“The Other Prof G”: Capital Market Recap from Tokyo, Mar. 6, 2021
Beware the ides of March.
The real Prof G, Scott Galloway will likely forgive my slight transgression of using a derivation of his slogan “Prof G”, from my lowly perch here in Asia. Mr. Galloway is an adjunct professor at NYU’s Stern Business School in Manhattan and carries so much sway (coincidentally the title of Kara Swisher’s podcast ….Kara and Scott go together like chocolate and peanut butter in a Reese’s peanut butter cup) he can not just charge US$500/per student, but gather a a proper forum for his venerable on-line marketing focused course offerings. His podcast, “The Prof G Show with Scott Galloway” is superb, as is his blog No Mercy | No Malice.
Higher education has not been immune to the vagaries of the COVID-19 pandemic, with upwards of 10% of the nation’s professors shown the door as budget cuts leave few options for university administrators who have slashed program offerings in response. 40% of the national professor pool is “adjunct”, aka part-time, as the cost is much lower than full time or “tenure-track” staffers (per term stipend, no benefits).
I am an adjunct professor of finance & international business studies at 2 universities that are “chalk & cheese” in terms of make-up, class size, teaching format and domicile. One is 6km away, a quick bike ride, conducted in-person, while the other is 10,600km (6,400 miles) away and 13 hours behind, time-zone wise. Synchronous classes finish up at 12:30am Tokyo time, not quite ‘test-pattern time”, (an archaic practice where the tv actually ended broadcasting and reverted to colored vertical bands on your screen), but late enough. The #WSB avatar hair is grey for a reason.
Much ground to cover in the market as the Ides of March approaches. March 15th is the 74th day in the Roman calendar. It was marked by religious observances and was notable for the Romans as a deadline for settling debts. Such concepts are not just foreign but fanciful in this time of Magic Money Tree (MMT), aka Modern Monetary Theory, an economic construct/gruel we are being fed by the current governing class. USA federal debt just pierced $27 trillion, up a full 2x from 2008. The Fed hold $7bln of this fiat IOU on its’ balance sheet, with $20bln of the debt in the “free range” category. The biggest foreign holders of US debt include China and Japan. A vendor finance scheme in the case of China and a lack of viable investment options in the case of Japan.
Thankfully the Nasdaq-100 is up 13x over the same period. Little progress has been made with respect to improving the Gini coefficient. The debt is per capita (incl. future generations), but the holding of stock squarely at the top of the triangle where the top 1% own 38% and the top decile owns 81% of the stock market. The S&P 500 has an aggregate value of $31 trillion, for reference.
This missive will be done in alphabetic form in honor of recently “cancelled” author Dr. Seuss. My favorite quote of Theodor Seuss Geisel (1904–1991) is “Don’t cry because it’s over. Smile because it happened.” I have used it innumerable times.
@VivekRamaswamy from Twitter-land puts it better than I can, his pinned tweet,
“Name ONE time in human history when the group fighting to ban books and censor speech were the good guys. I’ll wait…”
Give me an “A” Credit Rating:
Investment grade (IG) credit has fared very well through the C-19 pandemic, due on large part to the largess of the world central bankers.
“A” are upper medium grade and typically represent a modest risk of default over a 5 year planning horizon. S&P rated Brazos Electric “A” (negative watch). Despite the considerable funk in the government bond markets in the last 10 days, credit has been very well behaved, rallying on the week to 92 basis points, 4bp tigher on the week.
Brazos Electric Power Cooperative filed Ch. 11 this week after receiving an invoice from the ironically named Electricity Reliability Council of Texas (ERCOT) for US$1.8 billion related to the cold snap (how can we make this sound the most dramatic, I know “Polar Vortex”) that drove energy prices to $9k per megawatt/hr ($25k/MWh inclusive of ERCOT’s “ancillary fees”). The filing was made to protect its’ members, Brazos noted in a statement. Brazos had revenues of $1bln last year and reported assets of $3bln. Debt outstanding in the form of ERCOT bills for a total $1.8 billion and a separate Bank of America (BofA) loan facility for US$480 million. A to D (default) is rare, but it happens. Just under $900mm in debt affected by the downgrade.
