5 steps to building a DCF:
⦁ Forecast the Free Cash Flow
⦁ Calculate the Weighted Average Cost of Capital
⦁ Calculate the Terminal Value
⦁ Discount the Free Cash Flow and Terminal Value
⦁ Calculate the implied share price

Free Cash Flow Formula:
FCF = EBIT*(1-tax rate)
+ (Depreciation and Amortization)
– (Capital Expenditures)
– (Increase in non-cash working capital)

Example:

Weighted Average Cost of Capital Formula

The weighted average cost of capital or WACC calculates the cost of deploying capital. It is the average rate that a company expects to pay to finance its assets. This is based on their cost of debt, equity, and the current tax rate. 

E = Equity

D = Debt

T = Tax Rate

R_E = Cost of Equity (CAPM)

R_D = Cost of Debt 

Example:

Terminal Value

Terminal value is the predicted value of an investment beyond its estimated cash flow period. This can be calculated using the perpetuity growth method or the exit multiple method. 

Perpetuity Growth Method assumes that the cash flows will grow at a constant rate forever.

Exit Multiple Method assumes that the company sold using a multiple metric in this case enterprise value divided by earnings before income tax depreciation and amortization.

Example:

Discounting Cash Flows

This is done by taking the free cash flow for each year, dividing it by one plus the discount rate raised to the power of each period and then summing all discounted cash flows together to get the present value of future cash flows. Then by adding it to the terminal value you get the current enterprise value. 

To simplify, to find the current value of an investment one must add up all of the future cash flows generated by the venture discounted by an average rate of cost of capital and then add a predicted future value which goes beyond the cash flow period based on perpetual growth.

Enterprise Value to Equity Value

Once enterprise value is calculated we can determine the equity value based on the DCF analysis. This is done by subtracting debt from the enterprise value and then adding cash. This can be further broken down into equity value being equal to enterprise value minus debt and debt equivalents minus non-controlling interest minus preferred stock plus cash and cash equivalents. But in the most basic terms we are simply subtracting debt and adding cash and liquid assets. 

By dividing equity value by the shares outstanding we are able to determine the share price

PepsiCo has 1.387 billion shares outstanding, with a current price of $173 per share. The conglomerate holds 8.42 billion dollars of liquid assets, including cash and cash equivalents, short-term investments, and investments in noncontrolled affiliates (investments in other companies where the company holds significant ownership with no controlling interest). In addition, there are over 39 billion dollars in long and short-term debt, which gives PepsiCo an Enterprise Value of over 270 billion dollars; if a company were to buy out PepsiCo, they must overpay by 30.6 billion dollars.

On a quarterly basis, PepsiCo made 27.996 billion dollars in revenue, up 11% from Q4 of 2021. Annually, revenue in 2022 equated to 86.39 billion dollars, making Q4 one of the best production quarters in history. Revenue has continued to grow for five consecutive years, leaving PepsiCo with a 32% increase year-to-year starting from 2017. Image one shows the total amount of revenue disbursed through each subsidiary; almost every sector has seen revenue growth over five years. Some, however, have seen higher revenue growth, including AMESA with 75% and APAC with 66%, as opposed to the EU with 21%. The EU had one of its weakest years in revenue, with a loss of 2% year to date. Despite the EU’s revenue decline, it is the third largest subsidiary inside of PepsiCo, with a whopping 15% of total revenue. Image two shows the percentage of revenue to each group inside PepsiCo. While most revenues increase per group, the percentage changes based on strategy, economics, and other factors. Pepsi and Frito-Lay make up the vast amount of revenue per division, with Pepsi having 30% of all revenue while Frito with 27%. Interestingly enough, Fritos operations are catching up to Pepsi; at the same time, Latin America is also close to passing the EU’s operations because of the effects of the war with Russia. Overall, revenue growth is healthy throughout the company’s divisions year-to-year and quarter-to-quarter.

EPS data went up in 2022 by 18%, meaning PepsiCo made $6.13 for every share outstanding. In addition, from 2017 till now, PepsiCo had a share buyback of 3%, from 1.425 billion shares to 1.38 billion, indicating that it has the capital to spend and invest in itself. As a result, model income (net income excluding one-time purchases) was reasonably aligned with net income, although the same cannot be said for a per-quarter basis. Model income was far off to net income based on the Justice Transaction and Intangible Asset Impairment that will be spoken about in more detail.

