What’s new
Administrative topics and an introduction
Well folks, even with Hanukkah just wrapping up and Christmas right around the corner, the fun doesn’t stop in finance. This week, we deck the halls with more of the same ‘ole junk we’re carrying over from last week, with a sprinkling of something new. Santa, I mean Jerome Powell, raised future projections of the economy for next year, all while keeping rates at rock bottom. Vaccines started rolling out and people started rolling up their sleeves.
Let’s get into some stories.
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Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: +0.46%
S&P 500: +1.29%
NASDAQ: +3.07%
Asia and Europe 5 Day Performance
Nikkei 225: +0.42%
Hang Seng: -0.03%
FTSE 100: -0.13%
DAX: +3.94%
Rates, Spot Prices, and ‘Good to Knows’
U.S. Dollar Index: 90.016
US 10 YR: 0.946%
Crude OIL: $49.03
Spot Gold: $1,881.40
Market Madness Portfolio: +20.56% YTD 📈
TEDRATE: 0.14
LIBOR (3 month): 0.2386%
Weekly update
An article by Christopher
Financial markets
The major market indices rebounded from the week before, ending the week in the green across the board. As the vaccine distribution has begun across the U.S., investors are continuing to find and express optimism with their investing. As we get over one hurdle, we don’t cheer. Rather, we turn our attention to another piece of business: stimulus. The folks on capitol hill are struggling to keep the government open and funded, let alone agree on a comprehensive stimulus plan to assist the Fed’s propping up of the economy. It is not all doom and gloom this time around, as investors pumped markets, optimistic that a fiscal stimulus deal will, in fact, materialize in the middle of this week. However, by the end of the week, some of that midweek “hurrah” optimism faded as the weekend approached and a deal was still not voted on.
Overseas, the financial markets were a mixed bag of ups and downs. Europe is working on a post-brexit trade deal and U.S.—Chinese tensions rise as the U.S. blacklists another Chinese-based chipmaker, potentially sparking tensions. The trade deal between the U.S. and China has collected dust since last discussed between Donnie and Xi Jinping. As for Russia, they’ve been hacking into Orion for a while now, with potential outreach impacting several U.S. government agencies.
Elsewhere, crude oil has climbed up to $49 per barrel, gold is sitting around $1,880 per ounce, and the U.S. 10-Year treasury yield breaks into the high 900s, ending the week at 0.946%.
Bonus: “Where do COVID-19 Vaccine stocks go from here?” from the Wall Street Journal
Economic data and stimulus
Some big economic numbers came out this past week, and not for the best. Manufacturing output actually rose in November, but remains depressed below pre-covid levels. Retail sales fell 1.1% in November, smashing hopes for the holiday spending to come in and rescue the consumer confidence. Adding insult to injury, the new jobless claims came in pretty high as well, suggesting a stalling labor market, at least until the vaccine becomes more widely available. A lot of focus remains on the labor market, as rising virus cases and hospitalizations have risen the alert level of states and therefore imposing new restrictions.
The other consideration that is still far out on the horizon is how the work from home wave will shift the traditional views of the labor market when looking into the longer term. This is important from several levels (mental health and diversity initiatives in the office, a sense of workplace belonging among coworkers, and a more accurate sense of work-life balance) which all impact the magical labor force bottom line: PRODUCTIVITY.
Productivity and technological enhancements are the two major drivers that increase Long-Run Supply in economic theory. It will be interesting to see how the transition to work from home on a permanent basis for a lot of businesses. From conversations I have had with coworkers where I work and elsewhere, there has been a sense of optimism for working at home. Absent of a commute, the starting and ending of work is much more fluid, and it also seems that employees are putting more hours in ‘at the office,’ although it may be harder to determine the quality and output level of work when there are many more distractions at home than in the office.
All this is to say that I will be interested how the migration to WFH affects productivity on an economy-wide level and, furthermore, how that comes around to impact Lon-Run Supply growth and GDP into the future.
The other side of the economic story is what is going on at the Fed. As we know, the FOMC (Federal Open Market Committee) met this week and a press conference took place Wednesday afternoon after their meeting adjourned. This meeting was helpful as it provided housekeeping to their estimates as we close out 2020 and their projections for 2021, all of which improved slightly. The estimate for 2020 real GDP was adjusted up to being a decline of only 2.4% compared to 3.7% before. The projection for GDP in 2021 was raised from 4.0% to 4.2%. Although the rise in the 2021 projection is not a lot, any forward momentum the economy can garner will be instrumental to long-run economic recovery.
On top of that, the Fed indicated two other things: continued debt purchases for the interim and floor-level interest rates for at least the next three years. The former is an update to their original debt and asset purchase plans, and the latter is in-line with previous statements and comments. All these actions are reinforced by the continued remarks by Jerome Powell encouraging lawmakers to come together and provide another round of stimulus which would provide an additional lift if the right items are outlined and highlighted in a stimulus bill. For now, we wait.
Bonus: “A Growing Corporate Solvency Crisis” from Axios Markets.
The YOLO trade
An article by Christopher
I’d say the highlight of my week was reading a Bloomberg article where a hedge fund professional trader used the term “YOLO.” Also, I am a huge fan of Catherine Wood, who is utterly brilliant. Ark Invest is a very forward-thinking investment firm specializing in disruptive innovation-based investing. Ark’s ETFs have been red hot during the market’s recovery, particularly as disruptive companies have found a market opportunity to break through and really shine. JPMorgan has put together and sold over half a million dollars ($589,000) in a packaged, structured investment in three Ark ETFs at 1.5x leverage over a 6-year duration.
