Happy summer. This is the anniversary edition of this newsletter, which started July 2022, while we were waiting for the impending recession. A year later, we may still be expecting a “mild” recession, but inflation continues to moderate while we are retaining a strong labor market and economy.
In the backdrop of recent Supreme Court rulings, one issue that was in the news a few months ago was the backlash on Budweiser: customers boycotted in response to an Instagram video by transgender social media star Dylan Mulvaney that was showcased on personalized Bud Light cans.
Anheuser-Busch sells more than 100 brands of beer in the United States and is the largest beer brewer in the world. A boycott of one brand in the massive portfolio of AB InBev is unlikely to have a long-term impact. Boycotts like that of Bud Light reveal a general lack of understanding about corporate structure. For example, boycotter Representative Dan Crenshaw, of Texas, posted a video showing that his fridge did not have Bud Light, but it did have beer from Karbach Brewing Company, which is also owned by Anheuser-Busch.
Companies will increasingly embrace the fact that the best innovations can only come if their brand reflects the world’s full diversity of individuals, capabilities, opinions and approaches. Hopefully they will not end the standard business practice of including diverse people in ads and marketing because a small number of loud, fringe activists make noise on social media.
“Development can be seen as a process of expanding the freedoms that people enjoy.” — Amarya Sen, Economist
Opportunities
AB InBev
Based on the historical precedence of boycotts on products from companies including Goya, Ulta, Nike and Disney, the financial impact from the Bud Light backlash may not be significant, especially given BUD's exposure to over 500 brands globally. Research and other similar studies have found that such boycott efforts tend to be short-lived and don’t have long-term effects, which presents an excellent investment opportunity.
Energy Transition
Energy transition, as you can see historically in the chart above, is a slow process. However, the energy sector accounts for 80% of carbon emissions, so the transition is critical. There are a wide variety of opportunities to directly invest in renewable power production, storage, hydrogen fuel cells and electric vehicles.
Banks
It was only a few months ago that three regional banks collapsed when higher interest rates led to lower asset values and higher deposit funding costs, and at the same time customers rushed to pull their deposits. Another risk banks — and particularly regional banks — are exposed to is the decline commercial real estate prices. The Fed recently published the results of a stress test on 23 banks that included a global recession scenario incorporating a significant drop in commercial real estate prices. A bank must have a stress capital ratio (SCR) of at least 4.5% to be considered for a passing grade. You can see the bank’s scores below.As we get more clarity on potential regulatory changes, we can expect most banks would choose to hold more capital rather than less. Some of these banks would present a great investment opportunity.
Do check the watchlist on the website (makeamesh.com) for current opportunities. Reach out to me directly if you need further guidance on where to invest.
Wishing you a wonderful July 4th.
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