Posted inFSA Spy

The FSA Spy market buzz – 13 May 2022

Meme stock wipeout; Li Ka-shing’s Singapore family office; China’s retirement savings plans; Demise of hunt for yield; Jay Powell’s warning; Crypto’s carnage; Top Gun and much more.

Coin a good line and it can buy you immortality. “There are decades where nothing happens; and there are weeks where decades happen”, wrote Vladimir Ilyich Lenin. It feels like we are in one of those weeks, reckons Spy. War, crypto crashes, tech sell off, rate hikes. It is hard to keep up. Wealth managers have been sending out notifications to clients: “Your portfolio is, unfortunately, down 10% or more.” There is a palpable sense of panic among some investors. Stagflation, the ugliest of all economic phases, seems to well and truly have joined the party. The punch bowl dregs are all that is left.

Spy (almost) feels sorry for the poor schmuck investors who thought it was a good idea to put some of their hard-earned cash into the Roundhill Meme ETF. This ETF, that was designed to explicitly invest in stocks that everybody was talking /chatting / shouting about on bulletin boards on Twitter, CNBC and other social channels, is already down 30% since its launch in August last year. Apparently the 11 million commentators on WallStreetBets, are not that visionary after all. The wisdom of crowds? Don’t wall street bet on it, reckons Spy.

Another win for Singapore this week, thinks Spy. Li-Ka-shing’s family office, Horizon Ventures, has opened up in the Lion City to expand its footprint in the region and search for more private equity deal flow in Southeast Asia. Bloomberg reported that as many as 10 staff will be located in the office. The firm explicitly denied any suggestion that the expansion was in any way related to Hong Kong’s political and travel restrictions. One investment manager Spy spoke to about the move, just shrugged her shoulders and said, “Every single day we seem to bleed a little bit more in Hong Kong as people with huge assets shift their focus elsewhere.” Horizon expects to deploy at least $100m to companies in Southeast Asia.

At times Spy is reminded of just how far China’s investment industry still has to go. This week it was announced that China’s major state-owned banks will “soon”, for the first time, pilot retirement savings products targeting Chinese consumers, who are woefully under-prepared for their retirement. The scale of China’s lack of private retirement planning remains enormous and represents a massive opportunity for asset managers investing in the country. To date, the Asian preference for buying property for retirement remains remarkably ingrained. With rising rates, that tried and tested strategy may prove highly problematic in the next era.

Do you remember the almost desperate “hunt for yield”? Conferences, articles, podcasts, blog pieces breathlessly sought out corners of the market that might yield a little bit of income. This week, the US junk bond – apologies — high yield market, hit an average of 7.4%. It is the highest since March 2020. That desperate search for yield may officially be over as yields have risen everywhere. The question is: does anybody want it, now that we have found it?

Is the Federal Reserve finally coming clean? This week, Fed Chairman, Jerome Powell went on record saying that taming inflation is going to cause “some pain”. Spy could not help muse it is like visiting a sadistic dentist; “This is going to hurt you a lot more than me. Now just lie back and be still.” With the world leveraged to the absolute hilt, “some pain” may prove to be the understatement of the last 25 years.

Although crypto seems to be enjoying a dead cat bounce this morning, the entire crypto universe has experienced the most brutal sell off in the last few weeks — well since the last one in 2018 to 2020. In fact, since May last year, despite a flurry here and there, the entire complex has been in a downward spiral with latecomers suffering gut wrenching losses. No doubt some brave souls will be buying this week and the die-hard believers will be out reminding everyone that “corrections happen in all bull markets”. Spy’s gentle reminder: 85% losses are not a correction.

Hat tip to Blackrock for putting its head above the parapet this week. The Blackrock Investment Institute, the firm’s influential strategy unit, has downgraded Chinese stocks and bonds on the back of weakening growth and the geopolitical environment. Blackrock explicitly stated that China’s tacit support for Russia in the Ukraine war is going to have a negative effect.

We have had 91 trading days in the United States and guess what? This is the second worst start to any trading year for the S&P 500 since 1932. The market is down, as of last night, by 17.5%. To exceed 1932’s record, it would have to drop more than 28%. Typically, the bond market rallies when stock markets are falling. The challenge this year is that bonds are falling too. As one wealth manager said to Spy: “There is nowhere to hide except for cash, and only US dollars will do there.” Ouch.

What do Shopify, Zillow, Zoom, Coinbase, Robinhood, Peleton all have in common? They have all dropped more than 80% from their all-time highs. In the case of Peleton, it is more than 95%. The broad tech sell off is looking more and more like 2000. Tech growth stocks are beginning to behave in the way they truly are: cyclical stocks. Have you tried turning it off and on again?

Bleakest quip of the week: “Would you rather be in the Chinese travel industry or the crypto industry?”

The only bright spot this week for those nostalgic for some 1980s feel good is that the reviews for Tom Cruise’s reboot of Top Gun have been surprisingly positive. While Spy is not particularly in the mood for some crass American triumphalism, he will be the first to agree a little Mach-2 velocity escapism does not sound like a bad idea at all. At least he can see something going up.

Until next week…

Part of the Mark Allen Group.