Welcome back to our Weekend Reading.
Like a restless sleeper, markets have tossed and turned lately; what looked like a strong rebound from the Hang Seng has fallen off (potentially to form a bullish head and shoulders pattern?), the NASDAQ determinedly climbs to all-time highs, all with the backdrop of dramatic movements in global government bond yields.
The stories from the week too are restless, some positive, some negative, but all volatile and chaotic in their own right.
Let’s look back on the week.
As an aside to start the note and provide context to the title, there exists a ‘moral alignment’ system in certain role-playing games, which separates characters into nine different categories:
I define markets and the news as chaotic neutral this week, since the definition of a chaotic neutral character is a spontaneous, unpredictable figure who acts neither for good or evil – only that they do take large action and its often on a whim or fancy.
To me, that is a good definition of the market lately.
The Trillion Dollar Tesla
Speaking of chaotic, let’s get the big story of the week out of the way up front: Tesla.
Making a bold move after barely exiting out of bankruptcy, Hertz made headlines this week by ordering 100,000 Tesla vehicles as the inaugural line-up of their electric rental car fleet.
Primarily made up of Model 3s, the cars are due to be delivered by the end of next year, to the tune of approximately $4.2 billion USD in revenue to Tesla.
This giant order – the largest purchase for electric vehicles in history – sent Tesla’s stock price above $1,000 USD for the first time, valuing the company just over $1 trillion USD, and valuing Elon Musk at over $270 billion USD (a cool $100 billion over Jeff Bezos).
Interestingly, Hertz reportedly paid close to sticker price for the fleet of vehicles, rather than purchasing at the wholesale discount many rental companies seek when purchasing large volumes – this is potentially due to Tesla being the only “scale” producer at the moment, though that’s just speculation.
Cold Shoulder for Activision Blizzard
I’ll guard my words carefully on this one – though ATVI is a fine company from a financial point of view, you’d be hard-pressed to find a company with lower regard for their customers and employees.
For reference, Activision Blizzard are the publishers of popular game franchises such as Call of Duty, Overwatch and World of Warcraft.
Jesse wrote a note around workplace culture and the trend of employment turnover this morning, citing “toxic leaders” – if you want a photo of one of those, look up Bobby Kotick.
On the back of a string of sexual harassment allegations levelled at the company, details of which we’ll leave out of what’s supposed to be a light-hearted piece, their management team have made efforts to repair public images after they attempted to block a California state lawsuit against them.
The latest step involved CEO Bobby Kotick, who infamously earned $154.6 million USD last year to the chagrin of many investors, has announced he will take a 99.96% pay cut down to just $62,500 USD until the company’s new gender goals are met – this level being the lowest salary California law allows for full time employment.
Right, off my soap box, onto the next story.
The Martian Going to the Moon
Matt Damon has been contracted to promote the cryptocurrency platform Crypto.com, in its first global marketing push to attract new clients over to its service.
The campaign will run up over $100 million USD, with ads starring Damon to air in over 20 countries. The platform also has sponsorships with Formula 1, the UFC and multiple European football teams.
Other crypto platforms such as Coinbase and FTX are running similar celebrity and sporting campaigns in an attempt to attract a new audience and bring their services into the mainstream.
Cap on Coal
As the global energy market continues to face volatility, China has announced plans to limit the price for thermal coal, in an attempt to curb the power shortages which have created the need for electricity rationing across the country.
The price ceiling will be set at 440 yuan a tonne, at current exchange rates that’s around $70 USD, with coal importers to receive subsidies to balance out any losses.
*All numbers in USD from BofA Securities
Equities: $28.1bn into equities
Bonds: $8.7bn into bonds
Precious Metals: $0.1bn out of gold
Cash: $79.7bn into cash
Flows to Know
Largest inflow to cash since April 2020 – institutional year-end and risk-aversion
Largest inflow to EU stocks in 11 weeks ($1.3bn)
Inflows to financials and energy rolling over
House prices YoY In Charlotte – US house prices now exceeding 2004-06 highs
Value trade running out of steam
Labour force breakdown by age
Mega Mansion Bankruptcy
Crestlloyd LLC, the builder and developer of some of the largest mansions constructed in the US, has filed for bankruptcy to prevent lenders from foreclosing on their latest Los Angeles property, “The One”.
The home, which features a moat and a 30-car garage, is one of the largest homes to be built in the entire country (9,750 sqm) and is worth around $325 million USD, with $176 million USD of secured loans attached to the property. The court appointed receiver was planning on listing the home at $225 million.
Not quite Evergrande, but a lot of money for a single home to be sure.
An ETF looking to provide a negative return to Cathie Wood’s ARKK ETF will be emerging soon, after recently changing its name from the Short ARKK ETF to the Tuttle Capital Short Innovation ETF.
Listing with the ticker SARK, the ETF is supposedly looking to provide a -1x return to ARKK through swaps contracts, with a management fee of 0.75%.
ARKK is of course infamous for its stellar performance last year but has cooled recently, particularly after slowly offloading Tesla holdings (its largest holding) over the past few months – just in time to miss the recent surge in pricing.
To be completely fair, Cathie Wood did call Tesla at $4,000 USD per share – adjusted for stock splits, that figure turned out to be true.
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.
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Have a safe and enjoyable weekend.
– Max and the Mason Stevens team.
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.