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Markets Rally, but what about COVID?

Posted by Bill Blain

on Tuesday, 6 April 2021 7:50

 

This morning: Markets look set to rally strongly into Q2, but are they over-exuberant? The rise in deaths and new strains in Brazil hints the Covid war isn’t won yet, there are rising political risks in Europe, and widening wealth inequality is apparent everywhere. Just how solid are our expectations of stability, renewed global travel and recovery if Covid is here for the long-term?

We are now properly into the second quarter and, cosmetically, what’s not to like? These godless ‘Muricans kept markets open over the religious weekend (lest we forget; all the Sons of Adam were celebrating), and markets are all higher. Sentiment is opening up strong. No one seems particularly worried about the risks of rising bond yields or inflation – for the moment. The market has moved on. Summer is coming so buying boots on!

Driving the market’s strength are a number of factors including Friday’s blow-out US employment numbers and service sector growth on Monday. Low interest rates into perpetuity looks to be nailed on. As a result, the Dow and S&P are both at record levels. The frothy mood has been fuelled with some very strong sales numbers from Tesla and a host of puff-articles suggesting Bitcoin is apparently the perfect hedge on everything.

Meanwhile, Biden’s $2.3 trillion infrastructure fiscal spending plans have been seen as positive; even as the programme runs into predictable speedbumps from Republicans fuming about higher corporate taxes, while the Democrat left says it’s not enough. Janet Yellen’s call for a global corporate tax rate will fall on deaf ears. That’s all normal noise… The end of the pandemic means everything will get better! I can’t wait for normalisation – and the pubs to reopen!

But, there are always spoilers.

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Bill Hwang recently lost $8B of his own money over a 10-day span. That’s $9,259 a second

Posted by the HUSTLE

on Monday, 5 April 2021 8:28

 

Talk about a rough week at the office.

Over the past week, Wall Street has been picking through the implosion of a $10B fund called Archegos Capital Management.

A number of highly leveraged bets went sideways and the fund — run by industry vet Bill Hwang — went poof virtually overnight.

Per The Wall Street Journal, Hwang is purported to have personally lost $8B in 10 days while 2 global lenders (Credit Suisse, Nomura) are also reporting 10-figure losses.

While these numbers are big…

… the longer-term effects may send ripples through a much larger pile of money: The family office industry.

Family offices are privately held companies that manage assets for the superrich ($100m+ in investable assets) with the goal of preserving wealth over generations. The source of the funds can be from generational wealth or uber-successful entrepreneurs.

Per the Financial Times (FT), the industry’s numbers are staggering:

  • 7k+ family offices globally (up ~40% between 2017 and 2019)
  • ~$6T in assets under management across all the offices (nearly 2x the hedge fund industry)
  • $1.6B is the average family office holding

Here’s the kicker: the industry is very lightly regulated

While hedge funds, endowments, and pensions are accountable to outside money, family offices are able to stay a secretive affair.

Dan Berkovitz — a commissioner of the Commodity Futures Trading Commission (CFTC) — believes the current disclosure requirements are totally insufficient as reported by FT.

“The information required would fit on a Post-it note,” he said in a statement regarding Archegos. “And… the annual cost of the filing [is] merely $28.50.”

What will happen next?

While many family offices employ boring financial strategies to preserve wealth, Archegos — which had a peak portfolio value of $100B+ boosted by bank leverage — shows the risk.

Even though Hwang admitted to securities fraud in 2012 (and paid a $44m fine), leading investment banks were happy to have his business.

In the aftermath of the real estate crisis, the 2010 Dodd-Frank Act tightened financial regulation. Post-Archegos, the industry may see new rules for family offices, banking services, and the specific financial product used in Hwang’s trades (called total return swaps).

All of this seems totally reasonable…

 

Mike’s Editorial

Posted by Michael Campbell

on Saturday, 3 April 2021 10:13

Bad news for China’s goal of becoming a world financial centre but good news for our economy. Do Canadian politicians understand why?

Turkey’s slumping lira adds fuels to crypto trading boom

Posted by Ezgi Erkoyun and Tom Wilson

on Friday, 2 April 2021 7:58

 

The Turkish lira’s dramatic slump has added fuel to a surge in cryptocurrency trading in the country, data showed, with investors hoping to both gain from bitcoin’s rally and shelter against inflation.

Turkey’s currency has lost over 13% since President Tayyip Erdogan fired central bank Governor Naci Agbal earlier this month, stoking fears of looser policy and rising price pressures that could erode the lira’s value.

The aftermath of the Agbal’s sacking accelerated an already growing boom in Turkey’s crypto market.

Trading volumes between the start of February and March 24 hit 218 billion lira ($26 billion) with a spike on the weekend of Agbal’s ouster, data from US researcher Chainalysis shared with Reuters showed, surging from a little over 7 billion lira in the same period a year earlier.

The jump echoes soaring global interest in crypto, driven by bitcoin’s rally to a record of just under $62,000 as major investors and companies embraced the emerging asset.

Yet investors in Turkey said a weaker lira and inflation pressures, as well as hopes of quick gains, have driven demand.

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Visa is the latest legacy finance player to embrace crypto

Posted by the HUSTLE

on Thursday, 1 April 2021 6:32

 

In October 2018, Visa Inc. CEO Aflred Kelly told CNBC’s Jim Cramer that cryptocurrencies are not a big threat but “if we have to go there, we will go there.”

At the time, Visa was a $300B+ company and the combined market cap of all cryptocurrencies was $200B+. Today, things are looking different:

  • Visa = $450B+
  • Crypto (primarily Bitcoin/Ethereum) = $1.8T+

Well, earlier this week… Visa went there. Per Reuters, the payments giant will roll out a pilot program with crypto platform Crypto.com.

How it works

Crypto.com already offers its users a Visa card. However, any payments used by the cryptocurrency card have to be converted to fiat, which adds costs and complexities for merchants.

Here’s the new process:

  • A Crypto.com Visa card purchase is made
  • Instead of converting to fiat, Visa will settle the transaction using Crypto.com’s USDC stablecoin, which is pegged to the US dollar (to limit volatility)
  • It will all be done on the Ethereum blockchain

This should reduce the friction in using crypto for payments

Ethereum has its own fee — called gas costs — to operate on the blockchain.

According to Protocol, a single transaction could rack up a fee of $10 to $20. Visa’s solution: to bundle payments as it does on its existing network to reduce costs and increase speed.

Such an improved process will go a long way to mainstreaming crypto for everyday payments.

The cryptocurrency momentum is undeniable

As Bitcoin continues to rise, other big finance names are jumping aboard the crypto train. Among the moves:

  • PayPal will offer a checkout service that turns crypto assets into fiat to pay for goods across 29m merchants on its network
  • Fidelity plans to launch a bitcoin exchange-traded fund (ETF)
  • Goldman Sachs is on the verge of offering bitcoin and crypto services to its wealth management clients

JPMorgan Chase, BNY Mellon, BlackRock, and Mastercard are all making their own moves in tandem.

It’s safe to expect more finance players to “go there” in the very near future.