Tesla is about 1/3 off its’ tippy top highs (spot $598 vs. $900/sh high) and is rated “BB” (speculative grade, > BBB is investment grade). Tesla were upgraded 2 notches recently as their paltry $15bln in debt was deemed de minimus in comparison to the burgeoning market cap ($594bln at time of writing).
Showing the resilience of the land of 10-gallon hats and boots with spurs, a full re-opening of the Texas economy was announced within a week of this “100 year” climate event, many of which we have every 3 years funny enough (extra black swan).
“B” is for Bitcoin
March 26, 2021 Bitcoin futures (ticker symbol BRR on the CME) closed at US$49,405 on Mar 5, 20201. It has been a hell of a 2021 for the pre-eminent cryptocurrency, Bitcoin whose market cap is now 1/10 of the global gold market (gold market cap $10 trillion).
Bitcoin’s annual carbon footprint is substantial. Bitcoin current mining intensity is equivalent to 367 million tons of CO2 equivalent. This is the equivalent of 427 full oil tankers or 853,000 barrels of oil! Crypto is certainly not passing any ESG filter tests on E (dirty), S (AML/ATF, rogue states) or G (is Elon Musk the real Satoshi Nakamoto?), despite the recent craze resurgence as evidenced by the fiat valuation of $50,000 per 18mm Bitcoin ‘mined’ of the 21mm finite supply ($900bln). Planet A likely does not need computer money that is this wasteful, consuming 78 terawatt-hours per annum (up from 10 in ‘17).
Proof of Work (PoW) does not seem to be a scalable protocol for Bitcoin to transition from a ‘store of value’ to a ‘medium of exchange’. A Bitcoin transaction, of which there are 350,000 in a typical day uses the same amount of energy as 700,000 credit card swipes. The fully replace credit cards Bitcoin would use 13x all the energy currently produced on planet Earth. The volatility of the asset class is staggering. As they say, if you can find a bubble, “buy it”. Shorting is out of the question. Best observed from a distance, like deep fried turkey, or a dirty bomb.
Bitcoin’s Gini coefficient is 0.88 due to the high concentration of ownership is a small sliver of wallets (98% held by 2%, order of magnitude). For reference the Gini Coefficient of North Korea is 0.87, the USA 0.48 and Denmark 0.28.
Post baccalaureate students are as we speak drilling down on the Michael Saylor/MicroStrategy case study, Bitcoin as an emerging corporate treasury asset. $MSTR has traded in a $155 to $1,315 arc as their leader invested first cash as well as the proceeds of two convertible bond issues into Bitcoin. $MSTR have purchased $2.2bln in Bitcoin (91,064) which are currently valued at $4.5bln. Shareholder rights? ….. tbd.
Canada’s Purpose Financial has launched the 1st ever Bitcoin ETF proxies falling since launch ($GBTC in particular).
“C” is for Climate Change
Pope Francis this weekend warned mankind faces a second ‘Great Flood’ if political leaders do not address climate change. He is risking the ire of the cancel culture with his wording, with ‘peoplekind’ being the safer choice (extra Trudeau). Perhaps the pope’s transgression can be forgiven by the ‘2-of-everything’ assumption implied. Noah’s Ark of course, the vessel in the Genesis flood narrative woven into many religious texts.
SGDs Global Festival of Action takes place Mar 25–26th. Goal #13 of course is Climate Change, but with 17 goals there is something for everyone.
“D” is for Davey Day Trader
#DDTG David Portnoy
Evel Knievel got a toy deal back in the day and David Portnoy gets an ETF! VanEck Vectors Social Sentiment ETF, ticker symbol $BUZZ started trading this week. A tough week for a launch with tech largely tossed down an elevator shaft, save the levitation seen Friday past, turning a near 2% sell-off into a 1.5% gain on the day.
Penn National Gaming bought 36% of Barstool Sports for $136 million in January 2020 with the current Barstool valuation pegged at north of $400 million.
The Fly of ibankcoin.com fame for one thinks that Portnoy should go back to burning his mouth on scalding hot pizza slices again. Jealousy gets you nowhere in this life. Davey has some stinker days (down $500k+), but folks have to realize that when your net worth is $120 million, risking 70bp is $840,000.
“It’s fun when the rabbit has the gun.”
