Welcome back to Weekend Reading.
“Volatility” has been the word of the week, with markets indiscriminately crashing like a learner driver borrowing their dad’s Porsche.
This has been hand-in-hand with ongoing Fedspeak around inflation, with the market seemingly unconvinced by the idea that 4.0% CPI (YoY) in the U.S is a simple transitory phase.
Whilst all this presents compelling buying opportunities for quality companies caught up in the sell-off, this may not be the end of the volatility – notice that some of the former highly-valued market favourites (looking at you Afterpay) have sold off savagely, including the likes of Virgin Galactic, certain SPACs and ARKK.
Go look at charts from 1999-2000 and see if you can spot the trend.
Let’s look back on the week.
The Billion Dollar U-Turn
No, I am not referring to the Evergreen stuck in the Suez Canal again.
Elon Musk has recently attacked Bitcoin for its excessive energy demands, calling the upward trend in power consumption “insane”. Coupled with this attack was his announcement that, effective immediately, Tesla would no longer be accepting BTC as payment for its cars until a point where mining transitions to more renewable energy.
BTC fell below $50,000 USD following this whiplash-inducing turn around of fortunes for someone who has supposedly loaded his balance sheet with the coin – though Elon did indicate that they may accept other crypto tokens if they are less energy intensive.
Rubbing the crystal ball here, why would Musk do this? (highly speculative ahead)
- He is developing ‘MuskCoin’, a coin which would be mined using solar power (oh hey, SolarCity, didn’t see you there)
- He is looking to drop Bitcoin down to a price where it’s attractive enough for him to pick up more on market to prop up Tesla’s profitability next quarter once it rebounds
- He’s genuinely only just realised the environmental impact of Bitcoin and has decided to renounce his previous stance.
Only time will tell.
Colonial Pipeline Co., the subject of news this week after a cyber attack on their systems caused a shortage of jet fuel and gasoline across the eastern seaboard of the U.S.
Eastern European hackers crippled their pipeline and demanded a ransom worth US $5 million, to be paid out in cryptocurrency – not assisting the less common but still lingering stigma that cryptocurrency is prolific amongst criminals, which is of course statistically incorrect.
This led to a domino effect where the the Biden administration temporarily eased century-old U.S. shipping requirements so a foreign tanker could transport gasoline and jet fuel to the East Coast.
The entire situation has led to the U.S national average retail gasoline price rising above $3/gallon USD for the first time since 2014 – though this is probably one price rise the Fed can convincingly say is transitory.
For Meituan CEO Wang Xing, he is already not having a fantastic time after his share price has slipped over 90% in the last few months.
And now a 1,100 year-old poem has just cost him over $2.5 billion USD over just a few trading days.
Earlier this week, Wang posted a verse out of a millennium old poem which warned of the misguided attempts of China’s first emperor to quash dissent – know your audience Wang, know your audience…
He retracted the post later and clarified he was calling out the short-sightedness of his own industry, rather than levelling any kind of criticism at the government. Despite this retracement, Meituan has lost over $26 billion USD in value this week and caused a general sell off in Chinese tech along with it.
But speaking of billionaires and their fortunes –
A boat so big it needs another boat
Jeff Bezos, clearly not hurting too much financially after his separation, has commissioned construction of a $500 million USD superyacht called project Y721.
The vessel will be 127 meters long and be one of the largest sailing yachts ever made in the Netherlands. To give an idea of the sheer scale of this boat, it will have a ‘support yacht’ which will help carry the necessary helicopter, jet skis and everything else Jeff needs whenever he decides to make the switch to a full-on Bond villain.
Sales of superyachts have surged during the pandemic, because apparently the 1% have not ever heard of cruise ships or the Ruby Princess for that matter.
*All numbers in USD from BofA Securities
Equities: $25.7bn into equities
Bonds: $6.9bn into bonds
Precious Metals: $1.7bn into gold
Cash: $13.6bn into cash
Flows to Know
Inflow into global stocks annualizing a remarkable $1.3 trillion USD. ETF purchases in financials, selling of health care and gold.
Equity flows annualising $1.3tn in 2021
Biggest flows of 2021 have been into inflation assets (% AUM)
The data suggests the Fed is significantly behind the curve
They’re Lovin’ It
McDonalds is looking to raise its hourly wages to help hire new employees and retain existing ones in the U.S, another anecdotal example of the struggle to find labour in a market increasingly buoyed by stimulus.
The raises will average around 10% and bring hourly entry salaries of $11 to $17, with managers starting from $15 to $20 – small numbers to us, but the hourly pay being an average of over $13 is a significant benchmark for the U.S.
This is expected to reach an average of $15 by 2024.
It Worked for Trump
The National Rifle Association (NRA) has been rejected in its attempts to file for bankruptcy by a Texas judge, in the face of an impending legal case by New York attorney general Letitia James.
Officials claimed the filing was a bad-faith effort of the protections of bankruptcy to avoid its lawsuit, which seek to dissolve the powerful group amongst regulatory enforcement concerns. The NRA claim that this suit is actually the result of “nefarious” political purposes based on a strict stance on gun control.
This may mean that the NRA disappear from the political landscape in the coming years, keeping in mind they were the single largest financial backer of Trump’s 2016 campaign and one of the most powerful political lobbying groups in North America.
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.