| | TOGETHER WITH |  | | | Good morning and happy Canada Day to readers up north.
US stocks are on track for the worst first-half slump since 1970, when a recession ended the then-longest period of economic growth in the country's history. Over $9 trillion has been wiped off of market values since the end of 2021, according to Bloomberg data, and the S&P 500 is down over 20%. Every sector of the S&P 500 has fallen so far this year, except for one. Energy stocks are up 30% this year. A few choice investments may just make those trips to the pump a little less painful. |
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| • | | The Supreme Court says the EPA will need permission from Congress before it can regulate power plant emissions. | | | • | | Hedge funds are readying to invest in the severely depressed biotech sector. | | | • | | The definition of "wealthy" just changed. | | | Please do not delete this text. |
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SCOTUS Ruling Says EPA Must Get Permission to Regulate Power Plant Emissions |
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(The Supreme Court; Photo by Mark Fischer) Between the January 6 hearings and a series of controversial Supreme Court decisions, Washington DC has been getting pretty heated the last two weeks. On Thursday, the Court decided it wasn't going to end there, issuing a ruling that could make the city even hotter — literally. Justices struck down certain powers of America's top environmental regulator to limit greenhouse gas emissions. |
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Delegation Before Regulation |
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In the leadup to a larger pledge to reach net-zero emissions by 2050, the US has set out to make 100% of the electricity it produces carbon-free by 2035. Overall, the electricity sector is the second-largest source of greenhouse gas emissions in the US, accounting for 25% of the total in 2020 according to the EPA. That means achieving the energy transformation will not be cheap — a 2019 report by energy consultancy Wood Mackenzie estimated the cost of decarbonizing the US power grid at $4.5 trillion. Thursday's Supreme Court ruling addressed how the Environmental Protection Agency (EPA) could restrict emissions from power plants to meet those goals. The Court isn't opposed to the EPA having powers to curtail emissions, but where the majority and dissenting justices split was over how the agency obtains such powers: |
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• | | The majority 6-3 opinion, authored by chief justice John Roberts, ruled the EPA wasn't authorized by Congress to reduce carbon emissions when it was founded in 1970. "A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body," Roberts wrote, ruling the EPA would need to get permission from Congress before mandating emissions levels. | |
• | | Elena Kagan, one of the dissenting justices, argued Congress already granted the EPA such authority "when it broadly authorized EPA in Section 111 to select the 'best system of emission reduction' for power plants," and said the limits imposed by the majority opinion "fly in the face of the statute Congress wrote." | | |
Partisan reaction to the ruling lined up exactly where you think it did. Conservative think tank the Heritage Foundation called the ruling a "major step to restore representative government" while a White House spokesperson called it a "devastating decision."
The Plan Who Wasn't There: This was a particularly strange case because it concerned an Obama-era plan to mandate coal fire plants to cut emissions that never came into effect. Several states, including Texas and Kentucky, nevertheless challenged that plan all the way to the highest court and won. |
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Hedge Funds are Shopping for BioTech Bargains Amid Market Downturn |
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This year, biotech is more like a biowreck. A burgeoning sector last year, biotech has taken this year's market tumble harder than even the most vulnerable of sectors. But there might finally be a light at the end of the tunnel in the form of hedge funds staring wide-eyed at the sudden bargain bin. |
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Close to 200 listed biotech companies around the world were trading below the value of their cash reserves as of last week, according to investment bank Torreya Capital. The global biotech sector, which had a peak aggregate value of over $500 billion in February 2020, had lost over 70% of that as of May, coming in under $200 billion, according to S&P Capital IQ. In other words, things are bad. How bad? "This is the worst correction I have seen in my 22-year career," Michele Gesualdi, founder of investment group Infinity Investment Partners, told the Financial Times. Drug companies, especially in early startup stages, are burdened with running expensive clinical trials to get their products to market — making them particularly vulnerable when there's less risk-capital sloshing around. While that tough environment has bludgeoned biotech fundraising this year, some funders are ready to step in: |
