The rains do not come
08 May 2021
8 min read
Another week, another all-time high for the stock market… An efficient financial market should reflect, at least in theory, all the available information. Therefore, the current positive trend across financial markets should be sustainable. Moreover, the encouraging economic data and the reopening of society are strong arguments for a foreseeable bull in the stock market. The crash that everybody expected may never come and the coronavirus crisis may never exceed the previous recessions. But, why is the sky so blue? No cloud, no storm, no rain…
You can not feel the rain when you live in a submarine. Indeed, investors are on a submarine submerged in an ocean of money glut. What if we evaluate the stock market with a metric less affected by the money printing machine? A key feature of Bitcoin is that the total number of available coins is constant. Therefore, measuring the stock price in Bitcoin would provide a genuine signal about the impact of the quantitative easing on the stock market.
The Dow Jones valuation in Bitcoin exhibits two phases since the beginning of the pandemic. Until October 2020, the level of Dow Jones expressed in BTC was relatively stable. After November 2020 a structural break occurred, whereas the BTC valuation plunged massively, while the actual quotation progressed. Such a collapse depicts a more accurate image of the unprecedented contraction observed in the real economy.
Are markets lying about the state of affairs? Markets are partially misrepresenting the state of the economy, the reason being that governments want to avoid as much as possible the dismantling of the traditional banking system. The byproduct of this strategy is the hyperinflation in the valuation of digital and intangible assets.
Therefore, companies with no physical assets exhibit valuations of dozen billion dollars. Even unicorns like WeWork involved previously in controversial affairs aim to extract liquidity from the money excess injected into the market by banks.
How will this paradox unravel? Will we trade farmlands from NFTs? Will we trade real estate for a few thousands Dogecoins?
I've abandoned free-market principles to save the free-market. George W. Bush, ex-president of the US during the 2008 crisis
The U.S. employment numbers are better every week, despite a slow trend in new jobs created. The reopening of society is going at a fast pace and several countries took significant steps to open their skies for international travel. The resultant market bull observed over the past week brings the Dow Jones near 35,000.
The gold ounce took an unforeseen path bolstering above 1,830 USD. This opens the avenue to a potential rally in the gold price.
The COVID vaccines are the keys to reopening the gate for a normal life
after the pandemic outbreak. The Biden administration proposed to waive
COVID vaccine patents. This means that any biotech firm from every
jurisdiction could reproduce and distribute the existing vaccines without
paying a dime for intellectual property. Following the proposal, the shares
of the two leading companies holding IP for the mRNA based vaccines, Moderna
and Biontech, plunged significantly. Without patent protection, their market
shares and valuations are at risk. The waiver is a realistic scenario,
especially if the vaccines are proven good in the long run. Such action will
accelerate a faster return to a pre-COVID normal.
A myriad of startups and zero-revenue firms went public via Special Purpose Acquisition Companies (SPAC) surfing on investors' rush towards stocks labelled as tech. PureCycle Technologies is such a firm, targeted by the reputed shorter Hindenburg Research. The Florida-based firm specializes in recycling service that converts waste plastic into virgin-like plastic fully closing the loop on the reuse of recycled plastics. In a recent report, the research firm showed that the narrative behind PureCycle is weak and shows major loopholes. The company has hastened in spending the raised funds, but there is no proof of growth nor innovation. PureCycle’s share collapsed this week by almost 50%.
Is DOGE the new Bitcoin? While it is difficult to assess the nature of this
emerging cryptocurrency, it is clear that the hopes of many small retail
investors are related to DOGE. Dogecoin was created a few years ago to mock
the investing frenzy around Bitcoin. In recent months, Tesla’s CEO, Elon
Musk acted as a cheerleader for the altcoin. Musk’s tweets contributed to
Doge’s price inflation from near zero to over half a dollar per unit. Over
the last day, Doge value soared in an exponential drift to an all-time high
anticipating Musk’s upcoming appearance on Saturday Night Live.
Nevertheless, the automotive tycoon underlined during his television
interview that cryptocurrencies are risky for individual investors.
The Dow Jones ended the week near 34,800, thereby climbing to a new all-time high. We can expect technical corrections over the next week, but the overall trend is positive. After dipping below 50,000 USD, Bitcoin managed to stabilize its trajectory around 58,000. Bitcoin is in a risky spot and needs to quickly find a second wind, thereby avoiding a foreseeable contraction.
Brent Crude had an unexpected move and soar close to the USD 70 mark. The accelerating reopening and the end of travel restrictions could accelerate the increase in oil price.
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.