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Daily Close

Semiconductors (bitcoin related...) and tech stocks rallied early yesterday, keeping the tape together before a 10% decline in Wallmart (“Walmart‘s challenge to the might of Amazon in ecommerce sputtered over the holiday period, sending its shares tumbling”, the FT wrote) moved the pendulum on the other side with leading major indices dropping -0.5% and all of them (except tech and semis) trading below their 50dma. Weakness was broad based with European shares holding better, supported by dollar strength yesterday. EM was weaker across the board (currency, stocks and bonds). US Bonds started weaker but recovered to unchanged as equities headed and closed lower. Bond fundamentals are deteriorating fast with most indicators of inflation now pointing higher and with the supply of US bonds set to double to USD1trn annually, all of that combined with diminishing appetite from Japan and China and the Fed’s ‘planned’ tapering and interest rate hikes. Consensus expectations are for the Fed will hike 3 to 4 hikes this year...we do not think so. 

Spanish Finance Minister was nominated to succeed V. Constancio as Vice President of the ECB which raised Germany’s Weidmann chances to get the top job next year. Just as we were last Friday, we remain cautious after the runaway rally of the past week and are holding a defensive posture. One of the reasons why we distrust last week’s recovery is the fact that the most shorted stocks did best in this recovery ... and that bitcoins continues to rally. This may seem totally unrelated. But when something intrinsically worthless rallies as much as bitcoins did, it devalues the quality of the entire healing process and emphasizes prevailing and unrepenting excesses. It translates into a general misunderstanding of where we stand in the cycle, underlines a total ignorance of warnings, including regulatory ones and spells rising defiance towards the “system”. Still, bitcoin has received the confirmation that it falls short on all criterias to ever be treated as a currency. The blockchain technology is the hype that keeps it together while this technology will be adopted by central banks themselves...who will return to applying pressure against bitcoins and its other lookalikes. Bitcoin is a pure tool to speculate by market participants buying it for no other reason than the fact that it has been going higher, that it has been lobbied successfully by Wall Street and that it nurtures the “get rich fast frenzy” of mostly economically and financially unaware participants. Bitcoins were given a chance to rally after stocks fell sharply at the beginning of the month. At that time, the newsflow went from the xcoins’ proclaimed demise following a serie of regulatory backlashes to ... the s&p500 falling out of bed and vix spiking 40. Everything that is intrinsically worthless ultimately converges to its value and bitcoin will be no exception, in our view. 

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