars. We’ve got to move beyond that,” said Leigh Kelson, program director at FireTech Connect in Australia, a government-funded effort to help startups develop new firefighting technologies. Firefighters also rely on the equivalent of 911 calls to find new blazes.

The ideas researchers are exploring include fitting drones with lasers that can map dry areas at higher fire risk and whether satellites can detect extreme fire behaviour.

Last fire season, authorities were surprised by how quickly the blazes spread and how long they burned, which they later attributed to a prolonged drought that had left the land parched with plenty of dry vegetation to fuel the flames. Last year was Australia’s hottest year on record, according to the government’s Bureau of Meteorology, and fires are projected to become more intense and frequent because of climate change.

Parts of Australia have received more rainfall in recent months, and the current fire season isn’t expected to be as severe. Still, firefighters have struggled to control some of the blazes. The fire on Fraser Island, the largest sand island in the world and a Unesco World Heritage site, prompted officials to tell some residents to evacuate from homes in the path of the flames. On Sunday, firefighters said rainfall had finally helped to contain that blaze, which started in mid-October.

Other regions, including the western U.S. and even in frosty Siberia, have experienced particularly intense fire seasons recently, stretching global firefighting resources and making early detection of fires more crucial. Fires left unchecked can create their own weather systems, raining embers down on nearby communities and pushing dangerous smoke into big cities and even to neighbouring countries.

The sensor that picked up the October fire near the timber plantation is one of more than 40 in a network that covers an area nearly double the size of New York City in Australia’s Victoria state. The solar-powered, cylinder-shaped sensors are packed with instruments including optical and thermal cameras, flame detectors, particle counters for air quality, and ground-vibration readers. The data are publicly available online in real-time.

Attentis Pty. Ltd., a Melbourne, Australia-based company, finished installing the network in early 2019 as a pilot project to demonstrate the technology. They didn’t get much use detecting fires last season because the blazes were too far away.

Cameron McKenna, managing director at the company, said he is in talks to install similar sensor networks to improve fire detection capabilities in other parts of the country. “We use multiple methods of detection as opposed to a single method,” he said.

In Canberra, Australia’s capital, researchers are working with a local firefighting agency to install video cameras on four fire towers. One tower will also have a thermal camera installed.

A computer program will scan images from the thermal camera to detect fires, and a person will monitor the other video feeds. Researchers plan to develop a computer program to automatically scan the video feeds too, said Marta Yebra, director of the Australian National University Bushfire Initiative. The idea is to determine whether the cameras detect new fires quicker than the old-fashioned way of having a person in the fire tower, she said.

Rohan Scott, who leads the rural fire service in the Canberra area, said people in towers on average spot fires within seven minutes of ignition. But the towers are only staffed on high-risk days.

“If we can get detection 24/7 but at the same speed as a human-manned fire tower, then I think that would be a good outcome,” he said. “Anything quicker than that would be a definite bonus.”

Other ideas involve using drones fitted with lasers to create detailed maps so authorities know which areas have more dry vegetation and present a higher fire risk. One recent effort involved researchers poring over satellite imagery in an attempt to build a model for detecting extreme fire behaviour from orbit. They found that changes in smoke colours could help predict fire behaviour, according to the Minderoo Foundation, a nonprofit that sponsored the research.

One company, Fireball.International Pty. Ltd., says its machine-learning method can detect smoke from ground-based cameras and fires from heat signatures on thermal-satellite images. Its system is already being used by a big power company in California, and Fireball plans to begin pilot programs in Australia this fire season, executives said.

A prototype of the system detected smoke from fires within 15 minutes of ignition, while averaging less than one false positive a day per camera, according to an analysis published in a peer-reviewed journal in January. It said there is room for improvement.

“People are beginning to realise, ‘Gosh, we really can detect a fire in the first five minutes,’” said Tim Ball, an academic and co-founder of the company who is also a former firefighter.