In today’s Exponential Investor:

  • Problems have solutions
  • Not that grand after all
  • Crypto craziness, as always

One of the slightly tricky debates within the fight against climate change is about priorities.

For example, if wind turbines are unrecyclable, and are placing a huge burden on the balsa forests of the world, and leave piles of turbine blades at landfill sites, are they really that “green”?

It speaks to a key question that is often left unmentioned, which is where our priorities lie.

Looking after the natural environment is a very different task to stopping global warming and climate change. Wind turbines help with the latter, but obviously aren’t great on the former.

Long have critics shared photos of wind turbine blades, dumped by the hundred at landfill sites, as if that impacts their climate-saving criteria.

Well, no longer!

Siemens Gamesa, one of the largest players in the turbine manufacturing sector, has gone and developed a recyclable blade. This is wonderful news, and although it’s early days for sure, it’s a great reminder that problems like this can often be solved within a reasonable time frame.

The breakthrough has been achieved by using a different resin that allows for the carbon fibre, steel and balsa woods components to be more easily separated after use.

They will not be able to go into making new turbine blades as they won’t quite have the same super strong characteristics second time round (and so wouldn’t withstand typhoon conditions offshore), but they can still go into general construction jobs and appliances.

Now, wind turbines can hopefully have better credentials in terms of their physical impacts on the natural environment, as well as being completely brilliant for the environment.

Ever Green Evergrande?

The second largest property developer in China by revenue is bordering on collapse.

After issuing a warning that it might default on its gargantuan debts a couple of weeks ago, it has attracted a decent amount of attention.

Why? Well, because it’s a poster child for what some perceive to be a Chinese property bubble.

Huge amounts of debt-fuelled growth have propelled the Chinese property market forwards.

Evergrande is the poster child for this excess, with incredible amounts of debt which it always seemed to be able to just about handle.

The Chinese Communist Party (CCP), seeking to rein in this huge indebtedness in the sector, stopped supporting the company, and gave it a dressing down.

Having previously been favoured by the party, the loss of that favour has coincided with a raft of other issues, which is now leading to a spiralling cascade of woes.

Its bonds have fallen precipitously in double quick time, and trading was halted during a 20% fall on Monday.

Its shares are down below 4 Hong Kong dollars, from about 25 a year ago.

Evergrande is like the biggest fish in the pond. It exemplifies a debt-burdened sector, and the troubles it is having in its attempt to do so are causing investors to worry about the rest of the sector.

Some bonds and stocks of other property companies have started to see sharp falls this week, such as Guangzhou R&F, whose bonds fell to about 60% of their face value on Tuesday, following drops of more than 20% a day earlier.

Zooming out, this property sector turmoil can be added to the political troubles affecting education and tech stocks in China.

Chinese tech stocks fell aggressively in recent months as the CCP cracked down on their free market tendencies, leading to wide divergences between the US and Chinese markets.

They have now started to bounce, but nonetheless, the pressure on investors in Chinese companies has ramped up hugely in 2021.

This is true even for investors willing to ignore the new cold war rhetoric, the atrocities committed against Muslim Uighurs in Xinjiang, and the rest of the CCP’s playbook of misdeeds. For all the environmental, social and governance (ESG) problems, the rewards have hardly been forthcoming.

For investors and people alike, China is becoming a tricky place to do business.

The SEC strikes back

Once more into the breach, dear friends…

The Securities and Exchange Commission (SEC – the main financial regulator in the United States) is going after crypto again. This time, it’s going after Coinbase, the leading public company offering a platform for crypto investment.

This news came out just as El Salvador officially made bitcoin legal tender within its borders, becoming the first ever country to do so. Supermarkets, roadside vendors, McDonald’s… In enterprises from one end of El Salvador to the other, people are able to transact using the world’s leading cryptocurrency. It is a really amazing concept, to be honest!

The SEC took the wind out of El Salvador’s sails though, by threatening to sue Coinbase amidst an apparently unrelated huge liquidation of coins on the network which led to a sudden 15% drop in its fiat-converted price.

So, it really has been a busy week so far for the crypto world.

The SEC has apparently been negligent in its dialogue with the company, who is quite enraged by this latest threat. Coinbase management described it as a “regulatory land grab” and said, “After months of trying to engage with the [SEC] on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us. We believe dialogue is at the heart of good regulation, even if the SEC may not.”

The problem is to do with the nature of lending against crypto reserves, which is uncharted territory for most regulators.

The SEC’s chairman, Gary Gensler, has been outspoken in recent months about the need for regulation of crypto markets, and it seems that this is the result.

I’m not a huge fan of the SEC to be honest. Its regulatory oversight of Tesla has been irrelevant to say the least. And it seems that the regulator is not doing a wonderful job in its dealings with Coinbase either.

The introduction of new crypto solutions to the market is going to continue, and working with rather than against the biggest and best companies in the space seems advisable.

Especially when bitcoin could soon be going to $100 million per coin, according to one of the world’s largest asset managers.

All the best,

Kit Winder
Co-editor, Exponential Investor