A speculative frenzy unlike anything we have ever seen

Posted on February 23, 2021February 23, 2021 by George Kessarios

When 100% of outstanding shares are shorted in any stock, you get a sort of a black hole short interest phenomenon. In other words, even if someone covers his shorts, someone comes on top and shorts even more shares. Very soon more than 100% of all outstanding shares are sold short and covering becomes impossible, because there are no available shares to be covered. More or less, that is what happened in the case of Gamestop.

But Gamestop is not the only heavy shorted stock. There are many more than meets the eye. And it’s not just stocks that are heavily shorted, EFTs are shorted also. For example, according to an article from the Motley Fool site (link here) the SPDR S&P Biotech EFT (XBI) has a short interest of 103%%, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is shorted to the tune of 91% and the SPDR S&P Retail ETF (XRT) has a short-interest ratio of 465% recently. Yes you heard right, 465%. The ETF has 2.6 million shares outstanding with more than 12 million shares short. In comparison, the short interest of Gamestop as f Feb 5 was 89%.

The question is, are seasoned professionals right in shorting these securities so much? The answer is yes and no. Professional investors and managers know all too well that any mania can’t last forever, however a speculative mania can last longer than anyone imagines, and stocks can rise for no reason, or much more than thought possible. In other words, as Keynes correctly said, markets can remain irrational longer than you can remain solvent.

The bottom line is that we are witnessing a market like no other in history. A speculative frenzy I have never seen before, and a market that behaves irrational in every respect. I am not sure how this ends or how long it will last, but I am sure that in the end, irrationality will be punished, and prudence rewarded.

Treasury Yields and Commodities race higher over global economic recovery

Posted on February 22, 2021February 22, 2021 by Vrasidas Neofytou

Sovereign bond yields and commodities continue their recent bull ran into fresh highs as investors are more focus on global economic recovery, vaccine progress, and inflation-hedge trades.

Investors are also focus on the commodity-led currencies such as Canadian, Australia, and New Zealand dollars that have close ties to the global energy and raw material trade, which are also benefiting from the improving global economic outlook and concerns over rising inflation.

Elevated Bond Yields:

Market participants are watching the elevated US bond yields hitting fresh 13-month highs, expanding the recent bullish momentum.

The 10-year US Treasury Yields surge up to 1.40% while the Yields of the longer maturity 30-year US Treasury break above 2.17%, driven from the concerns for higher and faster inflation rates over the well-expected Biden’s $1.9T pandemic-led fiscal stimulus.

The rapidly rising bond yields have threatened the global traders as they could harm the high-growth companies dependent on the zero-cost borrowing and their future earnings.

As a result, the global stock markets posted significant losses during Monday morning, with Chinese index CSI 300 settling 3% lower, while the US equity futures are indicating an opening with 1% losses.

Hot Commodities:

Commodities sector continues receiving buying demand benefiting from the reflation bets, massive vaccination, and the growing hopes for a global economic recovery in 2021 which would increase the demand for raw materials and energies.

The red metal-Copper is expanding its unprecedented bull run started last year, with its price already touching the $4.20/lb, up 20% so far in 2021, and more than 100% up since the pandemic-led lows of $2/lb in March 2020.

Crude oil prices have recovered the $60 a barrel mark last week for the first time since February 2020 on robust demand from Asia, on-going OPEC’s production cuts, and the recent cold-led supply disruptions from oil-rich Texas. WTI crude rises as high as to $60/b before retreat to $59.50/b, while the international Brent crude contract reached the $66/b mark, climbing to pre-pandemic levels.

Commodity currencies rise in tandem with Commodity prices:

Commodity currencies have been benefiting from higher commodity prices as well as from the recovered exports of raw materials and inflation-hedge demand. The Commonwealth currencies, Canadian, Australia, and New Zealand dollars hit fresh 3-year highs against safe-haven US dollar at $1.265, $0.786, and $0.73, respectively.

Hence, the energy-led currencies Norwegian Crone, and Mexican Peso posted significant gains vs US dollar, followed by the Russian Rubble, which trades at 6-month highs thanks to higher energy and base metal prices.

Pound Sterling hits 3-year high of $1.40 on hopes for faster vaccine-led economic recovery

Posted on February 19, 2021February 19, 2021 by Vrasidas Neofytou

Pound Sterling hit its highest in over three years of $1.40 on Friday morning, gaining support from the bullish momentum on the Pound since the beginning of 2021, led by growing hopes for faster economic recovery based on Britain’s aggressive vaccine roll-out.

