Image Source: Mobilus in Mobil (Flickr)

Will the Definition of Income be Changed to Collect More Income Taxes?

 

Can one be expected to pay income tax on capital gains when there has not been a realized gain?  Senator Ron Wyden of Oregon is the top-ranking member of the Senate’s tax committee; today (October 27), he proposed to tax unrealized capital gains. This places a legislative heavyweight behind getting this dramatic change implemented. Back in February, and again this week, the Secretary of the Treasury, Janet Yellen, proposed this idea. Open opposition to this idea comes from some notable businesspeople, including Elon Musk, who wonders if it is a slippery slope that will eventually impact everyone. Others question how can one properly appraise non-market-oriented investments each year?

 

Background

In the U.S., capital-gains tax works this way; one purchases a capital asset such as a stock or real estate, the purchase price then becomes the “cost basis.” After it’s sold, the change in value between this cost basis and the sale price is the realized capital gain.  In cases where the asset was held for a year or more, its gain is taxed at a 15 to 20 percent rate (depending on the taxpayer’s income). An additional 3.8 percent surtax is added for taxpayers making over $250,000.  In effect, the U.S. has a capital-gains tax imposition of between 15 percent and 23.8 percent when an asset is sold at a profit after one year. The rate is higher if it’s sold within a year. Under a year, it is taxed at the owner’s ordinary income tax rate.

If the value of a capital asset increases, but that gain was not realized by a sale, there is no tax event. For assets that are inherited and never sold by the original purchaser, they are valued at the current market at the time of inheritance. Although there is an inheritance tax on large estates, many assets are reset at the current market or replacement value, thus reducing the beneficiary’s cost basis and reducing the magnitude of any potential tax from the pre-inheritance valuation.

 

Current Proposals

The Secretary of the Treasury who is also a former Chair of the US Federal Reserve Bank, Janet Yellen,  proposed a tax on capital gains. She wants investors to pay a tax on the increase in the value of stock every year, even if it is not sold. In an appearance on CNN this week she said, “It would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation.” Details of where the lines would be drawn and who the tax would impact were not clear. She was, however, discussing what she refers to as the wealthiest of individuals.

In a Senate Finance Committee news release, Senator Ron Wyden (Oregon) presented what he calls The Billionaires
Income Tax. The release has the tag line:

“Billionaires Income Tax would
ensure billionaires pay tax every year, like working Americans”

Key points of the proposal are, tradable assets like stocks would be marked-to-market every year. Billionaires would pay tax on any gain and take deductions for losses on these assets each year for tax purposes. Those affected would be able to carry losses forward and, in certain circumstances, carry back losses for three years. 

Non-tradable assets like real estate or business interests would not be taxed annually. When someone of high net worth sells non-tradable assets, they would pay capital gains tax, plus an interest charge. The interest charge, or “deferral recapture amount,” is the amount of interest that would be due on the tax owed if the asset had been marked to market each year and the tax had been deferred until sale. The interest rate is the applicable federal short-term rate plus one point. The AFR is currently 0.22 percent, so the interest rate applied would be 1.22 percent.

The proposal contains rules to transition to the changed income tax. For example, the first time those impacted have their tradable assets marked-to-market, they may elect to pay the newly incurred tax over five years. They may also elect to treat up to $1 billion of tradable stock in a single corporation as a non-tradable asset. This will ensure that the proposal does not affect the ability of an individual who founds a successful company to maintain their controlling interest because they’d be forced to sell a portion to pay taxes.

 

Source: U.S. Senate Committee on Finance Bulletin, October 27, 2021

 

Opposition

Those opposed argue that a declining market could potentially reduce taxes collected. Others wonder how non-tradeable assets can appropriately be marked-to-market, and question if an entire industry of appraisers will be born in order to serve accountants and the IRS needs.

The richest man in the world, U.S. Citizen and immigrant businessman Elon Musk would surely be included and taxed differently. He showed his opposition when he tweeted his thoughts in response to a tweet directed at him along with the second richest man, Jeff Bezos.

 

 

 

Musk seems to believe that although it’s called the “Billionaires Income Tax” those without as many zeros after their net worth may also be impacted if the idea of taxing unrealized gains becomes accepted.

There is also concern over how this could impact stock prices. Taxing a non-cash asset leaves the challenge of where the cash will come from. It also reduces the incentive to hold stocks for very long periods of time. The combination of these two, if the proposal becomes a reality, could weigh on the stocks with the greatest gains.

Why Now?

There are a number of expensive proposals coming out of the nation’s capital. These include the Social Spending Bill, converting our energy grid to something less dependent on fossil fuels, infrastructure spending, and funding for stimulus and other projects. 

The question is paying for these enormously expensive projects. The richest 400 families in the country have become thought of as a source for various reasons; chief among them is the average voter is indifferent to taxes that don’t directly impact them.

Take-Away

In an attempt to find a means to pay for expensive projects, there are proposals coming from Washington to increase taxes. One proposal that is being brought to the forefront, separate from a “wealth tax,” is the idea of collecting taxes based on the change in the market value of assets rather than realized capital gains. If implemented, this would have implications far beyond the few hundred families directly impacted. The financial markets and real estate may feel some weight.  The reasons are that money would have to come from the liquidation of something to pay the required taxes, also the attractiveness of long holding times is lowered, and alternative investments, perhaps offshore, may become more tax efficient.

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Sources:

https://www.finance.senate.gov/chairmans-news/wyden-unveils-billionaires-income-tax

https://www.finance.senate.gov/imo/media/doc/Billionaires%20Income%20Tax%20-%20One%20Pager.pdf

https://www.whitehouse.gov/omb/briefing-room/2021/09/23/new-omb-cea-report-billionaires-pay-an-average-federal-individual-income-tax-rate-of-just-8-2/

https://www.politico.com/newsletters/weekly-tax/2021/10/25/will-wydens-new-wealth-tax-survive-the-courts-798431

https://www.nytimes.com/2021/10/26/us/politics/democrats-billionaires-tax.html

https://www.businessinsider.in/international/news/heres-how-janet-yellens-proposed-tax-on-unrealised-capital-gains-may-work/articleshow/87249423.cms

 

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	Image Credit: World Bank Photo Collection (flickr)

Scandal Involving World Bank’s ‘Doing Business’ Index Exposes Problems in Using Sports-like Rankings to Guide Development Goals

The World Bank, a behemoth of an organization that provides tens of billions of dollars in aid to mostly developing countries, is in the middle of one of its biggest scandals since being founded in 1944.

The crux of the crisis relates to its Doing Business Index, which ranks the ease of opening and operating companies in 190 countries. In September 2021, an investigation alleged that senior leadership at the bank manipulated the index’s data in response to pressure from China and Saudi Arabia.

The scandal has already caused the bank to suspend publication of the index and prompted calls for further investigations. Some have also demanded the resignations of officials identified in the report, such as Kristalina Georgieva, who was formerly CEO at the World Bank and now heads the International Monetary Fund.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of   Fernanda G Nicola, Professor of Law, American University

 

I’m a comparative legal scholar who studies the rule of law in multilateral institutions like the World Bank. As I show in my forthcoming book on the topic, I believe the real problem here is less about whether or not officials meddled, and more about the problematic role the Doing Business Index and similar indicators play in aid to developing countries.

