February 17, 2021

Market recap

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Top Story

The Polar Vortex’s Impact on the Energy Industry

Reduced Energy Supplies and Heightened Energy Demand

A polar vortex is sweeping the US, causing record-breaking cold temperatures and unprecedented conditions for the energy industry. A polar vortex is an area of swirling cold air surrounding the North Pole and the South Pole. Sometimes the North Pole’s vortex expands in the winter, pushing frigid air southward.

The recent polar vortex has caused electricity and oil prices to surge because people are cranking up their heat as energy supply chains are being disrupted. These trends have also caused power outages in a number of states.

Power Outages in Texas

In Texas, as of yesterday morning, more than 4.2 million people had lost power as a result of the sudden cold snap. Households in Louisiana and Mississippi also suffered outages.

Many parts of Texas have recently experienced the coldest temperatures seen in 30 years. As demand for energy spiked, supply was abruptly reduced because cold and ice caused problems for natural gas, coal, wind, nuclear, and solar energy sources.

Climbing Oil Prices

The cold snap also caused oil prices to rally. Brent-crude futures, the benchmark for international energy markets, climbed to $63.30 per barrel earlier this week. This was the highest price seen since January 2020 when much of the world was still unaffected by the COVID-19 pandemic.

Oil prices were already climbing before the polar vortex because of recovering demand, OPEC supply reductions, and shrinking stockpiles. Many analysts expect that even after the impacts of the polar vortex wear off, oil prices will stay strong.

Bitcoin’s Latest Boom

Bitcoin Supply and Demand Trends

The price of Bitcoin broke $50,000 yesterday for the first time in history. The cryptocurrency was up 5% for the day and more than 74% for the year. After these morning gains, Bitcoin prices receded somewhat.

New Bitcoins are created by powerful computers solving complex math puzzles in a process called mining. This process means that it takes energy to create new Bitcoins so the supply will always be limited. Between August and December of 2020, about 150,000 Bitcoins were mined and about 359,000 Bitcoins were purchased. These supply and demand trends have continued in 2021, causing the price of the cryptocurrency to surge.

Comparing Current Conditions to 2017

Bitcoin is notoriously volatile and it has seen large spikes and drops before. Skeptics point to the 2017 Bitcoin bubble and say the current bull run likely will not last. In late 2017, Bitcoin prices surged to $20,000 but the currency lost over 80% of its value the next year.

But other investors believe Bitcoin is in a different position than it was three years ago because demand is being driven by institutional investors rather than speculative retail investors.

Companies and Governments Look to Integrate Bitcoin into Operations

A growing number of companies have integrated Bitcoin into their operations recently. Earlier this month, Bank of New York Mellon (BK) announced it would handle Bitcoin like any other asset. Mastercard (MA) is making plans to incorporate Bitcoin into its payments network. Tesla (TSLA) has purchased $1.5 billion worth of the cryptocurrency and says it will soon begin accepting payments in Bitcoin.

MicroStrategy (MSTR), a business analytics company, announced yesterday it will sell convertible debt to acquire more Bitcoin. Last week, the mayor of Miami said the city is looking into using Bitcoin to pay part of city employees’ salaries and might also allow residents to pay a portion of their taxes with the cryptocurrency. Analysts have differing opinions about the future of Bitcoin, but at the moment it is gaining significant attention from companies, governments, and investors.

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The Mining Industry Sees Big Gains

Recovering From the Pandemic

Many industries are still reeling from pandemic-related setbacks, but the mining industry seems to be a leader on the road to recovery.

The world’s largest mining companies control the production of copper, platinum, iron ore, and other resources. Most of these miners do not have substantial amounts of debt, and are focusing on paying out cash to shareholders instead of investing in high risk projects or takeovers.

Dividend Payouts and Positive Earnings

BHP (BHP), the world’s largest mining company, has recently seen its profits hit a seven-year high. The British-Australian company announced yesterday that it will pay dividends of $5.1 billion. Glencore , another mining titan, announced recently that it will reinstate its dividends with a $1.6 billion payout.

Investors are cheering news of dividend payouts and positive earnings reports. As a result, mining shares are on the rise.

Looking Ahead

Prices for a number of natural resources are surging. The price of iron ore, which is used to make steel, has climbed by 85% over the past year. Similarly the price of copper, which is an important component of electronic devices and household appliances, has spiked by 80% compared to March lows.

China’s economy is recovering from the pandemic and Chinese demand for metals is rising. Analysts expect that there will be significant government spending on infrastructure in the US, Europe, and other parts of the world as governments work to help their economies regain strength. This spending will likely cause demand for natural resources to rise even more.

Not-So-Breaking News

  • Yesterday Progressive (PGR) announced plans to acquire Protective Insurance (PTVCA) for $338 million in an all-cash deal. The acquisition is scheduled to close before the end of Q3 of 2021, after it is approved by regulators.
  • CoStar (CSGP), which provides analytics and marketing services to the commercial property industry, offered an unsolicited all-stock buyout deal to CoreLogic (CLGX), a real estate data company. CoreLogic’s shares climbed 6.1% on the news.
  • The brewing company Anheuser-Busch InBev (BUD) is suing Constellation Brands (STZ), another alcohol producer. Constellation has produced a Corona-branded hard seltzer and Anheuser-Busch InBev believes this violates a deal saying the Corona brand name could only be used for beer products. The agreement was put in place when Anheuser-Busch InBev sold the Corona brand to Constellation in 2013.
  • Palantir (PLTR), the software company specializing in analyzing complex data, reported losses for Q4 of 2020. Shares of the company, which went public through a direct listing in September, fell 12% on the news.
  • Shares of Socket Mobile (SCKT) surged yesterday after the company debuted a new enterprise-grade barcode scanner for the iPhone 12.
  • Recently, there’s been a new gold rush—sort of. At the very least there’s been a rush of new folks trying their hands at mining. But these new miners aren’t chasing veins of gold deep in the earth...they’re mining Bitcoin. Learn more about How Bitcoin Mining Works.

Financial Planner Tip of the Day

“The value of a cryptocurrency is largely, if not completely, contingent upon supply, demand, and the public’s faith that it carries value. For example, when demand for Bitcoin increases, the price or value of Bitcoin goes up. Conversely, when demand drops and many people are selling Bitcoins, the price or value falls.”

Brian Walsh, CFP® at SoFi

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