Bitcoin Has Its Best Start to a Year Since 2012January 17, 2020by Frank Holmes
of U.S. Global Investors
Besides its breathtaking mountains, world-famous chocolate and wartime neutrality, Switzerland is perhaps best known forits commitment to financial privacy. Banking secrecy became law in 1934, making it a crime for Swiss banks to discloseaccountholder information of any kind to third parties.
Although such privacy laws have been impacted in recent years—mostly by U.S.-led global efforts to counter moneylaundering and tax evasion—Swiss banks still enjoy a reputation for being secure and discreet, and they continue to attractassets from all over the world.
It’s appropriate, then, that the country should host the world’s most private conference on what’s potentially the mostprivate asset class: cryptocurrencies. This week, hundreds of crypto investors, experts and enthusiasts from all around theglobe descended on the legendary skiing resort town of St. Moritz to attend and learn at the Crypto Finance Conference.
The conference’s timing couldn’t have been more perfect. Bitcoin had its best start to the year since 2012, rising more than22 percent in the first 15 days.
Among the biggest contributors to the rally, as I see it, is the hope that 2020 could finally see institutional investors moveinto the digital field en masse, prompted by growing client demand and more attractive ways to get exposure than directownership of coins. Earlier in the week, the Chicago Mercantile Exchange (CME) launched one such product, a bitcoinoptions contract, which reportedly had a successful first day of trading with a total of 55 contracts, worth 275 bitcoin, or theequivalent of $2.4 million.
Who Will Be First With a Bitcoin ETF?
Advisors, though, may be holding out for an exchange-traded fund (ETF) backed by cryptos such as bitcoin, if a recentsurvey is any indication. As much as 65 percent of respondents to a survey conducted by crypto indexer Bitwise and ETFTrends said that a crypto ETF was their preferred method of getting exposure, followed by a distant 16 percent preferringdirect ownership and an even more distant 9 percent preferring a mutual fund.
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At the moment, no such ETF is available because the Securities and Exchange Commission (SEC) has yet to approveone. Bitwise, in fact, withdrew its proposal for a bitcoin ETF this week, with Bitwise global head of research Matt Hougantelling The Block that the firm intends “to refile our application at an appropriate time.”
If you recall, I explored the feasibility of launching such a product a couple of years ago, ultimately deciding that theregulatory hurdles were too prohibitively high. Instead, we elected to bring to market the world’s first publicly traded crypto-mining firm, HIVE Blockchain Technologies. More than two years after its debut on the TSX Venture Exchange, investorscontinue to use it as a proxy for digital assets.
This week HIVE announced an incredible 20 percent increase in newly mined Ether coins compared to the last 15 days ofDecember 2019. That’s thanks to the completion of the company’s Ethereum network upgrade dubbed the “Muir Glacier.”You can read more about the development by clicking here.
Winklevoss Twins: Time to Get On Board With Bitcoin
There was a number of notable presenters at the conference, including J. Christopher Giancarlo, former commissioner ofthe Commodity Futures Trading Commission (CFTC), who reminded the audience that innovation must come beforeregulation. And yet the European Union (EU) has it backwards, putting rules in place that hamper innovation before it evenhas a chance to begin.
The biggest rock stars in attendance by far were the Winklevoss twins, Cameron and Tyler, cofounders and president/CEOof crypto exchange Gemini. During their “fireside chat,” the two bitcoin perma-bulls urged conference-goers to start“building up bitcoin reserves” in anticipation of significantly higher prices.
In particular, they targeted gold investors, saying they “think bitcoin will disrupt gold.”
“Once the likes of Tesla’s Elon Musk or Amazon’s Jeff Bezos start mining gold on asteroids, which will happen within 25years, gold’s value will change,” Tyler Winklevoss told the audience.
With all due respect to Tyler and his brother, I don’t happen to agree that bitcoin will replace gold anytime soon, as I’veexplained before. For one, unlike bitcoin, gold has a number of uses outside of its roles as investment, currency and awealth preservation vehicle. Two, the yellow metal can be traded without electricity, internet or WiFi. This makes goldespecially valuable in situations where power and telecommunications services are unexpectedly unavailable, such asduring or after a natural disaster.