The gross margin in image 4 shows that the selling of goods, when factoring in the cost of sales, has remained relatively stagnant, decreasing just about 3% in the last five years. Operating profit margin indicates a decrease of 3%, meaning that when adding expenses, such as selling general and administrative costs and other expenses, it has taken a more significant cut than previously in terms of net profit. Return on equity (ROE) shows the company’s growth or decline in net assets. The S&P’s long-term running average of ROE is 13.29%, whereas the average for food and soft beverages combined is 21.05 ROE. PepsiCo’s ROE for 2022 was 49%, exhibiting consistency in its assets. Return on assets (ROA), on the other hand, shows the amount of profit a company can generate with its assets. PepsiCo’s ROA is 9.2% in 2022 and has been growing for three years. The debt ratio is total short-term debt plus long-term debt divided by assets. PepsiCo displayed a 42.4% debt ratio, meaning there’s over 40% of debt per asset. The average in the food and beverage industry is 22%, meaning PepsiCo is taking on more debt than other companies in its industry. Lastly, the asset turnover ratio indicates the efficiency of a company using its assets to generate revenue. Consumer non-cyclical companies have an average turnover of .72, while PepsiCo has an average of .94, which has increased by about 13% in the past five years.

Free cash flow is one of the most important metrics used to gauge the amount of money PepsiCo takes as profits due to cash inflows and outflows (cash from operating activity – capital expenditures). Since 2008, PepsiCo has been making positive cash flows and doubling its cash inflows. However, in 2016, the conglomerate lost 6% cash flows from operations based on previous years; this means that instead of bringing back 8.1 billion dollars in profit, they took 7.6 billion. In addition, free cash flow losses year to year started to accelerate in 2018, where free cash flow was down 13% year to year and is still in a downward spiral. Consecutive decreasing cash flows year to year could be concerning because PepsiCo will need more flexibility to spend the profits how they choose instead spending their money on necessities to keep the business running.

PepsiCo is a ‘dividend king’; even with decreases in cash flow, PepsiCo has continued to increase its dividends every single year. This boasts strength and gives the image that PepsiCo is doing exceedingly well. Dividends are the amount of stock the company pays back to its shareholders at a given period before the ex-dividend date; they do this to provide an incentive to hold the stock by sharing profits. Another portrayal of PepsiCo’s strength is the employee numbers. In 2017, PepsiCo had 263,000 employees; today, there are 315,000 employees. The company is investing a hefty portion of its money on both dividends and employees.

The Justice Transaction was a recent addition that made Q1 earnings look better than most of PepsiCo’s quarters because it’s a one-time gain. PepsiCo sold Naked Juice and Tropicana for 3.32 billion dollars to PAI partners (another conglomerate investing in companies). Q2 and Q4, on the other hand, suffered a blow because of one-time expenses from asset impairment. The cause of asset impairment was primarily due to the war in Russia; this affected operations Pepsi had in Europe. PepsiCo lost about 2 billion dollars due to the war in Russia because of a subsidiary named Wimm-Bill-Dann Foods which controls roughly 34% of dairy products in Russia. Another necessary expense that should be addressed is the TCJ Act expense. This act was implemented when Donald Trump was president and decreased the amount companies pay in taxes, including higher income bracket individuals. PepsiCo owes 2.6 billion dollars in taxes, for which it has already paid off about 1.543 billion dollars and plans on paying off an additional 309 million by the end of 2023.

Valuation

For my analysis, I assumed that the food and beverage industry grows 5% yearly and that PepsiCo’s revenue weight compared to its competitors stayed relatively the same. I calculated that PepsiCo’s weighted average cost of capital (WACC) is 7.46%, the terminal rate is 3%, and the net present value of all future cash flows is 231,145.9 billion. With this information, I project PepsiCo’s value relative to the discounted cash flows in net present value is equal to $166.65 per share (net present value divided by shares outstanding). This means that the intrinsic value shareholders believe to be the fair value equals $166.65 per share.

PepsiCo’s stock chart for image 10 shows that it is currently in a rising wedge on a weekly timeframe. Breakouts from these types of wedges can occur in any direction, but historically, the stock price will fall 60% of the time. Image 11 also shows confluence when assessing that PepsiCo is likelier to fall than go up. This image shows a bearish divergence, meaning the stock price is increasing while its relative strength index (RSI) (in purple) is decreasing. The oscillator shows that the current trend is weakening when the price and RSI are moving in opposite directions. Putting both indicators together and accounting for the 200-day moving average (the average price for 200 days on a weekly time frame), PepsiCo could see a possible 12% decline or a share price of $151 if the price moves to the 200 EMA line. If the price of PepsiCo breaks below the 200 EMA, then the price could also reach the 1.618 Fibonacci line at a price point of $135. Putting these factors together, if the price declines to these levels, it would be below the fair value of $166.65 and could be a reasonable price point for investors.

