February 01, 2022

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TOGETHER WITH

Good day to you. Can you guess what percent of US cars sold in 2021 were electric vehicles? a. 2.6%, b. 12.6%, 22.6%. Follow the wave 🌊 below for the answer.

Let's get right to our money topics for today 👇

Is the end of cash near? A look into CBDCs
Has volatility become desirable?
A bigger tax credit for going electric

THE FUTURE OF MONEY

Is the end of cash near? A look into CBDCs

The phrase “digital dollar” has been percolating throughout our lives for quite a while now, but it didn’t start gaining much attention until recently.

Fueled by the pandemic, restrictions on the physical exchange of money encouraged consumers to further disrupt the cash market and explore more convenient and newer options. The rise of cryptocurrency has undoubtedly had a strong correlation with this movement, and in the US, we seem to be drawing nearer to making the intangible dollar a real thing.

But what does that mean exactly? This may be a foreign idea to most, so we’ll look to clarify some basics on this:

What's a CBDC? Central banks around the world have long debated launching their own stable, centrally regulated digital currencies, aka Central Bank Digital Currencies (CBDC). Simply put, they are a digital form of fiat money. This digital money would be fully issued and regulated by a central bank or a country’s monetary authority.
How is it different from electronic cash? While it’s true that USDs have long been held mostly in electronic form in bank accounts and payment apps, CBDCs would be a liability of the Federal Reserve and not of a commercial bank.
CBDC isn't a form of cryptocurrency, although the idea did come from cryptos. A key difference is that CBDCs are centralized, while the majority of cryptos are decentralized. CBDCs would be backed by the full faith of the issuing government, just like fiat currency.
Benefits of CBDCs include faster, cheaper payments, including cross-border payments; expanding consumer access to the financial system as the central bank would establish direct relationships with them (i.e., an inclusionary financial system); and eliminating third-party/intermediary risks.
But beware. Making everything digital, fast, and convenient sounds great on the surface, but beneath that, it may present a whole host of other controversies and disagreements. A fully digital dollar would likely mean that every transaction is logged and traceable to its source, which could raise valid privacy concerns.
Where's the US on this? They're aware that if the world evolves past them, not having a fast, efficient digital dollar as other countries could potentially upend the dollar as the world’s dominant reserve currency. Despite that, the timeline for the US to launch a US CBDC is probably at best years away.

The progress of digital currencies around the world

Although the concept of government-backed digital currencies is young, it’s already starting to walk in parts across the world.

China, for example, unveiled its digital Yuan back in 2019 and began rolling it out in April of 2020. Mexico just announced its plans to launch its own CBDC by 2024, Sweden began piloting their e-krona coin back in 2017, and it’s worth noting that all other major players are in the preliminary stages of discussing or moving towards introducing a digital currency too. Overall, there are currently 82 countries around the world pursuing CBDC development.

What does this all mean?

Despite what you may hear, the demise of cash is probably not going to happen anytime soon. And the ability of any singular alternative to take its place in the foreseeable future remains to be seen.

INVESTING PERSPECTIVE

Has volatility become desirable?

Recently it seems as if investing has become cooler than ever. It's losing the mundane stigma it had in the past, and evolving into something trendy that newcomers see as an opportunity to win the moonshot lottery.

A big part of that excitement comes from volatility—a term investors once steered clear of, for the most part. Now though? It's fair to ask if volatility has become desirable.

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Throughout 2021, both classic markets and nascent exchanges saw a flood of volume that came with a flurry of new, euphoric investors. These multigenerational newcomers quickly became the face of multiple trends, multibaggers, and an equally new "risk-on" mentality in the markets.

But the risk-on is different this time. It's not only mired in the well-known emotions of fear and greed that have long been drivers of investing, but now also add in the element of fascination with new shiny investing objects that have become so accessible.

What's driving the shift?

Although risk may be undesirable, a load of new investors is piling into the markets with a somewhat fed-up mentality, often ready to risk much more for the chance at gains than their predecessors.

Volatility might take as often as it gives, but new investors have shown their inclination to overcome whatever fears the threat of loss might instill in them.

