April 12, 2022

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TOGETHER WITH

Good day. Can you guess which of the following EU countries has the highest dependence on energy imports? a. Germany, b. Sweden, c. Greece. Follow the wave 🌊 below for the answer.

Zooming in on the finance topics for today 🧐:

Tech giants to take on fintech
The oil & gas fiasco
Things to consider before adding crypto to your retirement account

MARKET TRENDS

Tech Giants To Take On Fintech

If you’re someone who loves a good competition, you may want to pay attention. The tech giants of the world are vying to take over even larger swaths of a new market, going from just tech to fintech, and huge to possibly larger than life.

Wait, what’s going on?

You’ve undoubtedly heard of Apple Pay, and likely come into contact with it many times too. While it might not seem like much at first glance, it was actually just Apple’s way of getting their foot into the fintech industry’s door, and both they and other tech giants are looking to expand on their fintech offerings now.

In addition to the addition of Apple Pay back in 2014 and all their subsequent services since, Apple proceeded to release a proprietary credit card in 2019 as well. And now they plan to expand their reach even more.

Apple is supposedly vying to create their own holistic in-house financial infrastructure. Internally, the effort is called “Breakout,” hinting at becoming independent from incumbents in the space.
Headlining the rumor is the idea they’re looking to create their own payment processing network—a big deal considering their current reliance on partners—as well as hardware subscription services, buy now pay later options, and more.

It’s not just Apple doing this though. We’ve already seen Meta launch initiatives into the crypto and payment processing niches, Google foray into bank accounts, and Microsoft dedicate an entire division to financial services.

Is this a good thing or a bad thing?

Are these already massive entities threatening to become true monopolies, or are they just engaging in natural innovation that’s beneficial to their businesses? Well, there’s no right answer to that yet, and only time will tell, but for now it doesn’t seem like anything to sound the anti-trust alarms at.

In the meantime, this can still have noteworthy implications for us as consumers, because it’s almost inevitable that most of us will have some routine exposure to tech giants in one way or another.

Knowing this, it’s worth keeping an eye on your personal data, maybe now more than ever. With the techies already hoarding our data as is, seeing them get into the financial space can be a potentially scary crossover, especially in the case of a cyber attack or data leak.

COMMODITIES

The Oil & Gas Fiasco

Russia has lit a global economic match with their invasion of Ukraine, and the energy sector was first to feel the heat. Gas prices rose strikingly throughout the first week of March after sanctions ensued, an outcome presaged by the oil futures market doing the same shortly before.

Now, the search for a solution seems continually inconclusive, but the US government is still trying to put out this oil-prices fire with some last resort tricks.

A drop in the bucket

President Joe Biden has authorized the release of about 180 million barrels of oil from the US strategic petroleum reserves over the next 6 months, and multiple NATO nations across Europe are reportedly planning to do the same, adding 30-50 million more barrels to the market.

The US uses about 20 million barrels of oil per day on average, and so releasing an amount like that from reserves would, hypothetically, last the domestic market approximately just 9 days. In other words, it’s a drop in the bucket.

Meanwhile, global supply is expected to be reduced by about 3 million barrels per day due to the restrictions placed on Russia, the world’s third largest producer of oil. Next to that, neither OPEC nations nor domestic producers have agreed to ramp up production to offset price hikes.

Why it matters

The US only imported about 245 million barrels of oil from Russia last year, or about 8% of all its oil imports in 2021. That sounds minor, so wouldn’t the 180 million barrels from reserves make up for that?
In theory, yes, but oil is a global market. Russia exported 1.7 billion barrels of oil in 2021, a significant amount of which was exported to countries that now place sanctions on Russian energy.
So, the US will have to find replacements in non-Russian oil whose production is not ramping up. As a result, it gets more expensive, and the impacts trickle all the way down to the pump.

The big picture

With a restricted global supply and ongoing fears about the future of the oil markets, how this will eventually be resolved remains unknown. At this time, it has all culminated in bringing us higher gas prices, along with plenty of finger pointing looking for a single person to blame for a complex issue.

If we zoom out and look past our myopic frustrations through a more macro lens, things feel a little bit better. Gas prices are likely to remain elevated for the foreseeable future, but there’s hope that they could regress to the mean in the coming months if oil prices remain around $100 or less.

