Weekly Market Comment: April 17th
Remember when the Dow Jones hit the milestone of 20,000 points and NYSE traders celebrated with “Dow 20,000” hats? It hit 34,000 this week, driven by strong earnings and recovering economic data.
Perhaps you’ve felt the urge to buy that new lawn mower you’ve coveted, or a new pair of skis or even a car? You’re not the only one.
First-time unemployment benefits in the week ending April 10th dropped from 769,000 the week before to 576,000. These are steps in the right economic direction.
Waffles are Belgian, wafers are American
“This is infrastructure,” Biden declared while holding up a silicon wafer. If roads and bridges are infrastructure, then it’s reasonable to think computer chips are the infrastructure of the internet superhighway and our world’s every-increasing digital transformation.
The global shortage, causing many Americans to argue production capacity needs to include factories in America, has hit the automobile industry as well. It’s why the White House invited not just Silicon Valley heads from Google, Intel, Samsung and Taiwan Semiconductor, but Ford, GE and AT&T too to discuss computer chip supply.
Increasing domestic production of wafers would dovetail nicely with what the Fed’s Jerome Powell told ’60 Minutes’. He said the U.S. economy is at an “inflection point”, that “we’re at a place where the economy’s about to start growing much more quickly and job creation [is] coming in much more quickly.” Powell went on to add that “the outlook has brightened substantially.” The risk, as far as he sees it, is a debilitating resurgence of COVID-19.
You can take that to the bank
Financials have had a strong earnings season, with Bank of America and Citibank outpacing consensus earnings by 32% and 46% a piece. Assets are hitting records, with the world’s largest money manager, BlackRock, growing past $9 trillion. We own all three in our Legacy portfolios.
The cryptocurrency exchange Coinbase went public on NASDAQ with a direct listing, meaning it didn’t sell new shares to the public. That means that anyone wanting to buy will have to buy from existing shareholders who own 115 million Class A shares. It’s a hint that a lot of shareholders would like to cash out and that raising capital to grow the business isn’t their priority.
It opened at $381, rocketed to almost $430, but closed below $335 per share. It's understandable, as they earned $322 million last year and $800 million in the first quarter of this year alone. Briefly, market cap eclipsed that of NASDAQ ($26 billion) and was about the same as ICE (the parent company of the NYSE), the two exchanges it is listed on.
The listing will mean mainstream indexes will now include crypto exposure, so huge swaths of investors who invest in ETFs and index funds will, too.
For the time being, Coinbase’s business is booming alongside the explosion of trading in crypto currencies and NFTs.
The risks? An interruption to the popularity of such investments, as well as competition bound to eventually whittle down Coinbase’s trading fees (currently 0.6% vs. 0.009% and 0.011% that NASDAQ and ICE collect per transaction). But that could be a while off.
Speaking of risks, Horizons launched an inverse Bitcoin ETF, letting investors buy an ETF that will go up if Bitcoin goes down. Which directional bet is riskier we can’t say.
Noteworthy links:
- Singapore’s Grab to list in U.S. in record $40 billion SPAC deal
- The CBO projects a $100 trillion deficit over 30 years
- Photos of the week, by The Atlantic
- 9 documentaries for kids and teens thar are educational, too
- Photos: historic NASA Ingenuity Helicopter to Make First Flight on Mars
- China says its economy grew 18.3% in the first quarter, slightly missing expectations
Musings Beyond The Markets
Why did someone pay US$725,000 for a picture of a New York Times’ article, an article that anyone can read for free on the internet?
The story starts in 2008, when Bitcoin was invented, as was the accounting method that it was based on, known as blockchain. This was a decentralized currency system and only 21 million could ever be created. Instead of being controlled by a central government, it is controlled by the blockchain, a permissionless network of computers that anyone can participate in (if you have the technical know-how and make the investment in computers).
Early days, one owner bought two pizzas with 10,000 bitcoin (now worth about $570 million). Others used it to buy clothes or to pay one another money owed.
Over a thousand blockchain-based crypto currencies have been invented, most of them worthless failures.
But the blockchain platform started to be used to account for unique digitized assets like a photograph. Its ownership was earmarked to one owner and everybody on the blockchain could verify who that owner was. This ownership tracking method could be used to ensure owners get paid royalties when that image is used commercially.
To facilitate such transactions, Ethereum was created. It’s a decentralized, open-source blockchain with smart contract functionality and its in-house cryptocurrency is called Ether. It’s now the second most popular cryptocurrency next to Bitcoin.
The smart contract functionality allows people to own one thing exclusively. This exclusive ownership began to be called a non-fungible token, or NFT. This token represents the thing, such as a specific New York Times’ article, and can’t be replicated, even though the article itself can be easily replicated. Think of the token as a digital deed of ownership.
People started creating memes or works of art and attaching NTFs to them and then selling them. The same goes for sports moments, such as a clip of a LeBron James dunk, selling for more than $200,000. Jack Dorsey’s first ever tweet was sold by him for US$2.9 million, which he donated to charity. A non-name, non-conventional digital artist sold a work of art for $69 million.
So, a technology journalist at the New York Times, Kevin Roose, decided to NFT his article titled “Buy This Column on the Blockchain!” explaining NTFs. He then created a graphic of that column and listed it for auction with proceeds going to charity. Just for fun.
He set the minimum price arbitrarily at $850. The jokes amongst his colleagues was that nobody was going to bid for this dumb NFT. But someone did. And then another bidder hit $1,000. And by the time Roose went to bed, the price had risen to a “mind blowing” $30,000. “This is insane! This is going to make for a great story,” he happily thought.
In the morning, the chaos started. In the last hour of a 24 hour auction, a bidding war broke out. It went from $98,000 to a final sale price of 350 Ether, worth about $560,000 at the time of the auction. Today, 350 Ether is worth closer to three quarters of a million.
“I just stared at my monitor, laughing hysterically, just in total shock about what had just happened,” he described of his reaction after the auction ended.
By the way, NTFs aren’t completely insane and without merit. Built into the code of the auction could be a royalty requiring all subsequent re-sales of that NFT to pay the original creator a royalty. Think of an artist getting paid every time that art changes hands, something that does not happen when tangible art is sold at Christies between two billionaires.
This last point might well turn out to be truly game changing and lasting for artists, writers and other content creators.
Word of the Week
fungible (adj.) – anything that can be exchanged for something else for equal value; mutually interchangeable. For example, Canadian dollars can be exchanged for an equivalent value of US dollars, so they are fungible. “I once met an economist who believed that everything was fungible for money, so I suggested he enclose himself in a large bell-jar with as much money as he wanted and see how long he lasted.” – Amory Lovins