“Basically this is a sophisticated client’s YOLO call option,” said Kris Sidial, a former structured-products trader now at hedge fund Ambrus Group, referring to the expression You Only Live Once. “You are striking when the market is at all time highs.” (excerpted from Bloomberg article)
Translating to English, this offer is to get in on a higher level of exposure (1.5 times better returns, and 1.5 times worse losses) on a combination of Ark’s greatest hits. Of course, any time leverage is at play, the risk is higher, but so is the reward potential. Another risk for investors targeting shorter or mid-term profiteering, would be buying at or near a market high. I am not calling the top of the market with the recent record-breaking highs seen in U.S. indices, but the traditional method of pulling profit from the market is to ‘buy low and sell high.’
That is where the “YOLO” comes into play. Whenever play with an unknown venture, especially when the market has already risen extremely far in the upward direction, the outcome might not fall in your favor. There is, however, a lot of wind in Ark’s sails, and that comes in the name of disruption.
Disruption is the new normal, as so many successful companies are rising out of the age spots of entrenched industries. The longstanding saying is “innovate or die,” and that is still absolutely true. However, if a business can come in, disrupt the status quo, and continue innovating from there, the sucess is nearly endless.
All that being said, I would not discount Ark or their ETFs out yet, or ever. It is not necessarily about the current position (which is incredibly strong) but how the firm continues to follow the innovation and disruption and incorporate that into their investment products. For me, I’d argue that Ark has set the gold standard for actively managed investment funds.
“We’re all about finding the next big thing. Those hewing to the benchmarks, which are backwards looking, are not about the future. They are about what has worked. We’re all about what is going to work.” — Catherine D. Wood
Read more here, here, here, and here. Also, here if you’re a Drake fan.
All this coin talk
An article by Christopher
Alright, you all win; I finally must address the elephant in the room. Bitcoin will be discussed here, just as long as all the bitcoin bulls remain calm and orderly. Unless you exist devoid of any financial / market news except for Market Madness, then you heard that Bitcoin broke above a major ceiling this past week, breaking above $20,000 for the first time. Another big break for the crypto world was the IPO filing announcement by Coinbase, a major cryptocurrency exchange platform. Setting their IPO in 2021, this will be the first time a bitcoin-focused company tests public market waters.
It would come as no surprise to me that 2020 is the year a cryptocurrency gains mainstream appeal. In 2020 alone, the value of Bitcoin has nearly tripled.
“Bitcoin has begun to win mainstream acceptance this year. Investors including Paul Tudor Jones and Stanley Druckenmiller and companies such as Massachusetts Mutual Life Insurance Co., or MassMutual, have disclosed bitcoin holdings in recent months. Other companies including Square Inc., PayPal Holdings Inc. and Robinhood Markets Inc. have opened up their platforms to crypto trading.” (excerpted from WSJ article)
According to diehard bitcoin-ers, the currency poses a strong dollar hedge, but that is still mostly hearsay. Either way, the coin is getting a lot of traction across the investment community. Major financial exchange groups are dabbling with offering futures contracts for popular cryptocurrencies like Bitcoin and Ether. Outside of the exchange world, large companies like Visa, Square, PayPal among many others are also dipping into the crypto space, either offering crypto as a viable payment option, or in the form of modified cashback rewards.
Like the soon-to-be infamous JPM “YOLO” trade mentioned earlier, many of these companies are striking at bitcoin and crypto while the iron is red hot and at a major high in the market. Personally, there needs to be a lot more consideration around the actual enablement of crypto as a payment method and its more practical applications for mainstream use for people like you and I, outside of its common uses now.
Read more here, here, here, and here.
Quick Takes
To fill in the gaps
The most sophisticated cyber espionage campaigns in recent years. (via FT (1), FT (2), WSJ (1), FT (3), and WSJ (2))
Follow up on Amazon’s Zoox acquisition. (via CNBC)
Mikey P. gets his vaccine on live TV as part of immunization campaign. (via WSJ)
SEC and state of MA going after Robinhood. (via WSJ (1), and WSJ (2))
A take of the Georgia run-offs and their relation to markets in 2021. (via CNBC)
Google crashing is the new ‘virtual snow day’ for online learning. (via WSJ)
Switzerland takes Credit Suisse to court in money laundering case. (via FT)
We’re short on teachers; “it’s all hands on deck.” (via WSJ)
Exxon Mobil pushes new climate-focused agenda as activist investors circle in. (via CNBC)
ESG ETFs taking the spotlight. (via WSJ)
2020 actually helped the smaller banks? (via WSJ)
More on the looming Brexit trade deal. (via FT)
A hot take on value investing for 2021. (via Seeking Alpha)
Looking once more at fractional shares. (via WSJ)
U.S. blacklists Chinese chipmaker. (via FT)
Major Chinese corporate debt default. (via FT)
General Banter
What’s on the minds of our editors and writers
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Reader’s Corner
A place for suggestions for readers like you
The reader might be interested in seeing what is new with Koyfin. They’ve just unveiled a new 2.0 version, and it is incredible. Check out a recap video here and check out the new link in “Behind the Madness.”
Well done. You’ve made it through the madness. I’ve worked hard to ensure that you leave this page having learned something, and I hope that it benefits you in your daily adventure. Thank you again for checking in.
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