Is the Ark taking on water?

Published: Wed 24 February 2021
Updated: Tue 22 November 2022
By steve

In Markets.

Crazy Cathy’s Ark may have sprung a leak

There is a lot of muttering about how once ARK Innovation’s ETF starts getting redemptions, the illiquid holdings will implode. In some cases, ARK Innovation holds a very high part of the free float. This will test Prof Plum’s thesis that once passive funds start to get redemptions, there will be a vicious spiral of price declines, as there are no active managers left to buy when passive is selling.

The Street has noticed this, and one guy has even gone as far as to track ARK’s holdings. You can get his stuff here, but I extracted the current holdings of the Innovation fund, which you can see below.

Stock Ticker Shares Value Stock Price Weight
ORGANOVO HOLDINGS INC ONVO 129 383 $1.46m $11.30
SYROS PHARMACEUTICALS INC SYRS 4 923 270 $45.20m
BEAM THERAPEUTICS INC BEAM 827 516 $79.84m $96.48
COMPUGEN LTD CGEN 9 765 352 $102.63m
CERUS CORP CERS 18 561 050 $125.66m
FATE THERAPEUTICS INC FATE 1 346 779 $128.59m
PINTEREST INC- CLASS A PINS 1 607 953 $135.97m
NANOSTRING TECHNOLOGIES INC NSTG 1 817 303 $136.01m
TWITTER INC TWTR 1 867 325 $136.63m
PALANTIR TECHNOLOGIES INC-A PLTR 5 235 739 $140.06m
TERADYNE INC TER 1 087 453 $141.13m
MORGAN STANLEY GOVT INSTL 8035 149 066 762.57 $149.07m
SNAP INC - A SNAP 2 303 791 $162.30m
SERES THERAPEUTICS INC MCRB 7 826 230 $164.74m
HUYA INC-ADR HUYA 6 698 323 $190.63m
STRATASYS LTD SSYS 6 509 675 $231.48m
SYNOPSYS INC SNPS 943 182 $238.82m $253.21
PACIFIC BIOSCIENCES OF CALIF PACB 7 066 036 $262.29m
PACCAR INC PCAR 2 825 248 $263.68m
NOVARTIS AG-SPONSORED ADR NVS 3 055 354 $264.29m
REGENERON PHARMACEUTICALS REGN 583 682 $273.18m $468.03
MATERIALISE NV-ADR MTLS 5 615 831 $282.20m
VERACYTE INC VCYT 4 713 927 $289.95m
IRIDIUM COMMUNICATIONS INC IRDM 7 207 235 $292.54m
TAIWAN SEMICONDUCTOR-SP ADR TSM 2 323 174 $299.92m
SEA LTD-ADR SE 1 229 659 $309.64m
EDITAS MEDICINE INC EDIT 6 480 400 $318.45m
10X GENOMICS INC-CLASS A TXG 1 808 669 $318.49m
2U INC TWOU 7 843 155 $351.92m
PAGERDUTY INC PD 7 353 689 $352.32m
INTERCONTINENTAL EXCHANGE IN ICE 3 316 476 $369.52m
NINTENDO CO LTD-UNSPONS ADR NTDOY 4 744 137 $376.78m
LENDINGTREE INC TREE UW 1 192 018 $389.03m
INTELLIA THERAPEUTICS INC NTLA 6 286 778 $399.65m
TWIST BIOSCIENCE CORP TWST 3 072 492 $415.68m
KE HOLDINGS INC BEKE 5 943 672 $419.39m
IOVANCE BIOTHERAPEUTICS INC IOVA 11 026 310 $447.67m
PROTO LABS INC PRLB 3 027 621 $462.98m
UNITY SOFTWARE INC U 4 339 516 $479.99m
TENCENT HOLDINGS LTD-UNS ADR TCEHY 5 504 147 $499.39m
DOCUSIGN INC DOCU 2 078 734 $506.38m
PURE STORAGE INC - CLASS A PSTG 20 758 747 $530.80m
ZOOM VIDEO COMMUNICATIONS-A ZM 1 400 691 $543.69m
TWILIO INC - A TWLO 1 369 409 $562.27m
EXACT SCIENCES CORP EXAS 4 192 700 $581.57m
PAYPAL HOLDINGS INC PYPL 2 456 482 $650.97m
SHOPIFY INC - CLASS A SHOP 533 529 $693.72m $1
INVITAE CORP NVTA 16 996 887 $726.11m
CRISPR THERAPEUTICS AG CRSP 5 910 692 $799.72m
ZILLOW GROUP INC - C Z 5 030 034 $849.42m
BAIDU INC - SPON ADR BIDU 2 799 423 $903.12m
SPOTIFY TECHNOLOGY SA SPOT 2 800 355 $941.79m
TELADOC HEALTH INC TDOC 4 958 966 $1
SQUARE INC - A SQ 5 112 423 $1
ROKU INC ROKU 3 697 575 $1
TESLA INC TSLA 3 525 023 $2
# Is the market beginning to turn?

