Investors Go Nuclear

Plus: Mushrooms are the latest fashion statement ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 15, 2022

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TOGETHER WITH

Good morning.

On Wednesday afternoon, the Federal Reserve did its best impersonation of Bad Santa. The central bank raised its benchmark interest rate half a percentage point, placing the cost of borrowing at its highest level in 15 years as America’s central bankers continue their crusade against inflation. And in remarks that sent markets into a tailspin, Fed chair Jay “Krampus” Powell indicated that there would be more rate hikes in 2023, something investors really did not want to hear.

“The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” Powell said Friday before making it clear that it was still a few fries short of a Happy Meal. “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.” Translation: hope you enjoy the lump of coal we just slid into your Christmas stocking.

Morning Brief

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Pandemic loans are coming back to haunt businesses.

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The nuclear fusion breakthrough is set to light up the sector.

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That mushroom leather is so hot right now.

Economics

Early Pandemic Loans Bite in Sync With Inflation

For small businesses, it’s out of the frying pan and into the fire.

Repayments on emergency Covid-19 loans issued by the Federal Reserve two years ago are starting to kick in and the timing for small business owners trying to navigate the current macroeconomic wasteland is, well, not great, according to The Wall Street Journal.

Paying the Piper

Designed to help small businesses retain staff as lockdowns rocked the nation’s economy, the Paycheck Protection Program (PPP) was introduced under the Trump administration as part of its Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in April 2020. Separately, the Small Business Administration handed out Economic Injury Disaster Loans (EIDLs) to help tide businesses over. The PPP ended up giving out $800 billion in loans, while the SBA says it gave out $390 billion in EIDLs.

With the economic strains of lockdown now a distant memory, businesses are now starting to pay back the loans — right as they face the possibility of a new recession:

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An August survey from the National Restaurant Association revealed that while nearly 60% of all restaurants took PPP loans of some kind during the pandemic, only 23% believe they will be able to make their scheduled payments. A major reason why might be found in the same survey, as 94% of respondents said their operating costs were higher than in 2019 and 65% claimed they were understaffed to meet demand.

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The owner of a small ice cream chain told WSJ he had planned to pay back a $52,400 emergency covid loan on an accelerated schedule, but that plan has been scuppered by supply-chain issues. He has only managed to make one $100 repayment so far.

Office Space: As small businesses suffer, so too do their landlords. Small business network Alignable reported last month 37% of all US small businesses were unable to pay their rent in October. Small real-estate agencies mirrored that wider statistic, with 37% unable to pay rent on their own offices. Talk about the snake eating itself.

– Isobel Asher Hamilton

Energy

Nuclear Fusion Breakthrough Ignites the Nuclear Fusion Industry

The old joke about nuclear fusion is that it’s always 30 years away. It’s a lot closer now. Earlier this week, scientists at the Lawrence Livermore National Laboratory announced they had successfully achieved a nuclear fusion reaction.

Now, that not-everyday breakthrough is setting the stage for a once-in-a-generation funding boom in what used to feel like a near-mythic corner of the energy industry.

Wishin’ They Weren’t Fission

The difference between nuclear fusion and nuclear fission, which occurs in nuclear plants the world over today, isn’t just a matter of splitting hairs (and only the latter is a matter of splitting atoms). Unlike fission, fusion doesn’t create the unfortunate byproduct of highly radioactive nuclear waste. It also has the potential to be a far, far more powerful energy source than even the highly-productive fission plants that keep roughly 20% of all lights on throughout the US. Case in point: for a brief moment, the Lawrence Lab scientists say their fusion reaction created enough energy to exceed the entire US power grid.

Now, the next step is harnessing that power. Fusion startups have been around for years, mostly toiling away as modestly-funded longshot solutions in the race to ramp up green and clean energy. But the field has slowly been gaining momentum in recent years, and is now likely to explode (metaphorically speaking):

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After a boom year in 2021 that drew in $2.6 billion, investors are set to sink over $1 billion into nuclear fusion companies this year, according to Bloomberg.

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In September, the US government committed $50 million in funding to companies focused on fusion technology. Meanwhile, Michl Binderbauer, CEO of fusion firm TAE Technologies, tells The Wall Street Journal his firm has received a rush of new investor interest this week, after raising $1.2 billion in previous years.