PepsiCo continues to stay at pace with its competitors, occupying 30% of its revenue compared to large conglomerates, including Coca-Cola, Nestle, and Anheuser. Declining free cash flow isn’t a substantial concern because PepsiCo is paying higher dividends, employee salaries, and TCJ act tax, which cuts free cash flow. In addition, the revenue sources are healthy and growing; Europe is the only revenue source that has declined based on intangible asset impairment and other sources of revenue decline caused by the war in Ukraine.

Primary Market

Before delving into the secondary market, the primary market should be covered first because a company gets established during this phase. A Primary market has many multifunctional components, but it is ultimately the market where securities first get created. Whether a corporation is private or public, it will issue stock and undergo underwriting (a middleman who purchases shares for an IPO or a private placement offering).

Private companies have their own regulations and can only be purchased by accredited investors or venture capital funds. Private companies aim to become public at a point in the future due to losing footing in research and development or a shortage in capital. Public companies have investors take a share in the company; in return, the business has more money to work with, creating enriched opportunities.

When a company is going public and issuing shares as a form of equity to an investor, it must register with the SEC and get an S-1 statement approval. When the S-1 is approved, the company ready to go public can look for institutional investors or venture capital firms to buy up stock from the underwriter.

 The Secondary Market 

Once the first pair of investors, giant corporations, or professional investors are found, the company can be listed on an exchange like the New York Stock Exchange. Then, friends, family, employees, etc., can invest in the public company. In the secondary market, derivatives like futures and options can be traded, contracts that allow investors to trade with each other, or an exchange, to predict a price of an underlying stock in the future. The contract’s winner pockets the difference, and the loser loses money.

Other instruments traded on the secondary market or an exchange consist of ETFs, bonds, short-term debt, mortgage-backed securities, collateralized investments, dividend payments, and more. Although each investment class has its own vital rules and unique characteristics, investors will pick the option they see fit in the current market economy.

The Third Market

The over-the-counter market, also known as the third market, is a marketplace that houses securities or debt that do not trade on a regular exchange. Instead of trading on an exchange, all trades are decentralized and exchanged on a peer-to-peer base. Penny stocks are traded on the third market because they didn’t meet the requirements to be traded on a large exchange. Other investments, like most bonds, are traded on the third market between large broker-dealers and lenders like investment banks or pension funds. The third market is often overlooked, but it’s typically the marketplace where some of the most significant trades occur.

Other investment options that trade on the third market are the foreign exchange market and foreign stocks listed outside of the United States. An essential characteristic of the third market is the privacy that the traders receive. For example, massive institutions can trade in what’s known as a dark pool, a private trade between two investors in an off-exchange venue. In a dark pool, giant corporations will not know who they’re trading with, and everything will stay anonymous, including the transaction itself, which isn’t available to the public. This way of trading lets corporations trade large blocks of stock without the public seeing these trades and reacting by making the underlying security price more volatile.

Fourth Market

These markets are secretive and, for the most part, are only traded with the largest corporations. Unlike a dark pool, where the investors don’t know who they’re trading with, fourth markets let two corporations trade with each other privately. As a result, there is little known to the public on how fourth markets operate except that they trade amongst corporate institutions.

To obtain access to an S-1 statement, investors need to go to the SECs website, which utilizes a tool called EDGAR. When on the page, click company filings and search the company by name or ticker symbol. There may be an assortment of businesses with the same moniker, so select the correct company going public. Next, go to the oldest form created for the company, which in most cases will be the S-1 form. Now, the user will have access to an S-1 form for the desired company.

The S-1 form covered as an example will be for Artisan Acquisition Corp, a SPAC registered in the Cayman Islands. SPACs work in an intriguing way to go public, the founder of a SPAC raises money like an investment bank by issuing shares to investors. The funds used to purchase shares will go to an escrow account affiliated with a bank to keep assets safe. Monetary funds can also go into company liabilities, such as traveling to other parts of the world to look for an organization to acquire or advertise the SPAC through a business roadshow. SPACs have become a very prominent option anew, with more than half of IPOs utilizing them today. Directors value the need for a cheaper and more private version of an IPO, which fuels its popularity.

There is generally a good deal of information inside an S-1 statement. This article will give an overview of the most important sections to view.

