“The Other Prof G” Global Capital Markets Recap Mar 13, 2021
“One day you’re the cock of the walk, the next a feather duster.” -Margot Barber
HT Piers Morgan
What a week! Equity markets, all-time highs (ATH). Bitcoin ATH, $60,111 fiat US Dollars per Bitcoin, on a Saturday, no less. Crypto is gunning for $2 trillion mkt cap this week, 1/5th of the gold market.
Last week’s missive highlighted the massive, and growing energy draw of Bitcoin mining. David Frum @davidfrum provides another interesting comparison metric; Bitcoin mining presently consumes more energy than all global electric vehicles in operation on planet Earth. It has also been noted that Elon Musk’s $TSLA has made more money holding BTC for a month than Tesla has made making cars for the last 12 years.
Gold bullion stands, bow-legged, at US$1,725, 20% off 2020 highs.
Digital gold is mowing gold’s lawn, 100% with Cathie Wood of Ark Invest (50% owner) suggesting the 60/40 stock/bond mix is to be re-cast as 60/20/20 with the final 20% in crypto. Wood has ice-water flowing through her veins clearly, running a marathon pace through fields of land mines in recent weeks. Cathie has an allocation to Bitcoin for her clients in SMAs (if 5% likely 15–20% now with the recent crypto price surge), but does not hold Bitcoin directly in the 5 ARK Invest ETFs. $ARKK, the biggest of ARK’s ETFs has > $25bln in AUM and remain up on year-to-date, despite her +158% performance in calendar 2020, outpacing the S&P by 138%. Three gaming related stocks, $DKNG, $RBLX and $SKLZ have been recents favs with 40% of new ARK inflows plowed into this theme.
Fiat shield, engage:
Non-levered ARK Invest has been highlighted as a potential course of systemic risk due to its’ portfolio make-up, size and volatility (implied and realized). This is a smoke-screen to larger market mis-deeds in my view.
Greensill Capital:
Australia domiciled, UK HQ. Bankrupt.
Lex Greensill, founder (44) will not do well in prison. Previous net worth est. US$1.65bln inclusive of stake in the family’s 5,000 acre sugar cane and sweet potato farm in Bundaberg, Australia.
Greensill Capital has provided $150bln in supply chain financing to 8 million customers and suppliers in 175 countries since its’ founding in 2011.
Brilliant Stephen Clapham outlines the farcical tale much better than I could in his “Behind the Balance Sheet” blog;
Masayoshi Son’s Softbank sibling and Vision Fund are front and centre as the biggest financial backers of Greensill Capital. Mr. Market was too busy celebrating Son’s +$30bln windfall on the highly successful IPO of S. Korea’s Coupang this week to notice the sordid Greensill affair. Coupang is said to be “Amazon on steroids” headed by Harvard drop-out, Bom Suk Kim (getting accepted at Harvard is better than most actual degrees?).
Credit Suisse is heavily in the Greensill quagmire with €1–2bln of exposure. Japan’s Tokio Fire & Marine ditto. The UK Government, present. Sangjeev Gupta’s GSG Alliance, check. Global regulators (Australia, UK, Switzerland, Luxembourg & Liechtenstein) asleep at the switch again/still, including Germany’s BaFin, who were shown to be complicit in the WireCard fraud of 2020. This one is a stinker and the butterfly has just hatched. The flutter of the wings are yet to be felt.
In the end though, it favors the adoption of blockchain technology. Crypto wins, yet again. Can you sell a farm as a NFT?
Book recommendation, “The World For Sale”
Things we seem to be lacking this week:
- ) Couth
We are reminded that behind many great fortunes is a crime.
Richard Branson. Brit. Net worth US$6.5 bln. Age, 70. Virgin Airlines.
£1.2 bln COVID-19 bail-out package for Sir Richard Branson’s Virgin Atlantic, July 2020.
March 2021. Richard Branson targets New Space SPAC to take Virgin Orbit public.
