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Today’s Featured Topic

Aerospace: Private Space Projects Eliminate Barriers to Satellite Disruptors

Summary: New innovations and President Trump’s deregulatory agenda have primed ventures in the aerospace industry for a renaissance over the next few years. Since the leading rocket manufacturers like Blue Origin, SpaceX, and Rocket Lab are not publicly listed, the most investor opportunity may lie in the satellite industry. Our devices are constantly becoming more advanced, driving demand for larger networks and more advanced satellite services. Simultaneously, satellites are gaining access to more “real estate” on space flights than ever before.

SpaceX, as usual, has dominated the recent headlines in the private space industry. In late July, SpaceX pulled off successful launches of two separate missions carrying Telstar 19V, a heavyweight communication satellite, followed by 10 smaller Iridium satellites. The former will provide broadband service to customers throughout the Americas and Atlantic Ocean region, while the latter increases the number of operating satellites in the Iridium NEXT telephone relay station constellation to a total of 65. While each launch is a milestone for the private space and satellite markets, SpaceX is slated to dwarf all of its previous missions later this year when one of the company’s signature Falcon 9 rockets launches more than 70 satellites into orbit ― the largest batch of satellites sent into space at one time from one of the company’s vehicles or of any other US rocket company.

What is even more interesting about recent launches, however, is how much access smaller companies have been receiving due to companies like Spaceflight Industries acting as ridesharing brokers between fledgling satellite and rocket manufacturers. As rockets continue to grow in size and weight, it costs more to launch them. Therefore, having empty capacity on board is becoming less and less efficient. Spaceflight Industries’ main line of business is finding launch “real estate”, extra space inside a rocket, for small satellites that need to get into space. In the same way airlines need to fill the cheap seats with passengers at a lower rate, any open space on a launch will have to be filled out with smaller satellites to reach maximum cost efficiency. So far, Spaceflight Industries has found rides for more than 140 different satellites on multiple launch vehicles. Essentially, larger rockets mean lower barriers to entry for satellite sector disruptors.

Although the major players are already solidly defined in the rocket market’s space race, the environment is still extremely differentiated in satellites. While more recognizable names do exist, like the aforementioned Iridium Communications, as well as Gilat Satellite Networks, technology in our connected devices continues to change and adapt as satellite manufacturers are just getting off the ground.

In general, satellite companies are clustered around three different themes: broadband internet delivery, hardware development and satellite-enabled services. 

Due to high the high fixed costs of service networks, the largest concentration of capital is on the broadband front. When it comes to satellites, startups like Softbank-funded OneWeb can take on almost anyone, including tech giant Facebook, who has already planned their own satellite launches in the near future.

Hardware-focused startups like Kymeta have developed antenna technology that uses a holograph-like approach to acquire, steer and lock a beam to a satellite. This helps objects which move quickly or make sharp turns maintain communication with a satellite.

Satellite services are largely deployed for new geospatial and imaging data. Satellite startup Planet develops and deploys its own array of camera-equipped microsatellites, which regularly capture images of earth. It then sells generalized map and site-specific data feeds to governments, the financial sector, emergency readiness agencies, agriculture companies and others. The company has already launched a 200-satellite constellation network.

The satellite industry also stands to benefit from an unprecedented deregulation agenda, thanks to the Trump administration. In May, MRP highlighted The Space Commerce Free Enterprise Bill, which just cleared the Senate Commerce Committee, and the Federal Aviation Administration Reauthorization Act of 2018, also awaiting a senate vote. These bills include tripling the funding of the FAA’s Office of Commercial Space Transportation by 2023, and annual boosts to the Office of Space Commerce of up to $5 million. Further, the administration’s innovative “Space Force” initiative will require new investments as well.

Satellites will be right at the forefront of the Space Force agenda as our older, increasingly obsolete telecommunications infrastructure becomes vulnerable to attacks. It was all the way back in 2007, when China first used a ballistic missile to destroy its own old weather satellite orbiting 535 miles above Earth. Russia has been testing a missile that could be used to strike and destroy a satellite or ballistic missile. It’s likely that other nations won’t be far behind.