Americans may even be slightly better off than others on the global scale. Europe for example relies on 60% of Russia’s oil exports, and they were already dealing with an energy crisis as is, so this has only added fuel to the fire.

⛽ Here's a related lesson on this topic:

Investing in Commodities

Investing Basics

8 mins

INVESTING MINDSET

Things To Consider Before Adding Crypto To Your Retirement Account

If you’re considering adding crypto to your retirement portfolio, congratulations, the fact that you’d even ponder such a move suggests you’re likely pretty open-minded and willing to learn. And if you think this is a joke, it’s not. It’s now a reality given the rise in popularity of crypto, inflation and all around uncertainty in the world right now.

After all, crypto has been the highest-performing asset class over the past 3 years. Nevertheless, as prudent as our intentions may be, it’s still important to consider some things before adding some $DOGE to your Roth IRA.

Most traditional accounts won’t do it. You’re not going to be able to just buy some Bitcoin within your Fidelity or Vanguard account, and likely not in your employer-sponsored plan. ForUsAll is one of the only company-sponsored 401(k) plans with the option to add crypto, a company that’s been in operation since July 2021. It caps your allocation to crypto assets at 5%, too. Sure, you can buy some crypto on a separate platform that allows it, like Bitcoin IRA or IRA Financial, but it won’t get you benefits like an employer match.
There’s a lot to choose from. When most people invest within a retirement account, they don't buy individual stocks, they invest in funds. With crypto though, there are no SEC-sanctioned funds, well-defined market cap segments or traditional means of simplicity and diversification. If you choose to invest in crypto for your retirement, you’ll need to discern between potentially hundreds of coins.
And in case you haven’t heard, crypto is volatile. So, when it comes to a retirement portfolio, account holders usually look to tone down the volatility as they near retirement age, which is the opposite of what you’d be doing by adding crypto.

Our take? There’s no question that crypto will disrupt the ways we do business. In recent weeks, the US administration’s posture has also become friendly to crypto. Highlights include US Treasury Secretary Janet Yellen going from sounding alarms to championing US leadership in this new innovation vertical. Biden’s recent executive order also adopted a favorable tone for the future of crypto in the US.

Having a small amount invested can multiply your savings without exposing you to too much risk if you have a long time horizon. So, it's worth considering your age, risk tolerance, and allocation level before proceeding.

🪙 Here's a related micro-lesson on this topic:

Cryptocurrency Basics

Investing Basics

6 mins

🔥 TODAY'S MOVERS & SHAKERS

CarMax (-5.5%) after profits missed but revenues topped Wall Street estimates; sales volume for the auto retailer slowed while average selling prices continued to rise
Occidental Petroleum Corporation (+4.4%) given the market sentiment and while analysts are still raising their earnings estimates for the company; recall Buffett has a total stake of $7 billion in the company
Albertsons (-5.6%), the US grocery company, in spite of solid results and confidence in dealing with supply-chain issues
Bitcoin (BTC) -12% over the last 1 week to $40,227.36
Ethereum (ETH) -11.7% over the last 1 week to $3,051.55

This commentary is as of 9:00 am PDT.

🌊 BY THE WAY

Answer: It's Greece 🇬🇷 as their reliance on energy imports to meet their energy requirements is 81.4% (up from 69.1% just two years ago); Germany is at 63.7%, while Sweden is at 33.5%. Here's a map visualizing the EU’s energy dependency (Visual Capitalist)
🎈 Inflations figures for March were released today. As expected, prices were up 8.5% over the last year (vs. 8.4% rise that economists expected), but core inflation (that excludes volatile food and energy prices) rose 0.3%, less than the 0.5% analysts expected. Bloomberg poll shows that CPI will decline to 7.6% by the end of Q2 and 5.7% by year-end. This will not however alleviate the pain people are facing in their real lives. (Axios)
🏦 ICYMI. The fintech industry relies on the traditional banking infrastructure (Finny Bites)
💻 Speaking of big tech... Google will practically do your writing for you (Verge)
Finny lesson of the day: We've featured this one many times, but it's worth highlighting again—what is inflation exactly and how it gets reflected in your account balances?

What is Inflation?

Investing Basics

6 mins

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