-David Portnoy
For those caught up in the “buzz”, keep allocations light. There are plenty of ETF’s with bigger size and liquidity that get you the ‘smart beta’ momentum factor exposure, $MTUM, iShares MSCI USA Momentum Factor ETF comes to mind (AUM $15bln, MER 0.15%, 2020 up almost 30%, 2019, 27%).
$BUZZ has a management expense ratio (MER) of 0.75% in comparison.
Cathie Wood’s ARK funds, the largest $ARKK also charges 0.75% $ARKK was up 153% in 2020 with a pull-back of 6% ytd 2021 driving some to window ledges. Barron’s has named 64-year old Cathie Wood one of the 100 most influential females in the finance industry. She owns 50% of the firm which she started at 58 and has grown AUM from $5bln to $50bln + in a very short period of time ($ARKK $25bln, roughly 1/2 ARK AUM).
Redemptions. On Friday past $ARKQ, $ARKW and $ARKF all saw ouflows, but $ARKK saw a modest inflow.
Versus 13F filings for hedge fund peers, a daily ARK trade blotter is sent after the close to all that want it (free, often with amendments but on time!). There is even an App “ARK Tracker” to distill the daily gyrations. The ARK ETFs do not have any crypto exposure, but Wood has Bitcoin allocations in her separately managed accounts from much lower levels. A golden touch with an enviable track record. Volatility is seen as an opportunity for tactical outperformance rather than something to be shunned. On a 2/20 hedge fund payout (2% fee and 20% of benchmark outperformance), Cathie Wood would be a billionaire, but she chose the ETF “wrapper” as the best for her actively managed fund. Bravo.
$ARKK still has a 9.56% weighting in $TSLA even though Tesla has just set an all time record for loss of market cap in a 6 week period. Tesla was added to the S&P index in December 2020 at sub $450 as the largest ever add to the cap weighed index. This decision by the S&P committee was a big factor in the surge to $900/sh that ensued, given the dominance of passive, index-based, momentum investors in the equity markets at present.
$BUZZ Constituents:
“E” is for Energy
1,000 Gallons a Second
Conventional oil & gas has been zeroed worse than Trump. Valuations bottomed at 1.8% of the S&P (since recovered to 2.6%).
$OIH the oil services ETF was down 41% in 2020, but with the reflation trade fired up it is +44% ytd in 2021:
“F” is for France
French courts convicted former French President to 3 years in prison for corruption and influence peddling. He can serve 1 year of a suspended sentence from home, which I am sure is very nice (2 years were suspended after he was found to have attempted to bribe the judge in the case).
A quote sums this up better than I could hope to:
“Those that do not know history will forever remain children.”
-Marcus Tullius Cicero
For those slow on the uptake, a reference to the French Revolution.
“G” is for Gold
The shiny barbaric relic store of value got donkey punched this week on persistent US$ strength concurrent with a spike in nominal yield across the yield curve. $1,698/oz seemed a win to end the week as Bitcoin has been mowing gold’s grass for weeks on end.
Silver is making gold look like the red headed step-child of late. “Poor man’s gold” is a key industrial metal accounting for upwards of 40% of supply. Global net-zero commitments, renewable energy (solar in particular) have all forms of silver, esp. physical on tilt to the upside. If silver was not this bid gold would be at $1,500 already me thinks.
Subreddit WallStreetBets #WSB have not just targeted crowded shorts like Gamestop $GME, silver and other niche commodities like uranium have also been “in scope”. Thanks you #WSB for all that you do.
“H” is for House Arrest
The paddock is about to open. Herd immunization in 2021 may not be a global fiction. The near 20% of GDP sized syringe of adrenalin that the G-20 have plunged into the chest of the global populace will result in substantial positive GDP growth in 2021, 100%. The pace of vaccine approvals and their delivery has been commendable, save a few laggards. Many estimates see GDP growth of 7%+ on the year. Global GDP was $88 trillion in 2019, for reference.
“I” is for India
Modi has been busy, mostly not good busy. India has endured 100 day of farmers protests with 248 farmers perishing over this period. Modi has been trying to demonetize the Indian economy for years, getting rid of higher denomination bank notes, trying to reduce gold importation and most recently targeting Bitcoin and other cryptocurrencies. Modi plans a CBDC (Central Bank Digital Currency) and it will be a race between China and India as to who gets launches first. Bitcoin has a worse Gini coefficient than fiat US$ (98% owned by 2% of wallets) and China dominates 70% of the global mining effort. Regulation is coming with the more restrictive versions hemlock for this decade + experiment. National security concerns will become a battle cry.