 

Everyone
Wants to Win

The World Bank’s Doing Business Index ranks countries around the world across 11 different economic indicators, such as registering property and paying taxes, and has become an authoritative source for international business and funding decisions since its inception in 2002. It’s akin to U.S. News and World Report’s rankings of colleges, countries and other categories.

A change in a country’s rankings can have a huge impact on how much money it receives from foreign investors. The World Bank has found that a 1 percentage point improvement in a country’s overall Doing Business score correlates with US$250 million to $500 million in additional foreign direct investment.

The main idea behind the ranking system was that it would be very simple for politicians, journalists and others to use, and therefore publicity surrounding it would prompt reforms.

“The main advantage of showing a single rank,” according to a 2005 World Bank staff report, is “as in sports, once you start keeping score everyone wants to win.”

And in effect, even though the World Bank technically has no mandate to guide countries’ regulatory regimes, in practice its index has had significant influence on how governments behave. For example, countries in Latin America and Africa have restructured their entire corporate governance regimes to fit Doing Business’ one-size-fits-all reforms.

But this wide influence has a negative side, as it serves as an incentive for governments to try to “game the system – or corrupt it,” as The Washington Post editorial board put it recently.

 

 

Problems
with Doing Business

The most recent Doing Business scandal began around June 2020, when employees began spotting data irregularities in two recent reports.

In January 2021, the law firm WilmerHale was asked to investigate. On Sept. 15, Wilmerhale said it found that senior World Bank leadership pressured employees to improve China’s Doing Business ranking in the 2018 report as it sought Beijing’s support for a major capital injection. The law firm also found problems with changes to rankings of Saudi Arabia, the United Arab Emirates and Azerbaijan in the 2020 report but didn’t blame senior leaders directly.

But a big part of the problem here is that the rankings incentivize this kind of behavior, often because not all countries can enact the market-friendly legal reforms required to rise up.

One way they can do this is by paying the World Bank fees for “reimbursable advisory services,” such as advice on how to better implement the kinds of reforms it favors. Of course, it is not hard to see the potential for institutional conflict of interest and corruption here. The report noted that both China and Saudi Arabia made extensive use of these contracts while pressuring bank officials to change their rankings.

The bigger concerns about the Doing Business Index is more fundamental. Comparative legal scholars, including me, have found that the legal reforms favored by the index always appear biased in favor of systems based on common law followed by countries such as the U.S. and U.K.

For instance, France, one of the world’s largest economies operating under a civil legal code, has performed rather poorly in the initial rankings because of low scores on the “registering property” and “getting credit” metrics. And, in turn, that means countries such as Algeria, Lebanon and Indonesia that built legal systems based on France or other non-Anglo legal traditions are also unfairly hurt by the rankings.

The rankings have been controversial since their very launch. Joseph Stiglitz, who was chief economist at the World Bank in the late 1990s, said in a recent op-ed that he thought it was a “terrible product” from the beginning.

“Countries received good ratings for low corporate taxes and weak labor regulations,” he wrote. “The numbers were always squishy, with small changes in the data having potentially large effects on the rankings. Countries were inevitably upset when seemingly arbitrary decisions caused them to slide in the rankings.”

In other words, the Doing Business Index ends up pushing countries toward a shareholder-focused corporate and business model molded on U.S.-style capitalism. This is at odds with many other models, such as those in Japan and Germany, that put more emphasis on workers and social goals like gender equality. Corporate governance scholars have found these may be better models for some countries than U.S.-style capitalism.

 

Does it
Deserve to Die?

The recent scandal underscores the degree to which the index doesn’t square with the bank’s wider purpose.

 

The World Bank’s stated mission is to “end extreme poverty and promote shared prosperity.” It was set up in the wake of the Second World War to achieve this mission through financing agreements with developing countries.

The Doing Business Index fails in this purpose because it compels governments to commit to “transplanted” legal reforms that may not be right for those countries, and in fact may end up backfiring and delivering bad outcomes for residents.

I’m not sure whether the index “deserves to die” or should be reformed and shifted to another institution, such as a university, but I do believe its time at the World Bank is likely coming to an end.

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	Image Credit: RODNAE Productions (Pexels)

What Investors Get from the COLA Increase in 2022

 

Roughly $75.6 billion of new money will be distributed to a specific demographic beginning next year ($6.3 billion per month). How seniors spend their newfound 5.9% Social Security COLA increase could impact a number of industries. Seniors are known to spend disposable income on eating out, travel, gifts for family, etc. They may also find they can withdraw less from savings and investment accounts, keeping more in the markets. Although tens of billions won’t alter investment sectors in the same way a multi-trillion-dollar infrastructure bill would, as we saw with stimulus checks, it can be quite impactful.

 

  Source: ssa.gov

Background:

Inflation data released yesterday (October 13) included the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W). This is the index on which Cost of Living Adjustment (COLA) for Social Security benefits is calculated. The “raise” COLA provides 69.1 million Social Security recipients will start begin January 2022.  The percentage increase, calculated by the average of July, August, and September CPI-W is 5.9%. Every penny of this near 6% increase is money that was not previously in circulation.

Although we often imagine a retired person as someone barely scraping by on a limited fixed income, conserving because they can barely make ends meet, the reality is those now in retirement own more property, have greater pensions, and are worth ten times more than millennials. 

 

 

The info-graphic above by the Visual Capitalist demonstrates how successful, on average, the generation now of retirement age has been in providing for their future. And while many rising costs like healthcare and food impact those receiving social security, housing expenses often don’t vary much from one year to the next. Much of the new payments, although individually may not seem impactful, combined with almost 70 million people, all in a specific demographic, will have an impact. As an example, when $1400 in stimulus checks were sent to 137 million people last March, it contributed to driving the stock market gains (S&P up 7.16%), housing, and technology purchases.

 

 

Expectations

The question is, where will this newfound cash flow be spent or invested. According to the U.S. Bureau of Labor Statistics, those 65-74 spend 2.4% more than the overall population on food. Presumably, much of this difference is prepared food at restaurants. More compelling, entertainment has an even wider gap over the total population as seniors (65-74) spend 19.6% more on entertainment. Although it isn’t included in the BLS data, travel and gifts for grandchildren are included on most lists of where seniors are spending after all other costs are covered.

Take-Away

Does the COLA increase impact you? If you aren’t in a position to receive one, you may ask, is this bullish for stocks? And, what stocks may benefit the most? While headlines of other spending work their way into investment analysis, this use inflow, so far, has been largely overlooked.

Paul Hoffman

Managing Editor, Channelchek

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Sources:

https://www.ssa.gov/oact/cola/colaseries.html

https://crr.bc.edu/wp-content/uploads/2005/02/ib_28_508.pdf

https://www.aarp.org/content/dam/aarp/research/surveys_statistics/life-leisure/2019/aarp-grandparenting-study-money-fact-sheet.doi.10.26419-2Fres.00289.017.pdf

https://www.visualcapitalist.com/visualizing-net-worth-by-age-in-america/

https://www.bls.gov/opub/btn/volume-5/spending-patterns-of-older-americans.htm

 

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About the Central Bank Digital Currency Position Report, That’s Late

 

The U.S. Federal Reserve Board is expected to release a nail-biter of a report stating their position on potentially adopting a digital dollar. The cryptocurrency would have the same backing and perqs of $US Dollars. The Fed expressed last summer that it had partnered with the Massachusetts Institute of Technology to “understand the opportunities and limitations” of a Central Bank Digital Currency (CBDC). It was announced the project was to release its findings in late summer 2021. It is now early Fall 2021, the markets have not yet gotten the expected big announcement. However, Fed Chair Powell may have shown his hand on Tuesday.

