Novum Alpha

Novum Alpha - Weekend Edition 26-27 June 2021 (10-Minute Read)

In what can only be described of as a volatile week for stocks, investors returned to reflation themes, snapping up stocks tied to the economic recovery and pushing the blue-chip Dow Jones Industrial Average higher. But it may be early days on whether or not the reflation trade has made a comeback or not, although anxiety over the U.S. Federal Reserve's rate increases has certainly ebbed.

A wonderful weekend to you as signs of the reflation trade are starting to re-emerge.

In brief (TL:DR)

U.S. stocks coasted into the weekend with the blue-chip Dow Jones Industrial Average (+0.69%) and S&P 500 (+0.33%) up, and the tech-centric Nasdaq Composite (-0.06%) more or less flat as investors poured into the reflation trade.
Asian stocks rallied sharply on Friday, on the prospect of massive infrastructure spending in the U.S. and improving economic conditions.
Benchmark U.S. 10-year Treasuries spiked to 1.528% (yields rise when bond prices fall) as bond traders soured on debt.
The dollar was flat.
Oil was higher with August 2021 contracts for WTI Crude Oil (Nymex) (+1.02%) at US$74.05 rising at a historic pace with concerns over production cuts by OPEC+ tempered with how places like India manage the pandemic.
Gold was flat with August 2021 contracts for Gold (Comex) (+0.06%) at US$1,777.80.
Bitcoin (-7.22%) slipped to US$32,183 (GMT 0500, Saturday, 26 May 2021) with thinner volumes into the weekend seeing sellers lead buyers and inflows picking up pace against outflows (inflows suggest that investors are looking to sell Bitcoin in anticipation of lower prices).

In today's issue...

Monopoly for Airbnb
What are US$100-million Investors Buying?
Cryptocurrency Firms Can't Hire Fast Enough

Market Overview

But it may be early days on whether or not the reflation trade has made a comeback or not, although anxiety over the U.S. Federal Reserve's rate increases has certainly ebbed.

With revelation that the policymakers remain evenly divided when it comes to the prospect of inflation, investors are somewhat assured that interest rate hikes, whilst inevitable, aren't likely to happen anytime soon.

Asian markets hit the weekend in top form with Tokyo's Nikkei 225 (+0.66%), Seoul's Kospi Index (+0.51%), Hong Kong's Hang Seng (+1.40%) and Sydney’s ASX 200 (+0.45%) all up on the last trading day of the week.

Did you miss us at the Super Crypto Conference 2021? Watch it here...

1. Monopoly for Airbnb

Institutional investors piling into properties purchased specifically for use as Airbnb (-0.70%) rentals
Prospect of larger investors offering a more consistent product on Airbnb should bode well for the platform company, especially as it may appeal to customers who are more keen on a consistent experience and a guaranteed standard of service

One of the keys to winning at the real estate-based board game Monopoly is by buying enough houses so you can turn them into hotels (you need four houses before you can convert them to a hotel).

And that’s precisely what Airbnb investors are looking to do.

Hunting for returns in the white-hot U.S. real estate market, many property investors are tapping on a winning Monopoly strategy, combining enough houses to convert them into Airbnb rentals.

Dublin, Ohio-based ReAlpha, is said to be looking to spend as much as US$1.5 billion, to buy homes for short-term rentals, according to a recent regulatory filing.

Unlike hotels, which can’t be converted to long-term leases when tourist numbers drop off, for instance in the midst of a pandemic, short-term rental real estate has provided investors with the versatility that has helped to fuel the decade long rise of Airbnb.

And plans to buy large tranches of real estate for Airbnb could see some experiences evolve to something akin to a hotel stay.

Because it’s cheaper and more efficient to provide services to a collection of short-term rentals, Airbnb users could look forward to a more consistent experience.

But a U.S. moratorium on foreclosures and a tight real estate market is limiting just how much real estate investors can snap up.

For Airbnb though, the arrival of deep-pocketed institutional investors like ReAlpha could provide an unlikely windfall.

Although Airbnb brands itself as providing travelers a “local” experience, large investors provide a potential source of new listings and a product which could appeal to travelers who appreciate a consistent service and perhaps even loyalty programs.

Did you miss us at the Super Crypto Conference 2021? Watch it here...

2. What are US$100-million Investors Buying?

Some of the world's richest investors are pouring into stocks and other risk assets given persistently low interest rates and a low yield environment
Investors continue to remain deeply divided over whether risk assets are at the very height of a speculative bubble or on the brink of a new golden age driven primarily by technology and growth stocks

Got a hundred million in net worth? Congratulations, you may be a potential candidate for Tiger 21, a network of over 900 investors who have an average net worth of US$100 million, and who’ve made their money mostly in the private markets or as entrepreneurs.