Some Relief in U.S.-China Trade Spat, But More Work Is Needed
On a final, unrelated note, you’re probably aware by now that, after more than 18 months since the start of the U.S.-Chinatrade war, a meaningful agreement was finally reached between President Donald Trump and Chinese traderepresentatives. Although U.S.-imposed tariffs on China-imported goods still remain largely in place—presumably thosewill come off after a second round of negotiations—this is a positive step toward normalizing trade between the twosuperpowers.
The visual below, courtesy of Caixin Global, lays out exactly what China has agreed to. Over the next two years, the Asiancountry will be expected to purchase no less than $200 billion worth of U.S. goods and services, including $77.7 billion in
manufactured goods and $32 billion in agriculture.
That’s a tall order, to be sure. In 2017, American exports to China were valued at $130 billion, the most ever, according tothe Census Bureau. This leaves a $70 billion purchasing gap that China will need to fill somehow.
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Washington and Beijing have also agreed to a “dispute settlement mechanism” to help resolve potential disputes during theimplementation phase of the agreement.
Interestingly, the market didn’t respond too strongly on the news, gaining just under half a percent at its session high onWednesday. This tells me that investors have already priced in the first phase, which, again, does not provide tariff relief.Perhaps not until the so-called Phase 2 of the trade deal is signed will we start see to see significant recovery in the U.S.manufacturing sector.
Gold MarketThis week spot gold closed at $1,557.24, down $5.10 per ounce, or 0.33 percent. Gold stocks, as measured by the NYSEArca Gold Miners Index, ended the week higher by 0.29 percent. The S&P/TSX Venture Index came in up 0.37 percent.The U.S. Trade-Weighted Dollar rose 0.28 percent.
The best performing metal this week was palladium, up 17.92 percent on tight supplies and strong demand. One-week lease rates for palladium rose for a seventh day to 32.56 percent. The majority of gold traders and analystswere bullish on gold in the weekly Bloomberg survey, as attention turns to the next stage of the U.S.-China tradedeal. Turkey’s gold reserves rose $478 million from the previous week to total $27.9 billion as of January 10,according to data from the central bank. South African gold output rose for the first time in more than two years inNovember, according to Statistics South Africa. Output rose 5.2 percent from a year earlier, compared to a 1.4percent contraction in October. Producers have been able to take advantage of higher gold prices.
Palladium has surged to a whopping $2,500 an ounce and had its biggest one-day increase since 2008 on Friday.Bloomberg data shows that the metal jumped as much as 9.3 percent on Friday to $2,528.51. Palladium has addedover 70 percent in the last 12 months, driven by a combination of tight supply and strong demand for use in autos tomeet emission standards.BloombergNEF says that mines, especially those in remote locations with high energy costs, can now develop onsiterenewable energy as a cost-effective way to reduce carbon emissions and electricity costs. According to BNEF, anoff-grid copper mine in Western Australian could use onsite renewables to meet up to 40 percent of its electricaldemand at a lower or equal cost to diesel generation. Renewable energy costs continue to fall, with solar down 11percent and wind down 6 percent in the last year.
Weaknesses
The worst performing metal this week was silver, down 0.41 percent. Gold was under pressure early this week beforethe signing of phase one of the trade deal between the U.S. and China. “Investors who bought gold for the tradeuncertainty will likely take profit,” said ABN Amro strategist Georgette Boele to Bloomberg. The SPDR Gold Sharessaw more than $1 billion of outflows last week – the most since 2016. Russia’s gold buying spree has slowed. Russiapurchased 149 tons of gold in the first 11 months of 2019, which is 44 percent less than the year before.The Treasury Department monthly budget released on Monday shows that the U.S. budget deficit widened to $356.6billion in the first three months of fiscal 2020 and is on pace to exceed $1 trillion by year-end. A deficit of that amountwould be the highest since the financial crisis when the government boosted spending.According to Bloomberg data, shareholder activists launched 518 new campaigns in 2019, up slightly from 512campaigns in 2018. Vinson & Elkins, known for its energy-related work, said “2019 was the busiest year ourshareholder activism defense practice has ever had.” Endeavour Mining Corp announced that it has closed mergertalks with fellow Africa-focused gold miner Centamin Plc this week after it didn’t receive enough information in the duediligence process to make a formal offer.