Speaking before the Senate Banking Committee Tuesday (Sept. 28), Powell said that while existing laws governing the Fed’s activities could serve as a basis for issuing a digitized version of the U.S. dollar, he expressed a preference for working on a legislation-backed push instead. This was in response to a question from Senator Pat Toomey of Pennsylvania. He further set expectations for the past-due board’s report, saying the Fed had made no decision on a CBDC. The paper will instead tackle some of the related public policy issues and set the stage for the central bank to gather feedback from lawmakers and the public.

Although the paper, when released, will not be definitive, it seems it will set the Fed’s stance regarding pros, cons, and how-tos. As with most Fed position papers, it may “define” in unclear language that will be studied carefully by those active in markets that could be impacted. The current direction, based on Chairman Powell’s answer is that the Fed expects a seat at the table but would like Congress to hand down any definitive action.

 

 

Foreign Central Banks

We live in a world that has become very small, so what happens in one major market impacts another. Although Europe’s potential adoption of a digital euro, or China, which is looking to creates a digital yuan would impact the U.S., an actual dollar valued like cash may be years away. Some believe the potential for dramatically disrupting the global financial balance is too great, while others worry the United States will cede dominance of the global financial system if it does not digitize the dollar, which is used as the global reserve currency. Of special concern, is China’s digital
yuan pilot project, which is believed to be far ahead of the United States and its biggest economic rival.

Other Decision Maker Positions

Fed Governor Lael Brainard is on record saying she finds it inconceivable that the United States would not pursue a digital dollar when competing economies were forging ahead with CBDCs. “That just doesn’t sound like a sustainable future,” she said in July.

Fed Governors Christopher Waller and Randal Quarles have argued many dollar transactions are now digital and that the costs of a CBDC could far outweigh any benefit. Staff within the Fed are also said to be divided on the issue.

On Capitol Hill, some see a CBDC as the door opener that makes financial services accessible and affordable for millions of Americans that are currently ignored by the mainstream banking system. At the same time, others express concerns over privacy and security.

For those focused on what it would mean for wholesale and merchant banking, CBDCs could come into existence strictly for wholesale use. This could speed up processes and lower the cost of cross-border payments between parties.  Individually, a retail digital dollar could be used by the general public, expanding Americans’ access to a range of financial services.

Take-Away

If the Fed’s original intent of sending out a position paper on a CBDC in late Summer was to set the course toward or away from its adoption, they seem to have backed off. Some things take longer than expected, and with big decisions, discoveries are often found that would impact any final release. The paper when released, will be combed through for nuances decision untold. If we are to believe Chairman Powell’s answer last Tuesday, the Fed Chair who is up for reappointment, would prefer to have input in the decision but not be the decider.

 

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Severe Punishment for All Things Crypto in China -Who’s Impacted?

 

Sources:

https://www.youtube.com/watch?v=KX1aPj1MJNQ

https://www.cnbc.com/2021/09/22/the-fed-is-evaluating-whether-to-launch-a-digital-currency-and-in-what-form-powell-says.html

Analysis: U.S. Fed navigates policy minefield with impending
digital dollar report | Reuters

 

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More Companies Pledge ‘Net-Zero’ Emissions to Fight Climate Change, But What Does That Really Mean?

 

You’ll probably hear the term “net-zero emissions” a lot over the coming weeks as government leaders and CEOs, under pressure, talk about how they’ll reduce their countries’ or businesses’ impact on climate change. Amazon, for example, just announced that more than 200 companies have now joined its Climate Pledge, committing to reach net-zero emissions by 2040.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  Amrou Awaysheh Assistant Professor of Operations Management and Executive Director, Business Sustainability Lab, Indiana University

 

But what does net-zero emissions actually mean?

“Zero emissions” – without the “net” caveat – means emitting no greenhouse gases.

“Net-zero emissions” has more wiggle room. It’s like balancing a checkbook. The country or company cuts most of its emissions through efficiency and clean energy, then offsets the rest by removing carbon dioxide from the atmosphere or eliminating emissions elsewhere.

For example, trees absorb carbon dioxide from the air, so they’re often considered “negative emissions.” The tiny Himalayan kingdom of Bhutan can claim net-zero emissions because almost all of its electricity comes from hydropower, and its forests sequester about three times more carbon than its vehicles, factories and other human activities emit.

Companies have another way to claim net-zero emissions – they can take advantage of carbon reductions elsewhere by buying carbon credits. For example, a U.S. company might pay to protect forests in South America and then subtract those trees’ negative emissions from its own emissions to say that its operations are “net-zero.” Other carbon credits support sustainable development projects, such as installing wind or solar power in poorer countries.

But counting on carbon credits also draws criticism, because it allows those companies to keep generating greenhouse gases. Other concerns are that some projects would happen anyway, the emissions reductions might not be permanent or even verifiable, or they might get double-counted by more than one entity. Some projects, like tree planting, can take years to pay off in emissions reductions while the companies buying forest offsets continue emitting greenhouse gases.

 

 

Why Does Net-Zero Emissions
Matter?

Greenhouse gases trap heat near Earth’s surface. When their concentrations get too high, they fuel global warming.

In 2015, countries around the world agreed to limit global warming to well under 2 degrees Celsius (3.6 F) compared with preindustrial times, with a goal of 1.5 C (2.7 F). To keep warming under 1.5 C with the least disruption, the United Nations says the world needs to be on a path to reach net-zero emissions by about 2050. To put those temperatures into perspective, global warming today is just over 1 C (1.8 F) above preindustrial levels, and rising seas and extreme weather are already a problem.

Several countries, including the United States, have pledged to meet the goal of net-zero emissions by 2050. But when the U.N. analyzed each country’s commitments under the Paris Agreement in mid-September, it found they still fall short by so much that even if every pledge is met, temperatures will rise about 2.7 C (4.86 F) this century.

 

 Keeping global warming to 1.5 C will require negative greenhouse gas emissions. Climate Analytics and New Climate Institute

 

How a Company Gets to Net-Zero
Emissions

To see how a company might get to net-zero emissions, let’s imagine a hypothetical company, ChipCo, that makes, packages and distributes potato chips. ChipCo purchases electricity from a local utility to run machinery at its factory. It also has boilers to generate steam to heat the building and for some production processes. And it uses delivery trucks to transport its products to customers. Each step generates greenhouse gas emissions.

To achieve net-zero emissions, ChipCo’s first step is to ramp up energy efficiency. Improvements in insulation and equipment can reduce the amount of energy needed or wasted. A simple example is switching out incandescent light bulbs that use 60 watts of energy with LED bulbs that give off the same brightness, yet consume only 8 watts.

The second step is to switch from fossil fuels – the leading source of human-caused greenhouse gas emissions – to renewable energy, such as solar or wind power, that doesn’t produce greenhouse gas emissions. Once the company’s electricity is renewable, using electric delivery vehicles further cuts emissions.

Homes and office buildings can also be built to net-zero, or carbon-neutral, standards. In that case, the focus is on making them extremely energy-efficient and relying on heating and electricity from clean energy sources.

