24 09/21 24/09/2021

Weekly Newsletter Week 38

Newsletter week 38...







  • Financial Markets & EconomiesBuy The Dip
  • Good to knowDefault
  • Your portfolio highlights Brookfield Asset Management, Solar Value Fund, The Mosaic Company
  • In other news: Hedge Funds Have Never Been This Bullish On Berkshire Hathaway 
Financial Markets & Economies

U.S. markets started the week in a sell-off which was recouped later in the week. One thing we could have noticed during the sell-off is that cryptocurrencies were among the worst performing assets. This means that contrary to popular belief, cryptocurrencies do not serve as a safe haven. Investors instead took hiding in the usual assets, namely, gold and U.S. Treasuries. Another thing that was noticed during the sell-off is that many investors used the “Buy The Dips” strategy. Instead of panicking and worsen the sell-off, investors bought additional shares of their current holdings at the then lower prices. This led to the prompt recovery and rally.  

In our previous communications we have spoken about the massive debts of different countries around the world and how these have been increasing even more during the pandemic. The U.S. is one of the countries with the most amount of debt. The country is currently facing liquidity issues and is able to service its debts till October under the current circumstances. A solution to this problem is to borrow the needed capital which brings us to another problem. The U.S. reached its debt ceiling. For the U.S. to be able to take on more debt and ensure sufficient liquidity, Congress must raise the debt ceiling by mid-October.

Good to Know

The raising of the debt ceiling is obviously a political decision but with far reaching consequences. The Democrats are proponents of either raising the debt ceiling or suspending it altogether while the Republicans are against increased government spending. Analysts believe that a U.S. Government default is very unlikely, and that Congress will come to a debt-ceiling agreement in one way or the other. The risk of default therefore is considered low but will increase each day an agreement is not made.

Worst case scenario, in case Congress does not increase or suspend the debt ceiling, the U.S. economy will likely fall into a recession as the nation is unable to pay its obligations. According to a Moody’s Analytics report this could mean a $15 trillion decline in household wealth and a loss of 6 million jobs leading to an unemployment rate of up to 9%. As a country that have been considered (close to) risk-free when it comes to the possibility of defaulting, it is not in their best interest to default now. As was mentioned in the previous section, U.S. Treasuries are still considered safe havens. A default will definitely change this.

Public and private leaders including six former Treasury secretaries urged Congress to take quick action on this matter as even the idea of the U.S. Government defaulting can be damaging to the economy and financial markets. After all, the increase or suspension of the debt ceiling does in no way authorize new spending said congresswoman, Nancy Pelosi. It is time to put the U.S. economy above politics she continued.

Your Portfolio Highlights

Brookfield Asset Management (BAM) has been active as usual and mane the news for several reasons. The company entered a strategic partnership with Elion Partners. Elion Partners is a vertically integrated industrial specialist and sponsor of institutional real estate vehicles. This move expands Brookfield’s Real Estate Secondaries’ logistics portfolio across markets. The partnership will lead to industrial real estate developments valued at around $1 billion. The project includes 5 existing Class A industrial assets totaling 4 million square feet. They are 100% leased. There is also the potential of developing an additional 15 million square feet of industrial properties.

Brookfield also re-entered the life sciences real estate sector by forming a partnership with King Street Properties. The partnership will lead to an investment of approximately $1.5 billion in King Street’s life sciences real estate pipeline. This again expands Brookfield’s reach in other real estate markets. The deal, which blends King Street’s expertise in the sector and the financial resources of Brookfield, will allow King Street to rapidly scale its platform in life science markets and also expand to new rising markets.

That’s not all. Brookfield and gas pipeline giant APA Group are in a bidding war to takeover AusNet Services Ltd. Although APA Group has the higher bid right now, Brookfield is enjoying an 8-week exclusivity due diligence period granted on Monday. This means that APA needs to wait 2 months at AusNet’s books. AusNet Services is an Australian energy company. A takeover by Brookfield means a 100% ownership of Australia’s electricity distribution and transmission infrastructure. Talk about moves!

The Solar Value Fund (SVF) invests in about twenty American publicly traded equity securities. The emphasis is on selecting holding companies that are market leaders with good track record, projectable cash flows, and overall good prospect. In the Solar Value Fund, we like to focus on family-owned businesses as these have proven to be great shareholder return generators. Needless to say, family-owned businesses tend to outperform their peers because family members as owner and leader are (far) more concerned with the company’s success. The fund returned +19.97% year-to-date. In the highlight this week is The Mosaic Company which returned +43.44% year-to-date.

The Mosaic Company (MOS) is a Fortune 500 company based in Florida, USA. The company mines phosphate and potash which are two of the three most important nutrients in agriculture. Mosaic is actually the largest producer of potash and phosphate fertilizer in the U.S. The company was formed back in 2004 after a merger between IMC Global (a fertilizer company) and Cargill's crop nutrition division. Mosaic’s customer base includes wholesalers, retail dealers and individual growers.

Mosaic seeks to maximize efficiencies and minimize their environmental footprint by being a thoughtful and engaged neighbor. The company is well positioned to serve the world’s most promising agricultural regions with long-lived reserves and strategically placed, efficient production assets. Their extensive distribution network is a highly effective and agile platform to serve their customers well. The analyst consensus on Mosaic’s one year target price is $40, a 21% upside potential.

*Please visit the The Mosaic Company website for more information or click one of the images below for their latest presentation.

The Mosaic Company - Year-to-date stock performance
In Other News
  • Hedge Funds Have Never Been This Bullish On Berkshire Hathaway
We wish you a pleasant weekend and hope you stay safe.

Kind regards, 
Shernel Thielman 
Investment Manager 

www.solar-asset.com | shernel@solar-asset.com 
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