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Novum Alpha - Daily Analysis 13 April 2021 (10-Minute Read)

Investors may not yet be able to head out to Asia for a holiday but their dollars are certainly going overseas. With U.S. equities near record highs, investors are increasingly eyeing opportunities further offshore and pouring monies into Asian markets.

 
A terrific Tuesday to you as profit-taking is on the table. 
 

In brief (TL:DR)

 
  • U.S. stocks took a bit of a breather with the S&P 500 (-0.02%), blue-chip Dow Jones Industrial Average (-0.16%) and tech-centric Nasdaq Composite (-0.36%) all marginally lower as investors rotated into value plays and took some profit off the table. 
  • Asian stocks edged higher early Tuesday, with U.S. stocks around record highs as investors eye the start of the corporate earnings season and relatively smooth sales of government debt.
  • The U.S. 10-year Treasury yield edged up one basis point to 1.67%, after the U.S. Treasury’s auctions of 3 and 10-year notes attracted decent demand.
  • The dollar was little changed. 
  • Oil rose with May 2021 contracts for WTI Crude Oil (Nymex) (+0.17%) at US$59.80. 
  • Gold was lower with Jun 2021 contracts for Gold (Comex) (-0.23%) at US$1,728.70.
  • Bitcoin (+0.90%) rose to US$60,461 ahead of a listing by the largest U.S. cryptocurrency exchange Coinbase getting closer and with outflows from exchanges leading inflows (outflows suggest that investors are looking to hold Bitcoin in anticipation of rising prices).
 

In today's issue...

 
  1. Looks Like a Bubble, Love it All the Same 
  2. Nvidia Inside 
  3. Making Coin on Coinbase Listing  
 

Market Overview

 
Investors may not yet be able to head out to Asia for a holiday but their dollars are certainly going overseas. 
 
With U.S. equities near record highs, investors are increasingly eyeing opportunities further offshore and pouring monies into Asian markets. 
 
Morning trading on Tuesday in Asia reflected inflows from overseas with Tokyo's Nikkei 225 (+0.67%), Seoul's Kospi Index (+0.57%) and Sydney’s ASX 200 (+0.14%) all higher while Hong Kong's Hang Seng Index (-0.86%) was down slightly.   
 
Did you miss us at the World Family Office Forum? Watch it here...
 
1. Looks Like a Bubble, Love it All the Same
 
  • Equities are at their highest bubble risk, with valuations not seen since the dotcom bubble
  • Markets awash with excess liquidity will ensure that the party can continue for awhile longer at least and retail investors show no signs of losing interest in stocks 
 
You know it’s true love when you can look at your partner even though they’ve not shaved in days and smell like ten-day-old gym socks, and still pick no one else.
 
And love is what day traders appear to be communicating, because despite warning signs that equities are in a bubble, they still want in.
 
Like taking a bet on being the first one in on a Ponzi scheme (those are typically the ones who can get back most of their money), a recent E*Trade Financial survey found that although 75% of investors believe that the market is “fully or somewhat” in a bubble, they’re still bullish.
 
Bullish sentiment, according to the E*Trade Financial survey rose to 61%, a pre-pandemic level.
 
And despite bubble warnings for most of the past year, stocks have continued on a tear.
 
But the latest rally has stretched valuations to levels last seen during the dotcom era and with Treasury yields surging, the bubble warnings have grown so loud that even the most optimistic retail traders have started to take note.
 
Even so, the vast majority of retail investors are ignoring the bubble warnings, pushing the S&P 500 up some 83% from its pandemic lows and betting that there’s still money to be made as long as Washington keeps spending and the Fed keeps monetary policy loose.
 
Retail investors, who are estimated to be responsible for as much as a fifth of daily trading volume, have consistently bought where professional investors have shied away, making early bets on stocks including airlines and cruise operators, believing that they will benefit the most from a return to normal economic activity.
 
According to data from VandaTrack, retail investors have plowed in an average of US$1.2 billion into stocks daily in the past 12 months at a pace that shows no signs of abating.
 
Come this 4th of July, the conversation around the barbecue pit (where available) is just as likely to be about stocks (or stonks if you like) as it is to be about football, with a approximately 40% of households owning equities, according to a JPMorgan Chase estimate.
 
But whether retail investors can pick up the slack if the so-called “smart money” pulls out, is less clear and will be tested if there’s a meaningful pullback.
 
With interest rates continuing to stay low and Treasury yields settling somewhat, and the Fed pledging to maintain loose monetary policy and the Biden administration showing no signs of losing its appetite to spend, it’s less clear how markets would correct.
 
For starters, if markets were to drop sharply, any prolonged malaise would almost certainly be met with Fed intervention, especially if more households than ever own stocks.
 
What could be a problem is when retail investors start cashing out their stock holdings because of financial difficulties in the real economy, it’s then that “diamond hands” could really be tested. 
 
Did you miss us at the World Family Office Forum? Watch it here...
 
2. Nvidia Inside
 
  • Nvidia unveils CPU for data centers, directly challenging Intel's monopoly of the lucrative market
  • Based on designs pioneered by Arm, Nvidia's CPU could open fresh revenue opportunities for the chipmaker and challenge Intel's dominance 
 
During the 1990s, the “Intel Inside” marketing campaign established the chipmaker as a household brand and addressed a new problem of brand visibility faced by tech companies as their products started reaching consumers.
 