 

 

ChipCo’s third step is finding negative emissions. It might be too expensive or not yet technologically possible for it to replace its steam boiler with a carbon-neutral product. Instead, ChipCo might purchase carbon credits that would remove the same amount of carbon from the atmosphere that would be generated by the boiler.

Companies are increasingly under pressure from governments, activists and their customers, as well as some powerful investors, to cut their emissions.

To tell if a company is taking its responsibilities seriously, look for its action plan and performance so far. A company that announces a net-zero target of 2030 can’t wait until 2029 to take action. There needs to be a consistent trajectory of improvements in energy efficiency and clean energy, not just promises and carbon offsets.

 

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More Companies Pledge ‘Net-Zero’ Emissions to Fight Climate Change, But What Does That Really Mean?

 

You’ll probably hear the term “net-zero emissions” a lot over the coming weeks as government leaders and CEOs, under pressure, talk about how they’ll reduce their countries’ or businesses’ impact on climate change. Amazon, for example, just announced that more than 200 companies have now joined its Climate Pledge, committing to reach net-zero emissions by 2040.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  Amrou Awaysheh Assistant Professor of Operations Management and Executive Director, Business Sustainability Lab, Indiana University

 

But what does net-zero emissions actually mean?

“Zero emissions” – without the “net” caveat – means emitting no greenhouse gases.

“Net-zero emissions” has more wiggle room. It’s like balancing a checkbook. The country or company cuts most of its emissions through efficiency and clean energy, then offsets the rest by removing carbon dioxide from the atmosphere or eliminating emissions elsewhere.

For example, trees absorb carbon dioxide from the air, so they’re often considered “negative emissions.” The tiny Himalayan kingdom of Bhutan can claim net-zero emissions because almost all of its electricity comes from hydropower, and its forests sequester about three times more carbon than its vehicles, factories and other human activities emit.

Companies have another way to claim net-zero emissions – they can take advantage of carbon reductions elsewhere by buying carbon credits. For example, a U.S. company might pay to protect forests in South America and then subtract those trees’ negative emissions from its own emissions to say that its operations are “net-zero.” Other carbon credits support sustainable development projects, such as installing wind or solar power in poorer countries.

But counting on carbon credits also draws criticism, because it allows those companies to keep generating greenhouse gases. Other concerns are that some projects would happen anyway, the emissions reductions might not be permanent or even verifiable, or they might get double-counted by more than one entity. Some projects, like tree planting, can take years to pay off in emissions reductions while the companies buying forest offsets continue emitting greenhouse gases.

 

 

Why Does Net-Zero Emissions
Matter?

Greenhouse gases trap heat near Earth’s surface. When their concentrations get too high, they fuel global warming.

In 2015, countries around the world agreed to limit global warming to well under 2 degrees Celsius (3.6 F) compared with preindustrial times, with a goal of 1.5 C (2.7 F). To keep warming under 1.5 C with the least disruption, the United Nations says the world needs to be on a path to reach net-zero emissions by about 2050. To put those temperatures into perspective, global warming today is just over 1 C (1.8 F) above preindustrial levels, and rising seas and extreme weather are already a problem.

Several countries, including the United States, have pledged to meet the goal of net-zero emissions by 2050. But when the U.N. analyzed each country’s commitments under the Paris Agreement in mid-September, it found they still fall short by so much that even if every pledge is met, temperatures will rise about 2.7 C (4.86 F) this century.

 

 Keeping global warming to 1.5 C will require negative greenhouse gas emissions. Climate Analytics and New Climate Institute

 

How a Company Gets to Net-Zero
Emissions

To see how a company might get to net-zero emissions, let’s imagine a hypothetical company, ChipCo, that makes, packages and distributes potato chips. ChipCo purchases electricity from a local utility to run machinery at its factory. It also has boilers to generate steam to heat the building and for some production processes. And it uses delivery trucks to transport its products to customers. Each step generates greenhouse gas emissions.

To achieve net-zero emissions, ChipCo’s first step is to ramp up energy efficiency. Improvements in insulation and equipment can reduce the amount of energy needed or wasted. A simple example is switching out incandescent light bulbs that use 60 watts of energy with LED bulbs that give off the same brightness, yet consume only 8 watts.

The second step is to switch from fossil fuels – the leading source of human-caused greenhouse gas emissions – to renewable energy, such as solar or wind power, that doesn’t produce greenhouse gas emissions. Once the company’s electricity is renewable, using electric delivery vehicles further cuts emissions.

Homes and office buildings can also be built to net-zero, or carbon-neutral, standards. In that case, the focus is on making them extremely energy-efficient and relying on heating and electricity from clean energy sources.

 

 

ChipCo’s third step is finding negative emissions. It might be too expensive or not yet technologically possible for it to replace its steam boiler with a carbon-neutral product. Instead, ChipCo might purchase carbon credits that would remove the same amount of carbon from the atmosphere that would be generated by the boiler.

Companies are increasingly under pressure from governments, activists and their customers, as well as some powerful investors, to cut their emissions.

To tell if a company is taking its responsibilities seriously, look for its action plan and performance so far. A company that announces a net-zero target of 2030 can’t wait until 2029 to take action. There needs to be a consistent trajectory of improvements in energy efficiency and clean energy, not just promises and carbon offsets.

 

Suggested Reading:

ESG Indicators and How to Use Them

The Advantages of Microcap Equities for Investors

ESG, B Corps, and Investors

Can Mining Be Green and Sustainable?

 

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Gold Maintained Its Haven Status During the Evergrande Selloff

 

It’s the biggest company you’ve never heard of—until last week, that is. Evergrande Group, the “too big to fail” Chinese property developer, rattled markets last Monday when it missed interest payments to at least two of its lenders. This gave more than a few investors flashbacks to Lehman Brothers’ demise in 2008, which helped trigger the global financial crisis.

 

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes of U.S. Global Investors (GROW). Find more of Frank’s articles here – Originally published September 27, 2021

 

The selloff spread to U.S. markets, and I was pleased to see that gold maintained its haven status. The yellow metal ended the day slightly up more than half a percent, passing an important “stress test” of its investment case in the age of Bitcoin.

The world’s biggest cryptocurrency, believed by many to be “digital gold,” plunged 8.5% on Monday as investors dumped riskier assets. Indeed, Bitcoin is more than four times as volatile as gold. Those of you who attended HIVE Blockchain Technologies’ earnings webcast on Friday know that gold bullion has a 10-day standard deviation of only ±3, while Bitcoin’s is ±14. Ether’s is even higher at ±19 over 10 trading days.

Bitcoin dipped further last week after the Chinese government banned all crypto transactions and crypto mining, prompting many to speculate that the People’s Bank of China (PBOC) is preparing to issue its own CBDC, or central
bank digital currency.

I believe this crackdown is yet more proof that people need to own some Bitcoin, which is currently on sale as we await news on whether the Xi Jinping Administration will step in to prevent another pandemic, this one of the financial kind.

Gold and Bitcoin Looking More Attractive as Contagion Fears Mount

For the record, I find it hard to believe that President Xi will do nothing. Evergrande may not be a household name in the U.S., but it’s China’s second largest real estate company, with nearly 800 projects in 234 cities. It also offers financial products, invests in electric vehicles and is even building a theme park on an artificial
island off the province of Hainan.