The Summary

The material in the summary of the S-1 is typically recycled throughout the prospectus. Therefore, it’s essential to view this section so the investor can traverse through the rest of the prospectus in a less cumbersome manner. The information that’ll be available in this section will include how many shares the company will release and the class of shares. In addition to how many directors are in charge of the IPO and who the directors are. More about the board of directors can be viewed in the Management section of the S-1. Traditional IPOs will give more information about the company going public. However, due to the nature of a SPAC being a more private investment vehicle, the information will be limited regarding the company they’re acquiring and what the company even does.

In the case of Artisan Acquisition Corp, key board members include Dr. Cheng Chi Kong (Adrian), vice chairman of New World Development and executive director at Chow Tai Fook Jewellery Group Limited. These companies are all owned by Adrian’s dad and are one of the biggest conglomerate companies in Hong Kong. Other board members include Mr. Cheng Yin Pan (Ben), who works at a venture capital fund with Adrian called C Venture, and Mr. Mitch Garber, C.M., a board member of the NHL team, The Krakens. There will also be 30 million public shares worth $10 each (marked as Class A shares) and 9 million founder shares (Class B). The SPAC was incorporated on February 2nd, 2021.

Risk Factors

If investors were to look at any one section it would be this one. This section will explain the risks that investors will take on if they were to invest in the company. If it’s a SPAC, it’ll tell you the risk of what would happen if there is a failure to acquire a company, and the implications it’ll cause to the investors money. If it’s a traditional IPO it’ll tell the risk of the company getting delisted off an exchange as an example. There can be hundreds of risk factors in an S-1 with some having very important causes and effects.

An example of some risk factors in Artisan Acquisition Corp is no voting rights and fewer rights to protect the investor with Cayman Island laws. More risk factors include if desisted on the Nasdaq, the shares will be able to be bought in an over-the-counter (OTC) market, and Artisan may issue more Class A shares which can potentially dilute the stock price.

Use Of Proceeds

This portion of the prospectus explains how investor-given funds will help to improve the IPO. The Use Of Proceeds section predicts the payment structure that a company is obligated to pay off.

Artisan lists their proceeds in two tables, the 300 million dollars from offering shares to the public plus 8 million dollars of warrants (typically more expensive than shares) and the over-allotment, meaning additional shares added to the stock. In addition, they’ll need to pay off expenses such as 6 million dollars to underwriters (being banks in most cases) and other liabilities such as tax, travel, or exchange listing.

Dividend Policy

Dividends are rewards given to investors quarterly or annually who hold stock. The decision for a company to offer dividends is discussed with the board of directors. If the directors agree to pay out dividends, the prospectus will mention the amount to be paid in full to its shareholders.

In the case of Artisan Acquisition Corp, they do not plan on paying dividends to their shareholders.

Management Discussion and Analysis

Investors or analysts can consider this together with financial statements and risk factors. The management section in an S-1 is vital to read because directors will discuss the points they think are significant. An important thing to note is that companies may put valuable information about acts they must follow with investors’ money.

Artisans summarizes some points made in the risk section and add additional points regarding acts they must follow, like the Sarbanes-Oxley Act, and how the current business model is an emerging growth company.

Proposed Business

This section is meant to paint the business in a good light and advertise why the current structure of directors will lead to success. Although the Proposed business segment will cover most of what’s in summary, it may add additional business strategies that the company will try to incorporate.

These are some points Artisan uses to promote their SPAC:

•Experience in sourcing deals globally through their strong proprietary network both in Greater China and across the world.

•Unparalleled access to strategic global resources.

•A well-established track record of sourcing.

•Access to capital, including capital sources across various business cycles in both Greater China and globally.

Certain Relationships And Related Party Transaction, Principle Shareholders, Description Of Securities

The last three important sections are similar to each other. The principal shareholders’ section will inform the investor on how many shares each director in the company owns and how many shares the sponsor gets if the IPO is a SPAC. The description of securities will go into further detail about shares of the company that’s covered in the introduction; this section will eliminate any confusion. Lastly, the relationship segment will cover any financial deals between the company and any other related party; in a SPAC, it would be the sponsor.

In the case of Artisan, the structure would look like the image above, under the Principle Shareholders section.

How Manipulation Occurs

Both traditional IPOs and SPACs have flaws that companies are able to take advantage of, this can lead to bending the rules in order to cut costs or have greater freedom in terms of business activities. SPACs are known to be more troublesome with the SEC because of the privacy given to the company being acquired. SPACs can find a company that’s worth 80% of the proceeds investors put in, meaning that investors will not be refunded because the SPAC found a company; even it it’s worth less than what investors paid for. Secondly, SPAC sponsors are also allowed to typically get 20% of the common stock for hosting, which they can immediately sell off, plummeting the stock price and leaving investors at a loss.

