Wednesday Morning Reads
- Consumers Drive Recovery Into 2021
- Global Value Rotation Trade
- 17 Reasons to Let the Economic Optimism Begin
- When Doing Well Means Doing Good
- Fed Likely to Pen Rosier Forecasts
- Prices Will Rise Because of Stimulus
- Bitcoin ATMs Are Coming
- Top U.S. Startup
- Investing in Freedom
Digital payments giant Stripe (STRIP) is raising $600M in new funding at a $95B valuation, making it the most valuable startup in the U.S. It's nearly triple the $36B valuation Stripe secured last April, when it raised another $600M from investors including Andreessen Horowitz and Sequoia Capital. Investors in this round include Allianz, Fidelity and Baillie Gifford, as well as the sovereign wealth fund of Ireland, which is the home country of Stripe founders John and Patrick Collison.
Backdrop: Stripe was founded in 2010 by the two Irish siblings (their net worth jumped to $11.4B each with the latest valuation). The company's software, which competes with PayPal (NASDAQ:PYPL) and Square (NYSE:SQ), is used by businesses to accept online payments and has been a big beneficiary of the e-commerce boom accelerated by the coronavirus pandemic. Customers include Amazon (AMZN), Instacart (ICART), Salesforce (CRM) and Lyft (LYFT).
Stripe is "highly capital efficient" and didn't really need the money in spite of the fundraising, CFO Dhivya Suryadevara declared. "I view this as a bit more opportunistic," she said in an interview on Sunday. "It will just sit on the balance sheet," added Mike Moritz, partner at Sequoia and a Stripe board member, emphasizing that the money will be used as a "a rainy day fund." Some of the capital will also be invested in Stripe's European operations and its dual headquarters in Dublin.
Outlook: While Stripe isn't focusing on an initial public offering right now, both Suryadevara and Moritz said the company will continue to seek out acquisitions. In December, the company branched out to offer checking accounts to businesses through e-commerce providers, inking partnerships with banks including Goldman Sachs (GS) and Citigroup (C). (10 comments)
Bitcoin (BTC-USD) hit a record high of $60,000 on Saturday, nearly doubling in value this year, as the Beeple NFT sale continued to draw attention to the cryptocurrency, as well as more institutional investment. Prices then pulled back 7% to the $56,000 level on reports that India would propose a law banning cryptos, giving holders of the virtual assets up to six months to liquidate. The bill, one of the world's strictest policies against cryptocurrencies, would criminalize everything from possession, issuance and mining to trading and transferring crypto assets.
Why is India doing this? It's not the first nation to take action against Bitcoin, with similar bans or restrictions seen in countries like China, Pakistan, Russia, Bolivia, North Macedonia and Morocco. There are concerns that Bitcoin's decentralized system will make it more complicated for central banks to create their own CBDCs (central bank digital currencies), as well as worries that cryptos could be used to finance illicit activities. CBDCs are a promising tool that will allow central banks to have real-time data about their economies, offering the ability to track money flows, spending and savings data and what sectors are suffering or doing well. Leaving privacy concerns aside, a central bank could be more informed on monetary policy when armed with that information, while the government could possibly link future stimulus payments, universal basic income or fiscal policy to CBDCs.
Many Americans are unaware that it was illegal to own gold from 1934 to 1974, though the prohibitions were relaxed starting in 1964. A U.S. citizen couldn't own or trade gold anywhere in the world, with exceptions for some jewelry and collector's coins, as the federal government and banks shored up their financial soundness. Turning to cryptos, the Secret Service and the IRS have already worked with Coinbase (COIN) and exchanges to hold private crypto wallet keys, while the US Marshals Service has seized and auctioned many a Bitcoin. What would happen if the U.S. government or Fed felt threatened by the rise of decentralized banking? What if it interfered with their plan for CBDCs?
Go deeper: Bringing forth a Bitcoin ban could be legally difficult for the U.S. government, but even if would go through, enforcing the ban would be the harder part of the equation. Unless the government would exert strict control over the internet, individuals could download Bitcoin wallet software, run a node and complete transactions. That may render the currency out the realm of widespread adoption, but could also increase its demand for the exact same reason. Over the last decade, Bitcoin has also made inroads into the U.S. financial system, where it is treated as a commodity, so a ban could face other barriers like stymieing innovation and closing down institutions overseeing billions of dollars in crypto assets. (109 comments)
Futures contracts linked to the Dow, S&P 500 and Nasdaq are all starting the week up 0.4% as the debate over whether a $1.9T stimulus bill will prompt a serious pickup in inflation continues to play out in the markets. Bond yields are turning lower for now, with the 10-year Treasury yield down 2 bps to 1.61%, suggesting a positive start to the week for equities, especially the hard-hit tech sector. A wide rollout of COVID-19 vaccinations in the U.S. is also helping stoke a bullish sentiment.