A lot has led up to this shift. Data shows us that younger generations are less likely to own homes, have kids, and build wealth than their elders. They’re strapped with more debt, lower wages compared to productivity, and oftentimes a big financial WTF moment as they enter adulthood. A little volatility for a chance at wealth? They’ll take it.

BUYING A CAR

Tax credits for going electric

Sometimes in order to make room for the new, we have to move on from the old, and cars are no exception to that rule. The US has made great progress in the EV market over the last couple of decades, but still remains traditional in some ways, and it shows in our reluctance to give up on gasoline vehicles.

Regardless, the government is out in force to assist in persuading US car buyers to make the switch and go electric as soon as possible, mainly by way of tax credits.

Here are a few noteworthy changes being proposed to make EVs sold in the US more financially appealing:

EV tax credits as it stands today. The current rebate for qualifying EV purchases is $7,500, but there are caveats. If your tax bill is less than that, then the rebate only covers up to what you owe, and it doesn't roll over for the next tax year. On top of that, not all vehicles are eligible for the full $7,500, and whether they are or not depends on battery size.
Which cars are eligible? New battery-electric or plug-in hybrids that are purchased (not leased). See the full list of eligible EVs and PIHV (plug-in hybrid vehicles).
The Build Back Better bill, which has yet to pass the Senate, proposes changes to what stands today. The base rebate would be $4,000 for qualifying tax filers, and if the EV has a battery pack capacity of at least 40-kilowatt hours, you could be eligible for an additional $3,500 in rebates, another $4,500 if it was made in the US with a unionized labor force and a final $500 if the EV’s battery cells were manufactured in the US. That's a potential $12,500 rebate.
Who would qualify? Single filers with an adjusted gross income (AGI) of $250 or less, and married joint filers with an AGI of less than $500k.
Another proposed change that would begin in 2023 would be to make the rebate transferable from the tax filer to the dealer, effectively reducing the sticker price of the EV.
The bill would also place a cap on the cost of the electric vehicle purchases at $80,000, effectively eliminating several Tesla models and various other EVs from luxury brands.
The new rebate could be converted into a refund if the buyer of the qualifying EV owes less in taxes than they had qualified for with their rebate. So, if you qualified for the $10,000 rebate but only owed $6,000 in taxes, you’d get a $4,000 refund.

🚗 Since you have to buy a "new" EV to qualify for the tax credits, take this lesson if you're new to the car buying process:

Buying a New Car

Cars

6 mins

ASHU'S CORPORATE CORNER

Today's Movers & Shakers

AT&T (-4.5%) after saying that it will spin off its stake in WarnerMedia and cut its dividend by ~50%
AMC (+13.4%) announced better than expected results for Q4
UPS (+14.3%) beat estimates and announced a 49% increase in dividends
Exxon (+6%) beat on profits, while revenues came below
UBS (+7.7%) after reporting its best annual profit since 2006; the firm also plans to increase dividends and boost its share buyback program; this all comes on the heels of its announcement to acquire digital advisor, Wealthfront for $1.6 billion last week
Cirrus Logic (-5.5%), a US fabless semiconductor company, despite beating the street on revenues and profits
NYTimes (+4%) will be buying the daily word game maker, Wordle, for an unspecified amount in the "low seven-figures"
Pfizer (flat) and BioNTech (+3.4%) will ask the FDA for permission to use Covid vaccines on children below age 5

This commentary is as of 9:00 am PDT.

🌊 BY THE WAY

Answer. Electric vehicle sales surpassed 2.6% of the US market in 2021, an all-time record. Compare that with 9% of new sales in China and 14% in Europe. (MichiganRadio.org)
₿ US now defines Bitcoin and digital assets as cash—for large transaction reporting (Coingeek)
🪙 Stablecoins: The bridge between crypto and fiat? (Finny Bites)
Finny lesson of the day. With markets swinging from red to green and back, it may be a good idea to review some investing basics—even if it seems like an obvious—like this one:

What is Risk Tolerance?

Investing Basics

7 mins

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