Alex Manzara thinks so. A lot of the people I follow do. However, I am experienced enough to realize that just because a lot of people predict something, this doesn’t make it more likely to happen. In fact – especially if they are the more thoughtful commentators – it seems less likely. Maybe we’ll see even higher highs as the vaccine is rolled out. But the demographic trends are negative, the scarring is real, and a lot of people have died and those who haven’t will not want to rush out to spend. In fact, they have acquired the savings habit during the lockdown and may well decide that it’s one they will keep up. If this drains demand, we’ll see poor growth (‘the paradox of thrift’) and people will want to save more. Banks have had a happy time lending on credit cards at 30% and borrowing from central banks at zero or negative rates. We may even see a flattening of the curve, and further Japanification. Certainly, negative rates and yield curve control may come in. The fact that most central bankers have vehemently denied that these tools will ever be used is all the more reason for fearing that they will be.

An EV company with profits, and prospects?

I’m deeply sceptical of EV companies in general. Bluebird ($BLBD) might be an exception. You decide.

Crumbs

Tether paid a fine (along with Bitfinex) for fraud. It’s still a very valuable cryptocurrency. “Cryptofraud” might be a better term. https://www.ft.com/content/1d3b5027-ce7e-470f-8d7a-866746f8079d

Generally, volatility is just duration. Credit complicates this. Preferreds are really equity. I need to think about this.

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As Warren Buffett observed, a long time ago, once inflation ticks up to a more than a slight nuisance, the cost escalation imposed on capex overwhelms the price pickup on sales.

1611a1c9703bdec318c0e8397aa9183d.png

while inflation has been very low, there is a positive correlation between it & SPX price. This can break down, as per the above.

Stimulus

Lacey Hunt is a legend. His interview on Macro Voices is a classic exposition of what he stands for, which is:

  • too much debt destroys growth,
  • the fiscal multiplier declines to less than one as debt goes beyond ~80% of GDP,
  • Japan shows that you cannot borrow your way out of a recession,
  • inflation will not happen as a result of unconventional monetary policy,
  • deflation is a much bigger risk than inflation.

There is a huge amount of talk about stimulus recently. El Erian has written about it in the FT. His argument is that the Fed cannot reduce monetary loosening, because this will create too much market instability, but it will create lots of political problems because it will continue to exacerbate inequality. Powell is professionally obliged to deny all this, because to acknowledge the risks is to increase the chance of them being realized. I imagine he cannot wait until he is safely out of the hot seat giving Zoom talks to Citadel for $850,000 a throw and the next Fed chair is in the hot seat. (Which is bound to be a woman, presumably Lael Brainard.)

However, Michael Burry, who is as much of a hero to the autists from Wall Street Bets as Elon is, has written that inflation is coming. You can read more about it here.

Wrap

Today was a short-duration risk-on day.

  • most equity markets higher, but Far East markets down, SPX up 1.2%, more than NDX, up 0.8%,
  • Apple ($AAPL)really stuck in a down trend,
  • DX down to just over 90. If it breaks 90, I think it’ll go down further; ZAR down, as the govt. lurches from crisis to crisis,
  • 10-year yields up across the board, apart from a few Far East countries (which might have closed 15 hours ago).

The newsflow was not dramatic. Even though Powell’s testimony yesterday said nothing new, it’s still making headlines. There is simply no new important data.

Opinion

The one thing I have learned from watching markets for a very long time, is that they can not only remain irrational longer than one can remain solvent, but that they can become irrational without any rhyme or reason. We have seen an explosion of value in bitcoin. Nothing about the real economy, the behaviour of central banks or the nature of bitcoin can explain this behaviour. It is purely the result of herd mentality, or – if you prefer – reflexivity, as defined by George Soros. A lot of people read and dismissed The Alchemy of Finance because it seemed to simply say that in securities markets, broadly defined, people would start to buy because they saw the price moving. In other words “if you see a bubble forming, hop on it!” Commentators simply thought that this was an interesting observation, but had no practical application. I think it can have a practical application, but it probably doesn’t fit Warren Buffett’s definition of investing.

Of course, the $64T question is: Which assets are in a reflexive bubble, and when will these bubbles burst? Nobody knows, even though many pretend that they do. Nobody wants to listen to a person explaining why he doesn’t know, which is why not many of you are reading this.

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