Chamath Palihapitiya. Canadian (Sri Lanka, as a wee lad, skips leg days). Age 44. Net Worth $1bln. Part owner Golden State Warriors. Venture Capitalist, Social Capital. Facebook alum.
Chamath dumped his personal holdings in Virgin Galactic $SPCE this week for proceeds in excess of US$200 million. Brought public via SPAC “combination” with Social Capital Hedosophia $IPOA, itself a 2017 SPAC which raised $650mm (Blank check company).
As a follow up Mr. Palihapitiya is seeking a $1bln UK Climate IPO. Feed the ducks when they are quacking, as they say. Disclosure light.
SPAC ETF’s:
$SPAK:
$SPCX:
#2 holding, $CCIV Churchill Capital Corp. has been the poster child for the vol of the SPAC space, shooting from $10 to nearly $65 before falling back to earth at $27 currently. This mayhem came when the EV name Lucid Motors was rumored, then announced. A clear case “buy the rumor, sell the fact”. Many SPAC mergers include a PIPE (private investment in public equity) to allow them to achieve scale. Churchill Capital brought $2.1bln of cash into the deal with $2.5bln raised via a PIPE. The SPAC came to market at $10/sh before its’ meteoric rise. PIPE investors were in at $15/sh. Lucid Motors received $4.5bln in cash. Saudi Arabia’s Public Investment Fund (PIF) was the largest Lucid Motors shareholder and also committed funds to the PIPE. After the merger, the combined entity will trade under the ticker symbol $LCID.
$SPXZ:
SPAC returns, so far, have outperformed the Nasdaq 100 on a 12 month look-back, but with higher vol (resembling venture capital), as one would expect with 20% “pre-revenue” listings and only 35% are currently profitable. Pareto Principle applies (80/20 rule), there will be some dogs/losers, even in a diversified portfolio. The merit of a SPAC ETF is high in reducing the idiosyncratic risk inherent in buying single names in this highly speculative space. There has been more SPAC issuance in the last 12 months than the previous 10 years combined. In 2019 a total of 59 SPAC IPO’s raised $13.6bln. In 2020 a total of 250 SPAC’s raised $83bln.
GameStop wont’t quit, can’t quit. $265/share, mkt cap $18b. Germany’s Deutsche Bank’s market capitalization is $26bln. Approaching 10mm member #WSB WallStreetBets subreddit channel still has game. Other group beyond fav’s include $PSLV (physical silver), $DNN (Dennison Mines Corp., junior Canadian uranium miner. Disclosure: I am long, along with Nexgen $NXE).
Rates (UST yields)and the US dollar (91.64 currently) remain key things to watch for the week ahead. 10’s are yielding 1.63% and longs (30YR) 2.393%. If rates keep going up in a disorderly fashion, most expect the Fed attempt yield curve control (YKK, aka operation twist). This should lead to further USD weakness. Jerome Powell, Chairman of the Federal Reserve, will have the spotlight in the financial 3 ring circus this week with the March 2021 FOMC meeting scheduled for Mar 16–17. Do not expect any big announcement this week. Monetary policy ammunition reserves are low with negative rates largely dismissed as folly. Jay Powell will save his powder on YCC until 10’s approach 2% and long bonds 3% ….. still a long ways away.
Credit is holding in very well, both IG and HY. Verizon’s 7 tranche “5G spectrum” debt deal received $108bln in orders last week (4x + oversubscribed). American Airlines had 45bln in orders for their $10bln deal this week as well. Big demand for high yield.
Stocks are long duration assets. Yellen-san is investigating issuing 50 and even 100 (aka century bonds), but 30 years are currently the longest dated treasury security. US federal debt stands at > $28 trillion, $85,000 per citizen, $224,000 per taxpayer and a fresh record 130% of GDP.
The S&P 500 has a duration of 30 years (aggregate valuation $32 trillion). The Nasdaq 100 duration is > 40. SPAC’s duration is likely 60+.
Stay nimble. Diversify. Risk management is key. Set stop losses, they help preserve capital.
Caleb Gibbons @firehorsecaper
