The GUH Daily Recap of February 23, 2021
- Biden administration officials said that for two weeks starting on Wednesday, the Small Business Administration will only accept applications for forgivable Paycheck Protection Program loans from firms with fewer than 20 employees to ensure that they are not crowded out by larger firms.
- The UK antitrust tribunal ruled on Monday that Epic Games, the creator of popular game Fortnite, will not be allowed to pursue its case against Apple Inc in the United Kingdom over its App Store payment system and control over app downloads. In August, Epic Games tried to avoid Apple's 30% fee on the App Store by lauching its own in-app payment system. In respond to that, Apple banned Fortnite from its store.
- Investors drove U.S. Treasury yields down from milestone highs on Monday as they looked ahead to remarks U.S. Federal Reserve chairman Jerome Powell is set to give on Tuesday in Washington. Powell is scheduled to speak Tuesday before the Senate Banking Committee, and investors will be watching to see if he offers any changes to the central bank's dovish outlook of recent months as it looks to shepherd the economy through the COVID-19 pandemic.
- Millennium Management's Israel Englander earned $3.8 billion last year, landing him the biggest payday of any hedge fund manager in 2020, showed data from Institutional Investor. The top 10 hedge fund managers globally earned $20.1 billion in 2020, a 50.2% rise from $13.4 billion in 2019.
- Spotify said on Monday it would launch in 85 new markets in the next few days which will make the music streaming service available to more than a billion people around the world.
- Investors expect fast economic growth and a lot of inflation. Bond yields increased. Now investors prefer bonds and commodities as the stock market seems too risky in comparison.
- Deutsche Bank analyst Michael Linenberg said it was time to buy into airline stocks as COVID-19 cases, hospitalizations and vaccination rates are all trending in the right direction. (American Airlines (AAL) went up +9.42%, Delta Airlines (DAL) increased by 4.53%).
- Royal Caribbean Cruises Ltd (RCL)'s revenue at 34,14M (prevision : 35,62M). Stock closed at $86.23 (+9.33%) (Sorry for the people that received my newsletter, it was not 34.14B but 34.14M)
- Marathon Oil (MRO)'s revenue at 830,0M vs 849,54M forecasted. Stock closed at $10.20 (+7.94%)
- Home Depot (HD)'s revenue at 32,26B vs 30,54B forecasted. Pre-market currently at $269 (-2.50%)
As you may know, I was bullish on Home Depot (short term and long term) and thought they would beat earnings, I'm for sure disappointed but I still see the long term value in it.
Quick Things I'm looking for today
- Powell's speech
Companies that sell luxury goods that hold their value are hot right now
People are scared of inflation and of the stock market. This is old news at this point. So they're looking for other investments, even if it doesn't go up in value, it just needs to beat inflation. Anything that can make them get rid of their dollars.
They're not too happy with gold for some reason (I explain this in the next section). They're trying their hands with beatc01n but that can be a bit risky and too new for some people (old people mostly). So how about alternative investments?
Watches, wine, pens, whiskeys, sneakers, even pokémon cards. Anything, for the love of god take my god damn money!
Oh and when I say people, I'm mostly talking about rich people or anybody with enough disposable income to worry about this stuff.
It happens a lot in the US and in Europe but a place where it might happen much more than usual is China.
You see China has this terrible habit of devaluying their own currency. This helps with exports and with reducing unemployment. But lately, they couldn't keep up with the US (USA Number One!!!) with the trillions poured into the economy. So, right now, China's Yuan is pretty valuable in comparison with the dollar.
But this will not stay that way, or at least the Chinese government will do everyting in their power to not let that happen. It needs a good economy, low unemployment and overall satisfaction of their population or else their power are in danger. And the devaluation of their currency is one of the sure (very easy) ways of doing so.
So if I was Chinese (I'm not, I'm a martian hiding behind a rock because I've seen an alien coming out of its spaceship, but if I was Chinese), I would buy a lot of watches or anything americans do.
I say "If I was Chinese", but again, it's really "if I had a lot of disposable income and want to diversify my assets to hedge against inflation and currency risks" and Chinese people are just a more extreme case of this.
