Welcome back to our weekend reading.
As we sat down over the holiday break, resetting our fingerbones after writing endless “2020 in review” emails, we worried about how to continue these little digests if 2021 really was the ‘new beginning’ it was meant to be. Fortunately for us, it’s already become a circus.
So let’s revel in the madness, and once again begin with this evening’s entertainment.
Don’t mention GME
In 2020 stocks that made no money might’ve rallied because they had a ‘profit story’. But in 2021, stocks can apparently rally because they have a ‘bankruptcy story’…
The market certainly does have a sense of irony, doesn’t it?
As a reminder in case you’ve been sitting at the bottom of the Mariana Trench with a really, really interesting book, a cohort of retail traders from popular forum site Reddit stuck it to the man by flooding heavily shorted stocks with temporary bullish liquidity – creating what is known as a “short squeeze” where the short-sellers are forced to rapidly buy back positions and spike the price.
Gamestop (GME:NYSE), a bankruptcy candidate and hedge fund target, has been a particularly successful squeeze
Ironically, in their effort to take a chip off the 1%, many in the forum r/wallstreetbets appealed to Elon Musk (after his vocal disdain for short sellers) to join them – apparently forgetting that Musk is the top 1 of the 1%.
This guy in particular probably got taken to the cleaners if he was still holding this morning…
The Efficient Market Hypothetical
I saw some literature this week from an analyst on how the ‘Efficient Market Hypothesis’ is robust in all situations, except those of extreme volatility. That’s a real shame, given extreme volatility has been a feature of the market since two irritable farmers negotiated grain prices hundreds of years ago.
COVID-19 initially shattered the global markets, as economists rubbed their chins and ruminated that ‘investors underestimated the health risks’, and since they were caught off guard this proves that the market is inefficient.
Then global markets rallied strongly, investors had priced in the short and long-term impacts of COVID-19 and were looking on post-vaccine – the market was being efficient. As Stanley Druckenmiller says, “the present is in the price”.
And now look what’s happened – Reddit comes along with a metric tonne of liquidity and a vengeance against mid-sized financial institutions, and suddenly the market has become inefficient again.
It’s tempting to just turf the Efficient Market Hypothesis in times like these. Despite the algorithms, the market is still made up of people, irrational and emotional. When’s the last time you walked into any bank branch and thought, “this place is efficient”?
Neutral on AstraZeneca
Switzerland has delayed its authorisation of the AstraZeneca vaccine, seeking more data on testing before approving distribution to its citizens.
Whilst the EU gave the thumbs up for distribution of the vaccine last week, France and Germany have restricted its use in the elderly – arguably the majority of ‘priority recipients’ for any potential vaccine.
The vaccine has attracted questions globally over its efficacy since its early trial results of 70% protection.
Don’t Buy on the Production Ramp
Elon Musk came out earlier this week to suggest he wouldn’t “buy any car during a production ramp up” – either forgetting he’s a car maker, or just seeing he can push the envelope before retail traders stop defending his stock price.
Tesla will recall around 135,000 Model S and X vehicles in the U.S, after the auto regulator concluded that their touch screens are defective. Drivers were horrified to find that they were unable to play mobile games or binge Bridgerton whilst operating a moving vehicle – because in 2021 the greatest threat to a driver’s safety is not distraction, but ennui.
Tesla disagrees with the finding, and finger pointing at Nvidia Corp (whose chips power the recalled models) is sure to follow. None of this impacted the stock price however, which closed up nearly 4% after the session to above $873 USD.
“Hedge fund specialising in distressed debt, files for bankruptcy protection”
This headline had to be the biggest own goal by a financial institution we’ve seen all week.
Greylock Capital, a US-based hedge fund, has become known for taking big positions on distressed corporate debt and troubled sovereign bonds – including restructuring Greek government debt facilities. So not necessarily a conservative strategy, but it’s worked for the last 16 years.
The company filed for bankruptcy this week after investors pulled funds in droves, following three consecutive years of losses. Assets under management fell from almost $1B USD to $450M between 2017 and 2020 – and this will drop a further $100M by March lacking any new inflows.
Seems the market is full of irony this week. Maybe a good candidate for a short sell?
Flows*
*All numbers in USD from BofA Securities
Equities: $9.1bn into equities
Bonds: $21.1bn into bonds
Precious Metals: $3.1bn into gold
Flows to know:
4th largest bond inflow in 4 months ($21.2bn)
Record inflow into silver ($2.8bn)
4th largest inflow into EM debt ever ($3.7bn)
Record inflow into tech ($4.2bn)
Fixed Income:
Largest Munis fund inflows past 13 weeks ($1.2bn)
Large MBS inflows continue ($0.7bn)
1st week of Government bond outflow in 5 weeks ($0.4bn)
Equities:
US: largest outflow in 6 weeks ($7.3bn)
Japan: inflows past 5 weeks ($0.8bn)
Europe: small inflows ($0.1bn)
EM: large inflows past 19 of 20 weeks ($5.7bn)
The Tom Brady Variety Hour
I asked the significantly larger and sportier human, Jesse Imer, to cover this particular section:
Superbowl LV is almost here, with kickoff to take place at 1030am (AEDST) on Monday.
The two teams playing are Kansas City Chiefs (“Chiefs”) and Tampa Bay Buccaneers (“Bucks”).
It almost didn’t happen, as Chief’s barber tested positive for COVID last week, after he had already shaved their centre and wide receivers’ hair, potentially infecting half the team!
But hey we got there, and the Bucks become the first team in NFL history to play a Super Bowl at home, with the chance to win the franchise’s second championship after a 18 year drought. Chiefs won last year and are the clear favourite.
Current bet365 odds show Chiefs $1.60 to win, against Bucks at $2.45.
If you want to pretend you’re a fan for the day like most Aussies – you need to know that all the talk is going to be about veteran quarterback Tom Brady (43 years old) versus Patrick Mahomes (25). Brady is looking to attain his SEVENTH superbowl ring and cement that Greatest of All Time (GOAT) title, while Mahomes is looking for his second ring and become the next NFL dynasty to replace the waning era of the New England Patriots (which ironically was led by Tom Brady).
The Weekend will be giving us the halftime entertainment, with some big shoes to fill after J.Lo and Shakira killed it last year.
There are some key novelty bets to be aware of:
- Length of national anthem – under/over 118.5 seconds
- Colour of Gatorade dumped over winning coach – orange vs red vs yellow/green vs blue vs purple vs water
- First song at half-time – Starboy, Can’t Feel My Face, The Hills
For me, I’m not so much rooting for the Chiefs to win as I am hoping for Tom Brady to lose.
The Psychology of the “Big Squeeze”
My colleague Mike Young, a debut contributor to the daily note, made the apt observation that the retail rally in cryptocurrency and now short squeezes, share a common thematic; taking Wall Street down a peg.
Whether you agree or disagree, or think that they didn’t actually achieve this goal, this sentiment has driven some of the largest rallies we’ve seen in the last few years.
At the core of it is a large group of young adults connected by the internet, with a distrust of established financial institutions and a desire to reshape financial systems to create more equitable outcomes.
What will be interesting to observe is as these young adults grow both their experience and wealth, will this opinion weaken or will they just become more convicted, richer market participants?
Next Week’s Speakers
Our morning calls have started back up, and as always we’ve secured some great speakers to touch on all aspects of global markets.
If you haven’t registered, I encourage you to do so, even to access the replays after the call.
If you have, then I encourage you to keep listening, if only for the gentle tones of Jesse’s interviewer voice.
Have a safe and enjoyable weekend, remember the security doesn’t know that you own it, and may the market be kind to you.
– 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.
