10th Aug

Markets

I haven’t posted daily recently. I’m too busy with RL. But the trend seems embedded: commodities down, dollar up, yields down, curves flattening, inflation transitory, rates heading to zero (real rates -2%). Equity markets lack direction. The accepted cause seems to be the dreaded Delta Variant. Australia and China have had waves of the variant, and so everyone now doubts whether the world will ever get back to ‘normal’. I feel that we are near the end of the tunnel. Estimates for deaths from Covid seem to be between 4 million and 8 million. This is a lot, but it’s still only about one in a thousand, and overwhelmingly it kills those who are already very ill or very old. I would not dream of saying that authorities over reacted. The level of the threat was sufficient to justify a lot of the actions taken. But now we understand a lot about the disease and most people can take effective steps to avoid catching it, if they wish to.

Bear Cave

The Bear Cave newsletter is out.

Bearish notes:

• Asensus Surgical (NYSE:ASXC) [Bleeker Street],
• Genius Sports Ltd (NYSE:GENI) [Spruce Point],
• Freedom Holdings (NDQ:FRHC) [The Foundation for Financial Journalism],
• OppFi (NYSE:OPFI) [Bear Cave]. This was published a week ago for paying subscribers.

Bullish tips:

• Digital Ocean (NYSE:DOCN), (Citron)

Earnings coming up:

• NDQ:CURI (CuriosityStream),
• NYSE:OPFI (OppFi),
• NDQ:PAYO (Payoneer),
• NDQ:ROOT (Root Insurance),
• NDQ:GBOX (GreenBox POS).

Of these, OppFi looks to be on a flightpath to oblivion, from a technical perspective. The others look too perky to short, in my opinion. Not investment advice!

Gold

Gold is untradeable, to me. It hasn’t had a clear direction for a long time. The creation of so much money supply would seem to guarantee that it’s price would rise almost monotonically. But that’s almost the opposite of what has happened.

I have pondered on the cause of this, but haven’t come up with anything very compelling. Gold isn’t very trendy. Wearing a chain an a medallion, both made of gold, seems sooo 1980s. Maybe all the gold bugs have pivoted to bitcoin. Maybe they are all in meme stocks. Maybe they all the ‘transitory’ thesis and have decided that negative real interest rates are a passing phase, and that the future holds the promise of money-like assets giving a decent real yield. But I hadn’t seriously considered the possibility that it was all an evil conspiracy by Wall Street. Well, someone thinks that it is: King Gold thinks that the weakness in the price of physical gold is a cunning plan to allow banks to cheaply source the stuff to meet their yet-to-be imposed obligations under Basel 3. Is this plausible? I very much doubt it, but something pretty odd is going on, so I wouldn’t rule it out totally.

Various permabears, such as Sven Henrich, have been talking about how the Fed is destroying price discovery for equities by endlessly monetizing debt. But he never talks about why some assets ($AMZN, $FB, real estate) are so responsive, but gold resolutely refuses to play ball. Maybe I have misjudged him. He tweets endlessly and I probably miss 99% of them. But it still seems odd how unequally the asset-price inflating impact of the Fed has been. Gold seems an obvious beneficiary, as it is the traditional anchor of value.

David Cameron

The rolling train wreck that is Greensill plus Gupta Family Group is doing more and more damage to the reputation of David Cameron. The latest revelations is that DC was able to sell approx $10MM of his Greensill shares before the group became insolvent. The fact that Greensill was backstopped on eight loans to Gupta when it should have been limited to one, after DC had sent 56 text messages to Treasury officials trying to get them to approve them look terrible to the average voter, however technically correct the decision was. The damage to Cameron’s reputation will have a secondary effect on the reputation of the Conservative Party. The party has been in power, exclusively or in coalition, since 2010. By the time of the next election, it will be forteen years. Very few UK parties manage to remain in power for longer.

BBC report on the affair. Interestingly, the BBC’s obsession over being unbiased usually leads them to avoid this sort of coverage. Maybe they sense that Cameron is a spent force.