A communications satellite that’s jammed from the ground could mean ground troops suddenly find themselves operating blindly. And because existing international treaties governing space are unclear, even civilian satellites could be targeted by nations looking to contain or punish their enemies. As far in the past as 2001, former Secretary of Defense Donald Rumsfeld concluded that the U.S. wasn’t prepared to defend its enormous dependence on satellites. A move toward satellite defense would likely benefit both rocket and satellite producers, due to the need for new satellite hardware and software that could resist cyber-attacks, as well as spacecraft that could intercept physical attacks from projectiles.

Further, private companies would likely be better at handling this kind of transformation. The US Government Accountability Office recently released a report that the Department of Defense (DOD) may be able to save money and add capabilities faster by paying private companies to host government sensors or other equipment on their satellites. In fact, the DOD estimates it has already saved hundreds of millions of dollars from this cost-sharing approach.

 MRP added Long Aerospace and Defense to our list of themes on November 27, 2013. Since then, the iShares US Aerospace & Defense ETF has returned about 98% versus the S&P’s 56% over that same time period.

We’ve also summarized the following articles related to this topic in the Transportation section of today’s report.

  • Aerospace: Rocket Lab is planning back-to-back missions for the holiday season 
  • Aerospace: Congress’ growing space divide
  • Aerospace: US space companies are crossing the Atlantic, bringing rocket launches to the UK for the first time
  • Aerospace: Satellite startups turn to reinventing broadband, mapping and other industries


Chart: Aerospace (ITA) vs Iridium Communications (IRDM) vs Gilat Satellite Ntwks (GILT) vs S&P 500 (SPY)


Other Disruptive Change


  • Buybacks: US boards to authorize $1tn in stock buybacks in 2018

Economics & Trade

  • Trade War: Will US-China trade war reshape global value chains?

Politics & Policy

  • Cannabis: Cannabis Farmers Will Qualify For Some Federal Funding


  • Cryptocurrencies: Goldman Sachs Is Considering a Custody Offering for Crypto Funds
  • Banks: Big Banks, Flush With Profits, Catch Up to Smaller Rivals
  • Fintech: Fintech Firms Are Getting Closer to Being Banks in Everything But Name

Manufacturing & Logistics

  • Graphene: Nanotube ‘rebar’ makes graphene twice as tough


  • Drones: $800M underwater drone contract signals Pentagon’s growing interest in unmanned tech


  • Cobalt: World’s Top Miner Charges Into Cobalt
  • Oil: The Key Oil Price Driver By 2020

Energy & Environment

  • Batteries: New class of materials points to safer, fast-charging lithium-ion batteries

Biotechnology & Healthcare

  • Pharma: How China Is Evolving From a Maker of Copycat Medicines Into a Producer of Complex Drugs
  • CRISPR: Idaho agribusiness lands gene editing licensing rights


  • Emerging Economies: A 1,400% Stock Jump Shows Merger Winds Are Blowing in Brazil Telecom


Joe Mac’s Market Viewpoint





U.S. Markets at Midyear

The U.S. capital markets had a challenging time in the first half of 2018. While the brouhaha about trade wars has been cited by experts as the cause of this year’s rise in volatility, MRP believes otherwise. Extended valuations, investor sentiment, portfolio leverage, an ageing bull market, inflation, and a Fed tightening cycle are all headwinds. In short, several large forces are at play and they will continue to pressure both equity and bond prices in the second half of this year.

Joe Mac’s Market Viewpoint: U.S. Markets at Midyear 


Other Viewpoint Reports

Joe Mac’s Market Viewpoint: CAPEX Booms! 

Joe Mac’s Market Viewpoint: The Inflation Complication 

Joe Mac’s Market Viewpoint: A Review of MRP Themes 

Joe Mac’s Market Viewpoint: The Coming Value Rotation 


Current MRP Themes






Autos (S)


Electric Utilities (L)






Long-Dated UST (S)


Defense  (L)


Industrials (L)




Materials (L)


U.S. Financials & Regional Banks (L)


ASEAN Markets (L)




Oil & U.S. Energy (L)


France (L)


Greece (L)




Saudi Arabia (L)


Palladium (L)


U.S. Pharmaceuticals (S)




Gold & Gold Miners (L)