Opportunities
Bridgewater Associates’ Greg Jenson told the Financial Times this week that gold could spike 30 percent as centralbanks allow inflation and political fears mount. “There is so much boiling conflict, that gold being part of a portfoliomakes sense to us,” Jensen said. This would mean a gold rally to more than $2,000 an ounce. Peak gold could bemore distant in the future than originally thought due to increased exploration spending. 2019 saw a flurry of goldM&A activity and a return to levels last seen during the 2011 boom. There was around $26.5 billion worth ofcompleted deals last year.
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Palladium might continue to see its price boom. Joni Teves at UBS said in a note this week that the price forecastwas raised to an average of $2,200 in 2020, up from $1,875. HSBC is also bullish, raising its near-term palladiumprice forecast by over 30 percent.According to five fund managers interviewed by Bloomberg, gold’s price increase, “combined with capital disciplineamong the larger miners, is generating a bonanza of free cash flow while mergers could spark share gains amongsmaller players.” Catalysts for more gains include a weaker dollar, lower-for-longer interest rates and the U.S.presidential election. RBC Global Asset Management’s Chris Beer said “I have covered the gold sector for more than20 years and I have never seen this kind of cash flow generation.” Roxgold released strong exploration and drillingresults this week and RBC Capital Markets commented that it expects to see a positive reaction from the company’sshares. Red Cloud Research released a note this week saying that it has initiated coverage of Group Ten Metals,
which holds the second biggest land package in the prolific Stillwater Igneous Complex of southern Montana. “GroupTen is our favorite PGM explorer in the public domain and we expect big things from this currently small company.”
Threats
Alastair Pinder at HSBC released a note this week warning that equity markets have been showing signs ofexuberance and that global equity markets “may have moved too much, too soon.” Stifel also released a report thisweek commenting about the risks of unlimited free money. Morgan Stanley said in a note on Monday that the top fivepublicly-traded American companies now make up a record 18 percent share of the S&P 500 – higher than the techbubble. Oaktree Capital Group LLC Co-Chairman Howard Marks said in an interview on Bloomberg TV this week thatthe odds are against investors now. “We’re in the longest bull market, the longest expansion in history, profits are notrising, stock prices are, and it’s what we call a liquidity-driven rally.”Several top U.S. automakers are reducing production and cutting jobs in a warning sign of a slowdown in the autoindustry. Bloomberg reports that Fiat Chrysler is sending workers home at four factories, Ford has two factoriesoperating on fewer shifts and General Motors might dial back output just after enduring its long strike. Americanconsumers are finding new cars less affordable as the average sticker price approaches $35,000. A greater volumeof car purchases last year went to rental companies and other fleet purchasers, rather than individual consumers.According to Bank of America Global Research analysis of income migration data, in 2018, low- and lower-tax statesgained $32 billion more in adjusted gross income than higher tax states. This is evidence that President Trump’sSALT cap has fueled a wealth exodus from high-tax states. Bloomberg reports that states like Florida and Texas, withno income tax, are seeing more people move there while New York, California, Connecticut and New Jersey, whichhad the highest average SALT deductions, lost nearly 455,000 people in the last 12 month measurement period,according to U.S. Census data.
Index SummaryThe major market indices finished up this week. The Dow Jones Industrial Average gained 1.82 percent. The S&P500 Stock Index rose 1.97 percent, while the Nasdaq Composite climbed 2.29 percent. The Russell 2000 smallcapitalization index gained 2.53 percent this week.The Hang Seng Composite gained 1.81 percent this week; while Taiwan was up 0.55 percent and the KOSPI rose2.00 percent.The 10-year Treasury bond yield remained essentially flat this week.
Domestic Equity Market
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Strengths
Utilities was the best performing sector of the week, increasing 3.76 percent compared to an overall increase of 1.96percent for the S&P 500.Perrigo was the best performing S&P 500 stock for the week, increasing 18.73 percent.Private equity giant KKR & Co. took the unusual step to disclose plans to push for changes at Dave & Buster’sEntertainment Inc. Shares in the restaurant chain soared as much as 16 percent to the highest level since June.
Weaknesses
Energy was the worst performing sector for the week, decreasing 1.12 percent compared to an overall increase of1.96 percent for the S&P 500.Bank of New York Mellon was the worst performing S&P 500 stock for the week, falling 8.63 percent.
Vail Resorts slumped after saying the North American ski season is off to a slower start this year, confirming WallStreet concerns.