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• | | "For many public company biotech CEOs looking to raise capital, it may feel like they are caught in the Sahara desert," Torreya managing director Tim Opler told the FT. But Infinity Investment, which has $1.5 billion in assets under management, launched a new life sciences fund to capitalize. | | • | | "It's the one area where there's been complete and utter capitulation," Andrew Clifford, CEO of Platinum Asset Management, added to the FT. His firm, which has $14 billion in assets under management, is launching an EU version of its existing health sciences fund to profit from the sudden decline in valuations. | | | Merge Records: UBS' hedge fund unit recently tapped a new team to bet on rising and falling valuations of healthcare therapeutics firms — the bank thinks there is capacity for $1 trillion in M&A deals as bigger pharma companies try to acquire new treatments for their drug pipeline. |
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SPONSORED BY Roofstock One |
The Here Today, Here Tomorrow Investment |
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2022 has been a year of turbulence for public markets, with market volatility wreaking havoc on investor portfolios. There's no better time to take advantage of investment opportunities that are highly uncorrelated to the stock market—like the single-family rental (SFR) real estate sector, for instance. A few recent figures on the housing market: |
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• | | Moody's Analytics projects the US has a severe shortage of 1.5 million homes. | | • | | In May, US single-family home construction fell 9.2% to its lowest level since August 2020. | | | Please do not delete this text. |
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Survey Defines Just What the Threshold for 'Wealthy' Is |
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Achieving "wealth" isn't an unusual goal. Unfortunately, the act of doing so is one game in which the goal posts keep moving — at least, according to one influential survey. According to Charles Schwab's recently released annual Modern Wealth survey, the threshold for "wealthy" in America increased 15% in the last year. In some major metro areas, the threshold moved even higher. |
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Americans say they need an average net worth of $774,000 to live a "financially comfortable" life, according to the report, which surveyed 1,000 people between the ages of 21 and 75 earlier this year. And to be considered wealthy, Americans now say one needs a net worth of $2.2 million, up from $1.9 million last year and $1.4 million in 2018 (which, adjusted for inflation, would be just $1.6 million today). For those in buzzy big cities, the wealth summit is an even higher mountain to climb: |
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• | | In San Francisco, the threshold for wealth is now $5.1 million, up 34% year-over-year. Next up is Southern California (which includes Los Angeles and San Diego) at $3.9 million, then New York City at $3.4 million. | | • | | Of the twelve major metro areas surveyed, Denver reported the lowest net worth needed to be wealthy: just $2.3 million. It might be time to buy some ski gear. | | | Sharing is Caring: When asked what personal values influence wealth-management decision-making, 21% of respondents responded with "putting others first" — a nebulous category that includes making the best decision for their family and environmental values. Only 3% of respondents said their priority is "being risk-averse." That might explain the meme stock, crypto, and legalized gambling booms.
Rent Relief: While nearly every major city has seen rents soar this year, prices in SF remain 10% lower than in March 2020, the steepest discount in 100 metro areas according to data from home-search website Apartment List. A mass exodus of tech workers is partly the cause — so expect the wealth threshold to soon increase in Austin, Miami, Salt Lake City, and wherever else the techies end up next. |
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Please do not delete this text. | Extra Upside | • | | Flying coach may soon become a lot more comfortable: New Zealand Air is installing sleep pods for economy class tickets on its longhaul flights to the US. | | | • | | The MLB plans to introduce robot umpires by the 2024 season. | | | • | | According to Axios, the sports cards index has reported a 12-year ROI of 175% compared to just 102% for the S&P 500. What does that mean? It means that sports cards have consistently outperformed one of the world's largest stock indexes. Want to get involved? This newsletter gives you exclusive access to the latest offerings in the collectible universe, so you can be first in line on the most in-demand offerings. Sign up at no cost today. | | | Please do not delete this text. |
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| Written by Sean Craig and Brian Boyle. |
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