Novum Alpha - Weekend Edition 8-9 May 2021 (10-Minute Read)

It's the perfect setup for a stock rally! As you enjoy the weekend, consider this, it's actually (in some cases) more profitable for Americans to stay home and absorb unemployment benefits than it is to look for work. 


A fabulous Friday to you as the weekend comes hurtling round the corner.  
 
In brief (TL:DR)
  • U.S. stocks were higher headed into the weekend, with the S&P 500 (+0.74%), blue-chip Dow Jones Industrial Average (+0.66%) and tech-centric Nasdaq Composite (+0.88%) all up sharply as weaker jobs data led to assumptions of interest rates being held low.  
  • Asian stocks were mostly up headed into the weekend except for Hong Kong, on the prospect that the Biden administration may continue the Trump administration's hawkish stance towards Chinese companies listed in the U.S. 
  • The U.S. 10-year Treasury yield was flat at 1.577% (yields generally rise when bond prices fall). 
  • The dollar fell as investors embraced risk. 
  • Oil was up with June 2021 contracts for WTI Crude Oil (Nymex) (+0.29%) at US$64.90 mostly on the back of a sliding dollar. 
  • Gold rose with June 2021 contracts for Gold (Comex) (+0.86%) at US$1,814.20 as the dollar declined. 
  • Bitcoin (+0.29%) rallied to US$59,000 over the weekend with outflows from exchanges rising against inflows as sentiment improved (outflows suggest that investors are looking to hold Bitcoin in anticipation of rising prices). 
 

In today's issue...

 
  1. Biden Back to the U.S. Ban on Chinese Companies? 
  2. Who Needs to Work When You Get Free Money? 
  3. Dogecoin Joke Grows Stale

 

 

Market Overview

 
It's the perfect setup for a stock rally! 
 
As you enjoy the weekend, consider this, it's actually (in some cases) more profitable for Americans to stay home and absorb unemployment benefits than it is to look for work. 
 
That results in poorer jobs data, but because it's impossible to say for sure what is causing the poorer uptick in jobs, the U.S. Federal Reserve has the cover it needs to keep interest rates low, which sends stocks (especially tech) higher. 
 
And because job growth is still tepid, the Biden administration can argue that the unemployment insurance relief, which expires in September, should be extended. 
 
Rinse and repeat and rally the markets. 
 
Meanwhile in Asia, there was plenty to cheer into the weekend with Tokyo's Nikkei 225 (+0.09%), Seoul's Kospi Index (+0.58%) and Sydney’s ASX 200 (+0.27%) all higher, while Hong Kong's Hang Seng Index (-0.09%) was the only laggard because of tensions between Washington and Beijing. 
 

Did you miss us at the World Family Office Forum? Watch it here...

 

1. Biden Back to the U.S. Ban on Chinese Companies?

 
  • Wall Street urges Biden administration to reconsider continuing ban on U.S. investment into Chinse firms linked to the military 
  • No decision on continuing Trump-era ban, but Chinese shares listed on U.S. markets already roiled by the prospect of continued hawkishness towards Beijing
 
Cooperation can very often lead to competition, which can give way to conflict.
 
And even as the Biden administration makes inroads in rolling back some of the previous administration’s more confrontational policies towards China, it’s taking a tack that risks carving up the world along Cold War-era lines yet again.  
 
The Biden administration looks likely to maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump, bucking entreaties from Wall Street to ease the restrictions.
 
Biden officials are still in preliminary discussions about Trump’s investment bans on companies linked to China’s military, which include three of the country’s biggest telecommunications firms.
 
Some of China’s biggest companies which are listed on American stock exchanges, including Alibaba Group Holding (-0.49%), Baidu (-0.41%) and Tencent Holdings (-0.23%) all fell on the prospect that the ban could affect broader American appetite for Chinese companies.
 
The Biden administration is likely to find bipartisan support in Congress for a tougher stance on China and in an e-mailed statement, Republican Senator Marco Rubio of Florida said,
 
“It is common sense that U.S. dollars should not flow to entities close to the Chinese Communist Party’s military, which is building weapons and capabilities designed to kill American service members.”
 
“The Biden administration should reject any efforts by the investor class to erode the Trump-era sanctions, and it should work with Congress to codify those penalties into law.”
 
The blacklist is not only a sore point in Beijing, but also on Wall Street.
 
Wall Street has been actively lobbying the Biden administration to completely roll back Trump’s investment ban, and at the very minimum, banks want clear guidance from the U.S. Treasury’s Office of Foreign Assets Control, or OFAC, on compliance with the ban.
 
The Trump administration confused markets with conflicting announcements about the sanctions during his final months in office.
 
Investors were left scratching their heads when Trump announced in November that U.S. persons would be banned from investments in any firm on the U.S. Treasury Department’s newly created list of “Communist Chinese Military Companies.”
 
Following the announcement, the New York Stock Exchange said it would delist three large Chinese telecom companies, only to reverse that decision amid confusion over the scope of the ban.
 
The NYSE eventually reinstated its plan after pressure from then-U.S. Treasury Secretary Steven Mnuchin.
 
Compiled by Pentagon officials who have access to classified materials and can determine which companies benefit the Chinese military, the Biden administration has already missed an April 15 deadline to submit to Congress a fresh list of Chinese companies linked to the military.
 
U.S. investors have a year to exit companies once they appear on the blacklist.
 
For the companies that appeared on the original list last year, investors have until May 27 to wind down new transactions and until November 11 to fully divest – and the looming first deadline is already sending shares in Chinese firms listed in the U.S. lower.
 
