Welcome back to our weekend reading.
A short week after the Easter Long Weekend, though no less filled with interesting stories. We’ve seen news coming out of global investment banks regarding Archegos, speculation and declarations about Bitcoin, Chinese bank loan pleas and economic data out of the U.S.
The market (much like investment banking interns apparently) never sleeps.
Let’s look back on the week.
The Victims of Archegos
In the ongoing saga of Archegos Capital Management, Credit Suisse has earned the unenviable title as the biggest victim of the hedge fund’s recent collapse.
The global investment bank has reported an approximate loss of 4.4 billion francs ($4.7 billion USD), related to their exposure to Archegos and their total return swap leverage.
This loss has already created several knock-on effects within the firm; dividend payments have been cut, a proposed share buyback program has been halted and several key executives have left their roles. Amongst them, head of investment banking (Brian Chin) and head of risk (Lara Warner) – this follows the standing down of Eric Varvel, head of asset management, following the recent failure of Greensill.
I’m not versed in marketing, but perhaps Credit Suisse could do with a logo change to better reflect the events of the last few months:
Trees Bleed Metal
I never thought I’d hear this sentence outside of science fiction or some particularly inebriated ramblings, but did you know that trees bleed metal?
Agromining, the practice of farming plants and trees which contain high metal content, looks to be a budding industry. Please enjoy that pun, it took a lot of thought.
The process involves farming plants known as ‘hyperaccumulators’, species which thrive in mineral-rich soil and absorb these minerals into their fibres at a much higher rate than normal plants.
In an article by the ABC, one plant found in the Philippines contained 9% nickel in its sap, at a grade so high it can be directly processed using standard metallurgical means.
A test farm set up in Malaysia produces 200-300kg of nickel per hectare, per year (worth approximately $3,300 – $5,000 USD at today’s spot prices) – a little small scale for full commercialisation at the moment, but an interesting case study when you consider the price of nickel.
Grab and Go
Grab – Singapore-based financial services and ride-hailing giant – is rumoured to be setting up for a SPAC merger with Altimeter Capital with a valuation of $35 billion USD.
If this deal goes ahead it will be the largest blank-cheque listing globally to date, with the current average size of SPAC raisings coming in at only $2.3 billion USD in Q1 2021 (Bloomberg).
Grab has raised circa $12 billion USD privately in the past – raisings of which Mason Stevens took part in – including significant backing by SoftBank’s Vision Fund.
The deal is particularly interesting since Grab will be one of the first major players from south-east Asia to do a major listing in a US stock market, as opposed to tapping the Hong Kong market. Nor will it have a clear direct competitor, with the ride-sharing part of the business (competing with the likes of Uber) only being one part of the ‘super-app’ which also holds a digital banking license in Singapore and offers digital payments infrastructure, SME loans and insurance products.
*All numbers in USD from BofA Securities
- Equities:$15.6bn into equities ($14.9bn into ETFs, $0.6bn into mutual funds)
- Bonds: $17.0bn into bonds
- Precious Metals: $0.5bn out of gold
Flows to Know
Inflows to stocks in the past 5 months ($576bn) exceeds inflows in the 12 months prior ($452bn)
3rd consecutive week of tech outflows
Largest inflow to REITs since Nov’ 2019
Bond Inflows > Equity Inflows past 12 years
Nasdaq vs S&P/500
If Nasdaq fails to make new highs versus S&P 500, this is seen as confirming an inflation rotation
Global Equity Risk Premium (relative to bond yields)
Please, Stop Giving Them Money
The PBOC has come out and asked China’s major lenders to dial down loan growth for the remainder of 2021, with fears around asset bubbles still apparently at the front of their minds after a surge in loans during January/February this year.
Banks have been guided to maintain levels at roughly the same as 2020 – part of China’s latest policy campaign to start addressing any risks to financial and real estate sectors now that the economy has largely rebounded from the COVID-19 crisis.
Rapid Fire Round
- The billionaires behind 3G Capital are buying up distressed properties in Brazil, following the economic damage and sub-par government response to COVID-19. Jorge Paulo Lemann, Mercel Telles and Carlos Sicupira are all buying large on strip malls, commercial space and long-term rental apartments.
- Population growth in the U.S looks to be the lowest since 1918, during which people were battling both the Spanish Flu and Austro-Hungarians in WWI. Research from Oxford Economics estimates a 0.2% population growth rate for 2021, falling further from the already exceptionally low 0.4% in 2020 – these are the two lowest with the exception of 1918’s rate of 0.1%
- RBC and Toronto-Dominion Bank are giving employees an extra paid day off this year, looking to tackle signs of burn-out and exhaustion in staff following the COVID-19 pandemic. This is obviously a great sign for acknowledging health and stress in the financial industry – and this comes off the back of Goldman Sachs coming under fire for their analysts doing 100 hour work weeks and being sent ‘fruit baskets and flowers’ after burning out and having to be admitted to hospital.
- Bitcoin is a “Chinese Financial Weapon” according to venture capitalist Peter Thiel; a self-proclaimed “pro-crypto” and “pro-Bitcoin maximalist”, Thiel still believes that cryptocurrency may be undermining America and is an existential threat to fiat currency and specifically the US Dollar.
- Actor Zach Avery has been charged with running a $690 million USD Ponzi scheme, using a phoney story of having the rights to sell films to Netflix and HBO to scam financial firms since 2014 – this is despite Netflix openly stating they had no affiliation and sending a cease-and-desist letter back in February.
And finally, JPMorgan CEO, Jamie Dimon, has come out publicly and stated that “this boom could easily run into 2023” – citing unprecedented federal rescue programs and fiscal support generating increasingly higher levels of aggregate demand in markets and the real economy.
Our morning calls continue, please do tune in for a daily dose of market insights and access to some leading experts in the fund’s management field.
Have a safe and enjoyable weekend.
– Max and the Mason Stevens team
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The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.