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Novum Alpha - Daily Analysis 9 November 2021 (10-Minute Read)

A terrific Tuesday to you as markets continue to rock new records on the back of a robust economic rebound narrative.

 

In brief (TL:DR)

 
  • U.S. stocks finished in the green on Monday with the Dow Jones Industrial Average (+0.29%), the S&P 500 (+0.09%) and tech-centric Nasdaq Composite (+0.07%) all up despite Tesla acting as a drag on the benchmark S&P 500, based on speculation that Elon Musk could soon sell a 10% stake in the electric vehicle maker. 
  • Asian stocks were mixed Tuesday as traders weighed the resilience of the economic recovery to inflation risks as well as warnings about elevated asset prices.
  • Benchmark U.S. 10-year Treasury yields were at 1.48% (yields rise when bond prices fall), but remain relatively low despite the U.S. Federal Reserve tapering of asset purchases. 
  • The dollar was steady.
  • Oil advanced with December 2021 contracts for WTI Crude Oil (Nymex) (+0.16%) at US$82.06. 
  • Gold rose with December 2021 contracts for Gold (Comex) (+0.03%) at US$1,828.50. 
  • Bitcoin (+3.65%) soared to US$67,573 to set a new all-time high as risk sentiment 
 

In today's issue...

 
  1. Tesla Investors Get a Taste of Musk’s Tweets
  2. More Americans Are Using their Homes as ATMs
  3. Bitcoin Rockets to Fresh All-Time-High
 

Market Overview

 
Global stocks remain around all-time peaks. Coronavirus treatments, easing travel curbs and the $550 billion U.S. infrastructure bill have aided sentiment.
 
Key central banks have also indicated they plan to scale back loose monetary policy very gradually. But a key risk is that inflationary pressures caused by creaking supply chains and energy prices last longer than officials expect.
 
Investors are awaiting the U.S. inflation report Wednesday. Gains in payrolls last week showed a jump in average hourly earnings.
 
In Asia, markets were in a mixed bag Tuesday with Tokyo's Nikkei 225 (+0.13%), Hong Kong's Hang Seng (+0.26%) and Sydney’s ASX 200 (+0.09%) up, while Seoul's Kospi Index (-0.10%) was down in the morning trading session. 
 
 

1. Tesla Investors Get a Taste of Musk's Tweets

 
  • Over the weekend, the Tesla CEO took to Twitter to poll his 62.7 million followers whether he should sell 10% of his stake in the electric vehicle maker and pledging to abide by the result of the poll.
  • If Musk proceeds to sell though, a huge chunk of shares would hit the market, around US$20.8 billion and could see further pressure on Tesla’s price.
 
Seasoned cryptocurrency investors are understandably nervous anytime Elon Musk hits Twitter because a single tweet has the power to move an entire cryptocurrency in any direction.
 
From bitcoin to dogecoin, Musk has made and messed up markets for cryptocurrencies by dropping 280 characters on Twitter.
 
But for Tesla (-4.92%) investors, the prospect of Musk tweeting hasn’t always had a direct impact on the price of their stock in the electric vehicle maker, until now.
 
In 2018, Musk got into hot water with the U.S. Securities and Exchange Commission over a tweet that he had the “funding secured” to take Tesla private, a tweet that was seen as manipulating the public market for a listed security.
 
Since then, Musk has generally avoided tweeting about Tesla, taking to tweets about cryptocurrencies instead to mess around with the masses.
 
But over the weekend, the Tesla CEO took to Twitter to poll his 62.7 million followers whether he should sell 10% of his stake in the electric vehicle maker and pledging to abide by the result of the poll.
 
When a majority of Twitter users polled voted that Musk should sell shares in Tesla, stock of the company came under pressure, closing down by almost 5%, making it the second-worst performer on the S&P 500 yesterday and dragging the index along with it.
 
To be sure, in September, Musk had suggested at a conference that he was likely to sell shares in the fourth quarter as he had options that would expire early next year, the Twitter stunt may just have been Musk being Musk and looking for backing of a sale he had always intended.
 
If Musk proceeds to sell though, a huge chunk of shares would hit the market, around US$20.8 billion and could see further pressure on Tesla’s price.
 

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2. More Americans Are Using their Homes as ATMs

 
  • An American housing boom is seeing homeowners use their primary residence as an ATM, withdrawing some US$63 billion in equity from their properties in the second quarter of 2021 alone.
  • Overall spending remains muted and credit card debt overall has fallen, suggesting that unlike in 2005, Americans remain relatively cautious and aren’t going on a consumption binge.
 