Opportunities
Apple Inc.’s price target was raised 24 percent at Morgan Stanley to a level below only one other Wall Street bank,the latest sign of confidence in the company. According to the analyst, Apple should benefit from a potential reductionin the amount of time customers are taking to replace their smartphones.Brookfield Property Partners rose the most since June 4 on Friday after S&P Dow Jones Indices announced that thecompany will replace Encana in the S&P/TSX 60 Index next week.Forest products stocks rose after U.S. housing starts for December surged to the highest in 13 years. Analysts fromthe Canadian Imperial Bank of Commerce (CIBC) wrote that they expect “spring selling season this year and lumberprices to respond positively to near-term housing data.”
Threats
Companies that help transport goods and materials ranging from coal to cars are off to a turbulent start this year,after a host of disappointing quarterly results and weak outlooks for 2020.Southwest Airlines was downgraded to hold from buy at Deutsche Bank, as analyst Michael Linenberg expectsanother year of “sub-par growth,” as the carrier pulls Boeing’s 737 Max aircraft from its schedule through June 6.Things won’t pick up for smaller grocers like Sprouts Farmers Market and United Natural Foods anytime soon andthere’s “plenty of potential downside from here,” according to Wells Fargo analyst Edward Joseph Kelly, who cut bothstocks to underweight from equal weight.
The Economy and Bond MarketStrengths
The number of Americans who applied for unemployment benefits in early January fell for the fifth week in a row,writes MarketWatch, giving a clean bill of health to strong U.S. labor market as 2020 got underway. Initial joblessclaims declined by 10,000 to 204,000 in the seven days ended Jan 11, the government said Thursday.U.S. consumer sentiment remained elevated in January as record stock prices and a strong job market buoyAmericans, reports Bloomberg, suggesting spending will continue its steady gains. The University of Michigan’spreliminary sentiment index for January edged down to 99.1 from a seven-month high of 99.3 in December, datashowed Friday. The gauge of current conditions increased slightly to 115.8 while the expectations index ticked downto 88.3.U.S. retail sales strengthened in December, thanks to a late holiday-shopping rush that wrapped up a more-moderateyear of spending at the nation’s merchants. As reported by Bloomberg, the value of receipts at retailers rose 0.3percent, matching the prior month’s revised gain, and climbed 5.8 percent from December 2018, CommerceDepartment figures showed Thursday. Stronger sales occurred in all major categories except motor vehicle dealers.Excluding autos, retail purchases climbed 0.7 percent from the prior month, the most since July.
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Weaknesses
Industrial production fell 0.3 percent in December, the third decline in the past four months, the Federal Reservereported Friday. For the fourth quarter as a whole, industrial production was down at a 0.5 percent annual rate,
reports MarketWatch. Production was down in three of the four quarters of 2019. Output was down 1 percent on ayear-over-year basis.The Federal Reserve Bank of Atlanta’s GDPNow Index latest forecast suggests U.S. GDP will expand 1.79 percentin the fourth quarter, a slowdown from previous quarters.A measure of U.S. bank lending is showing signs of stalling, suggesting the American economy could faceheadwinds in 2020. U.S. commercial and industrial lending fell by $9 billion last month to $2.35 trillion, the biggestdrop since March 2017, according to Federal Reserve Bank of St. Louis data.
Opportunities
This week, the US and China signed off the Phase 1 trade deal, ending two years of escalating trade tensions. TheU.S. will roll back only a small part of tariffs implemented since January 2018, but the end to escalation is likely tobenefit business and consumer confidence across the world and reduce downside risks to the global economy.Existing home sales released next Wednesday should end 2019 on a positive note, rising in December on the back ofthe previous month’s decline.U.S. central bankers on Wednesday expressed confidence they have borrowing costs at the right level to sustaingrowth and lift inflation to healthier levels, despite what businesses say is a lingering drag from uncertainty over U.S.trade policy.
Threats
At the heart of President Donald Trump's "monster" trade deal is a commitment by China to $200 billion in additionalimports from the U.S. in the next two years. Bloomberg Economics has crunched the numbers on what would berequired to make that happen. The targets for goods exports are extremely stretching. For 2020, they imply an 81percent increase in China’s imports in the target categories, relative to the 2017 baseline that the deal specifies. Thedeal stipulates a relatively narrow set of goods categories that are expected to generate the increase in Chineseimports. That will make it even harder to hit an already-stretching target.Barclays’ macro outlook implies modestly slower growth in disposable income as slower employment growth andweak trends in manufacturing limit hours and income.The Leading Economic Index, released Thursday, is forecasted to post a decline in December.