Congress passed the Sarbanes-Oxley Act (SOX) in 2002 after the Enron debacle that initiated one of the largest corporate failures in history. The SOX act made it so companies have to report their internal controls to ensure there’s no fraud in the financial reporting process. Not only does a company need to report on its internal controls, but an auditing firm like the big four needs to do separate internal controls on a company. Auditors must also rotate every five years, creating fewer manipulation opportunities for businesses. These measures were implemented to make it safer for everyday investors.

Artisan Acquisition Corp. was able to take advantage of the SOX act by registering as an emerging growth company. Emerging growth companies are smaller companies that qualify if they make less than a billion dollars in revenue, are not five years old, and have a public float (shares outstanding) worth less than 700 million dollars. Artisan used its status as an emerging growth company to not have to do internal audits by auditors so that the company could be under less scrutiny by the SEC and auditing firms. This means there can be potential for financial statement tampering because auditors are not allowed to check the company’s internals. Furthermore, Artisan can withdraw from reporting its own internal audits with the SEC until December 31, 2022. Coincidently, Artisan sold all its company shares on November 24, 2022, about half a year after taking Prenetics Global public with its SPAC.

Artisan also took advantage of Rule 419 of SPAC transactions. Rule 419 states that investors’ funds must be kept in an escrow account while a SPAC is searching for a company to acquire and that the sponsor cannot invest those funds. Artisan uses Rule 3a51-1, which asserts that if the company has tangible assets in excess of five million dollars, it can cancel out rule 419—giving Artisan the ability to invest shareholders’ money and take out the interest owned from the proceedings.

Highlights

• Free Cash flow of 3.297 billion 
• EBITDA of 4.968 billion 
• Income of operations of 3.688 billion
• Gross Profit of 5.382 billion
• Debt to equity ratio of .81
• P/E (Price to Earnings) Ratio of 204.2
• EPS (Earnings per Share) of 1.05
• Total Debt to Current Assets is 2.688 billion surplus in assets 
• P/S ratio of 37.78 
• Enterprise Value of 646.412 billion
• Enterprise Multiple of 133.9
• Working Capital of 11.379 billion 
• Altman Z Score of 12.3139 

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Tesla is known for their famous electric cars and there have been ambivalent opinions throughout the market of whether Tesla is overbought, oversold or even heading into bankruptcy. Tesla flaunted its achievements for Q3, highlighting on the first section of their financial statement a new record of 3.297 billion dollars in free cash flow profit. Tesla was able to achieve this by paying off all of their operating expenses and bringing in 5.1 billion dollars in operating activities. Free cash flow compared to last quarter increased by 431% and there was a 89.7% increase when comparing the average of all free cash flows for the year. Likewise, from the increase in free cash flow also came Tesla’s record revenue quarter of 21.45 billion dollars.

EBITDA stands for earnings before interest, taxes, depreciation and amortization, it’s used as an alternate measurement for net income. EBITDA is also similar to free cash flow where the formula exemplifies profit from a companies operations, the only difference is it doesn’t factor in taxes or capital expenditures (money invested back into the company). Tesla has an EBITDA of 4.968 billion dollars from its operations alone, when compared from on average for the past year, there was a 17.86% increase this quarter. The company is seeing steady growth and a healthy EBITDA margin of 23.2%.

What’s impressive about Tesla is the company doesn’t take nearly as much debt as other EV manufacturing companies or automobile companies. If the total debt were to be compared to all its liquid assets on hand, Tesla would be able to pay off all of its debt and still have 2.68 billion dollars left in liquid. Furthermore, Tesla has a very healthy debt to equity ratio of .81, indicating that there’s 81 cents of debt for every dollar of equity.

The downside of Tesla that most investors are worrying about is just how highly overbought the stock is as a whole. It’s important to have confluence between multiple financial ratios to tell whether Tesla is overpriced. For one, Tesla has a P/E ratio of 204.2 which is excessively high considering most companies have an average P/E of 20-25 and investors are warry about companies with high P/E ratios. Another indicator is the P/S ratio, Tesla has a P/S of 37.78. This means that for every dollar of sales the company makes, the investor is technically paying $37.78, indicating how overvalued the stock is and whether individuals are willing to pay that much in the future. A third indicator which is considered a more reliable way to compare whether a company is overvalued to other competitors is the Enterprise Multiple. The enterprise multiple is the enterprise value (which is the sum of market cap and all debt) divided by EBITDA. Typically an enterprise multiple is seen as value and is healthy if its lower than 10, Tesla’s is 133.9.