This growth didn’t happen organically, though, and today Evergrande is believed to be the world’s most indebted developer, saddled with more than $300 billion in total liabilities. In November 2020, the Financial
Times wrote that the Fortune 500 company “has enough land to house the entire population of Portugal and more debt than New Zealand.” At the end of last year, it had roughly twice as much debt as equity, putting it in a class well above other Chinese real estate firms. 

As “eye-popping” as Evergrande’s debt load is, it’s a “small drop in the ocean of debt that the world is swimming in,” CLSA’s Damian Kestel wrote last week in a note to clients. Total global debt in the second quarter stood at just under $300 trillion, a new record, according to the Institute of International Finance’s (IFF) most recent Global Debt Monitor.

“The bigger they come, the harder they fall,” as the saying goes. If Evergrande were allowed to fail without any governmental intervention, it could spark a credit crisis that would make 2007-2008 look tame by comparison.

Against this backdrop, gold and Bitcoin look very attractive to me as stores of value, and both happen to be on sale right now. I’ve always recommended a 10% weighting in gold, with 5% in bullion and 5% in gold mining stocks and ETFs. I also believe it’s prudent to have between 1% and 2% in Bitcoin.

No, They’re Not Mutually Exclusive

As someone who’s involved in both gold and Bitcoin investing, I clearly don’t subscribe to the idea that one is better than the other in all cases. I agree with Bloomberg’s James Seyffart and Eric Balchunas, who said in a note last week that gold and Bitcoin “can complement each other in a portfolio.”

Although the two assets share
obvious similarities and differences – one is thousands of years old while the other is brand spanking new; one is easily portable while the other isn’t—I think there are three important distinctions that investors need to be aware of: volatility, taxation and correlation to the market.

Volatility I’ve already talked about.

Looking at taxation, Bitcoin is taxed the same as a stock, with a long-term capital gains rate of between 0% and 20%, depending on income level. Gold, on the other hand, is taxed as a collectible, meaning it carries a higher fixed rate of 28%, regardless of income. Point: Bitcoin.

And then there’s correlation. Gold has no correlation to the S&P 500, making it suitable for someone who wants to hedge against market risk. As a risk-on asset, Bitcoin has a slight correlation to the S&P. Point: Gold.

When you add all of this up, I believe it shows that gold has a small advantage over Bitcoin as a diversifier and store of value—at least for now. This could change as the Bitcoin network matures and its price swings stabilize.

 

Channelchek invites
you subscribe to the U.S. Global Investors YouTube channel by clicking here!

 

Suggested Reading:

Afghanistan is Sitting on a Gold Mine. Literally

What Metals Prices Can Tell us About the Economy

Afghanistan’s Mineral Resources are Estimated to be Worth $1 Trillion to $3 Trillion

Will U.S. Car Companies be Handed Different EV Advantages?

 

Of
Importance to Finance Majors (or Related Field)

Each year Noble Capital Markets, Channelchek, and some very generous and caring sponsors hold the Channelchek College Equity Research Challenge.

The Challenge invites students to compete with one another for high cash prizes awarded to the student and the student’s school – plus more (see rules). It may also provide high-value networking opportunities with veteran equity analysts.

Who can compete?

You don’t have to be a finance, accounting, or major in a related field to understand that up to $7500 for you, and an additional $5,000 to your school can be quite helpful.  If you are fully matriculated and interested, you likely qualify.

We invite
you to learn more.  

 

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	Image Credit: Lisa Barker (Flickr)

Why are Chartered Financial Analyst (CFA) Candidates Having So Much Trouble?

 

The CFA Level 1 pass rate broke all previous records by plunging 12% this summer. According to a CFA press release dated September 14, only 22% of the 28,849 candidates who sat for the Level 1 test qualify to move on to Level 2. This is the lowest pass rate since the exam’s origin back in 1963. The ten-year average rate of success is 41%. The previous low was set by those who took the exam last May. Their success rate was just
25%, almost half of the 49% that had passed in December of 2020.

 

What Has Caused the Back-to-Back Declines?

Peg Jobst, CFA Managing Director, Head of Credentialing, said: “We continue to see the impact from the exam disruptions brought on by the global pandemic. We understand how difficult this period has been for our candidates, who in many cases, saw their exam schedules changed more than once as they sought to sit for Level I of the CFA Program. We can clearly see that these disruptions have impacted the overall pass rate.”

In a CFA press release following the initial fall off in passing grades earlier this year (May exam), the institute said the exam difficulty was consistent with past years. Did the pandemic cause a high level of distraction from exam prep? Did the move to computer-based testing play a role?  The CFA Institute seems to suggest the low pass rate was in large part due to poorly prepared candidates.  Each of the CFA exam levels requires at least 300 hours of study time. Candidates taking exams this year have had their studies disrupted by repeated exam postponements and cancellations due to COVID 19 preventative measures.

“Going forward, we do expect the pass rate to approach pre-COVID historical levels in time — so long as pandemic conditions subside. As we have said before, the exams and the process for setting the minimum passing score have not changed. Unfortunately, the many challenges posed by life during a pandemic have clearly made the process more daunting,” said Ms. Jobst.

Take-Away

Globally it seems the CFA candidates are not able to prepare and pass at the rate that they had previously. This is likely troubling for all candidates as well as the CFA Institute. It should be particularly concerning for those who must pass to retain a position at their firm as they are particularly hard hit if they don’t succeed.

 

Of Importance to Finance Majors (or Related Field)

Each year Noble Capital Markets, Channelchek, and some very generous and caring sponsors hold the Channelchek College Equity Research Challenge.

The Challenge invites students to compete with one another for high cash prizes awarded to the student and the student’s school – plus more (see rules). It may also provide high-value networking opportunities with veteran equity analysts.

Who can compete?

You don’t have to be a finance, accounting, or major in a related field to understand that up to $7500 for you, and an additional $5,000 to your school can be quite helpful.  If you are fully matriculated and interested, you likely qualify.

We
invite you to learn more.  

 

 

Sources:

https://www.cfainstitute.org/about/press-releases/2021/cfa-institute-reports-results-for-testing-in-july

 

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Will U.S. Car Companies be Handed Different EV Advantages?

 

Most investors will know these answers: What’s the world’s largest car company by market cap? What company builds the most electric vehicles (EVs)?  Which car is the most “Made in the USA?” And finally, which large U.S. auto manufacturer was not invited when The White House announced plans to “Drive American Leadership Forward on Clean Cars and Trucks”?

 

Answers

Tesla, the electric car company that was founded by South African-born Elon Musk, has the highest market cap of any car company in the world, currently at $742 billion. The second largest is Toyota, approximately one-third the value at $254 billion. Tesla also happens to be the company that builds the most electric cars, measured by the actual number of vehicles and percentage of fleet (100%).  The next answer is the car with the most parts sourced from American materials and labor (just over 70%) is the Telsa Model 3. The Model Y is in the third position while the Ford Mustang qualifies for second place.  The last answer; when The White House invited U.S. car manufacturers to the White House on August 5 to sign an order that kicks-off the target of 50% electric vehicle sales each by 2030, to advance smart fuel efficiency and emission standards, Elon Musk and Tesla were not on the invite list.