Energy and Natural Resources MarketStrengths
The best performing major commodity for the week was lead, which gained 4.48 percent as metal stockpiles trackedby the London Metal Exchange posted their biggest drop since 1995. Copper in London posted the longest string ofgains in more than two years on Tuesday due to optimism on global growth and China reporting higher imports andexports, reports Bloomberg News. The red metal is set for a second weekly advance. Orders for LME nickel surgedby 27,186 over the past eight days as of Thursday – the longest streak of gains since January 2013. Lithiumproducers rose after China announced that it would not further cut subsidies for electric vehicles. Bloomberg writesthat lithium miners including Albermarle Corp, Livent Corp and SQM all rose more than 4 percent on the news.BloombergNEF reported that global investment in renewable energy increased 1 percent in 2019 to $282 billion.Increases were led by spending in the U.S. and on offshore wind farms in Europe and Asia. Even as PresidentDonald Trump seems to not support green energy, U.S. investment in the space rose to a record last year. A total of$55.5 billion was spent on solar and wind energy, an increase of 28 percent, as companies rush to take advantage offederal tax credits.
China’s largest offshore oil and gas explorer, CNOOC Ltd., said it will raise spending in 2020 to the most since 2014and revised output targets up by almost 3 percent for this year and next. Bloomberg News reports that stateproducers are facing government mandates to expand domestic output and enhance energy security.
Weaknesses
The worst performing major commodity for the week was natural gas, which fell 9.17 percent on forecasts of aboveaverage temperatures and abundant supplies of shale gas saturating the market. Natural gas futures sank below $2per million British thermal units for the first time in almost four years as forecasts showed cold weather vanishing nextweek in the U.S. Natural gas was one of the worst performing commodities in 2019 and the 2020 outlook doesn’t lookmuch better as production far exceeds demand for the heating fuel.The big news this week was that the U.S. and China officially signed “phase one” of the trade deal. Although it wasmeant to be a big positive for commodities, it was largely shrugged off with soybeans, cotton and corn falling onThursday. China pledged to buy almost $95 billion worth of additional U.S. commodities as part of the deal, but themarket isn’t sure that it will happen as there hasn’t been word on how China will execute the plan. Wind turbinecontracts signed in the second half of 2019 continued their long-term decline, falling to $700,000 per megawatt,reports BloombergNEF. Turbine margins have fallen along with a 54 percent drop in prices since 2009. As theaverage capacity of machines sold is rising, buyers are getting more for their money.Lundin Petroleum, one of the most active explorers in the Norwegian Arctic, reduced its resource estimates for its Altadiscovery in the Barents Seat and said it will not develop the project independently, reports Bloomberg. This is a blowto Norway’s hopes that there would be significant infrastructure and production from the Arctic region. There ispotential for vast resources, but only two fields have started production.
Opportunities
BlackRock Inc., which has around $7 trillion in assets under management, said this week that climate change willupend global finance sooner than they think. CEO Larry Fink wrote in an annual letter to corporate executives that“climate change has become a defining factor in companies’ long-term prospects” and “I believe we are on the edgeof a fundamental reshaping of finance.” The asset manager outlined several changes including: making sustainabilityintegral to portfolio construction and risk management, exiting investments that present a high sustainability-relatedrisk and launching new investment products that screen fossil fuels. BlackRock had been under tremendous pressureto address climate concerns and this is positive news for the green movement.Germany continues to push for greener energy and has chosen trains over planes, reports Bloomberg. The countrylaunched a $95 billion plan to modernize and expand its railway system and build out capacity to lure travelers fromcars and planes. Transportation Minister Andreas Scheuer said “it’ll be the decade of the rail.” Poland, the most coal-reliant country in the EU, used less coal to generate electricity last year than any other year on record, reportsBloomberg. The European Commission will unveil an investment plan aimed at triggering $1.1 trillion worth ofinvestments into making Poland carbon neutral by 2050.A new biofuel is emerging in Brazil: animal fat. Brazil launched an initiative this month to increase the use of biofuelsand a ranking system in the program found that fuel made from animal fat came out on top, beating sugar-caneethanol. According to Brazil’s oil regulator, the environmental score for animal fat biodiesel plants were as much as20 percent higher than for cane ethanol. This gives a greener side to cattle production, which is known for being a bigpolluter, by reusing the waste from it.
