Wednesday Morning Reads
- This Isn’t the 1970s.
- Secret Strategy to Dodge India’s Regulators
- U.S. Oil Output Slumps by Record
- In Texas’s Black-Swan Blackout
- Winter Storm Disrupts
- Crypto Fever
- Big Tech’s Next Big Problem
- Respect the Base Rate
- Won’t Matter For A While
The blistering rally in Bitcoin (BTC-USD) is continuing this morning, as the crypto tacked on another $1,500, a day after breaking above $50,000 for the first time in history. More are showing support for the alternative asset, with Mastercard (MA) and Bank of New York Mellon (BK) making it easier for customers to use cryptocurrencies. Tesla (TSLA) also invested $1.5B in Bitcoin and announced it would begin accepting the crypto for payment "in the near future."
Quote: "I think bitcoin is a much more stable asset class today than it was three years ago," said Michael Saylor, CEO of enterprise software firm MicroStrategy (NASDAQ:MSTR). "In March of 2020, you saw institutions start to arrive, and I think in 2021 you're going to see that trend continue. They're enthusiasts for bitcoin as a medium of exchange... but I personally believe that the compelling use case is a store of value."
MicroStrategy even announced Tuesday it will offer $600M in convertible bonds to buy more Bitcoin, and there is speculation that it offered a blueprint for Tesla's Bitcoin purchase after an exchange between Saylor and Elon Musk. MicroStrategy and Jack Dorsey's Square (SQ) already made splashy headlines last year after using corporate cash to buy Bitcoin. Meanwhile, Uber (UBER) CEO Dara Khosrowshahi said last week that the ride-hailing giant had discussed - but "quickly dismissed" - the idea of buying Bitcoin, although it is weighing whether to accept cryptocurrencies as payment.
With innovation, comes regulation: A well-defined crypto regulatory regime is urgently needed, according to SEC Commissioner Hester Peirce. "It's not only that there have been calls for clarity for some time and that a new administration brings the chance to take a fresh look, but it also is a moment where it seems others in the marketplace are also taking a fresh look." Peirce was labeled "Crypto Mom" after she publicly dissented on the SEC's decision in 2018 to reject a Bitcoin ETF application filed by Cameron and Tyler Winklevoss. She is currently serving her second term as one of the SEC's five commissioners. (33 comments)
The 10-year Treasury yield topped 1.3% yesterday after hitting 1.2% on Friday, while the 30-year gained 8 basis points to 2.08%. Financials also took off due to the steepening of the yield curve. The rapid advance is prompting some chatter over how high yields can climb before spoiling the risk asset rally, as well as what that might mean when combined with more fiscal stimulus.
New environment: "We see stronger growth and negative real yields ahead as the vaccine-led restart accelerates and central banks limit the rise of nominal yields - even as inflation expectations climb," wrote analysts at BlackRock. "Inflation will have different implications to the past. The policy revolution as a response to the COVID shock implies that real yields will be less responsive to rising inflation risk than in past episodes. This suggests risk assets will perform better than in past inflationary periods."
Keep watching: "If you look at any historical norms, valuations are stretched. But we've never seen the long bond at 1.3% and so we're in unchartered waters here so higher P/Es are justified based on lower interest rates," said Scott Black, founder and president at Delphi Management. "The other thing is the Fed’s going to be highly accommodative... they're going to keep interest rates low, and so you have the wind to your back."
Fears overblown: "Our preference for stocks over bonds - supported by low interest rates - is one of our highest conviction recommendations for 2021," LPL Financial's Jeff Buchbinder declared. "Several segments of the equity market - particularly the energy sector and banks - offer higher yields than traditional high-quality bonds and offer attractive capital appreciation potential as interest rates rise."
SpaceX (SPACE) completed another equity funding round of $850M last week, sources told CNBC, sending the company's valuation skyrocketing to about $74B. That's a jump of about 60% compared to last August, when SpaceX raised near $2B at a $46B valuation. The new share price was reportedly $419.99 each, one penny less than Elon Musk's infamous tweet from 2018, when he declared he had "funding secured" to take Tesla (TSLA) private.
Bigger picture: The latest influx of cash comes as SpaceX develops two capital-intensive projects. Starlink (STRLK) aims to build an interconnected internet satellite network, also known as a "constellation," which would consist of 11,943 satellites that fly in low Earth orbit and beam high-speed internet to anywhere on the planet. SpaceX leadership has estimated Starlink will cost about $10B to build, but could bring in as much as $30B a year, or more than 10x the annual revenue of its existing rocket business.
The other program, Starship, is another ambitious endeavor. The reusable rocket system would launch cargo and as many as 100 people at a time on missions to the moon and Mars. While the company has successfully launched multiple prototypes, and landed them safely after short flights to about 500 feet, high-altitude flights have had more difficulties. The two most recent attempts exploded on impact during landings, though SpaceX has viewed the developments as steps forward in the rocket's development.
