Welcome back to our weekend reading.
We are in the midst of a largely positive U.S reporting season, with over 30 of the largest companies reporting this week alone (not counting this evening’s results). More on that later.
There may be some hidden charts to support this thought, but from this perspective it seems that right now there is a significant portion of the market who are unhappy with consistent, ‘sustainable’ levels of returns.
No, rather both retail and institutional alike want “all the money” – nothing less than stratospheric returns will appease the ravenous appetite of this market, grown bloated and comfortable with the accommodating environment we’ve seen over the last twelve months.
Anecdotal evidence of conversations, market behaviour and momentum would suggest that this is not isolated to one group – retail investors who entered capital markets last year have had their expectations set by one of the most aggressive bull rallies of the last decade, whilst institutions take comfort in the rising tide of fiscal stimulus and low cost of capital.
A bit of a long intro, but I need to sound clever somewhere in this note so it may as well be up front.
Let’s look back on the week.
Show Us the Profit
As a quick earnings update, more than 50% of the S&P constituents have now reported – the news has been generally positive and corporate commentary reflects a bullish attitude towards the future for the most part. Though perhaps take that with a grain of salt.
The blended earnings-per-share (EPS) growth amongst the reported companies so far has been on average + 44% (YoY).
The market reaction has been to continue pushing to new record highs, although the overall movement over the last week has remained within a range as the market digests each new batch of surprises/disappointments.
It was just for debasement, honestly
Any market observers who thought Tesla’s only trick to make profit was to sell regulatory credits were severely lacking in imagination on Monday –
Technoking sold down 10% of his Bitcoin holdings to add $101 million USD to Tesla’s quarterly income.
Yes, despite claims of adding to the balance sheet to protect against debasement and the like, it seems Elon has found another way to make profitability which is not selling cars!
Don’t take this the wrong way Elon, this was chess grandmaster levels of strategic planning, genius.
Profit from the sale of BTC and selling regulatory credits to other automakers accounted for around 25 cents of their adjusted EPS of 93 cents (or just under 27%), providing a surprise beat to the street estimate of an EPS of 80 cents.
The company revenue of selling regulatory credits was approximately $518 million USD, up from $401 million in Q4 2020 – this has been the consistent source of income for Tesla, well in excess of any revenue they make from selling product, but may be in jeopardy as other automakers begin the transition to EV line-ups and do not require the credits as much.
Cop(per) This Rally
Turning our attention to the emerging commodity super cycle- copper, lumber, steel, iron ore, tin, corn and soybeans are all either at or close to all-time highs.
Copper in particular has passed $10,000 USD per metric tonne for the first time since 2011.
The current record-high price is $10,190, back in February 2011.
The commodity market is rallying from general improvements in economic health (and low interest rates don’t hurt either), with copper a primary beneficiary of the concerted shift towards green energy and transportation.
The Jimi Hendrix Executive
Justin Zhu, now former CEO of $2 billion USD start-up Iterable Inc, was dismissed from his role this week after taking LSD before a meeting back in 2019. One can only assume it was a productive design meeting.
Zhu told Bloomberg he was experimenting by taking a limited amount of the drug, or micro dosing, in an effort to boost his focus.
Iterable’s co-founder Andrew Boni has taken over the position as CEO, praising Zhu’s “vision, creativity and passion” – all things you’d expect LSD to provide.
It’s worth noting that the use of micro dosing LSD is becoming more accepted in corporate culture in Silicon Valley, as well as the medical world for treatments of PTSD. Steve Jobs’ biography references his use of the drug in his own creative process whilst in the early stages of running Apple.
*All numbers in USD from BofA Securities
Equities:$10.5bn to equities
Bonds: $13.7bn to bonds
Precious Metals: $0.5bn to gold
Cash: $57.3bn into cash
Flows to Know
Largest inflows into cash since March 2020
Strong inflows into bank loans ($3.9bn past 4 weeks)
Investors positioning for inflation and tapering of QE
10y rolling return from commodities now positive for the first time since 2014
Positioning for inflation is becoming the consensus trade
And that trade is driven further by overwhelming equity supply
Being long AUD doesn’t seem so bad right now – Jesse is brainstorming as we speak…
Rapid Fire Round
The word count is getting a little unwieldy, so we’ll wrap the final interesting stories in a Rapid Fire Round:
- One in eight people are millionaires in the Swiss cantons of Schywz and Zug, according to recent analysis of government statistics, largely thanks to lower personal tax rates attracting professional residents
- Salmon have shrunk in size to the extent that Whole Foods have reworked their guidelines of purchasing the fish in wholesale quantifies. Wild Pacific salmon numbers are dropping and those that are left are significantly smaller, attributable to effects of global warming and overfishing of the population.
- The U.S has told its citizens to leave India, as COVID-19 cases grow rapidly- this was issued via a Level 4 travel advisory (the most serious of its kind)
- President Biden’s new tax plan will eliminate private equity tax breaks, with the abolishment of preferential treatment given to key methods of compensation to private equity managers up for consideration. This would essentially mean removing the lower tax rate charged on carried interest from their stock options.
- UBS has reported a “surprise” $861 million USD loss this week, with Archegos Capital now having a higher cost to investment banking teams than lunches, single malt whiskey and assorted ‘entertainment’ expenses. This also follows Morgan Stanley reporting the $911 million USD loss earlier this month.
- NYC ride-hailing company ‘Revel’ is launching a service using Tesla Model Y’s, expanding out of electric moped scooters into the electric-car ride-hailing niche – this will operate in Manhattan.
- Birkenstock has looked to pre-emptively block short sellers by including a rare term in its recent bond offer documents, making it more difficult to take profit from holding net short positions with credit default swaps. This debt issuance is to fund the purchase of a majority stake in L Catterton, the private equity house supported by LVMH.
Our morning calls continue, please do tune in for a daily dose of market insights and access to some leading experts in the funds management field.
Have a safe and enjoyable weekend.
– Max and the Mason Stevens team.
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