So yeah anyway, nice story to say that companies that sell luxury goods that hold their value are hot right now because :
- People want to put their money somewhere (really anywhere!)
- Chinese people want to buy US luxury goods to hedge against the devaluation of their currency
- Rich people want to buy stuff that hold their value without the risk of the stock market
- A lot of rich people made money during the pandemic and don't know where to put it
- A lot of people are bored and shopping for anything cool (luxury goods being one of those things)
Might want to short gold
Gold has been for decades the best hedge against inflation and stock market risks. That's because it's decorrelated from any currency (dollar, euro, yen or the swedish krona if that's what you're into), because there's a fixed supply of it (by gold mining companies) and because a lot of it is stored safely (in Central Banks reserves).
The price of gold is not too volatile either so it's the perfect hedge to diversify a bit.
Any metal are viewed as an hedge but gold became the standard for it. That's because a lot of currencies were using the gold standard. Not only that drove Central Banks to store a lot of gold and keep it even after they switched to the monetary system we know now (Money printer brrr and all that) but that "safety" feeling that gold had back then stayed in the minds of a lot of people. What kept that feeling alive even further was that it's a tangible asset that had a real world use, not just a piece of paper that holds value just because some big entity said so.
So all that to say : Gold is a good hedge against the market and inflation. Except, right now… investors don't want to touch it that much even when the risks are as high as ever! So why? Well… Let's explore those reasons a bit…
Before that, I want to give a few disclaimers. First, not financial advice 😉 but also, this is mostly speculations. While we can have a good idea as to why the market behaves the way it does, gold is mostly driven by the sentiment of a lot of very different investors with very different perspective, strategies and personal risk tolerance. The stock market and other commodities are like that too but fundamentals play a much bigger role for them. Gold on the other hand is mostly a speculative asset. So that's for the warnings. Now let's see what those reasons are.
First, gold went up a lot at the beginning of 2020. From $1,500 in March to $2,000 in August. That's a nice 33% increase in an insane bull market. People were eager to put their money in any asset (mostly the stock market but gold was nice too). But in August, gold became overvalued and signs started to appear that this bullish sentiment was not sustainable.
Add to that the fact that the Armageddon that investors feared in March didn't actually happen. Investors wisely switched from gold to stonks and other assets.
But stonks are not the only asset that was down a lot during March. Oil too! There was a mix of geopolitics and people staying at home so didn't need gas. Anyway, when all that fear calmed down, investors bought a lot of oil at those very cheap prices. And oil became the commodity of choice for hedging purposes.
Another asset was chosen : beatc01n (you know what I mean). While it didn't have as much impact on gold as oil and stonks, it still probably hurt it a little.
So you might say "that's a nice writup buddy, you're explaining the past here, but you said we should short gold now, so what gives?!" Well, first, thanks, I put a lot of effort into those posts and it's nice that it's appreciated! But also, all of those reasons still apply today and there's more.
The rising bond yields make T-Bund much more attractive than gold. Much lower risk with a pretty nice ROI. And if institutions want bigger yields, they are probably ok with buying high yield bonds since the FED and governement seem to do everything they can to keep businesses afloat.
Also, a lot of institutions invest in beatc01n making it a more attractive and legitimate investment. That drives the price higher, therefore making it more attractive and so on…
So, if there's no catalyst that shifts this bearish sentiment, this slow downtrend is set to continue.
The biggest catalyst that I can see for gold is that America (and the rest of the world, there's not just america) reopens but if it does, then that means the economy will be much better and investors will buy stonks even more instead of gold.
Another (small) catalyst is that beatc01n becomes very risky again. Institutions will sell and write off those losses (Elon Musk already said he would do that with his Tesla investment). They will probably buy gold again as a result.
So, in my opinion, the bear thesis boils down to : stocks, oil, beatc01n and bonds and other assets being attractive while gold is being forgotten a bit and that might not change for a while while the bull thesis is that a catalyst might change that sentiment.
Submitted February 23, 2021 at 02:47PM by ThisIsBartRick
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