 

Car Talk

There were a number of news stories written about the White House “snubbing” Elon. Financial TV personalities discussed it as odd or even insulting that he wasn’t invited, and Musk’s preferred social media platform, Twitter, erupted with sub-280-character commentary. We may never know the answer as to why.  One of the “U.S. Big Three” car manufacturers that were there is an American subsidiary of a Dutch-domiciled automotive company, so it could be argued that they had no more business being invited than Honda or many others.

The reason may be as simple as the car manufacturers that were included in the signing ceremony, don’t meet the fleet percentage goals laid out in the non-binding executive order. In contrast, Tesla has exceeded the target set for 2030 and beyond. We don’t know if this was the rationale, but this could make sense.

Another thought on why the head of the car company where all models are electric was not included is that there really was no reason for him to be there. One thing that is in the infrastructure bill is to subsidize manufacturers when fewer than half their cars sold, are electric. Tesla won’t qualify as they have met the goal, in fact, they sell so many EVs that purchasers no longer qualify for government rebates as they do with other manufacturers that sell less than 200,000 EVs a year.

Some have questioned if there is something much more political behind Musk not be included at this ceremony. It has also been pointed out that after one of his other companies sent four civilians into space for the first time, there was no congratulatory phone call from The White House. Those that question the relationship between him or his companies with politicians point out that he is the only non-union car company headquartered in the states. Could there be pressure from political donors to avoid the founder? Another thing Musk and his company are excluded from suggests there may actually be some politics at play. Within the $3.5 billion proposed infrastructure bill, there is money set aside to create rebates for purchasers of EVs. However, this rebate only applies if the car was built with union labor. This clearly works to disadvantage Tesla’s business structure.

 

Entrepreneurial Spirit

The Founder and CEO of Tesla is a serial entrepreneur. Each company, whether it be Paypal, The Boring Company, SpaceX , Tesla, or others he started along the way are unique and probably required a lot of autonomy. The required autonomy is because the ideas may have seemed farfetched or beyond anyone’s grasp to accomplish. Less autonomy may have only served to undermine his success.  

It may be this independent trait that separates him from those in government. Those that are more inclined to set an agenda and expect that others will fall in line. Some fall in line because their hand is out on behalf of their stockholders for assistance; others fall in line because they don’t have better ideas themselves. One example where Musk openly did not fall in line is when he resigned from two advisory councils during the last administration. Elon Musk was determined to only align himself with those that he felt were pro-environment. The U.S. backing out of the Paris Climate Agreement worked against this ethic, so he decided to resign from the White House’s Manufacturing Jobs Initiative and Strategic and Policy Forum, and the Economic Advisory Council.

 

 

 Investor Take-Away

To operate a business in a country that can even consider spending the large $3.5 trillion for upgrades, change, improvements, and incentives to build toward a more solid future is positive for the company. If the trillions are spent in an uneven way, investors should pay attention to the industries that benefit and companies within those industries – specifically, the industries and companies that could benefit or be hurt by lopsided handling of funds used for growth.

The news outlets and avid Tweeters seem to exist to convey their thoughts and to a lesser extent, put on a show. Whether there was a snub of a U.S. car company (or its head) is really just gossip. Investors don’t make money off gossip. However, trends are important and so is a competitive advantage. Pay attention to how all the car companies are treated; there may be opportunities if one or more are favored during the coming changes.

Email me your thoughts on this or other investment matters directly if you’d like. If you aren’t registered to receive our articles and access to equity research take a second and leave your email here now.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Lithium Prices Strengthening on EV Demand

Can Tesla Beat Lithium Miners at Their Own Game?

Academic Thoughts on Tesla’s Robots

The Future of Electric Vehicles

 

Sources:

https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/05/fact-sheet-president-biden-announces-steps-to-drive-american-leadership-forward-on-clean-cars-and-trucks/

https://www.visualcapitalist.com/wp-content/uploads/2021/01/car-manufacturers-by-market-cap.html

https://www.forbes.com/sites/jimgorzelany/2021/06/23/which-cars-are-the-most-american-for-2021/?sh=42e9d9655210

https://www.barrons.com/articles/tesla-elon-musk-biden-spacex-51632147109?mod=hp_DAY_Theme_2_1

https://www.cars.com/american-made-index/

 

Stay up to date. Follow us:

Will U.S. Car Companies be Handed Different EV Advantages?

 

Most investors will know these answers: What’s the world’s largest car company by market cap? What company builds the most electric vehicles (EVs)?  Which car is the most “Made in the USA?” And finally, which large U.S. auto manufacturer was not invited when The White House announced plans to “Drive American Leadership Forward on Clean Cars and Trucks”?

 

Answers

Tesla, the electric car company that was founded by South African-born Elon Musk, has the highest market cap of any car company in the world, currently at $742 billion. The second largest is Toyota, approximately one-third the value at $254 billion. Tesla also happens to be the company that builds the most electric cars, measured by the actual number of vehicles and percentage of fleet (100%).  The next answer is the car with the most parts sourced from American materials and labor (just over 70%) is the Telsa Model 3. The Model Y is in the third position while the Ford Mustang qualifies for second place.  The last answer; when The White House invited U.S. car manufacturers to the White House on August 5 to sign an order that kicks-off the target of 50% electric vehicle sales each by 2030, to advance smart fuel efficiency and emission standards, Elon Musk and Tesla were not on the invite list.

 

Car Talk

There were a number of news stories written about the White House “snubbing” Elon. Financial TV personalities discussed it as odd or even insulting that he wasn’t invited, and Musk’s preferred social media platform, Twitter, erupted with sub-280-character commentary. We may never know the answer as to why.  One of the “U.S. Big Three” car manufacturers that were there is an American subsidiary of a Dutch-domiciled automotive company, so it could be argued that they had no more business being invited than Honda or many others.

The reason may be as simple as the car manufacturers that were included in the signing ceremony, don’t meet the fleet percentage goals laid out in the non-binding executive order. In contrast, Tesla has exceeded the target set for 2030 and beyond. We don’t know if this was the rationale, but this could make sense.

Another thought on why the head of the car company where all models are electric was not included is that there really was no reason for him to be there. One thing that is in the infrastructure bill is to subsidize manufacturers when fewer than half their cars sold, are electric. Tesla won’t qualify as they have met the goal, in fact, they sell so many EVs that purchasers no longer qualify for government rebates as they do with other manufacturers that sell less than 200,000 EVs a year.

Some have questioned if there is something much more political behind Musk not be included at this ceremony. It has also been pointed out that after one of his other companies sent four civilians into space for the first time, there was no congratulatory phone call from The White House. Those that question the relationship between him or his companies with politicians point out that he is the only non-union car company headquartered in the states. Could there be pressure from political donors to avoid the founder? Another thing Musk and his company are excluded from suggests there may actually be some politics at play. Within the $3.5 billion proposed infrastructure bill, there is money set aside to create rebates for purchasers of EVs. However, this rebate only applies if the car was built with union labor. This clearly works to disadvantage Tesla’s business structure.

 

Entrepreneurial Spirit

The Founder and CEO of Tesla is a serial entrepreneur. Each company, whether it be Paypal, The Boring Company, SpaceX , Tesla, or others he started along the way are unique and probably required a lot of autonomy. The required autonomy is because the ideas may have seemed farfetched or beyond anyone’s grasp to accomplish. Less autonomy may have only served to undermine his success.  