Is Tesla going to go bankrupt? Definitely not anytime soon, Tesla right now is able to comfortably pay off its debts and create consistent free cash flow every quarter. The Altman Z score is a powerful indicator that checks whether a company is close to bankruptcy. This financial ratio is a multitude of many parts of the financial statement and tells how many standard deviations a company is in, in terms of its financials. Most companies typically go bankrupt if they have a z score below 1.8, while other companies are in good shape if they have a z score above 3. Tesla has a z score of 12.31, indicating it’s in amazing shape overall.

Even with just how good Tesla looks from its financial statements the price is significantly volatile due to nervous investors that aren’t willing to pay for Tesla at such a high price and market capitalization. Other investors are also warry about the recent news of Tesla dropping costs of their vehicles in China, furthering implications that demand is shrinking in some parts of the world because of interest rates going up. Tesla continues to prove why it’s the top EV company, but can they keep this consistency like in Q3, or will they succumb to supply or demand issues.

This event is being compared to what happened in the US for the 2008 housing crisis where the Lehman Brothers investment bank filed for bankruptcy which was the catalyst for the whole crash in the first place. In this case, pension funds were nearing bankruptcy which caused many peoples retirement funds to be at risk, if not for the government stepping in, there could have been a worse event that may have materialized.

Pension funds need to pay their customers a fixed amount of money no matter what economic situation the country is going through. Because of this fixed amount, pension funds usually buy bonds in order to offset their liabilities of paying the fixed amount to their pensioners, so they’re able to have enough assets to cover this payment. The problem started with continuous low interest rates after the coming of COVID-19, these low interest rates made it so pension funds couldn’t pay back their customers a fixed amount because they weren’t generating enough interest themselves from bonds. To pay this fixed amount, pension funds got desperate and invested in young companies that had a lot of potential so they can sell at a profit and be able to pay their customers back using derivatives. The pension funds tried to hedge their bet using leveraged investments (borrowed money from banks) which are subjected to margin calls, telling the investor that they could get liquidated and lose all their money because the banks themselves don’t want to lose money from their investment.

These pension funds were forced to sell off a lot of their gilts in order to not get liquidated and add on to their derivatives gamble which caused the gilt market to take a huge stumble down. If the pension funds were to let their derivative trades get liquidated they could face insolvency and go bankrupt so there wasn’t much room that these funds had to work with. With no one buying gilts, the government was forced to intervene and buy up 65 billion pounds worth of gilts that were being sold to stop the crash of the economy.

Instead of the government continuing with quantitative tightening which is the process of the governments selling gilts on the open market and getting rid of money circulating from the public in order to battle inflation, its hand was forced to require quantitative easing. With the buying of gilts to ease the economy comes bad and hefty long term implications for the economy. For one, this will only continue the rise of inflation and give banks a tougher time to catch up on interest rates to lower inflation down.

The Bank of England declared that it expects the UK to be in a recession (the situation with the pension funds only sped this process). UK’s prime minister Liz Truss announced that the government would freeze energy prices for households for about two years, costing the government 89 billion pounds. The energy will be funded through government bonds which at a time like isn’t the best option, this is because borrowing gilts while trying to bring inflation down will increase debt due to companies losing money from interest rates. More borrowing at a time of burgeoning debt isn’t good for an economy in the long run.

It also didn’t help that the government announced that they would cut taxes for the rich in order to stimulate the economy and then last minute reverse their decision to do so. Decreasing taxes for the rich may restore prices in the economy but it isn’t a popular option among the people, therefore this caused for a reversal in decision. It seems as if the government doesn’t know what the correct course of action should be leaving citizens in distress and uncertainty.

The Helium network is unique because miners are able to buy hardware to connect to a home internet modem, broadcasting your internet services to others locally. Servicing your internet will lead miners to ultimately earn crypto through LoRaWan or long-range radio wireless access networks. Within a few years over one million LoRa Hotspots covered 10% of the globe! While this sounds like a great achievement there were inevitable problems to come. Some hosts claimed to only make about 15$ a month, you would only get rewarded when people actually transmitted data over your hotspot. Unfortunately, not many devices are looking for these hotspots or connecting to them.

Amir Haleem had tweeted “getting the infrastructure out there was the first step. Realistically there’s only been *usable* coverage for the last 6-9 months,” and added, “convincing users to rely on a network built by individuals is non-trivial, and the coverage was spotty.”