Robotics & Automation (L)


Video Gaming (L)




Lithium (L)


Steel (L)


Value Over Growth (L)



Solar (L)




Obesity (L)


Major Data Points







US Stocks Close Higher on Monday

Wall Street closed in the green on Monday 6 August 2018, as tech stocks extended gains led by Apple and Facebook, offsetting the escalating trade war between China and the US. TE



Oil Prices Rise on Monday

Oil prices rose on Monday, after Saudi Arabia unexpectedly cut crude oil production by around 200,000 bpd in July and the US government decided to reimpose sanctions on Iran. In a statement, President Trump said “We urge all nations to take such steps to make clear that the Iranian regime faces a choice: either change its threatening, destabilizing behavior and reintegrate with the global economy, or continue down a path of economic isolation.” The US crude oil increased 1.3% to $69.91 a barrel and Brent crude went up 1% to $74.07 a barrel around 12:20 PM NY time. TE




Pound Hits 11-Month Low

The British pound fell to an 11-month low of $1.2955 in early trading on Monday after UK international trade secretary Liam Fox said over the weekend that there is a “60-40” chance that there would be no trade agreement with the EU before March 2019. TE



Turkish Lira Falls Further to Hit New Record Low

The Turkish lira extended losses and hit another all-time low of 5.2036 against the US dollar on Monday after the Trump administration said it was reviewing Turkey’s duty-free access to the US market. Meanwhile, the country’s central bank cut the upper limit of banks’ reserve requirements to 40 percent from 45 percent in an attempt to support the currency, a move that would provide lenders with $2.2 billion of liquidity. TE


Other Disruptive Change






Buybacks: US boards to authorize $1tn in stock buybacks in 2018

Apple’s leap to $1tn in market value is exciting and all. But there’s another round number that is much more tantalising to Wall Street investors: Boards of US companies may authorise a record $1tn in share buybacks this year. So far already in 2018, buyback authorisations have reached $754bn. If the figure balloons further, to $1tn, it would mark a 46 per cent rise on the previous year.

Buybacks by companies of their own shares are an important factor for investors since “repurchases remain the largest source of demand for shares,” Goldman Sachs chief US equities strategist David Kostin said. Mr Kostin said changes to US tax law, which have allowed companies to shift cash back to the US from abroad and also pay lower levels of tax, has been one key element behind boards’ rush to approve the investor-friendly measures. He said investors should “take note” that August tends to be the most popular month for companies to execute their share repurchases, with the month accounting for 13 per cent of annual activity. More than 80 per cent of S&P 500-listed companies have reported second-quarter earnings results, meaning they “may resume repurchasing stock on a discretionary basis after being on hiatus for the past month.” FT



Economics & Trade

Trade War: Will US-China trade war reshape global value chains?

Trumponomics ceases to be rhetoric anymore, and Xinomics is candidly reciprocal. In fact, neither countries were striving for autarky, nor is the situation as grim as it was in the 1930s. Yet the present scenario is destined to reach alarming proportions, as its spillover effect has begun to deter the global value chains (GVCs) that perennially define the geo-economic architecture of international business today.

The spillover effect created by the growing intensity of the ongoing US-China trade war will definitely have repercussions on the multilateral trading system. It can affect the export-led economies in several ways. This includes increased costs of the import contents of their export; increased tariffs on their exports, thus making their products costlier in an importing country; costs associated with supply-chain disruptions; spillover effect on partner countries and sectors; and impact on investment inflows.

Besides China and the US, some of the key export-led economies in East and Southeast Asia that have started feeling the heat include Hong Kong, Taiwan, South Korea, Japan, and Singapore – all of which are participants in the electronic goods GVCs through their value-added trade in components and semiconductors.

Other countries, including Japan, Australia, Malaysia, Indonesia, Thailand and the Philippines, would be affected too, as they are either engaged in manufacturing automotive parts and components or are engaged in value-added activities pertinent to the basic metals and rare earth elements for this sector. AT



Politics & Policy

Cannabis: Cannabis Farmers Will Qualify For Some Federal Funding

Earlier this month, agricultural ministers representing every level of government decided during their annual meeting in Vancouver that the companies producing cannabis plants for both the recreational and medicinal sector should qualify for a portion of the agricultural support offered to traditional farmers.

