[Market Madness] Edition 0114
Elevator Down
Volatility, my old friend
Administrative topics and a general market recap
Well folks, it was a rocky road week for markets both here in the states as well as overseas in Europe and Asia. We’re seeing more spikes in cases of COVID 19 here as well as overseas, continuing to put wrinkles in the ideal recovery path as hopes for the miraculous “V-shaped” recovery continue to fade as we move further from the point of incidence.
This past week, we saw weekly jobless claims surprise expectations and rise over the week before, breaking trend and worrying economists about a potential weakening of the labor market.
Stimulus talks continue, now with the Democrats preparing a bill after the Republican bill failed in the Senate the week before. As Congress continues to put together stimulus packages that either side cannot agree upon, Donnie’s economic advisor, Larry Kudlow, decided to double down on his thought of a “V-shaped” recovery and its impact on future stimulus. He is standing alone on his thoughts, going against both the ideas of Jerome Powell from the Federal Reserve and Treasury Secretary Mnuchin, but I guess that is not much of a surprise; he’s had a tendency to stand alone on his economic thoughts and projections.
A big trend to consider in the weeks to come and through the next couple months will be the rise in volatility that occurs leading up to elections. We saw a first taste of this volatility on Thursday during the trading day. In tandem with the major volatility, the IPO space in the U.S. is red hot, bringing back memories of 1999.
Here are some general themes that we will cover off on in this edition:
The Nikola story
The FinCEN files
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In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: -1.75%
S&P 500: -0.61%
NASDAQ: +1.11%
Asia and Europe 5 Day Performance
Nikkei 225: -0.67%
Hang Seng: -4.99%
FTSE 100: -2.74%
DAX: -4.93%
Rates, Spot Prices, and ‘Good to Knows’
U.S. Dollar Index: 94.58
US 10 YR: 0.658%
Crude OIL: $40.04
Spot Gold: $1,860.00
Market Madness Portfolio: +6.98% YTD
TEDRATE: 0.13
LIBOR (3 month): 0.233%
COVID 19 Global Cases: 32,870,631 (updated Sept. 27, 2020)
Nikola and its fall from grace
I know, I know, you might be thinking “Christopher, you fool, this Nikola nonsense is old news!” Well, some of it is. But, like with a fine wine, this story improves with age. If you thought the internal activity within Tesla was cause of investor concern, then Nikola makes that look like child’s play.
It all started with the scathing report from Hindenberg Research on September 10, uncovering what they saw as an “ocean of lies.” It is a long read, but well worth it for those interested in a deep dive on corporate actions and webs of fraud surrounding the founder, Trevor Milton.
In the time since the report, Trevor Milton issued a feverous denial of the claims, and then later resigned from his executive chairman position at Nikola. His denial of the claims was not enough to hold the interest from major energy firms that were initially talking with Nikola, with many jumping ship and not looking to navigate potentially fraudulent waters. Even considering the attack put on by Hindenberg, internal executives remain strong with the firm and its mission, despite the fragile outlook now placed on the firm.
Now, even more recently, a Financial Times report suggests that Milton had purchased the truck designs from a third party vehicle designer in Croatia, going against his initial claims of designing them in his basement.
What does it all mean? It appears to me as the forward momentum toward a sustainable and widely accessible EV system. It is definitely a cut throat, eat or be eaten industry and any shortcut to get ahead appears to be taken at any cost. The fallout of the Hindenberg report and damage to the name of Nikola will likely lead to other frontrunners in the EV (trucking) space that will be able to bring a fraud-free attitude along with it. It is becoming more clear that the future will become dependent upon EV and other renewable power solutions but it is also becoming clear that companies are not supportive of corner cutting and other fraudulent activities to bring us there.
Read more here, here, here, here, and here.
FinCEN frights
Who would have thought that of all news agencies, it would be BuzzFeed to be the frontrunner of bringing out the newest set of leaked files regarding international money laundering and other illicit and illegal activities that some banks have engaged in. The leaked report consists of thousands of SARs (Suspicious Activity Reports) that help paint a never before seen picture of global financial corruption and the major instigators behind it.
