Welcome back to our Weekend Reading.
Another full week of news, another full week of tumultuous markets – at time of writing the Australian market is bearing the full brunt of a ~4.5% fall in iron ore prices.
This week there’s a particularly interesting story about insider-trading within the cryptocurrency world, interesting to see that Bernie Madoff-wannabees are trying to tap an asset class whose main appeal is complete transparency of transactions on the blockchain…
Let’s look back on the week.
Land of the Rising Market
The Nikkei 225 Index has continued its march upwards, hitting 30,670 this week – the highest level since the “bubble economy” peak Japan saw back in 1990.
Driven largely by KDDI, Fanuc, and assorted electronics and car companies, this has resulted in Japanese equities being the world’s highest performing major stock market over the past fortnight.
Much of this enthusiasm comes from hopes for a new leadership in their upcoming election, as well as a re-weighting coming up for the Nikkei 235 which its touted to include Nintendo amongst other industry heavies.
That’s not going to end Well(s Fargo)
Senator Elizabeth Warren has put forward the case this week, that the U.S Federal Reserve should force Wells Fargo to break up its traditional banking and investment banking arms.
This comes off the back of the company facing a new slate of regulatory action and a cool $250 million USD fine earlier in September. The breakup would be achieved, per Warren’s letter to Fed Chair Powell, via revoking Wells Fargo’s status as a financial holding company.
It has not been a great year for the bank, with the latest fine bringing their total penalties up to circa $5 billion USD, settling a slew of issues and scandals set off by discovery that there were fake accounts operating within its traditional banking network.
Death and Taxes
One of the first steps in the Biden Administration’s tax plan has been taken this week, with the House Ways and Means Committee approving $2.1 trillion USD in new levies – these levies are focussed squarely on corporate income and wealthy individuals, so unsurprisingly the vote was entirely split along party lines.
Bloomberg provided a brief summary of the impact on businesses from this approval:
- Increase the top corporate tax rate to 26.5% from 21%, while offering a lower rate to smaller businesses
- Extend tax rules on sales of equities to cryptocurrencies and commodities for the first time
- Largely leave untouched breaks for oil and gas companies, in a move that angered environmental groups
- Boost taxes on overseas earnings for U.S. multinational companies, by increasing a minimum levy enacted in 2017 during the Trump administration. It would also reduce an exemption for some of that income
- Reinstates a key debt-refinancing tool for state and local governments and creates a Build America Bonds-style debt program
*All numbers in USD from BofA Securities
- Equities: $51.2bn into equities
- Bonds: $16.1bn into bonds
- Precious Metals: $0.037bn into gold
- Cash: $61.8bn out of cash
Flows to Know
- Reallocation of cash-to-stocks as tax distribution threat subsides in U.S (largest flows since Mar 21)
- Largest flow to US large cap funds ever ($28.3bn)
- 12th consecutive week of tech inflows ($3.2bn, largest since Mar 21)
Commodities rolling to secular bull market
Massive re-allocation of cash to stocks
US retail sales peak as fiscal stimulus ends
Take Your Son to Work Day
Steve Cohen is the billionaire manager behind hedge fund Point72 Asset Management, an infamous investor and also the owner of the New York Mets – not that owning sporting teams are a good investment all the time.
He was also, until recently, a staunch sceptic and critic of cryptocurrency markets.
However, his tune has changed with thanks to his “cryptomanic” son, who convinced him to meet with industry experts, eventually turning his attention towards the space for investment – the latest announcement for the market was an investment in Radkl, a quantitative trading firm for digital assets.
On top of this, Point72 is reportedly building out its own crypto-trading capabilities for further investment strategies within the broader hedge fund.
NFT Insider Trading
OpenSea, the $1 billion-plus valuation NFT trading platform, has announced that insider trading occurred on its marketplace, in one of the first major examples of the illegal practice within the cryptocurrency space.
A product manager at OpenSea, rumoured to be Nate Chastain, their head of product, was taking part in a NFT-related insider trading scheme which leveraged their knowledge of which NFTs would be featured on the platform’s main page.
The manager would allegedly purchase the NFT just before it was posted to the main page, which would then generate interest and hype around the token, later selling it once the attention helped the token rise significantly in value.
The entire scheme was brought to light on Twitter, after the NFT community identified suspicious transactions on the public blockchain, apparently tracing it back to secret wallets held by Chastain.
This is one of the primary benefits of crypto, that the public blockchain is immutable and entirely transparent – a bit of “open-source regulation” (thanks for the expression, Mike) allowed investigative members of the community to identify who held the secret wallets and unveil the scandal.
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.
Tune in from 9:30-10:00am AEST, Tuesdays and Thursdays.
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.