It may be this independent trait that separates him from those in government. Those that are more inclined to set an agenda and expect that others will fall in line. Some fall in line because their hand is out on behalf of their stockholders for assistance; others fall in line because they don’t have better ideas themselves. One example where Musk openly did not fall in line is when he resigned from two advisory councils during the last administration. Elon Musk was determined to only align himself with those that he felt were pro-environment. The U.S. backing out of the Paris Climate Agreement worked against this ethic, so he decided to resign from the White House’s Manufacturing Jobs Initiative and Strategic and Policy Forum, and the Economic Advisory Council.

 

 

 Investor Take-Away

To operate a business in a country that can even consider spending the large $3.5 trillion for upgrades, change, improvements, and incentives to build toward a more solid future is positive for the company. If the trillions are spent in an uneven way, investors should pay attention to the industries that benefit and companies within those industries – specifically, the industries and companies that could benefit or be hurt by lopsided handling of funds used for growth.

The news outlets and avid Tweeters seem to exist to convey their thoughts and to a lesser extent, put on a show. Whether there was a snub of a U.S. car company (or its head) is really just gossip. Investors don’t make money off gossip. However, trends are important and so is a competitive advantage. Pay attention to how all the car companies are treated; there may be opportunities if one or more are favored during the coming changes.

Email me your thoughts on this or other investment matters directly if you’d like. If you aren’t registered to receive our articles and access to equity research take a second and leave your email here now.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Lithium Prices Strengthening on EV Demand

Can Tesla Beat Lithium Miners at Their Own Game?

Academic Thoughts on Tesla’s Robots

The Future of Electric Vehicles

 

Sources:

https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/05/fact-sheet-president-biden-announces-steps-to-drive-american-leadership-forward-on-clean-cars-and-trucks/

https://www.visualcapitalist.com/wp-content/uploads/2021/01/car-manufacturers-by-market-cap.html

https://www.forbes.com/sites/jimgorzelany/2021/06/23/which-cars-are-the-most-american-for-2021/?sh=42e9d9655210

https://www.barrons.com/articles/tesla-elon-musk-biden-spacex-51632147109?mod=hp_DAY_Theme_2_1

https://www.cars.com/american-made-index/

 

Stay up to date. Follow us:

Tickets and Concessions Using Your Cryptocurrency Wallet at AMC Theaters

 

AMC Movies is being cheered and booed by cryptocurrency patrons as it allows three more digital currencies to be used to purchase tickets and popcorn. Interestingly one of the more popular currencies is still not among the four accepted at the movie chain. Bitcoin had already been accepted by the theater chain, taking three others is a nod to the credibility and usability of alternate currencies. However, as of August 2021, there are 5840 cryptocurrencies; choosing four, leaves out many large and small coins.

 

What Occurred

Movie-theater chain AMC Entertainment Holdings ($AMC) has been accepting Bitcoin (BTC.X) for purchases at its theaters.  They’ve announced a move to accept three other types of digital currencies for patrons making online ticket and concession purchases during 2021.

 

Source: Twitter

 

The company’s CEO, Adam Aron announced this in a Twitter post addressed to “cryptocurrency enthusiasts” late Wednesday (September 15). He tweeted that Ethereum (ETH.X), Litecoin (LTC.X), and Bitcoin Cash (a derivative of the digital currency they already accept) would be acceptable in addition to Bitcoin. However, Dogecoin (DOGE.X), the most exchanged coin on Robinhood, is not part of the four coins accepted. There has been no public word as to why AMC has a no Doge’s allowed rule.

Aron had previously announced that AMC would accept Bitcoin for payments back in August during the company’s most recent quarterly earnings call.

 

What it Means for
Crypto

It is the latest company to join the wider acceptance of digital currencies. Fintech firms PayPal (PYPL) and Square (SQ) allowed users to exchange and even store Bitcoin as well as transact with it. PayPal users can also do the same with Ethereum, Litecoin, and Bitcoin Cash (BCH.X). Twitter followers of Elon Musk know Tesla (TSLA) began accepting Bitcoin for payments earlier this year. Elon Musk later tempered his talk with concerns around crypto mining’s environmental impact (not value).

AMC’s move does represent another step by a recognized brand toward wider acceptance of the larger cryptocurrencies. This can be thought of as bullish for the entire industry.

Take-Away

Bitcoin and other cryptocurrencies were mocked just a few years ago as not a serious idea. AMC and those that were buying the stock were ridiculed last year during the coronavirus lockdown that prevented theaters from operating. This week, AMC is providing a nod to cryptocurrencies and the entire industry. Although highly popular Dogecoin was not also part of AMC’s initial four, cryptocurrency believers can still feel confident that this is a big vote in favor of their convictions.

 

Suggested Reading:

The Coinbase Nasdaq Listing Offers a Crypto Diversifier

Can Wall Street Giants Put Crypto on the Menu?

Decentralized Finance, is it the Future?

Michael Burry vs Cathie Wood is Not a Fair Competition

 

Sources:

https://www.barrons.com/articles/amc-cryptos-bitcoin-51631794500?mod=hp_LEADSUPP_1

https://twitter.com/CEOAdam/status/1438298684266098688/photo/1

https://investor.amctheatres.com/corporate-overview/?_ga=2.36302503.608719830.1631809592-667952136.1631809592

 

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Six Ways the Pandemic Created Cyberattack Opportunities at Schools and Colleges

 

Cyberattacks have hit schools and colleges harder than any other industry during the pandemic. In 2020, including the costs of downtime, repairs and lost opportunities, the average ransomware attack cost educational institutions $2.73 million. That is $300,000 more than the next-highest sector – distributors and transportation companies.

From Aug. 14 to Sept. 12, 2021, educational organizations were the target of over 5.8 million malware attacks, or 63% of all such attacks.

Ransomware attacks alone impacted 1,681 U.S. schools, colleges and universities in 2020. Globally 44% of educational institutions were targeted by such attacks.

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  Nir Kshetri, Professor of Management, University of North Carolina – Greensboro

 

I study cybercrime and cybersecurity. In my forthcoming book – set to be published in November 2021 – I look at how the shift to remote learning during the pandemic has posed new cybersecurity challenges.

I see six important ways the pandemic has created new opportunities for cybercriminals to attack schools and colleges.

 1. Unsafe Devices

Devices that were loaned to students during the pandemic often lack security updates. This is a serious issue since in 2020 alone, 1,268 vulnerabilities were discovered in Microsoft products. One such vulnerability can enable hackers to gain higher-level privileges on a system or network, which can be used to steal data and install malware.

As students, teachers and administrators return to school with devices that haven’t been patched in a while, a large number of vulnerable devices are likely to be reconnected to school networks.

 2. Distracted Cybersecurity Staff

The shift to remote learning has also distracted the attention of limited cybersecurity staff from important security issues. In at least one case, persons responsible for cybersecurity were assigned to investigate bad online behavior, such as name-calling, that teachers and administrators handled before.

For most schools, cybersecurity has had to compete with other urgent issues created by the pandemic, such as mental health, vaccines and mask mandates.

3. Victims More Likely to Comply

In 2020, 77 ransomware attacks on U.S. schools and colleges affected more than 1.3 million students and resulted in 531 days of downtime. This downtime was estimated to cost $6.6 billion in economic terms.

The economic impact was based on an estimated average cost of $8,662 per minute. Some cyberattacks during the pandemic completely shut down major school districts for many days.

