Market Thinking

making sense of the narrative

Stranded in Rockpools

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In the Monthly Market Thinking, we focused on the rapidly retreating market liquidity and repeated Warren Buffet’s quote about seeing who is left swimming naked. A variation on that might be to consider some of the bigger ‘fish’ in the ultra QE world now being left stranded by QT in small rockpools as the tide of liquidity has rushed out. A lot of Tech stocks look stranded, as of course do the SPACs and VCs looking for exits. To add further to problems, what looks like a calculated attack on the stablecoin sector of the Crypto world this week has triggered a lot of panic selling and a likely large gain for someone.

AARK, or more correctly SARK, the inverse ETF of the ARK flagship fund, is the gift that keeps on giving. The ETF is up 52% this month alone and over 150% over the last year as Cathy Wood’s Fund continues to struggle not only with redemptions forcing selling but also terrible news releases from the underlying holdings, the latest slips being Teladoc (-60% last month) where ARK own 12% of the company and Coinbase, (-60% over the last week), where ARK own 4% of the company.

Can you see any Returns?

Two Boys Explore The Shallow Rock Pools Close Up. Te Angiangi Marine  Reserve In Central Hawkes Bay, New Zealand Stock Photo, Picture And Royalty  Free Image. Image 4400585.

She is not alone of course, we noted last year that T Rowe Price and Tiger Global were both names that kept showing up as owning the same crowd of high beta mid cap stocks and Tiger certainly shows up as a top 10 holder of Coinbase, which, as well as having poor numbers is struggling with the, if anything even greater, rush out of the Crypto Space over the last week. It’s a sea of red across most of the Bloomberg Billionaires index this last few weeks, but the Crypto Bros aren’t even on there to watch them fall.

Tiger Global is keeping good company with Ark in the meltdown stakes, but at least neither are currently under arrest on fraud and conspiracy charges like (former) Billionaire and Archegos boss Bill Hwang and Finance Director Patrick Halligan who were arrested three weeks ago. Nor indeed is Softbank’s Masa San, who continues to hold the (undesirable) crown as one of the biggest $ losers and the ‘investor’ most likely to blow something up. Yesterday’s announcement of a $20.5bn loss for the year at the Vision Fund (versus a $4bn gain the previous year) was not entirely unexpected given high profile stakes in stocks like Uber, Didi and Coupang that have all collapsed, plus of course its biggest holding AliBaba. In addition the expectation of realising gains with ARM being sold to Nvidia are also now disrupted. Having made a fortune with AliBaba, we have documented over the years how Masa and his associates have ended up at the bottom of the ruck on all sorts of stock market collapses, from Won’tWork to Wirefraud to Greenshill and our old ‘friend’ THG group. Last month, Softbank effectively closed down SB Northstar, the Middle East based hedge fund it has set up with personal money from Masa and Mubadela (the UAE Sovereign Wealth fund) and run by some former Deutsche Bank derivatives traders. SB Northstar, had a short and notorious life, being behind some of Softbank’s more ‘maverick’ decisions, such as Wirecard and the story of the ‘NASDAQ Whale’, where they tried aggressively using options in certain tech stocks they owned to effectively bully markets higher. It worked (for a while) until it didn’t and Softbank have apparently booked a $6-7bn loss on the fund (more than 20x its original investment).

That probably included the $500m or more it will have written down on the 10% stake in THG that it acquired this time last year and it looks unlikely, to say the least, that Softbank will take up their option to buy THG’s so called ‘tech’ business before the year end for $1.6bn – 25% more than the current market cap for the whole group. Not least because that valuation was based on 5x sales type multiples then being traded by the likes of Peloton (owned by among others, ARK, Tiger Global and T Rowe Price – see a pattern here? – and now down to 1x). Peloton, like THG and most of the others held by the ‘closed user groups’ is close to the 90% (loss) club. Or as they used to say back in the Dot com days – they fell 80% before they halved.

A stock that has fallen 90% is one that fell 80%. Then halved

Market proverb

Closing the stable (coin) door….with a CBDC

Masa San might yet lose his ‘biggest loser’ crown to one of the Bitcoin bro’s of course. The troubles hitting the stable coins and the closed user group nature of the eco-system were really ramped up this week, with what looked like a ‘Soros style’ hit on the stable Coin $UST. The apparent technique of going short Bitcoin and then attacking the ‘peg’ of the UST stable coin in order to prompt the exchange owner to defend it by selling bitcoin, thus triggering a ‘run on the bank’ at UST and further selling of bitcoin has resonance with the successful attempts on the pound sterling in 1992 and the Asian currencies in the late 1990s – as well of course as the, unsuccessful, attempt on the HK$ in 1997. Going short a currency and then forcing the ‘central bank’ to sell it is a classic ‘currency peg’ trade. If this was a deliberate play, then someone did very well out of this. Ironically, we would actually have suspected SB Northstar, if they hadn’t just been closed! Meanwhile, of course, the fact that 90% of central banks are planning a Central Bank Digital Currency (CBDC) means that this serious hit to Bitcoin and the stable coin infrastructure will be regarded in CB circles as ‘a good thing’.

Finally, if you can, spare a thought also for the investors in Theleme Partners and the rockpool they are now stuck in. A small hedge fund with a nevertheless respectable $3bn in AUM and what might be described as a ‘concentrated portfolio’ of just nine stocks, with the top 2 stocks according to its latest 13-F accounting for 63% of the portfolio. It is theoretically quite defensive, – its second largest holding, being Wells Fargo, down 12% or so this year, but its concentration risk is obviously huge. Indeed, its largest holding is down 52% year to date and that is interesting since it is Moderna, which at one point was over 50% of the total portfolio. The fund invested pre-IPO back in 2020 and saw the share rise four fold in the first half of 2021 following the mRNA vaccine approval (good insight) and while it has been steadily selling down from over 8m shares to now around 5m, it is still the main asset. The Moderna stock price has completely round tripped back to where it was in November 2020 – which is at least better than other Covid stocks like Zoom (off 78%) and Netflix (off 68%). Whether its investors are happy is not clear, (whoever they are) although the extra-ordinary concentration of the portfolio hopefully suggests they are keen on risk (!) Nor is it known whether UK Chancellor Rishi Sunak (who used to work for the fund and was a founding partner) is an investor – or what he thinks of the risk management style!

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