Fast forward several decades, and now a computer may have an AMD, Intel or even an Arm chip inside.
 
But an Nvidia?
 
For years, Nvidia, the maker of graphics chips, had swum in its own lane and stayed away from central processing units or CPUs.  
 
Unlike graphics chips which are more specialized (hence the ease with which they could be adapted to cryptocurrency mining tasks), CPUs have more general applications and need to manage a myriad of tasks from powering an operating system to communicating with memory.
 
And for many years, Intel was the market leader when it came to CPUs, before AMD challenged its throne.
 
Today, performance metrics of the top CPUs from both Intel and AMD are neck and neck, and now Nvidia looks to be throwing its hat in the ring.
 
Unveiling its first server microprocessors off an Arm-based design, Nvidia is extending a push into Intel’s most lucrative market with a chip aimed at handling the most complicated computing work.
 
Nvidia’s CPU design is based on technology developed by British chip designer Arm, which Nvidia is trying to acquire, and can do more general tasks such as running operating systems and potentially opening new revenue opportunities for Nvidia.
 
Intel commands over 90% of the market for server processors, which can sell for over US$10,000 apiece and Nvidia appears to have its sights trained firmly on eating into that market share.
 
And where Nvidia may have an advantage over Intel is that Nvidia’s CPU, named Grace, is designed to work closely with Nvidia graphics chips, making them 10 times faster than the typical combination of Nvidia graphics chips with Intel CPUs.
 
Intel does not have a graphics chip, although it has a low-end one in development, having abandoned the sector decades ago to focus on CPUs.
 
Nvidia’s move would make it only the second company to do both CPUs and graphics chips, with the other being AMD.
 
Pitching its new CPU to data center owners, as a way to harness artificial intelligence software more effectively, and improve the ability to make sense of the flood of data received, Nvidia may be poised for its next phase of growth, especially if it can close its acquisition of Arm. 
 
3. Making Coin on Coinbase Listing  
 
  • Bitcoin firmer on impending Coinbase listing on Nasdaq
  • Success of the Coinbase listing will provide insight into expanded interest of other cryptocurrency firms to list on stock exchanges and access the capital markets  
 
Bitcoin charged ahead on Monday as Coinbase’s listing on Nasdaq draws nearer, coming within inches of its all-time-high before pulling back to trade unchanged.
 
Up almost ninefold in the past year, and far outstripping the returns for any other asset class Bitcoin has been on a tear.  
 
Fanning interest in Bitcoin and cryptocurrencies has been Wall Street’s growing embrace of the nascent digital asset class and the direct listing of cryptocurrency exchange Coinbase is helping to fan the fires of interest and investment.
 
Coinbase’s direct listing will the first listing of its kind for a major cryptocurrency company and will be a litmus test of investor appetite for other companies in the sector.
 
The Coinbase listing is expected to do well and if interest is sustainable, may provide the impetus for other privately held cryptocurrency companies to consider heading to the public markets to access capital as well.
 
A growing list of companies are looking, or already invested in Bitcoin, drawn by price momentum and arguments that Bitcoin can hedge risks such as faster inflation.
 
Earlier this year, Tesla disclosed a US$1.5 billion investment in Bitcoin and more recently started accepting the cryptocurrency as payment for its electric vehicles, joining the ranks of firms like MicroStrategy and Square, which had earlier invested smaller sums in Bitcoin.
 
Institutional interest in Bitcoin is also gaining, with Goldman Sachs disclosing that it will be offering investment vehicles for Bitcoin and other digital assets to its private wealth clients.
 
Morgan Stanley also plans to give rich clients access to three funds that will facilitate cryptocurrency ownership.
 
Coinbase looks poised to ride this wave of cryptocurrency interest – with the fast-growing exchange expected to command a staggering valuation of about US$100 billion when it lists on Nasdaq this week, more than the value of the New York Stock Exchange and Nasdaq Stock Market combined.
 
While some investors may baulk at Coinbase’s valuation, it is also hugely profitable – expecting to reap a first quarter profit of between US$730 million to US$800 million, or double what it earned in all of 2020.
 
Revenue at Coinbase in the first three months of this year also surpassed its US$1.3 billion total for last year, compared with the US$5.6 billion generated by Nasdaq last year, Coinbase does position favorably for now.
 
But key to Coinbase’s sustainable growth and prospects is continued interest in cryptocurrencies and Bitcoin in particular.
 
While other cryptocurrencies, called “altcoins” because they’re seen as an alternative to Bitcoin, accounted for 44% of Coinbase’s revenues, the exchange’s fortunes tend to hew closely to Bitcoin’s prospects.
 
Coinbase only turned a profit last year as institutional demand for cryptocurrencies propelled Bitcoin and other cryptocurrencies like Ether, to new highs. 
 

What can Digital Assets do for you?

 
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If this is something of interest to you, or if you'd like to know how digital assets can fundamentally improve your portfolio, please feel free to reach out to me by clicking here.  
 
 
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Apr 13, 2021

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