Slow Ride: Of course, harnessing the power of the sun isn’t easy. Most expect that it will be years, if not decades, before widespread implementation. “It’s going to take a while before we see this commercialized,” Energy Secretary Jennifer Granholm said during a press conference Tuesday from Energy Department headquarters in Washington, D.C. Let’s just hope they don’t inadvertently tear the fabric of time while they tinker.

– Brian Boyle

Sponsored by FuelGems

Portfolio Running on Fumes? Invest in the Future of Fuel

Let’s talk gasoline.

Pie-in-the-sky investors may think that an all-electric reality is around the corner, but experts agree that won’t happen for 50+ years. And even if all us pedestrians switch to EVs, it still won’t come close to offsetting the massive amount of gasoline consumed by cargo ships, planes, trains, and semi-trucks.

What’s the here-and-now solution? FuelGems environmentally friendly fuel additive. A mere microdose increases fuel efficiency by 9% and reduces harmful emissions by a whopping 49.5% — stats which have caught the eye of the big fish:

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Major oil and gas players including BP and Suncor Energy are in pilot and pre-pilot stage with FuelGems

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FuelGems is 800x more efficient than other fuel additives in the market

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With over 360 million gallons of gas consumed in the US daily, FuelGems is experiencing 1,600%+ prospective client growth

FuelGem’s founder has led two other startups to successful exits. Invest in FuelGems today and help revolutionize the $4 trillion fuel market.

Biotech

Startup Makes Fake Leather From Mushrooms

(Photo credit: jmv/Flickr)

Shiitake is the new Gucci.

A profile by The New York Times highlighted the success of biotech company MycoWorks, which manufactures faux leather out of mycelium, the thread-like roots at the base of mushrooms.

Not Mushroom For Doubt

MycoWorks’ origin story goes back to 2007 when its founders, an artist and a Ph.D. student, met at an art show. The pair commercially teamed up five years later, launching their startup as a fairly DIY affair. Founder Sophia Wang (the aforementioned Ph.D.) told The Times, “there were three of us in a basement with plywood and plastic sheeting.” The company is looking like more of an outfit now with over 160 employees across three countries, and a 150,000 sq. ft factory due to open next year. It also got a $187 million cash injection in November from investors, among them celebrities including Natalie Portman and John Legend. That’s right, fungi are definitely fashion-forward.

Far from being a speculative future use case, MycoWorks is already supplying its material, called Reishi, to Hermès to make handbags. And MycoWorks isn’t the only company selling mushroom-based goods to designer brands:

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Another company called Bolt Threads collaborated with Stella McCartney last year to make a faux-leather bustier and trouser set, which was then featured in Vogue. “This is the future of fashion,” McCartney told the magazine, “If we can get this right, then we can really make a huge impact on the planet.”

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The leather goods market was valued at $400 billion in 2021, and the synthetic leather market at $31.9 billion, so there’s lots of room for maneuvering. Mycelium-based faux leather also has an edge over traditional plastic-based alternatives, as a much more eco-conscious option.

Mushroom cap: California-based hatmaker Nick Fouquet told The Times he made 50 bucket hats out of MycoWorks’ Reishi material this year, and sold them all at $810 a pop. “I asked one of my seamstresses and she couldn’t tell the difference between Reishi and real leather,” Fouquet said. For $810, you’d hope so.

– Isobel Asher Hamiton

Extra Upside

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Liftoff: Delta says it expects to double its earnings in 2023.

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Climate Conscious: HSBC to no longer finance new oil and gas fields.

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The $7 Trillion Asset Class Hidden in Plain View. After a decade of zero (or, if you live in Germany, even negative interest rates) fixed income investors are finally earning chunky yields on bonds and notes. That’s why many of the largest asset managers, like Blackstone, Goldman Sachs, and KKR, are pumping capital into private credit. With Percent, investors can earn up to 20% annualized returns with exclusive deals that mature in as little as one month. Tap into uncorrelated alternative assets on Percent today with minimums as low at $500.

Just For Fun

Without a paddle.

Close encounter.

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