24th of June 2021
Technically, we are in summer. Visually we’re not sure where we are, but let’s just say that when you look at the global markets and the passion that drives them,. The world’s major stock markets are all taking turns wondering if Powell is nice (a dove) or if he is mean (a hawk), or is he lying to us and taking us for a ride, in which case he would be a real…
Dovish but not enough
Yesterday, the world was divided into three groups:
– Those who are afraid that Powell will raise rates too fast
– Those who think that he will always be there for us and that he will do EVERYTHING IN HIS POWER TO SAVE THE WORLD even if it means calling back Draghi, Bernanke and the Avengers.
– Those who have an opinion on the future of Bitcoin and cryptos.
In Europe we were among those who were afraid and all the indices ended down. A fairly sharp decline, because the stakeholders were anxious about the idea that the FED will start their tapering sooner than expected and that they will raise rates sooner than expected. That’s not what Powell has been announcing for the last three days, but we did manage to find a guy who is part of the FED – Raphael Bostic, President of the Atlanta FED, who CAN VOTE – and who said that Powell and his friends could start tapering this year and that rates could go up in 2022.
You’ll note the heavy use of the conditional tense, which means he has no idea, that there was no consultation with others, but at least he’ll be able to say in 12 months, “AH, I TOLD YOU SO! “. This kind of two-bit statement, which is mainly used to cover one’s tracks, was only moderately appreciated by some of the participants and one could feel a certain doubt creeping into their minds throughout yesterday’s session.
On the other hand, in the US, nothing was done on the so-called “classic” stocks, those that pay dividends and have classic business models, like selling soft drinks, cigarettes, food and Pampers. Understand that the Dow Jones finished down 0.2% and the S&P500 was down 4.6 points. On the other hand, since inflation is only transitory – according to other people at the FED – apart from Raphael Bostic – we threw ourselves into Tech and Tesla to celebrate. Tesla which opened a charging station in China. A charging station that runs on clean energy. The station is located near Lhasa in Tibet. Not everyone agrees that Tibet is in China, but right now we’ll pretend it is, since it’s good news for Tesla. Anyway, the Nasdaq broke its 16th high of the year. And that’s all that matters.
Crypto BUZZ
As for the rest, there will have been a lot of talk about crypto-currencies and Cathie Wood was back in the news with some crazy new purchases for one of her tech funds. She has massively accumulated Coinbase and Grayscale Bitcoin Trust – The Grayscale Bitcoin Trust which is a fund that replicates the performance of Bitcoin, no more and no less. I don’t know if it’s because of… or because or purely a fluke, but in the aftermath the crypto-star has rebounded massively and is trading around $34,000 again, proving once again that technical analysis and Bitcoin only have the technical side in common, but not the analysis. In any case, Ms. Wood is once again all about “buying opportunities” and she reiterated the fact that she thinks Bitcoin is going to $500,000, based on the premise that EVERY FORTUNE MANAGER IN THE WORLD SHOULD HAVE 5% Bitcoin in ALL OF THEIR PORTFOLIO. I sincerely hope that she is right and that her vision of the future is correct, because if she is wrong, the collapse of the Archegos fund that has supported her for years will look like a walk in the park, next to what will happen if she is wrong.
By the way, yesterday was crypto fever, as two people who matter in the wonderful world of finance came to give their opinion on Bitcoin and its cousins. First, there was the legendary Jeremy Grantham who came to say that what’s happening with cryptos reminds him furiously of what happened in the year 2000 with dot-coms – and he’s not the only one – Grantham recommends that people have NO exposure to crypto in any way, shape or form. It’s interesting, because when you listen to Wood or Grantham, it totally sums up the perception people have of Bitcoin:
– Either you love it so much that you sell your grandmother to buy more and more – that’s the Microstrategy strategy, which borrows money via the bond market to buy Bitcoin.
– Or you hate it and can’t stop tweeting about it every other day saying it’s crap, worthless and going to zero. That’s the Michael Burry strategy – a strategy he’s also applying to Tesla, although it’s not working at all at the moment.
And then there’s another MAXI-Bear who just reappeared on our tabs: Nassim Taleb.
The author of “The Black Swan”, has just published a 6-page article on the subject of Bitcoin, in which he argues on 4 points – explaining, to put it simply: why Bitcoin is crap and why he doesn’t believe in the Blockchain technology for a second. Basically, he’s going to make a lot of friends and he’s going to hammer home the point about his April statements in which he said that Bitcoin was nothing more than a “Ponzi Scheme” that even Madoff wouldn’t have dared and that it was “a total failure as a currency” – except in El Salvador. Well, we’ll see about that.
In summary, yesterday was the clash of the titans on the crypto. But for the moment, it is clear that it does not want to let go once and for all. And this despite the announced goals of $8,000, $10,000, $20,000, or zero, as predicted by Taleb.
Calm Asia
As far as Asia is concerned, gold is oil, the key word is: still. Most Asian indices are unchanged while waiting for, and I quote: “indications on US inflation” – indications that we may still be waiting for a long time. And then gold, oil and cryptos are doing absolutely nothing this morning. But the day is not over.
The news of the day is that the Europeans also want their summit with Putin. It’s a shame, we just removed the barbed wire in Geneva, but I’m sure that our State Council would be happy to do it again, just to block Geneva again. And then the fantastic John McAfee, anti-virus pioneer, was found dead in his Spanish cell, a few hours after he learned he was being extradited to the USA for tax fraud. He would have committed suicide. In the USA, if you don’t have an account in Delaware, you’re a bad tax evader.
And then Warren Buffet leaves Bill Gates’ foundation. Obviously it’s not the same love here either. It is worth noting that the Russians fired on a British destroyer that was too close to the Crimea. It was only a warning shot, but I think that if Johnson and Putin met for a little summit at the Parc des Eaux-Vives, there would be enough to start a real business.
Numbers of the day
For the day’s figures, we’ll have the ECB’s economic bulletin, the Bank of England’s rate decision, Durable Goods and the US GDP. But most of all we will be watching the Jobless Claims figures which will be THE TOPIC OF THE DAY. Just to see if the jobless claims take off again or if it remains bogged down like last week.
For the moment, futures are up 0.3% and if we ignore the weather, it looks like a real summer market. As for me, I wish you a great day, I’ll see you on Monday since I’m taking a break tomorrow.
I wish you a very good day.
Thomas Veillet
CIO Merion Swiss Partners