January 7, 2021 was as a special day: Bitcoin breached $40k, Elon Musk become the world's richest man ($185bn) after Tesla's share price rose >$800/share (it closed at $880/share, $835bn MCap on Jan 9 which added another ~$20bn in 2 days to his fortune). Also during the week, the US Capital Hill siege and the Democrats' two seat win in Georgia has (seemingly) ended Trump's hold over America marking the start of the Democrats' reign. Biden has already promised a plan for trillions in further economic stimulus (including increasing the cash handouts from $600 to $2000). Talk about decades happening in weeks! The Markets loved the action and the first week of 2021 saw all major global indices performing strongly:
S&P500: +1.83%, DOW: +1.61%, Nasdaq Comp: +2.43%
FTSEEEUROFIRST 100: +4.05%, FTSE100: +6.39%, DAX: +2.41%
SSE Comp: +2.79%, CSI300: +5.45%, Hang Sen: +2.38%, TOPIX: +2.78%, KOSPI 200: +10.51%, ASX 200: +2.38%
Meanwhile the US is approaching 300k new daily coronavirus cases with hospitals (and morgues) in places like California, New York, Texas at their capacity limits. Similar spiking caseloads are being seen in countries such UK, Japan, Korea, Brazil, South Africa. Even more worrying still, the mutated and more contagious versions of the virus from UK and South Africa are now being seen elsewhere in the world. Job numbers are dire with US, Japan, UK and many other countries reporting falling employment numbers and possibly worse still to come when additional lockdown measures are taken. US/China relations continue to deteriorate in the last days of the Trump administration with more Chinese companies facing investment bans and blacklisted from exchanges and US supply chains. The US is sending envoys to Taiwan, exercising 'freedom of navigation' with warships in the Taiwan Strait and sanctioning Hong Kong and Chinese officials. It's not clear if Biden will reverse or soften any of these policy stances.
The Markets' march onwards and upwards with participants, commentators attributing rising asset prices to a variety of reasons: expected economic recovery, disruptive innovation, the new world order, etc but in reality these things matter little. It's just about Liquidity and Druckenmiller's quote: "its liquidity that moves markets" has never been more true in 2020 and today. The likely scenario is a continuing upward grind of Markets as the liquidity spigots gush forth. But even as the odds of a continuing Bull market remains high, the upside vs downside payoff is increasingly downwards skewed. These odds deteriorate as countries prepare to vaccinate their populations and the need for stimulus declines; a topsy turvy world of Bad is Good and Good is Bad. One should also remember stock markets aren't first degree reflections of reality; often it's about people's views on their peers' expectations. This truth is summarized in the old trader saying: 'buy the rumor, sell the fact'. What is the "Fact" the Market is waiting for today? When does the front running begin?
Things to keep an eye on:
South Africa and UK covid-19 updates: we should find out in the coming days if the current batch of vaccines work against the new mutant strains. The confidence hit will be unimaginable if any of the major vaccines are found to have reduced efficacy
Biden's trillion dollar stimulus package: due next Thursday (Jan 14). The details will be interesting but also the Market reaction (and degree) is important
Developments in China's anti-trust actions on Internet majors: mostly I'm interested on the e-commerce side: subsidies, targeted advertising, group buying, consumer financing, etc. It's been surprising to me that PDD has jumped the most post BABA's fall from grace. In my mind, they have yet to prove their group buying sales growth is sustainable and that they can economically compete without subsidies
Boeing price action: a Boeing 737-500 crashed in Indonesia over the weekend. It is an old 'classic' 737 model (26yrs old plane) which probably has nothing to do with any design flaws however the Markets take a knee jerk reaction to this event which could present opportunities to top up on SPR
FinCEN's proposed legislation: released Dec 19, 2020 with the peer comment period ended Jan 4, 2021 (only 15days including holidays!). The rumor is the US Treasury is trying to push through the legislation before the handover of power on Jan 20. The meat of the legislation is it requires US persons to identify their ownership over a private wallet for any transaction >$3,000 and for Exchanges (domestic US and for any transactions by US citizens in overseas Exchanges) to report and maintain records of BOTH SENDER AND RECIPIENT DETAILS (Name, Address) for any daily transaction total >$10,000. This will give the US government the same transparency for cryptocurrency networks as they do for international financial networks. Anonymity disappears. If made law, I think a lot of the black and grey market uses will disappear as well as making price manipulation much more difficult
Within my portfolio I continue to sell-down fully valued investments (even my old favorite Euronet is getting cut). Reducing via stop-loss limits work very well in these trending markets. The total active direct equity position is falling to ~65% but consolidation into fewer positions means I'm buying in Energy and select individual names. Offsetting this somewhat, I've decided to buy up to 5% in emerging market ETFs such as Vietnam: VNM (I can't invest directly without the hassle of a local account). Hedging continues and hopefully the uptrending market will allow me to get tighter spreads on the Put strategy. There isn't a whole lot else to do, investing is a bit like fishing and music in that way: the waiting/the silence is half of the end result.
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