More on Starlink: SpaceX started a public beta program in October, but last week, it widened the scope of the test, accepting pre-orders from potential customers. Starlink has already amassed "over 10,000 users in the United States and abroad" in the three months since the public beta began. The service is priced at $99 a month, in addition to a $499 upfront cost to order the Starlink kit, plus shipping. "Once we can predict cash flow reasonably well, Starlink will IPO," Elon Musk wrote in a tweet on Feb. 9. He has also suggested that retail investors will get "top priority" in the coming offering. (33 comments)
The switch to electric vehicles is happening fast as consumers increasingly accept the industry shift and governments across the globe unveil plans for regulating diesel and gasoline vehicles. Ford (NYSE:F) is the latest to announce its entire passenger vehicle range in Europe would be "zero-emissions capable, all-electric or plug-in hybrid" by 2024, with a "completely all-electric" offering by 2030. In fact, Ford will invest $1B on an EV production facility in Cologne, Germany, retooling an existing assembly plant to produce its next-generation lineup. F +1.6% premarket.
Quote: "Our announcement today to transform our Cologne facility, the home of our operations in Germany for 90 years, is one of the most significant Ford has made in over a generation," said Stuart Rowley, President of Ford Europe. "It underlines our commitment to Europe and a modern future with electric vehicles at the heart of our strategy for growth."
Ford currently rules the U.S. and European market for gasoline-powered commercial vehicles with a share of 40% and nearly 15%, respectively. Earlier this month, the automaker said it would "double down" on connected electric vehicles, investing $22B in electrification through 2025, nearly twice what it had previously committed to the EV dream.
Go deeper: Last month, General Motors (NYSE:GM) said it would aim for an entirely zero-emissions lineup by 2035, while Volkswagen (OTCPK:VWAGY) announced a €35B investment in battery electric vehicles (with roughly 70 all-electric models by 2030). South Korean carmaker Kia (OTCPK:KIMTF) is also launching its first dedicated electric vehicle this year, while Jaguar Land Rover (NYSE:TTM) said its luxury Jaguar brand would be entirely electric by 2025 and the rest of its lineup by 2030. (35 comments)
Israel has administered the most COVID-19 vaccine doses per capita in the world, with more than 4M citizens having received the first dose of the Pfizer-BioNTech (PFE, BNTX) mRNA vaccine since its vaccination campaign began on December 20. That represents about 44% of the country's population, while more than 28% have received the second dose. Among those over 60, more than 80% have already been vaccinated, and anyone over the age of 16 can now be inoculated immediately.
Those efforts are bearing fruit, according to the latest data from Clalit, Israel's largest healthcare provider. A study of 600,000 people who received two vaccine doses found that there had been a 94% drop in symptomatic COVID-19 infections and 92% fewer cases of severe illness among those given the jabs. It also showed the vaccine was equally effective among people 70 and older as it was among younger participants, and was most successful one week after the second dose, mirroring the company's own clinical studies.
Backdrop: In early January, Israel struck a vaccines-for-data deal with Pfizer that promised to share vast troves of information with the drug giant in exchange for the continued flow of COVID-19 shots. "Israel will be a global model state," Prime Minister Benjamin Netanyahu said at the time. "Israel will share with Pfizer and with the entire world the statistical data that will help develop strategies for defeating the coronavirus." No funding was allotted for the agreement, and the country even paid a sizable premium for vaccine doses. Helping to demonstrate the impact of the vaccine on an entire population is Israel's highly digitized universal healthcare system, which requires everyone over the age of 18 to register with one of four HMOs.
Outlook: Israel is now in talks with the two biggest drugmakers fighting COVID-19 to open up plants in Israel. A Pfizer factory would serve as a "research and development site for the fight against future viruses," while Moderna's (NASDAQ:MRNA) facility would focus on "filling the small vaccine vials." Netanyahu is also negotiating with the companies to provide Israel with tens of millions of additional COVID vaccine doses to provide citizens with an anticipated booster shot every year. (15 comments)
What else is happening...
Strong box office numbers from China, while U.S. limps along.
Tuesday's Key Earnings
AIG (NYSE:AIG) -2.3% AH on higher catastrophe losses, loss development.
CVS Health (NYSE:CVS) -5% despite testing, vaccination tailwinds.
Occidental Petroleum (NYSE:OXY) rescheduled earnings release due to winter storm.
Palantir (NYSE:PLTR) -12.8% slumping after a surprise Q4 loss.
In Asia, Japan -0.6%. Hong Kong +1.1%. China closed. India -0.7%.
In Europe, at midday, London -0.2%. Paris -0.1. Frankfurt -0.6%.
Futures at 6:20, Dow flat. S&P -0.1%. Nasdaq -0.2%. Crude +1% to $60.67. Gold -0.7% at $1786.90. Bitcoin +5.4% to $51586.
Ten-year Treasury Yield -1 bps to 1.29%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Producer Price Index
8:30 Retail Sales
8:55 Redbook Chain Store Sales
9:00 Fed's Barkin Speech
9:15 Industrial Production
10:00 Fed's Rosengren Speech
10:00 Business Inventories
10:00 NAHB Housing Market Index
1:00 PM Results of $27B, 20-Year Bond Auction
2:00 PM FOMC Minutes