Analyst talk: "Most market participants and policy-makers have been surprised by the speed of the recovery. On our estimates, the U.S. economy will reach pre-COVID-19 output levels by the current quarter," said Chetan Ahya, global head of economics at Morgan Stanley in New York. "Fiscal policy is doing much more than fill the output hole. Transfers to households have already exceeded the income lost in the recession. As reopening gathers pace, the labor market is poised for a sharp rebound."
Past estimates suggest part of the coming $1,400 in direct stimulus payments could find its way into the stock market, though this time around, it is joined with some concerns. Rising inflation expectations could persuade the Fed to signal it will start raising rates sooner when it announces its latest economic projections at the end of FOMC meeting on Wednesday.
More commentary: "Following the fiscal stimulus packages it is inevitable that Fed GDP forecasts will be revised up, and some FOMC members might think rates will have to move higher sooner than they anticipated last December," wrote economists at ANZ. "The Fed is aiming for higher inflation which means higher interest rates. I think the market has misread the Fed in thinking about yield curve control," added Steven Ricchiuto, chief U.S. economist for Mizuho Securities.
One of the hottest growth areas on Wall Street, special purpose acquisition companies, is becoming a target for short sellers, WSJ reports. In fact, the dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7B from $724M at the start of the year, according to data from S3 Partners.
Some examples: Social Finance (SOFI) is a popular target, with 19% of its outstanding SPAC (NYSE:IPOE) shares sold short, while short interest in Churchill Capital Corp. IV (NYSE:CCIV), a SPAC that is merging with EV startup Lucid Motors, more than doubled in March to about 5%. Others are wagering against companies after they combine with SPACs, like Muddy Waters's bet against XL Fleet (NYSE:XL). Shares of Lordstown Motors (NASDAQ:RIDE) also stumbled 17% on Friday after Hindenburg Research released a report saying the EV startup misled investors on its orders and production.
"These are all momentum stocks, and a lot of people want to short them," said Matthew Tuttle, whose firm recently launched "The SPAC and New Issue ETF (NYSE:SPCX)," the first actively managed ETF that gives investors direct exposure to a broad portfolio of SPACs.
Go deeper: The dangers of shorting were made clear in recent months when retail traders organized on social media to push up stocks like GameStop (GME) (the movement also apparently attracted institutional interest). Continued strong investor demand for SPACs could catch short sellers in a similar squeeze. Shorting can also be risky because SPAC shares have a price floor of $10 and they are prone to sharp price moves. (134 comments)
Concerns are growing over a coronavirus vaccine from AstraZeneca (AZN), which was once anticipated to be a mainstay of protection for much of the globe. The jab, developed with the University of Oxford, does not need to be kept at ultra-low temperatures and costs about $4 a dose, compared to the $20 per dose from Pfizer (PFE) and $33 for Moderna's shot (MRNA). But controversy has erupted as more countries limit AstraZeneca's use and scientists warn of the need for governments to tread carefully.
What happened? Over the weekend, the Netherlands joined a growing list of about a dozen countries, including Italy, Ireland, Denmark and Norway, moving to suspend the shot over concerns about possible side effects. While regulators said there was no indication of any direct link with the vaccine, reports of serious blood clotting triggered suspensions stretching as far as Thailand, though some have already resumed its usage.
AstraZeneca is defending its vaccine, saying in a statement that more than 17M doses have been administered in Europe and the U.K., with no evidence of an increased risk of pulmonary embolism, deep vein thrombosis or thrombocytopenia. So far across EU and Britain, there have been 15 events of DVT and 22 events of pulmonary embolism reported among those given the vaccine, based on the number of cases registered as of March 8, lower than the hundreds of cases that would be expected among the general population.
Quote: "You have to be very careful because it's also sending a message that there could be something very wrong with the vaccine when in fact, it's very unlikely that there is,” said Helen Petousis-Harris, a former World Health Organization adviser on vaccine safety. "We're doing massive mass vaccination campaigns and people get sick all the time. We can't panic every time it happens. But we also need to take all precaution. And it's a hard balance." (7 comments)
What else is happening...
Does Daylight Saving Time affect the stock market?
China's economic activity surged at the start of 2021.
Big Pharma one of the best pockets of value in the market - Barron's.
In Asia, Japan +0.2%. Hong Kong +0.3%. China -1%. India -0.8%.
In Europe, at midday, London +0.3%. Paris +0.4%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.4%. Crude +0.2% to $65.76. Gold +0.5% at $1727.80. Bitcoin -6.9% to $56312.
Ten-year Treasury Yield -2 bps to 1.61%
Today's Economic Calendar