But this consideration does not mean that cannabis farmers can expect to receive the same treatment as corn or dairy farmers, for example. Not all of the government’s safety nets will be made available to those who cultivate this feel good crop. Ultimately, this decision will see that cannabis farmers qualify for funding related to the environment and innovation. The full scope of this development has not yet been revealed.

When it comes to farming in the Great White North, the federal, provincial and territorial governments all work together through the Canadian Agricultural Partnership. This five year, $3 billion investment was created to make it easier for farmers to apply and gain access to available subsidies, as well as risk management and other services. The system was created for the greater good of economic growth in the agricultural trade. But cannabis farmers were not originally given consideration in the deal because the law was put on the books almost a year before the government legalized weed. Forbes




Cryptocurrencies: Goldman Sachs Is Considering a Custody Offering for Crypto Fund

Goldman Sachs Group is considering a plan to offer custody for crypto funds, according to people with knowledge of the matter. That means the bank would hold the newfangled securities on behalf of the funds, reducing risk for clients seeking to guard against the threat of losing their investments to rogue attacks.

A formal offering from an institution like Goldman Sachs would provide a credible backing for crypto funds and could pave the way for more investors to bet on the asset class. Having a custody operation in place could also lead to other ventures, including prime-brokerage services.

In May, Nomura Holdings Inc. joined other firms to create a custody consortium called Komainu. And at least three giant Wall Street custodians — Bank of New York Mellon Corp., JPMorgan Chase & Co. and Northern Trust Corp. — are working on crypto-custody services or exploring it, people briefed on their efforts said.

Goldman Sachs has so far been taking baby steps around cryptocurrencies and hasn’t yet set up a full-fledged desk to trade the currencies since hiring Justin Schmidt earlier this year as head of its digital-asset markets. It was among the first Wall Street firms to clear Bitcoin futures offered by Cboe Global Markets Inc. and CME Group Inc. B


Banks: Big Banks, Flush With Profits, Catch Up to Smaller Rivals

Shares of Wall Street’s biggest banks are booming again after a string of strong earnings reports and higher payouts to shareholders re-established their status as some of the stock market’s most appealing investments. An index of the 24 biggest banks in the U.S., known as the KBW Nasdaq Bank Index, is on pace to notch its first positive quarter this year. Its latest gains came after several lenders said steady economic growth around the world, a pickup in loan activity, rising interest rates and resurgent volatility in stock prices all helped to push profits and revenue sharply higher.

That’s a sharp reversal from the second quarter of the year, when the index fell 2.5% to suffer its worst three-month stretch since early 2016. This quarter, those big banks are again outperforming their smaller, regional brethren, a sign that their massive scale offers the potential for more lucrative returns, some analysts said.

The strong performance, along with a changing economic landscape, are pushing more investors toward financial stocks, especially the big banks. BlackRock’s iShares unit said in a recent report that it favored financial stocks in the second half of the year, while brokerage LPL Financial Holdings Inc. is encouraging its investors to increase allocations to bank stocks so they can benefit from a rising interest-rate environment, lower taxes and attractive valuations. WSJ


Fintech: Fintech Firms Are Getting Closer to Being Banks in Everything But Name

Earlier this week, the Treasury Department issued a big report about how to promote financial innovation. One recommendation was for the “the Office of the Comptroller of the Currency to further develop its special purpose national bank charter.” Sure enough, a few hours later the OCC announced it was going to create exactly that.

The advantage of a national charter is that you don’t need to get into the weeds of state by state regulatory approval, which means you can compete with big banks, and do things like makes loans in any U.S. state, rather than be limited only to the states where you have gained the go-ahead of state regulators.

But a national charter also means that the way you compete with the big banks will have to be closer to how they do business than how a free-wheeling lender started by a hedge fund guy who just wants to refinance the student loans of every Stanford Business School graduate because obviously they are pretty good credits might do business.

The charter is not a sure thing―it will almost certainly be challenged with a lawsuit from a state bank regulator―but the overall industry trajectory is clear. Fintech companies want to be more like banks or at least enjoy the regulatory perks of being one. Barron’s


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