Market Reaction:

The Sterling has been rising for the last 6 straight weeks, with GBP/USD climbing towards $1.40 for the first time since March 2018 driven by the hopes for faster economic recovery after the pandemic together with the recent weakness in the US dollar.

Hence, the GBP rose at 147.58 against the safe-have Japanese Yen, hitting 13-month highs, while the EUR/GBP fell to near 0.86, the lowest since March 2020 after European Union said it expects “stable and balanced” affairs with Britain’s financial sector once some ground rules for cooperation are agreed next month.

Aggressive vaccinations raise re-opening hopes:

The GBP’s bullish momentum has been driven by the country’s aggressive successful vaccine roll-out where 16.5 million people have already been vaccinated, despite the lack of clarity whether the vaccines could reduce the spread of virus and transmission rates.

UK has recently announced that it has vaccinated 15.6 million people with a first dose against COVID-19 so far, the fastest rollout per capita of any large country, and just second behind Israel.

The U.K. Prime Minister Boris Johnson gave an extra appreciation to the Pound, stating that the pandemic-led lockdown restrictions would be lifted in stages, boosting the hopes for quicker re-opening of the British economy than the rest economies of the world.

Commodities set to start a new super-cycle bull market

Posted on February 18, 2021 by Vrasidas Neofytou

Commodities prices have extended their bull run into 2021 as optimism over the global economic recovery would increase the industrial and consumer demand for energy and raw materials.

Institutional investors see the beginning of a new super-cycle bull market in the commodities complex after a 10-year bear market, driven by the massive fiscal and monetary stimulus, the weaker US dollar, and the high demand for renewable energy.

The aggressive environmental policies have increased the demand for industrial metals needed to build green energy technologies, sending the prices of Copper, Aluminium, Lithium, and Rare Earth materials to multi-year highs.

Looking at the energy sector, the crude oil prices rallied to pre-pandemic levels of 60 dollars per barrel, driven by a tight supply from OPEC members, falling inventories, Middle East tensions, and the growing optimism over recovered fuel demand in 2021.

Growth-related precious metals such as Silver, Palladium, and Platinum have rallied to multi-year highs on supply disruption in Africa together with strong demand from automakers and green energy.

The robust Chinese demand for Iron Ore and Base metals coupled with the vaccination progress has brightened the global trade outlook for 2021, lifting commodity and trade-sensitive currencies such as Russian Rouble, Canadian, and Australian dollars to 2-year highs against safe-haven US dollar.

Bitcoin hit new all-time high of $50.000 on growing interest from institutional investors

Posted on February 15, 2021February 15, 2021 by Vrasidas Neofytou

The cryptocurrency party extended during the weekend, with Bitcoin climbing to a fresh record high of $49.700 on Sunday, while rival crypto Ethereum hit new all-time high of $1.840 on Friday, elevating the total market value of all cryptocurrencies combined near $1.3 trillion.

Bitcoin has rallied more than 1200% since a low of $4.000 in last March, while it gained 60% since the start of 2021, amid the surging demand from institutional and retail investors driven from the massive cheap liquidity, zero interest rates, record-low bond yields and speculative trading.

The Crypto believers claim that the current rally is different to the Bitcoin’s 2017 bubble-rally that saw its price climb near to $20,000 before collapsing as low as $3,000 the following year, mainly on the huge buying interest from the institutional investors and the adoption of Bitcoin as a payment method from the mainstream corporates.

Ethereum-CME Futures:

Ethereum, the world’s second-largest cryptocurrency by market value of $200 billion, hits a record high above $1,800 on Friday, up 130% in 2021, after its futures begun trading on the Chicago Mercantile Exchange last week, following the introduction of the Bitcoins futures in 2017.

Institutional investors have become more confidence to invest in the crypto space after the launched of Bitcoin and Ethereum derivatives in the CME. The crypto-focused derivatives products increase the financial instruments for the more sophisticated investors to hedge their risk against positions that they may be holding on the underlying asset (Bitcoin-Ethereum).

Crypto investors said another factor potentially boosting Ethereum price was the start of a major upgrade to the Ethereum blockchain, called Ethereum 2.0, which would make Ethereum faster and more secure.