At the same time, public schools faced political and social pressure to ensure students’ access to learning opportunities during the pandemic. The pressure to quickly restore networks can make victims desperate and willing to comply with criminals’ demands. For instance, the Judson Independent School District in Texas paid $547,000 to ransomware attackers in the summer of 2021 in order to regain access to its systems and stop student and staff data from being published. In 2020, the Athens Independent School District in Texas paid a $50,000 ransom.

4. Vulnerable Platforms

When the pandemic forced schools to use online platforms to conduct classes and evaluate students, it created new entry points for cybercriminals to target.

These platforms include video chat programs such as Zoom and Microsoft Teams, as well as providers of curricula, technology and services, such as K12, recently renamed as Stride. They also include online proctoring services, such as ProctorU and Proctorio.

Collectively, such platforms were targeted in three-quarters of the data breaches  in school districts that involved personal information.

In November 2020, online education vendor K12 reported that some students’ information on its system could have been stolen during a ransomware attack, even though the company paid the ransom.

Likewise, in July 2020, hackers stole sensitive personal information from 444,000 students – including their names, email addresses, home addresses, phone numbers and passwords – by hacking online proctoring service ProctorU. This data became available for sale in online hacker forums.

5. More Baiting Opportunities

Cybercriminals increasingly turned to social engineering attacks during the pandemic. These are attacks in which the cybercriminals use emotional appeals to things such as fear, pity or excitement to bait people into providing sensitive information. For example, cybercriminals have launched phishing campaigns in which they pose as human resources staff and ask recipients to submit information about their COVID-19 vaccination status.

Victims may be lured to give their credentials, click malicious links or download files containing malware. Fear and uncertainty – such as that created by the pandemic – make individuals more susceptible to social engineering attacks.

An analysis of 3.5 million social engineering attacks from June to September 2020 found that more than 1,000 schools and universities were targeted. Educational institutions were also more than twice as likely as other institutions to be victimized by such attacks.

In May 2020, the Federal Trade Commission posted a message on its website with a screenshot of a social engineering attack email. The message warned college students that the emails about COVID-19 economic stimulus checks claiming to be from their universities’ “Financial Department” could be from scammers.

 6. COVID Resources Have Created New Targets

Colleges have been designated to distribute COVID-19 relief funds – and criminals caught on to this. In May 2021, the U.S. Department of Education made more than $36 billion in emergency grants available for students and colleges under the American Rescue Plan Act.

In California, more than $1.6 billion in such grants were available to community college students alone. This explains why, not long afterward, more than 65,000 fake students applied to California community colleges for such aids and loans.

Most two-year institutions don’t have resources to vet applicants. The lack of a requirement for identity verification and other documentation to get COVID-19 relief grants from community colleges also attracted attention from criminals overseas. Many of the fake student applications in the California community college system were from foreign countries. Officials have been silent about whether these fake students got any money.

The bottom line for schools and colleges is that as they continue to confront the challenges of the pandemic, cybersecurity cannot be placed on the back burner. Ignoring threats to cybersecurity now can be quite costly in the future.

 

Virtual Road Show Series – Thursday, September 16 @ 1pm EDT Join One Stop Systems CEO David Raun and CFO John Morrison for this exclusive corporate presentation, followed by a Q & A session moderated by Joe Gomes, Noble’s senior research analyst, featuring questions taken from the audience. Registration is free and open to all investors, at any level. Registration is fast and free.  |  View All Upcoming Road Shows

 

 

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	Image Credit: Blockzeit CH (Flickr)

On September 7th Bitcoin Will Become ‘Legal Tender’ in El Salvador – Here’s What that Means

 

On Sept. 7, 2021, El Salvador will become the first country to make bitcoin legal tender.

The government even went a step further in promoting the cryptocurrency’s use by giving US$30 in free bitcoins to citizens who sign up for its national digital wallet, known as “Chivo,” or “cool” in English. Foreigners who invest three bitcoins in the country – currently about $140,000 – will be granted residency.

Panama is Considering Following El Salvador’s Lead

Does making bitcoin legal tender mean every store and merchant in El Salvador will now have to accept digital payments? If more countries do the same thing, what will this mean for consumers and businesses around the world?

 

This article was republished with permission from  The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston University

 

As an economist who studies wealth and money, I believe that briefly explaining what legal tender is will help answer these questions.

 

What is Legal Tender?

Legal tender refers to money – typically coins and banknotes – that must be accepted if offered in payment of a debt.

The front of every U.S. banknote states “This note is legal tender for all debts public and private.” This statement has been enshrined in federal law in various forms since the late 1800s.

The greenback is not legal tender in just the U.S. El Salvador, for example, switched from the colon, its previous currency, to the U.S. dollar in 2001. Ecuador, Panama, East Timor and the Federated States of Micronesia also all use the dollar as legal tender.

Do Merchants have to Accept Legal Tender?

But despite the definition above, legal tender doesn’t mean all businesses must accept it in payment for a good or service.

That requirement applies only to debts owed to creditors. The ability for a store to refuse cash or other legal tender is made explicit on the websites of both the U.S. Treasury, which is in charge of printing paper money and minting coins, and the Federal Reserve, which is in charge of distributing currency to the nation’s banks.

 

Source: www.ustreasury.gov

 

This is why many companies such as airlines accept payments exclusively by credit card, and many small retailers take only cash.

As the U.S. Treasury points out, there is “no federal statute mandating that a private business, a person or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise.”

And this would be no different if the U.S. made bitcoin legal tender. Private businesses would not be required to accept it.

There is clearly some confusion in El Salvador over the issue, however. Its original bitcoin law, passed in June 2021, states that “every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.”

This led to protests and resulted in skepticism from economists and others. As a result, El Salvador President Nayib Bukele tweeted in August that businesses did not have to accept bitcoin.

A man in Tamanique, El Salvador, makes a purchase at the opening of a small store that has a sign that says it accepts bitcoin.

Will bitcoin catch on in El Salvador? AP Photo/Salvador Melendez

Why did El Salvador make bitcoin legal tender?

El Salvador is betting that being the first to open its doors completely to bitcoin will help boost its economy.

President Bukele said he believes this will encourage investors with cryptocurrency to spend more of it in his country. He even has a plan to have El Salvador’s state-run geothermal utility use energy from the country’s volcanoes to mine bitcoin.

Creating, or mining, bitcoin takes a lot of energy, so mining makes sense only in places with cheap electricity.

The $30 given to every citizen who joins the cryptocurrency craze will temporarily stimulate the economy. However, the overall impact will likely be a short-term boost. The impact of similar payments in other countries, like COVID-19 stimulus payments appears to end after people have spent the money. Moreover, it’s unclear El Salvador’s increasingly indebted government can even afford it.

 

 

And the widespread adoption of bitcoin will likely take years. El Salvador has been installing 200 bitcoin ATMs to allow people to convert cryptocurrency into dollars.

Since just 30% of the Central American country’s population even has a bank account, I believe the U.S. dollar will still be used in El Salvador for a long time, even if its president wants to move toward bitcoin.

 

Suggested Reading:

Elon Musk, Jack Dorsey, and Cathie Wood Drop Bombshells at Bitcoin Conference

Decentralized Finance, is it the Future?

Blockchain Smart Contracts Aim to Cut Out Intermediaries

Are Robots Coming After the Law Profession?

 

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