Market Pulse
Monday, March 13, 2023
Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
This week’s version is a unique one. For anyone even closely involved with the tech sector, the last 4 days have been testing. The implosion of Silicon Valley Bank (SVB) put at risk thousands of jobs in the UK and globally. SVB has been a critical supporter and partner of the tech industry for the last 40 years, and without government intervention on both sides of the Atlantic, the impact could have been devastating for the industry.
There has been a lot written (and there will be even more) about the steps leading to SVB’s failure, and the subsequent events of the last few days. Many of us working in finance and technology have lived out these events directly, and with ongoing events in the US (Signature Bank, First Republic), this story is unfortunately far from finished.
And so, rather than rehash the events of the last few days, we thought we’d do something different and talk about some completely unrelated stories… some light relief, and a chance to think about something else.
So in this week’s edition we have just 2 main stories:
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It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
While much of the tech and financial world had their eyes glued to the Silicon Valley Bank share price, researchers at the University of Rochester (US) announced that they made a remarkable scientific breakthrough. The researchers claimed to have developed a superconducting material that works at room temperature.
Superconductors are materials that can conduct electric current without any loss, but getting a superconductor to work at room temperature or normal atmospheric pressure has so far proven too big an engineering challenge. Usually, superconductors have to be cooled to around minus 160 degrees Celius and be subjected to immense pressure to work their magic.
By using a rare element called Lutetium, the scientists claimed to have created a superconductor that can operate at room temperature and at much lower pressures than was previously thought possible[1]. Lutetium is a rare element that is extracted from Monazite found in countries like India, Madagascar and South Africa.
The researchers named the new superconductor ‘reddmatter’ as the material's colour changed from pink to red under high pressure. And yes, they admitted to getting the idea for the name from Star Trek.
While the new superconductor still needs pressure many times higher than what we experience at sea level, according to the researchers, the pressure requirement is now within range of what engineers can achieve to make a commercially viable product. Dr. Salamat, a physicist at the University of Nevada, predicts that we will have consumer goods with superconducting materials in the next 5 years [2]. If he is right, we can all look forward to electric cars, phones and laptops with longer battery lives.
But drama and controversy surrounding the researchers have many worried that the breakthrough may not hold up to scientific scrutiny. This is not the first paper the authors, Dias and Salamat, published on superconductivity. Back in 2020, they published a paper in the journal Nature. The validity of their methodology was challenged and, in 2022, Nature retracted the paper until the issue was resolved[3],[4]. Subsequent investigations found no wrongdoing on the side of the researchers but, so far, other researchers have been unable to replicate their results.
Given the past controversies, researchers might be reluctant to devote the resources necessary to replicate Dias and Salamat’s new findings. But on the other hand, if the paper is right and superconductivity at room temperature is possible, it could change the world for the better. We think another group of researchers will eventually prove if Dias and Salamat’s findings are valid. We really hope they are.
After the introduction of the Inflation Reduction Act in the US, European politicians grew concerned that European companies will forgo investing in green technology and instead head over the pond to get access to very lucrative American subsidies.
These fears were not unfounded. Last week VW, the largest car manufacturer in Europe, announced they will put plans to develop a new battery plant in Europe on hold. They wanted to know if Europe could match the roughly $10bn in subsidies and loans they could get in the US[5].
Last week Europe responded. The European Commission announced an overhaul of its approach toward subsidies. Under the new regime, large scale subsidies will be justified if similar subsidies are offered outside of Europe. This should go a long way towards mitigating the risk of green projects in Europe moving to the US[6].
This subsidy race will likely accelerate the shift to a more sustainable economy but it could come at a high cost to taxpayers. Concerns have been raised that subsidies could unfairly benefit the richer nations in Europe. To address these concerns applications to match US subsidies must come from a member state in what is considered a less wealthy region.
The US, by igniting a subsidy race with Europe, might have just put the achievement of net-zero targets within easier reach. Time will tell.
[5] https://www.ft.com/content/6ac390f5-df35-4e39-a572-2c01a12f666a
[6] https://www.ft.com/content/a7438c5a-41da-42ab-845f-25176205a5c7
