Welcome back to Weekend Reading.
The market has taken a breather after throwing its toys out of the pram last week, with volatility significantly subdued and most global markets slowly drifting up.
Given that I just said it’s been a quieter week, it may not be a surprise that there isn’t a phenomenal amount of market commentary to work into this preamble.
Let’s look back on the week.
Exxon and Engine
If you haven’t been paying attention to the power of ESG and “activist” investing, now may be a time to read closely.
Engine No.1, an activist investor with just $272 million USD under management, has managed to overpower Exxon Mobil’s Darren Woods in his efforts to block insurgencies in his company.
With a holding of 0.02%, Engine No.1 has secured two seats on the board of Exxon Mobile (XOM:NYSE), promising to push the crude oil driller to diversify beyond oil products and to make an active effort to fight climate change.
Exxon’s board is currently 25% under the control of outsider parties – BlackRock (the second largest holder in Exxon) voted for two out of the three directors proposed by Engine No. 1. This may be the largest action taken to date to bring ‘Big Oil’ into an increasingly green world, and may indeed set a precedent for outsider influence on other non-ESG-friendly companies.
Radioactive Rhino Horns
Speaking of non-ESG-friendly, poaching is one of those things which make me irreconcilably mad.
So what a story to read in Bloomberg today that Russia’s Rosatom Corp. are developing a radioactive material to inject into rhino horns, in order to discourage consumption of the horn in ‘traditional medicine’ and make it easier to detect illegal smuggling and trade.
With any luck this will also give the rhinos superpowers.
Last year alone poachers killed 394 rhinos in South Africa for their horns – out of a population of just 20,000 this is still a massive percentage for a single year.
Fed’s Reverse Repo
Demand for the Fed’s reverse repo facility hit a record $485.3 billion USD on Thursday, adding even greater downward pressure on already low short-term rates.
Bloomberg reported that in large part this record demand was driven from the Fed’s asset purchasing program and drawdowns of the Treasury cash account – both of these have coupled to push reserves into the wider financial system.
It helps that banks are turning away deposits due to a flood of cash, created by ongoing influx of stimulus checks into the eager hands of potential savers in the U.S. economy.
This will add further outcries from market observers for the Fed to make changes as the glut of cash in the US financial system has made it more difficult to maintain control of its policy rate.
No Crypto for Iran
After a series of major blackouts across cities in Iran, authorities have banned the mining of all cryptocurrencies, with a particularly upset finger wagged towards Bitcoin as they key offender for energy usage.
The ban is effective immediately and will last until Sept. 22, President Hassan Rouhani said on state TV on Wednesday.
This of course follows a regional ban within China (who mines 69.3% of all BTC) and Elon’s infamous condemnation of his former golden child – Bitcoin continues to be severely down from its previous high despite a small recovery earlier this month, currently ~42% off its highs.
*All numbers in USD from BofA Securities
Equities: $17.9bn into equities
Bonds: $6.1bn into bonds
Precious Metals: $2.6bn into gold
Cash: $68.0bn into cash
Flows to Know
Largest inflows to cash since April 2020
Largest inflow to gold in 16 weeks
$512 billion YTD flows into equities
Reopening versus lockdown portfolio completes V-shaped recovery
The Fed now owns 21% of MBS as house price inflation soars
Bitcoin over Bonds
Bridgewater founder and man not afraid to tempt fate, Ray Dalio, has come out and said he would rather own Bitcoin than a bond.
Although not exactly a comparable risk/return profile between the two, Dalio has said that the economics of investing in bonds “has become stupid” because they pay less than inflation – despite a large portion of his $151 billion AUM being invested into US 10s.
Without necessarily questioning the merits of what Dalio is saying, considering that Bridgewater’s main fund lost 12.6% in 2020 and is only up 4% this year, this may be a play for additional alpha than a true commentary on the validity of bonds.
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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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.