This article is the on-site version of our unedited newsletter. Premium subscribers can sign up here to deliver their weekly newsletter. Standard subscribers can upgrade to premium here or explore all FT newsletters
good morning. Because yesterday, the S&P 500 was pleased that Donald Trump was happy and that for now it was retreating from the higher EU tariffs (Taco!). The index rose 2%, led by consumer discretion and information technology. The defenses of utilities and real estate have also improved, but they have decreased. Email: Unedged@ft.com.
People think I’m wrong about stablecoins
Yesterday, after writing that the Stablecoin issuer is a bank and that Stablecoins is a bank deposit, above average people said I’m stupid on the internet (the highest number recorded; that level is reserved for when writing about gold or Warren Buffett).
The most common argument for me was that when laying out what the Stablecoin issuer does, it’s not a bank, but a money market fund. Like Stablecoin issuers, money market funds receive cash from investors, invest that cash to work in short-term assets, and issue a responsibility to commit to redeem the investors on demand and par. The key difference is that banks make money when making loans due to the fact that banks can hold fractional reserves. For many people, it is a critical feature of banks, and Stablecoin issuers (at least under the genius law) do not do that.
Please accept this discussion for a while. One troubling fact is that if the Stablecoin issuer is a money market fund, then Stablecoins are securities and must be regulated in that way. Also, there is another issue for Stablecoin users. Several readers pointed out that Stubcoin is not exactly a money market fund, but instead a Money Market Exchange Fund (MMETFS). This is John Levine:
As a regular reader, I rarely oppose you, but this time I have to. Stablecoins are money market ETFs, not bank deposits. If I buy some tethers, I can’t cash them out. Their minimum transaction is $100,000, unlike ETF’s “approved participants” they only buy or sell to verified counterparties at a 0.1% rate. Unlike ETFs, when the amount of purchase and selling is small in exchange. I don’t think this will make a big difference in the way it is regulated, but there are a large number of users, like ETFs, who know and deal directly with them, and many anonymous others who are totally different from banks.
My colleague Elder Bryce pointed out the dark meaning of this.
Unlike MMFS, existing stable coins do not have a neat and reliable redemption mechanism. Holds an average Stablecoin Punter (holds) ETFs of bank deposits without directly accessing the redemption window. Whether a token can be sold at net asset value depends on. . . The willingness of arbitrators to simultaneously access the ETF redemption mechanism. Whether or not trades on a PAR is determined by the arbitrator’s balance sheet and the size of the risk appetite. At events like 2020 Dash for Cash, it will be toast.
On a general point about money market funds and banks, there are officially appropriate but totally unhappy responses that can be used to me. MMF can also be said to be a bank. And in fact, money market funds and similar vehicles have been labelled “shadowbanks” in the past. For good reason, they have viable debts.
Dan Davis, a generally smart man and former economist at the Bank of England, points out that one of the key features of MMFS is that they get caught up in banking-type troubles and need a regular central bank backstop. When the push sticks out, in other words, MMF receives bank treatment. This is Davis:
MMF is a (shadow) bank! People don’t want to admit this because it brings about all kinds of unhappy results, but you can call what you want. In the days of Lombard Street, these people would say that goldsmiths were not banks.
My one day colleague, Brendan Greeley, is now an Ivy League academic, and “there are other examples of strict deposit banks. Wisselbank was pure deposits, editor transfers, and no money creation.” With only a slightly nerdy note, he emails it.
I steal the definition of Morgan Ricks: Does it issue viable debt? If yes, sorry, but it doesn’t matter what your business plan is or what you call yourself. You need to regulate like a bank because you are viable like a bank. This is what Stablecoin Issuers says is (the only) red herring to buy T-Bill and report. I don’t mind saying you’re buying, I won’t believe you until FDIC breaks your book and validates it. . .
Ultimately, no matter how many banks swear they have good assets, they have to keep reserves. I’ll relearn this whenever I have a bank panic. . .
Also, within a year from today, two beers will bet that the Stablecoin issuer will provide a margin loan to MemeCoin Bet or overdraft credit. There is no way we can give them a license to the bank light, but they don’t go straight away: “Oh, was that money creation? We didn’t know!”
The distinction between banks and non-banks is said to risk squeezes, but it comes down to the context. And here the context is provided by name: it is not a fund coin or a market coin, but a stub coin. This product manifests in terms of immediate conversion in PAR and its usefulness as a payment mechanism, and that even financial market funds do not dare to dare. I call it a bank deposit. Because that’s what I want.
Has Trump made solar energy uninvestible?
Solar Stock had a difficult week. Although they weren’t expecting Trump’s “big beautiful bill” to preserve Biden-era inflation reduction laws, it included two major negative surprises about solar energy. Investors seem a bit naive to assume that moderate Republican lawmakers would protect the IRA. Stocks across the sector have fallen in the news – turning the jump backed by expectations of Iraq’s generosity early in May, extending the downward trend that began after Trump was elected.
It’s not a beautiful photo, but here is an important distinction. Joe Osha of Guggenheim said the bill is a disaster for the residential solar department, where “policy is everything.” The two major stocks in the region are Sunlan, the largest home solar installation company in the United States, and Enphase Energy, which develops microinverters for the housing market. Investment tax credits for third-party owned systems are important for the housing sector, as most homeowners are willing to commit to the high upfront costs of solar power. According to BMO, more than 90% of Sunrun customers use TPO. The budget bill now rolls back tax credits for solar roofing companies that have rejected credits after this year and installed the system.
The prognosis is suitable for utility scale sunlight. The tougher time frame for project credits is a headwind, but the bill maintained tax credits for large-scale solar projects. This explains why shares in the two biggest commercial operators, First Solar Energy and Nextera Energy, were postponed. The utility business typically operates on contracts ranging from 15 to 20 years, and utility scale solar is considered an important source of power for AI and data center growth.
Solar energy will not die completely under Trump 2.0. But policy whiplash is a problem. As OSHA says:
There is a market trend in this sector to pin these factoids and say “Oh, yes.” Understood. I’m going to ride on the other side of this. “And the fact in question is, yes, there are ups and downs, but that approach has lost a lot of money in the last two years.
Enphase and First Solar trade at a positive price/revenue ratio of 16 and 10 if the industry appears to grow at all. However, these assessments reflect the fact that more policy volatility comes.
(Kim)
One good read
The president’s preference.
ft HESHGED PODCAST
Is it not being properly kept? Listen to our new podcasts and dive in to the latest Markets News and Financial Headlines twice a week for 15 minutes. Check out previous editions of our newsletter here.
Recommended newsletter
Due Diligence – A top story from the world of corporate finance. Sign up here
Lex Newsletter – Our investment column, Lex, categorizes key themes of the week, along with analysis by award-winning authors. Sign up here