This isn’t stopping Nova Labs though. Nova Labs is cranking up its ability and will launch its Helium 5g brand as a new cellular service that is going to be accessible on the 3.5 GHz Citizens Broadband Radio Service (CBRS). With help from invested partners like GigaSky, Freedomfi and a handful of others, Nova Labs plans to use its hotspot approach to have users buy 5g compatible hardware (with packages ranging from $999 all the way up to $5,000), install it at their home, and then download an app to access the system. Large institutions help with different types of services, for example, GigaSky provides the app service and Freedomfi provides the sale of the hardware. With the hardware hooked up to a modem, users would broadcast services for anyone in range of an LoRA. The plan for the future of Helium 5G is to cover all of T-Mobile’s dead spots. Currently, there are about 3000 hotspots in 900 cities, a far cry from one million non-5 G compatible hotspots.

If you have a hotspot setup using Helium’s services, anyone using the hotspot and transmitting data will earn you crypto (MOBILE), but factors like how good your hardware/hotspot device is, where it was placed(indoors or outdoors) and if anyone is paying for the service to use it in the first place will affect how much you can actually earn. That’s not the only downside at the moment.

Critics like lead analyst and writer Sascha Segan say this isn’t really even 5G yet. “The Helium 5G network is instead a 4G LTE CBRS network, which right now has significant advantages over 5G but doesn’t have the 5G moniker Helium and its partners wanted for marketing.“ He states the companies decided to pitch themselves as 5G simply for marketing and all partners are currently only offering 4G LTE services over the CBRS. Segan also performed an experiment where he walked around New York City and tried to detect when he was actually on the Helium 5G service and not T-Mobile. The results of this experiment were unsatisfactory due to not being in the range of a usable signal.

So far there’s three big problems that surround the company being lack of active 5G capable hotspots, issues with the range of your transmission and few people who even know about it and have service. Early prospects for Helium 5G might just be slightly overblown, for now. There is however a new partner, NMTD, which has plans to launch 5G active hotspots transmitting 5G. Projections of these hotspots will most likely come by 2023 with people still needing to buy the hardware to be a transmitter and miner of MOBILE.

https://www.lightreading.com/open-ran/helium-5g-launching-soon-with-about-1900-nodes-across-700-cities/d/d-id/779402

https://blog.helium.com/whats-next-for-helium-5g-data-transfer-proof-of-coverage-rewards-67b54f19f8d5

CBDC’s are possible because of the use of blockchain technology cryptocurrencies use, although there is a major dichotomy between the two, cryptocurrencies are decentralized and CBDC’s are centralized. The BIS wants a centralized system so that central banks can stay in control, the problem is they are currently being threatened by cryptocurrencies, stablecoins and big tech companies. The BIS boldly states that cryptocurrency’s can’t be used because of money laundering and energy footprints, meaning it doesn’t comply with Environmental, social, and corporate governance (ESG) terms. Stablecoins attempt to be a credible source by being backed by real currencies, the argument for why they’re not needed according to the BIS is because in simple terms, the backers aren’t trustworthy like the central bank is and there’s no innovation because “stablecoins are ultimately only an appendage to the conventional monetary system”. Big tech is by far the most threatening option for central banks because of the amount of users that they house and the data that’s collected which isn’t shared. The BIS argues that big tech has an advantage when it comes to bringing in users onto their platform and creating their own currency, if many people flock to a specific platform, others will follow. They say that these big tech companies have created a problem with their monopoly of owning the majority of market shares in their specific sector, they’re able to abuse their payment systems by making “fees that are even higher than those charged by credit and debit card companies currently.” BIS sees big tech as a threat and believes that most citizens would pick to trust their government over big tech.

The general public are left to ponder about three main choices of monetary integration, either with governments CBDC’s, big tech or cryptocurrencies. All these payment systems except for crypto are stripping people of their privacy so many individuals are inclined to make crypto currencies like Bitcoin or alt coins the main financial payment system. The problem with this is governments will never integrate cryptocurrency’s like bitcoin because of decentralization and are instead trying to figure out a way to get people to flock to CBDC’s the way big tech does so. The implications that come with CBDC’s will cause a huge economical shift to the current system so it will have to be rolled in slowly. What can be expected is because the central bank has control over how much CBDC they can allocate, they will start small and slowly get rid of the supply of fiat and possibly limit the purchase of cryptocurrencies. Once the CBDC system is fully established, the government will be able to control supply and demand to a greater extent by limiting the amount each person can purchase and when they can purchase, this will decrease the likelihood of long term inflation and fiat capitulations. There is a big debate on whether long term monetary outlook for nations are more important than the privacy and security of the individual, the question is how will people react to CBDC’s once they are integrated for the first time in developed countries.