A white-hot U.S. housing market is driving the biggest home-equity drawdowns since 2007 or the eve of the subprime mortgage crisis.
 
An American housing boom is seeing homeowners use their primary residence as an ATM, withdrawing some US$63 billion in equity from their properties in the second quarter of 2021 alone, the largest quarterly volume since mid-207, according to data firm Black Knight.
 
And they’re using the money for everything from vacations to renovations, taking advantage of rock-bottom interest rates to spend it up.
 
But much of the confidence in taking a second mortgage to fund a trip to Disney or dig a new swimming pool stems from the belief that property prices will continue to go upwards, which was proved incorrect in 2007.
 
That having been said however, there is a palpable sense in the market that homeowners and investors assume that even if there should be a threat of a financial crisis, central banks will swoop in once again to flood financial systems with liquidity.
 
And while taking advantage of the extra cash may seem like a no-brainer, it’s far from a risk-free option because homeowners are ultimately just kicking the can down the road, increasing the debt load on property, while shrinking their available equity.
 
In many ways, homeowners are burning the candle at both ends, because if housing values were to fall, that could leave them owing more than their property is worth, or be in a situation where they have too high a loan-to-value ratio and preventing them from refinancing down the line, which could be a recipe for disaster.
 
If foreclosures start happening again, the U.S. real estate market could implode on itself once again.
 
For now though, there is little risk of that happening, because even though home equity withdrawals have jumped, they are some way off their heights in the boom years, with Americans cashing out US$101 billion in the third quarter of 2005, compared with just US$40 billion in the most recent quarter.
 
But average national home values are also roughly 57% higher today than they were in 2005, meaning that if prices were to fall, they have a pretty long way to go before things get hairy.
 
Economists are relatively sanguine about the risks so far because other consumer credit signals are reassuring.
 
Overall spending remains muted and credit card debt overall has fallen, suggesting that unlike in 2005, Americans remain relatively cautious and aren’t going on a consumption binge.
 

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3. Bitcoin Rockets to Fresh All-Time-High

 
  • The benchmark bitcoin soared past US$67,000 on a wave of optimism and against the backdrop of a wider rally in the sector.
  • Bitcoin is emerging as one of the hottest asset classes to date, gaining over 130% this year alone.
 
Just as stocks and other assets have soared to fresh records, cryptocurrencies have not been left behind, with the benchmark bitcoin soaring past US$67,000 on a wave of optimism and against the backdrop of a wider rally in the sector.
 
The surge now puts cryptocurrencies as a US$3 trillion sector and in a technical strategy report on Monday, Fundstrat, whose founder Tom Lee was once ridiculed for predicting that bitcoin would hit US$25,000, wrote,
 
“This breakout in Bitcoin might signal the start of a final push-up for the fourth quarter before the crypto market shows more pronounced consolidation into next year.”
 
“Strength in Bitcoin, Ethereum and many other altcoins looks likely in the weeks to come.”
 
Bitcoin previously hit a high in October against bullish sentiment that was propelling the launch of the first U.S. bitcoin ETF, albeit one that was based on futures.
 
The ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, drew in over US$1.2 billion on its debut, the highest of any ETF in history and beating a gold ETF that previously held that record.
 
Bitcoin is emerging as one of the hottest asset classes to date, gaining over 130% this year alone, but that ride has been anything but smooth, with the cryptocurrency plunging below US$30,000 in June amid criticism of its energy consumption and a renewed Chinese crackdown.
 
But a sharp rebound occurred once the U.S. Federal Reserve and U.S. Securities and Exchange Commission intimated that they had no interest in banning cryptocurrencies.
 
Outside of bitcoin, Ethereum, which powers smart contracts and NFTs as well as Solana saw strength against continued upgrades and new functionality, with demand for decentralized finance and non-fungible tokens soaring.
 
Even as more “serious” cryptocurrencies continue to draw in investors, meme coins like Dogecoin and Shiba Inu continue to attract the profligate gamblers into the ecosystem, lured by the prospect of speculative returns.
 
Cryptocurrencies however remain volatile, and the last time bitcoin reached these stratospheric heights, it corrected by several thousand dollars and investors have had to endure multiple corrections that have seen it fall by as much as half or more.
 
Other cryptocurrencies, or so-called “altcoins” are even more volatile, with memecoins vacillating between valuable and worthless in an instant.
 
 

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Nov 09, 2021

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