Yet these investors who have long favored private equity deals over listed stocks are now invested in the public equity markets more than ever, and some are even taking long bets on cryptocurrencies.

Speaking with Bloomberg, Tiger 21 founder Michael Sonnenfeldt revealed that members had as much as 25% of their portfolios invested in publicly listed stocks in the first quarter of this year, up from 22%, while private equity slipped 4% to 22%.

And overall, the percentage of portfolios that Tiger 21 members have in risk assets, typically private equity, publicly-listed stocks and real estate, is now nearing 80%.

According to Sonnenfeldt,

“That tells me that it continues to be a consequence of low interest rates, where you have no choice but to put your money to work.”

And despite the U.S. Federal Reserve shaking markets last week on the prospect that it would bring forward its timeline for rate increases, comments from policymakers this week reveal that the central bank remains deeply divided on inflation.

Even if inflation is on the cards, the Fed has continued sticking to its 2023 rate-hike schedule and in the meantime, investors need to make sure that their money works harder for them in the here and now.

Which is why it may come as no surprise that some of Tiger 21’s wealthy members are also increasing their bets on cryptocurrency and blockchain plays, albeit at low levels for now.

Sonnenfeldt sees a “clash of the titans” in the form of strongly held, opposing beliefs in where markets are headed next.

There are just as many investors who believe inflation is roaring back and stocks are at bubble levels, as there are investors who take the view this is only the beginning of a very long expansion of growth led primarily by technology companies.

And that explains why the wealthy members of Tiger 21 have shifted their portfolios into stocks because they’re highly liquid,

“Sometimes when people are a little bewildered, they want the liquidity of a public investment rather than the illiquidity of a private investment.”

3. Cryptocurrency Firms Can't Hire Fast Enough

Complexity and broad-based nature of the cryptocurrency industry makes it challenging to find talent and experience in the space
Wall Street muscling into the cryptocurrency space has made it even harder to find suitable talent for cryptocurrency firms, especially startups

Bitcoin prices may be slipping because of China’s crackdown on the lucrative mining industry, but that hasn’t dampened demand for talent, as cryptocurrency firms struggle to find suitable candidates to fuel their breakneck growth.

Given that cryptocurrencies exist at the nexus between software, politics and economics, finding the right candidates who can fill the needs of the burgeoning industry has been challenging.

Despite the decline in cryptocurrency prices since May, total market value for the sector is up over 400% in the past year and traditional financial firms including Goldman Sachs (+0.01%), Citigroup (+0.32%), and Bank of New York Mellon (+1.47%) are muscling in, hoovering up talent along the way.

But that’s leaving cryptocurrency firms, particularly startups, short of the talent they need to scale.

Binance, the world’s largest cryptocurrency exchange by volume, is advertising for some 370 roles globally according to its LinkedIn recruitment portal, while New York-based Gemini plans to almost double its Singapore headcount to 50 from 30.

Part of the problem is that finding candidates with the relevant experience in this sector is difficult and even candidates with just one or two years under their belt enjoy a significant advantage over those who struggle to even understand what a blockchain is.

This past week, Citigroup was the latest to throw its hat into the cryptocurrency ring, and announced that it will be helping its richest clients take bets on the nascent asset class, as part of a new digital assets group, following similar efforts from rivals Goldman Sachs and Morgan Stanley (+1.52%).

Candidates with expertise and experience in banking and fintech are well sought after by the cryptocurrency industry, given that their skills are perceived to be more relevant and readily transferrable.

And many former forex traders have poured into cryptocurrency trading, thanks in large part because of the greater volatility and potential returns as the asset class evolves.

But not everyone is chomping at the bit for a job in cryptocurrencies.

What you see today is that banks, which had previously discouraged or even prohibited employees (remember Jamie Dimon, CEO of JPMorgan Chase threatening to fire employees who traded in cryptocurrencies?) from getting involved with digital assets, now fostering a more conducive environment for experimentation.

For many bank employees, taking the leap full-on into cryptocurrencies may be a little daunting, and exploring cryptocurrency opportunities within their own banks could provide a safer environment to experiment in.

According to some bank employees, especially those with backgrounds in software programming, looking at cryptocurrencies within the banking environment at least allows them to hedge against the digital asset industry, infamous for its large volatility.

And that’s made things even tougher for cryptocurrency startups, especially those which relied on tokens as part of their compensation packages.

For young and talented bankers, many are faced with the inevitable dilemma, “Should I give up the benefits and security of a job at the bank for an untested and unproven asset, or should I have it as a side project while still keeping my day job?”

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Jun 26, 2021