India and China have comparable populations, but China’s risk is that they get old before rich. India’s average age is 29 with 50% of the $1.37 billion population < 25. In China the average age is 37 and many younger families are not apprehensive about having children even though the long standing restriction on “one child” has been lifted.
India has 46 cities with populations > 1 million and counts 3 cities with populations > 10mm, namely Mumbai, Delhi and Kolkata. China has 102 > 1mm, USA has 10 and Canada 5 cities> 1mm.
The good busy. Serum Institute of India (SII) the world’s largest vaccine provider (1.5bln per annum) has positioned well to be the lead provider of COVID-19 vaccines. Cyrus Poonawalla contributed $260mm and $540mm was raised through philanthropic avenues (Bill Gates in particular) to allow SII to ready production. Serum expect to be supplying 300 million doses by Aug. 20201. Cyrus’ son Adar (40)is reportedly the 6th richest Indian national. Some delays have been reported as the US seems to be favoring the Pfizer vaccine over the Astra-Zeneca one (JNJ’s joining the fray last week).
“J” is for Japan
Grant’s: Sultans Of Swing Shares in the Bank of Japan — yes, it’s a stock — traded limit up for a fourth straight session today, finishing at ¥54,000 ($502) per share to extend their gain for the week so far to 93%. That comes despite a 2% selloff in the broader Nikkei 225 Index.
Closest proxy is Swiss National Bank (also listed $SNBN.SW). BoJ became the biggest holder of equity ETFs in 12/2020 at ¥45.1tln ($434bln). Tech indices like the Mother’s Index have vastly outperformed the Nikkei which itself has done well. Knowing Japan these holdings are likely held at book value, could be part of it. Illiquid hence a quiet corner finally got noticed perhaps. Likely no borrow on a short hence 1 way pin action, higher.
Friday, Mar. 5th a limit down day, but still a perplexing rally on the week.
JGB’s. The dust has not settled, but the horrid UST 7 year auction last week that triggered a 5 sigma sell-off in the treasury market. There was a rally in Japanese JGB’s, with the long end rallying 12bp to 0.30% after 5 weeks of relentless foreign selling.
In for a penny in for a pound. I think there is better than even odds the Fed implement yield curve control (YCC) on the road to expanding their QE mandate to include equities as Japan’s BoJ does. Incoming Treasury Secretary Janet Yellen has signaled she would like to have to legal flexibility to broaden the Fed mandate to risk assets beyond fixed income. We are living in the upside down.
At the pinnacle of silly $18tln of global debt was trading at a negative yield (25% of global outstanding, order of magnitude). About 4 trillion of that has been reversed in 2 weeks. Japanese institutional investors have likely taken this opportunity to pare their UST exposure in favor of JGB’s ahead of their fiscal year end April 30th.
Give me an “N” NFT
Non-fungible Token (NFT), yet addition to the modern lexicon of “digital air”
Jack Dorsey, part-time CEO of Twitter auctioned off his first tweet, the 1st on the platform. He might want to save it for his tombstone, “just setting up my twttr”. Current bid $330,000 or 6.6 Bitcoin. Winning bidder effectively has dibs, but the tweet stays on the Twitter server. It does not even include lunch with Jack.
Elon Musk’s main squeeze Grimes sold $5.8 million worth of NFT artwork (not songs, notably, but limited edition prints of cherubs on Mars and similar scenes in a series called War Nymph Collection 1, implying a sequel) last week at auction, Christie’s no less. Grimes is the mother of Elon’s 7th son X AE A-Xii, loosely translated as X-Ash-Archangel born May 2020. Ahead of #$%&*! are Nevada, Griffin, Xavier, Damian, Saxon and Kai. Alpha males all, I’m sure they will be fine.
Slate did a good piece on the NFT phenomenon resurgence;
Word count dictates a cut here. Deep dive on SPAC’s next week, give me an “S”.
Hoping you found something of interest in this week’s update. Stay sane. Manage risk. Keep an open mind, but not so open your brains fall out.
Twitter account @firehorsecaper
Caleb Gibbons