Threats
The U.S. shale “fracklog”, or number of oil wells that were drilled and never opened for production, has declined. Thefracklog has dropped by 10 percent – a sign that explorers are no longer racing to drill wells faster than they cancomplete them, reports Bloomberg’s David Wethe. According to data from the U.S. Energy InformationAdministration, the number fell to 7,574 from a high of 8,429 from May to November last year. Haliburton Co., theowner of the world’s biggest fleet of fracking pumps, is expected to report a 29 percent earnings decline from a yearearlier in the fourth quarter, according to analysts.According to local news reports, China’s Ministry of Finance has hinted at an end to national subsidies for offshorewind after 2021, adding to a string of recent policy changes aimed at reducing renewable subsidies. Bloombergreports that a 40-gigawatt project pipeline is at risk and could freeze near-term project development if individualprovinces do not step in to offer subsidies.Uniper SE, one of Germany’s biggest utilities, is set to open a new coal plant, even as the country aims to exit coal bythe year 2038. Protesters plan to disrupt the opening of the $1.7 billion Datteln-4 plant in June, which is nine yearslate and over budget due to a delayed connection to the grid. Bloomberg writes that “the conflict could threatenChancellor Angela Merkel’s climate legacy as German emission targets lag following a decade of record renewableenergy investments.”
Turkey was the best performing country this week, gaining 2.4 percent. Improving geopolitical tensions pushed stockstrading on the Istanbul exchange higher. This week politicians in Berlin are seeking a ceasefire deal in Libya afternegotiations failed last week in Moscow.The Czech koruna was the best performing currency this week, gaining 30 basis points. All emerging Europeancurrencies fell, except the koruna, as the U.S. dollar strengthened. The koruna benefited from higher-than-expectedinflation in the Czech Republic as well as the signing of the U.S.-China trade agreement.Consumer staples was the best performing sector among eastern European markets this week.
Weaknesses
Hungary was the worst performing country this week, losing 2.1 percent. European Parliament called for additionalmeasures to discipline Hungary and Poland for breaking the rule of law. Shares of OTP Bank recorded significantlosses over the past five days among stocks trading on the Budapest exchange.The Russian ruble was the worst performing currency in the region this week, losing 94 basis points. Political noiseput pressure on the currency. This week, the Prime Minister of Russia resigned and a new cabinet will need to beformed under the new Prime Minister Mikhail Mishustin.Energy was the worst performing sector among eastern European markets this week.
Opportunities
Russian Prime Minister Dimitry Medvedev resigned, and Mikhail Mishustin will be the new Prime Minister. Putin calledfor a series of constitutional changes that may allow him to stay in power long after he steps down as a President.These changes would require a national referendum, and in order for the referendum to pass smoothly, socialspending would increase. In addition, a shrinking population is a threat to Russia’s future, as some new benefits forfamilies were announced already with more to follow.
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After implementing three bailout programs during a decade of severe austerity, Greece will be the euro-area countrywith the largest fiscal expansion in 2020, according to Moody’s Investors Service. The new government, which cameto power last July, has already voted a package of measures that include reductions in taxes for companies andhouseholds. Greece also plans to renegotiate its primary surplus targets for 2021 and 2022 with European creditors.Bloomberg economists expect a small recovery in the eurozone’s Manufacturing PMI. Preliminary January data mayshow a small uptick to 46.8 from 46.3 in December. Service PMI is to remain unchanged at 52.8, but Composite PMIshould improve, moving away from the 50 level that separates growth from contraction. Preliminary PMI data willcome out next Friday.