Robust demand from Institutional and Retail Investors:

Bitcoin, which is the world’s widely adopted cryptocurrency with a market cap of over $880 billion, has become a store of value for some institutional investors, such as Hedge and Pension Funds who view it as a potential safe-haven asset like gold, as an attractive investment asset with potential value growth in the future, and as an alternative to a cash position in their portfolios.

Hence, the portfolio managers use the Bitcoin as an attractive hedge tool against inflation and fiat-currency depreciation which are driven from the massive monetary and fiscal stimulus from Central Banks and local governments around the world to face the economic damages of the coronavirus crisis.

Retail investors, who do not want to miss out the action, have also jumped into the cryptocurrency market using some small online retail brokers such as Revolute and Robinhood. The retail traders coupled with Reddit-driven small size traders have attracted from the market momentum, the speculative fever, while they are racing to capture some of the fast and wild gains in the crypto market.

Wall Street adopts Cryptocurrencies:

Wall Street giants such as Goldman Sachs, BNY Mellon, JP Morgan, and others have already started engaging directly or indirectly in the crypto market to help their clients own and trade digital assets.

BNY Mellon, America’s oldest bank and a major custody provider, said Thursday that it would begin financing bitcoin and other cryptocurrencies. The company will eventually allow crypto assets to pass through the same financial network it currently uses for more traditional holdings like U.S. Treasury bonds and equities.

The BNY Mellon event is huge for the crypto market, as the custody services are a key part of the financial system, as they ensure clients’ financial assets are held securely. It would remove a security risk as the cryptos are not maintained by a central authority like a bank, meaning investors often have nowhere to turn if their funds are lost or stolen.

Mastercard and PayPal have also expressed interest on start supporting select cryptocurrencies directly on their networks later in 2021. Mastercard already has existing partnerships with prominent crypto payment firms Wirex and BitPay but currently requires a conversion of digital currency payments back to fiat currencies on its network.

Furthermore, some tech titans such as Amazon and Twitter have been exploring how to transact in and support digital currencies, including payments to employees and vendors with digital tokens. Amazon would allow customers to convert their cash into digital currency for online purchases of goods and services.

Tesla-Elon Musk support Cryptos:

The price of Bitcoin has gained more than 20% since the electronic vehicle maker Tesla via its CEO Elon Musk (which is the world’s richest man) announced last week in regulatory filing that it has invested $1.5 billion into Bitcoin and plans to accept the digital token as payment for purchase a Tesla car in the future.

The Elon Musk’s announcement was a kneejerk reaction for the crypto market, with Bitcoin, Ethereum and other small cryptos exploding higher by more than 15% in a single day.

Tight Bitcoin Supply:

Another bullish price catalyst for the Bitcoin, is that it has designed from its founder Satoshi Nakamoto (back in 2008) to have a fixed supply of 21 million coins only, underpinned by a blockchain-based digital ledger distributed across computer networks.

The Bitcoin supply has strained over time, as over 18.5 million out of 21 million coins have already been mined, while the founder Nakamoto mined 1 million coins before disappearing forever in 2010, while more that 1.5 million coins have been stolen from crypto exchanges.

Meanwhile, it is believed that the ownership of approx. 7-8 million coins (20+% of all Bitcoins) have effectively be lost (market value beyond $35 billion in today’s prices) as some early owners have lost their digital wallet’s security key without the availability to be revealed.

Vrasidas Neofytou analysis on the phenomenal rise of Tesla, Elon Musk, and Electric Vehicles featured in “Economy Today” February’s issue

Posted on February 10, 2021February 10, 2021 by Vrasidas Neofytou

The electric vehicle maker Tesla and its charismatic CEO Elon Musk have shifted the 100-year diesel-fuelled traditional global auto industry towards electrification.

Tesla has become the world’s largest automaker with market capitalization of $800 billion, after its shares skyrocketed by 800% in 2020, making its founder and CEO Elon Musk the world’s richest man in 2021.

Electric Vehicle penetration of total passenger car sales measured less than 5% in 2020, are expected to rise at 20% in 2025 and more than 50% by 2040, as many countries would ban or limit the sale of all fossil fuel-burning vehicles until then.

Read our Head of Investment Research Vrasidas Neofytou detailed analysis on the hot topic in “Economy Today” magazines February’s issue*.

*Article available in Greek (page 8-13).