But investors in Chinese firms looking for respite from the saber rattling between Washington and Beijing may have to pare back expectations of a détente, with U.S. Treasury Secretary Janet Yellen and her team indicating a continuation of the Trump administration’s tough stance on China.
 
In his Senate confirmation hearing in February, Deputy Treasury Secretary Wally Adeyemo testified,
 
“It is critical that we use Treasury’s tools to hold China accountable for actions they take that are not consistent with international law and that put our national security at risk.”
 

Did you miss us at the World Family Office Forum? Watch it here...

 

2. Who Needs to Work When You Get Free Money?

 
  • U.S. April job increases below economist expectations and should provide sufficient justification for interest rates to remain low for the foreseeable future  
  • Republicans are blaming generous job support which make it more worthwhile for Americans earning below US$32,000 to stay home instead of find work 
 
There are growing signs that Americans who haven’t enjoyed free money until fairly recently, are starting to lose their willingness to work muscle.
 
Republicans were quick to blame the Biden administration’s US$1.9 trillion stimulus package as the main culprit for a shockingly low gain in payrolls in April.
 
The stimulus provided for an extra US$300 a week in unemployment insurance, sustaining a benefit that won bipartisan support back in December.
 
But that measure has distorted the incentive to work – for anyone making less than US$32,000 a year, it’s actually better financially to receive unemployment benefits than to actually work, according to calculations by Bank of America (+0.40%).
 
The White House is pushing back on what it’s termed as “anecdote” data suggesting that higher levels of job support are incentivizing Americans to stay at home instead of look for a job.
 
Just 266,000 jobs were added to the U.S. economy in April, below economist expectations.
 
But the Biden administration was quick to rebuke any allegations that stimulus may have had any thing to do with the sluggish pickup in April’s jobs report, saying that the enhanced unemployment benefits had no “measurable” effect on job seekers.
 
The White House has argued that since schools and universities are still not back to full attendance and with a shortage of childcare, many Americans, women in particular, haven’t been able to return to work.
 
An upside of the sluggish jobs report is that the U.S. Federal Reserve will have all the justification it needs to keep interest rates low, even as a commodities rally and rising wages are threatening to jack up inflation.
 
One of the key economic goals of the Fed has been to keep interest rates low till 2023 at least, making it explicit that its accommodative monetary policy and quantitative easing will remain in place until the U.S. returns to full employment.
 
A key test will come in September, when the current round of unemployment benefits expires and by which time wages may already have increased to attract employment back into the U.S job market.
 
For now at least, continually weak job numbers (whether the result of stimulus or otherwise) should bring some cheer for equities. 
 
 

3. Dogecoin Joke Grows Stale

 
  • Elon Musk warns investors that cryptocurrencies are highly speculative, ahead of an appearance as the host of comedy show Saturday Night Live
  • Dogecoin rally, largely driven by speculators, obfuscates broader rise in cryptocurrencies, making it uncertain if a sharp correction in the meme cryptocurrency will affect others 
 
The cryptocurrency world’s biggest joke, Dogecoin, pared back gains as its biggest shiller Elon Musk warned investors of the highly speculative nature of cryptocurrencies, ahead of his appearance on comedy show Saturday Night Live.
 
Created as a meme cryptocurrency, with the Shiba Inu breed of dog as its logo, Dogecoin was always intended to appeal to the lighter side of the cryptocurrency community.
 
But since the first Dogecoin was minted, it’s risen a ridiculous 200,000%.
 
And while speculators have poured into Dogecoin, many industry pros, have little affection for it, believing that it distracts from the more serious work of building the overall cryptocurrency ecosystem.
 
Speculation that Elon Musk will shill Dogecoin on Saturday Night Live as he hosts the show, also led to a plunge in U.S.-listed cryptocurrency exchange Coinbase Global (+2.70%) on Thursday, where Dogecoin isn’t available for trading, while trading app Robinhood, which does list Dogecoin, surged to reclaim the top spot for downloads on Apple’s (+0.53%) U.S. app store.
 
There’s no doubt that Dogecoin is a distraction – unlike other blockchains, it has no use and explicitly states so.
 
And for industry practitioners, Dogecoin doesn’t help institutions take cryptocurrencies seriously, potentially even spooking them off.
 
Just last week, Goldman Sachs (+1.34%) announced that it had formed a trading team to invest in cryptocurrencies, Dogecoin is naturally not on that list of investments.
 
Given that the Dogecoin surge has been primarily driven by retail investors, there’s risk of a sudden crash should “paper hands” prevail.
 
On Friday, even Elon Musk  urged his followers on Twitter (-0.04%) to “invest with caution,” linking to an earlier video in which he said cryptocurrencies should be considered speculation for now.
 
And with almost US$79 billion in market cap, a Dogecoin crash risks bringing down sentiment for other cryptocurrencies which are expanding their platforms and use cases.
 
Whereas Bitcoin was the pioneer for distributed ledger technology, there’s little coding activity on Dogecoin, a typical sign of stagnation.
 
And unlike Bitcoin, Dogecoin supply isn’t finite, and there are still relatively few Dogecoin transactions, a symptom of its essentially speculative nature.
 
Speculators who aren’t familiar with cryptocurrencies and who are simply betting purely on hype, may find themselves burned when they discover the distinction.
 
Making matters worse, these speculators may also dump other cryptocurrencies, even though those have development activity and for which genuine value is being created.
 
It’s increasingly difficult to tell if cryptocurrencies, including Ethereum and Uniswap are rising for technological reasons, ideological ones, or simply because a deluge of cash has flooded the nascent industry.
 
And that means that when that if Dogecoin crashes, it’ll be impossible to say if other cryptocurrencies will fall along with it. 
 

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May 08, 2021