Sources

https://www.bis.org/publ/arpdf/ar2021e3.htm

https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2713~91ddff9e7c.en.pdf

The S&P is down 20.5% from its high, on the daily timeframe its made a lower low and is about to retest the .618 Fibonacci level. This Fibonacci level is the most important level out of of 7 that are on the chart, testing and failing to break above this level while having a lower low on the chart will lead to a high chance of testing the bottom of the S&P at a price level of 3636. If the dollar is to keep going up further and the S&P breaks past the .618 level, it could potentially test the high of 4120 or better yet a critical level at 4167 that could make or break the S&P. For now, there is a potential for the S&P to go up because of the daily bullish divergence that hasn’t played out yet which can lead Bitcoin to go up in price in the short term if this were to happen.

Bitcoin has respected this current broadening wedge for quite a bit, reacting with bullish momentum from hitting the bottom of it yet again. What’s interesting is bitcoin hit the bottom of the descending wedge (in orange) before making its ascent back up above 19,000. The move up after breaking the descending wedge caused BTC to go up 22.45% but with the CPI readings that the FED announced, this caused markets to stumble leaving BTC down 20.6%.

Cumulative Volume Delta (CVD) is the total trading volume in either Spot (buying bitcoin itself) or futures (betting on bitcoin going up or down). On a 4 hour view, people have been selling bitcoin on spot and shorting bitcoin using future contracts either with a dollar pair or a stable coin pair. Open Interest is the total amount of positions that are opened as of now. In just 3 days open interest for coin margined contracts (meaning total positions of shorts/longs that are currently opened) went up by 500 million dollars. Putting both indicators together it shows a story for the bigger picture of what total traders are doing. When the price of bitcoin went up from 18400 to 22800, CVD for spot and futures started going up, this means that people were buying and longing bitcoin. What’s interesting is Open interest for both stablecoin-margin contracts and coin-margined contracts stayed stagnant, this indicates that as people were starting to buy bitcoin and long it, there were almost no new positions being added into the market at that time. The positions that were added to the market mostly came from stablecoin-margined contracts, once bitcoin went down from 22800 to 19600 all the new people entering positions got liquidated from over longing bitcoin causing a long squeeze. Currently everyone is selling their bitcoin and shorting but now with 500 million dollars worth of positions added to coin-margined contracts by a whale, people are anticipating a move up to trap all the shortening positions that shorted the bottom of the price. Taking all this information in mind from the dollar index to what bitcoin traders are currently doing, it’s very likely that there could be a further price fall caused by the downfall of the S&P. If the S&P were to break the .618 Fibonacci line bitcoin could go up in price and all those new open interest positions can trap shorts leading to a powerful move up.

Not only are Liberty Medias debt to equity ratios impressive for Q2 but also their free cash flow. Free cash flow is characterized as the money leftover after paying its financial obligations. Liberty Media has a free cash flow of 766 million dollars which although is down from previous years, it’s important to keep in mind that most companies are struggling right now in an economic global overview. A great portion of analysts and investors tend to look at the companies net profit margin too as opposed to gross profit margin. 19.09% was the net profit margin when factoring in the expenses like cost of goods sold, taxes and interest; compared to other entertainment companies which have an average of 3.86% net profit margin. The one concern that holds for Liberty Media is their ability to pay off short debt obligations, these being debts that must be paid in less than a year. Medias current ratio (current assets – current liabilities) was -583 million dollars, although it could be cumbersome to pay off short debt obligations, most of the debt that must be paid off from senior notes is due in 2049 giving breathing room to pay off debts in general.

Formula One is the contender that stands out from the two other companies under Liberties grasp because of the amount of growth that its sustained when first bought in 2016. Most investments that Liberty Media takes have historically worked out in their favor whether it be purchasing most of SiriusXM because of their inevitable bankruptcy in 2009 (where the company was bought before being bankrupt) or picking the right investment options for their portfolio. Liberty Media has proved itself in the business world as a top contender of innovation in this space with little downside surrounding the firm. As the world economy braces for impact on continues rate hikes, Liberty Media is taking this current moment as an opportunity to be looking for more vulnerable companies to scoop up in the near future potentially.

Financial Statment:

https://d1io3yog0oux5.cloudfront.net/_d936fd1c59f00e52f8ba5d63bbb20610/libertymedia/news/2022-08-05_Liberty_Media_Corporation_Reports_Second_Quarter_470.pdf