Threats
Turkey posted a larger deficit then expected in the month of November of $518 million versus $400 million, afterrunning a surplus for four months. The decrease brought the annualized surplus to $2.7 billion, from a $33.4 billiondeficit in the same period last year. It is expected that the Turkey’s current account will slowly fall back into a largerdeficit as a more stable lira will support consumer demand and imports. According to the government, the currentaccount will return to a deficit of 1.2 percent of gross domestic product in 2020 and 0.8 percent in 2021 afterrecording a slight surplus last year.Recent Polish Central Bank data show that local lenders scaled down sales of consumer loans after the EuropeanCourt of Justice ordered them to partially reimburse upfront fees in case of early repayment. New sales of cash loansto households fell 12 percent to 5.48 zloty in November, the lowest level since February 2018, after dropping 3.8percent year-over-year in October.Reuters reported on European Central Bank (ECB) data Wednesday which showed that eurozone banks increasedtheir net interest income in the first nine months of last year, despite incessant complaints that negative central bank
rates are wiping out their most basic form of income. The biggest lenders in the bloc had net interest income of€202.9B in the first three quarters, up from €194.4B a year earlier, the highest nine-month figure since the ECBstarted supervision in late 2014. Overall income rose but banks' combined net profit still fell 8 percent, as costscontinued to rise and risk provisions surged.
China RegionStrengths
Korea’s KOSPI jumped 2.00 percent on the week, tops in the region and pushing up to an impressive 52-week highafter a long year and steady climb back up over the second half.Telecommunications was the top performing Hang Seng Composite Index sector in Hong Kong for the second fullweek of trading in calendar year 2020, rising 2.85 percent.China’s fourth-quarter GDP print clocked in at 6.0 percent on a year-over-year basis, leaving the overall 2019 numberwell within the governmental guidance and holding steady from the prior third-quarter print. Industrial production andretail sales also came in as mild beats for the last month of 2019, showing what may be a sign of an overall pick-up inthe economy.
Weaknesses
The Philippines Stock Exchange Index dropped 70 basis points for the week, and China’s Shanghai Composite,despite the trade signing ceremony in Washington this week, declined by 54 basis points on the week. Other regionalindices were up and finished green.Energy was the poorest-performing HSCI sector for this second full week of 2020, dropping by 0.74 percent, the onlysector to close in the red.Overseas remittances to the Philippines came in lighter than expected at a 2.0 percent year-over-year growth rate forthe November (latest) measurement period, below expectations for a 4.6 percent rate and down from the prior readingof 8.0.
Opportunities
Phase One. The Big Uno. Sandwiched right in between the U.S. holidays/calendrical new year and the rapidly-approaching Chinese holidays/Lunar New Year comes the official arrival and signing of the U.S.-China Phase Onetrade agreement. Cheers everyone, and here’s to the upcoming Year of the Rat!Take a gander at Korea’s KOSPI. Some charts speak for themselves, technicians believe, and thus there is nocommentary necessary here…
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Taiwan, like (though of course unique from) Hong Kong, dealt Beijing a bit of a slap in the face as Taiwaneseincumbent President Tsai Ing-wen was handily re-elected—she remains quite standoffish from the mainland, and Ms.Tsai a surge in her polling numbers throughout the Hong Kong pro-democracy protests against Beijing’s (over?)reach and influence. The election is now wrapped up, the status quo remains, and Taiwan (which you may recall wastops in the region for index performance in 2019, up nearly 29 percent on the year) remains just off its 52-week highs.
Threats
“Enforceable” is how the U.S. side is referring to promises about a lack of untoward interventions in the Chinese yuanamid the trade deal, signaling that the U.S. mean to play hard ball if necessary on the matter. While this is not, ofcourse—especially in a Phase One honeymoon period—a threat of anything imminent, it remains one to keep in the
back of one’s mind heading into the rest of the year as China aims to make good on its purchase promises, as wehead into U.S. elections, and as we get closer to the eventual revisiting of China trade issues after the U.S. electionoutcomes shape up. Of course, the very nature of enforceable deals and agreements between parties is also part ofwhat makes the rule of law and free markets work the world round, so in fact contained within the “threat”-eninglanguage of enforceability is also a seed of expectations for the growth and flowering of productive trade, greatertransparency, all amid (perhaps) next and later stages of a larger and more comprehensive deal. (And of course,should yuan strength aid in keeping the dollar at all relatively weaker while trade and perhaps inflation picks up, thatcould be just the sort of thing at U.S. Global Investors that makes EM and resource and gold investors smile inparticular. Time will tell…)It is conceivable that following the formal signing of the trade deal and the conclusion of the initial Phase Oneagreement now, with Asian markets thinning out around the Lunar New Year closures and U.S. holidays now wellbehind us, that the exuberant markets pause or perhaps retrace to some degree. This is, of course, hardlyguaranteed, but again, after a relatively fast and furious December and January-to-date, details of the deal now out,and Asian holidays forthcoming, it is conceivably a realistic sort of threat (even if considered only as the possibility ofa pause or change in pace rather than of overall trend).While the latest data suggest a possible pick-up in Chinese growth—and China is stimulating, don’t forget—it alsoremains conceivable that this is not yet the case, or at least not yet convincingly so, and investors will surely bescrutinizing this quarter’s data looking for further signs of progress.