“Money laundering is a crime that makes other crimes possible. It can accelerate economic inequality, drain public funds, undermine democracy, and destabilize nations — and the banks play a key role.” (excerpted from BuzzFeed article)
Traditionally, it would be really odd for a non-financial journal/reporting agency to be the head of a major leak like this, but after being vetted by the International Consortium of Investigative Journalists (ICIJ), we know the information to be legitimate and true.
Here are some of the major findings (excerpted from the ICIJ report):
Global banks moved more than $2 trillion between 1999 and 2017 in payments they believed were suspicious, and flagged bank clients in more than 170 countries who were identified as being involved in potentially illicit transactions. The figures include $514 billion at JPMorgan Chase and $1.3 trillion at Deutsche Bank.
The FinCEN Files show that five global banks — JPMorgan Chase, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — moved illicit cash for shadowy characters and criminal networks even after U.S. authorities fined these financial institutions for earlier failures to stem flows of dirty money.
In half of the FinCEN Files reports, banks didn’t have information about one or more entities behind the transactions.
Years after concerns first emerged, banks continued to move money for fraudsters, drug dealers and allegedly corrupt officials, leading to cases of real harm.
They also provided a large list of confidential clients, some of which included:
Mukhtar Ablyazov (Kazakhstan)
Jean-Pierre Bemba Gombo (Democratic Republic of the Congo)
Dmytro Firtash (Ukraine)
Paul Manafort (United States)
Odebrecht (Brazil)
Phil Ming Xu (China)
Additionally, in their continued fall from grace, it is no surprise that Deutsche Bank tops the list of suspicious transactions. From major dealings with Russia and their financial assistance provided to Donnie, Deutsche continues to increase the temperature of the hot water they’re already sitting in. From all angles, it is looking worse and worse for them.
This article is definitely a deviation from the normal course of action taken with Market Madness, but with good reason. As with many things, great power comes great responsibility. Money is often seen as the key to unlock power and influence across the globe. Banks and other large financial institutions hold those metaphorical keys since they are the movers and holders of the majority of money in the world. It is then the onerous of these institutions (and by relation, their employees from associate to chief executive) to safeguard these keys from the wrong hands.
This is not the first time we’ve been here; we’ve seen the Panama Papers, the Paradise Papers, the China Cables (among many other leaks), and now the FinCEN files. There is continued hope that we will learn from the mistakes of many this time around, ensuring that we as members of the finance community actively consider the outcomes from poor decisions like these and where the money goes and what bad actors tend to do with it. All we can do as single members of the finance community is to hold these considerations near to our mind as we conduct financing activities and work together for a safer, more responsible tomorrow.
Quick Takes
To fill in the gaps
U.S. COVID-19 death toll surpasses grim 200,000 milestone. (via CNBC)
Prices on tea are rising. (via WSJ)
Donnie defies the fundamentals of democracy as he’s unwilling to submit a peaceful transition of power. (via CNBC)
What’s up with stimulus? Find some new details here. (via CNBC)
Trading platform, Interactive Brokers, imposes higher margin requirements leading up to the election. (via CNBC)
Here are some articles surrounding the outcome of the Breonna Taylor decision. (via CNBC and CNBC)
Brazil’s market is IPO-happy too. (via FT)
CDC makes a big goof on their website regarding COVID-19 guidance. (via CNBC)
Video streaming service, Quibi, suggested they might be looking for a buyer. (via WSJ)
Google steps up to help employees reduce their student debt burdens. (via CNBC)
A continued look at the oil market. (via WSJ)
Elon and Donnie bump heads. (via CNBC)
Donnie unveils his SCOTUS nominee to fill RBG’s vacancy. (via FT)
General Banter
What’s on my mind
Investor Amnesia is a cool new email distribution for “your financial history fix through reading my articles, or those that I link to in my weekly ‘Financial History: Sunday Reads’.” Check out this week’s edition here: “Gambling, Lies & Markets”
Reader’s Corner
A place for suggestions
The reader is proud to share an amazing piece of work from Corey Hoffstein and his whole team at Newfound Research titled “Liquidity Cascades: The coordinated risk of uncoordinated market participants.” It is a really interesting and thought provoking piece about modern market interactions. Find Corey here on Twitter.
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Behind the Madness
You’ve made it through the madness. I’ve worked really hard to ensure that you leave this page having learned something, and I hope that benefits you in your daily adventure. Thank you again for checking in.
Publishing Schedule: every Sunday
In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
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