Blockchain and Digital CurrenciesStrengths
Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended January 17 was GameStars, up 577.97 percent.Traders and analysts alike were surprised at the start of the week when bitcoin broke out of its already bullishchannel to strike at resistance levels near $8,600, reports CoinTelegraph. The leg up on January 14 brought thecryptocurrency’s 24-hour gains to almost 8 percent and hitting a two-month high. Then, by Friday, the popular coin hit$9,000.JPMorgan Chase and Co. has entered a partnership with swytchX to use blockchain to help it reach 100 percentrenewable energy by the end of 2020, reports S&P Global Platts. This project will allow both companies to trackJPMorgan’s energy output, usage and environmental indicators.
Weaknesses
Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended January 17 was QURAGLOBAL, down 98.16 percent.According to the latest Texas Investor Guide put out by the State Securities Board, and as reported byCoinTelegraph, Texas regulators have included cryptocurrencies in their list of top threats to investors. They note thedigital assets as being extremely volatile and difficult to understand for a non-professional trader, advising potentialinvestors not to contribute to crypto offerings unless they can determine some basic facts about the company and itsphysical location.An announcement on January 15 by Binance’s Japanese support website, reveals that the exchange is restrictingaccess to residents of Japan at an “unspecified later date.” The company was previously headquartered in Japan untilexiting Chia and moving its operations to Malta following an official warning by Japanese regulators due to its lack ofa national exchange license, explains CoinTelegraph. Currently, there are no restrictions in place and Japaneseusers can operate normal, but it is said that the restrictions will be implemented gradually.
Opportunities
Dish Network, one of the largest U.S. television providers, has published a patent application for a new “anti-piracymanagement system,” that uses blockchain technology, reports CoinDesk. Published by the patent office Thursday,Dish says the proposal can better monitor and enforce ownership rights, alerting platforms to when content is usedwithout permission.In a new report compiled by jobs site LinkedIn, blockchain is listed as the number one “hard skill” for the year 2020,writes CoinDesk. “Last year, cloud computing, artificial intelligence and analytical reasoning led LinkedIn’s global listof the most in-demand hard skills,” LinkedIn wrote in the report. “They’re all on the list again this year, but a skill weweren’t looking at a year ago – blockchain – tops the list of most in-demand hard skills for 2020.”The cryptocurrency exchange founded by the Winklevoss twins, Gemini, has created its own insurance company inorder to protect clients against the potential loss of coins from its offline vaults, writes CoinDesk, with a possiblyrecord-breaking $200 million coverage limit.
Threats
Mark Cheng, a Singaporean cryptocurrency consultant, was recently kidnapped in Thailand and tortured for a
$740,000 ransom in bitcoin, reports the South China Morning Post and CoinTelegraph. Cheng was on a business tripwhen a group of masked men grabbed he and associate Kim Lee Yai Wei and pulled them into a nearby truck. Chengwas only able to provide $46,000 to the captors, and was luckily able to escape shortly after.On January 16 the Bangkok Post reported that around 20 investors have fallen victim to an alleged cryptocurrencypyramid scheme in Thailand, and are now taking their case to the country’s Department of Special Investigation.Losses total around $2.5 million. As reported by CoinTelegraph, the scheme promised returns of as high as 8 percentweekly, with locals selling off their assets including private land, cars and motorcycles to raise the money for theirinvestments.New Hampshire lawmakers in the state legislature have killed a bill that would have allowed state agencies to acceptcryptocurrencies as payment for taxes, reports CoinTelegraph. Authorities considered the bill ineffective due to thehigh volatility of cryptocurrencies, the article explains, and if the bill was adopted, expenditures of the Department ofRevenue Administration (DRA) would have surged by an “indeterminable amount” in the fiscal year of 2020.
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