Economic Analysis
Archegos Capital Management another one bites the dust
Credit Suisse (CS) is one of the main victims of the collapse of the New York financial vehicle Archegos Capital Management. The bank warned its shareholders on Monday that it would likely suffer a significant loss that would be reflected in the quarterly results. The exact extent of the losses cannot yet be quantified.
The warning triggered major upheavals on the stock market: CS stocks lost around 14 per cent of their value over the day. The bank lost over 4 billion francs in market capitalization in just a few hours.
Credit Suisse is not the only one affected in the Archegos case: the New York hedge fund used loans from numerous banks to place billions in bets on certain stocks. When these stocks came under pressure, the lending banks requested additional collateral from Archegos. But the financial vehicle was unable to deliver. Last week, for example, banks began selling Archegos' large positions to hedge against credit losses - it is said to have been more than $ 20 billion in total. In doing so they exacerbated the problem for the remaining creditors.
As a result of these sales, certain Chinese technology stocks and American media stocks fell sharply in value. Viacom CBS shares, for example, lost 5 per cent on Monday, and within a week they have lost more than half of their value.
Although numerous financial institutions, including the major US investment banks Goldman Sachs and Morgan Stanley, have done business with Archegos, not all of them are recording equally high losses. The sale was like the children's game “Trip to Jerusalem”: When the music stopped, everyone had to get rid of their Archegos positions as quickly as possible, but of course not all of them managed to do so in time.
In addition to Credit Suisse, these should include the Japanese investment bank Nomura Holdings. The company warned its investors that it could cost $ 2 billion in damages. Nomura's share price fell more sharply on Monday than it has since the global financial crisis. By the close of trading, the share plummeted by 16.3 per cent. The shares of Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank also lost significant ground on Monday. The UBS didn't comment on media reports, according to which it had also acted as a broker for Archegos.
One thing is clear: CS and Nomura have informed their shareholders about the incident, other banks haven't done so. The threshold from which the reporting obligation applies cannot be precisely quantified to the franc. If there is no such report, it is also a form of communication: it won't be that bad, the investors concluded. Credit Suisse itself did not give an estimate on Monday of how great the damage could be for them; Estimates of 1 to 4 billion francs were circulating in the market and media reports. However, the informative value of such estimates needs to be put into perspective: the size of the loss depends largely on how the markets will develop, especially in the USA. If things calm down, Credit Suisse will get off lightly.
The bad news comes at a particularly inopportune moment for Credit Suisse, as it wants to reposition itself after a series of missteps. In particular, the bankruptcy of Greensill Capital, a finance company that offered and securitized supply chain financing, caused Credit Suisse damage to its reputation and possibly also substantial losses. The majority of customers of the bank who had invested in the Greensill funds it advertised to are threatened with lawsuits. The big bank had already struggled with several “one-off effects” and had to post a loss in the fourth quarter of the past year, even though its core business was doing well.
The Archegos case reveals weaknesses in many places. On the one hand at Credit Suisse: although it has well-developed structures in risk management, it only discovers the proverbial iceberg time after time after it has already rammed it. On the other hand, the bankruptcies of Greensill and Archegos indicate that the low-interest-rate environment brought about by the central banks is tempting investors in making increasingly risky investments. Big banks are not immune to such expensive mistakes either.
Major currencies of the world
There are 16 base currencies, of which 7 are defined as the main currencies of the world:
1. American dollar - aka USD, aka $, it is also known under code 840 - the national currency of the United States used as a means of payment in twenty-odd countries of the world.
2. Euro is the collective currency of 17 EU countries, including France, Austria, Greece and others. The euro was introduced on 01/Jan/1999 as a means for non-cash payments, and three years later - as cash. The final transition to the euro took place
on 01/Jun/2002.
3. The pound sterling - aka GBP or £ - is the currency of Great Britain, which today is considered one of the most reliable in the world and ranks 4th in terms of trading volumes in the Forex market after the US dollar, euro and, of course, the Japanese yen.
4. Japanese yen - also known as ¥, JPY or code 156 - the official currency of Japan, the most popular currency in Asia. The yen ranks third in the Forex market, but mainly due to the Asian trading session - on it, almost all transactions are concluded in this currency.
5. Swiss franc - aka CHF, consists of 100 centimes and is the payment unit of Switzerland. Despite the small circulation, the Swiss franc is known for the stability of the country's banking system and high backing (40%) of gold and foreign exchange reserves.
6. Australian dollar - aka AUD - the national currency of the "Green Continent", which is popular due to trading on the famous Sydney Currency Exchange.
7. The Canadian dollar - aka CAD - is the national currency of Canada, which is in demand on commodity exchanges, where there is a brisk trade in metals, timber and energy. The Canadian dollar is especially actively bought up by importers for settlements with suppliers.
The main reserve currencies in the world are the US dollar and the euro.
Shares of Chinese IT giants may leave American bourses
Asian investors continued to sell off tech stocks following Wall Street. Xiaomi reported a 12.5% increase in profits for 2020, but this did not prevent the company's shares from falling by more than 4%.
On the Hong Kong platform, shares of the search engine Baidu also fell by more than 8%, Tencent by more than 2%, and the online supermarket Alibaba by more than 4%.
In addition to the influence of Wall Street, the negative for the shares of the Chinese tech giants was the statement of the US Securities and Exchange Commission regarding the adoption of measures that would prohibit the trading of shares of foreign companies if they do not meet US audit standards.
At the moment, we can say that these companies do not even comply with the Chinese audit, since the Chinese authorities have a lot of questions about the practice of their work. The Japanese market was helped by the yen, which weakened to $108.9 from $108.6 per dollar a day earlier.
While most Asian indices still tried to stay in positive territory, the Indian market was rapidly declining amid the growing infection rate of COVID-19.
Gold prices are at a record level, and demand has fallen - how is this possible?
Although gold is considered a lifeline in difficult times, even the precious metal market has not been spared the impact of the coronavirus crisis. Global demand for gold fell, especially in the fourth quarter of 2020.
Overall, 2020 has been a good year for gold investors. After falling sharply in March during the first wave of the pandemic to $ 1,467 an ounce, gold recovered by September and broke a new record, rising to $ 2,063. The demand for gold seemed to be higher than ever.
Until the end of the year, the decline in value was small, with 2020 ending at $ 1,897 per ounce. In terms of the entire last year, gold investors have increased their fortune by more than 24%. It was during the pandemic that the precious metal lived up to its reputation as a safe haven away from rising asset risks.
Yet the annual report of the World Gold Council, the lobbying organization of the world's gold producers, shows a different picture. The coronavirus pandemic has led to a 14% drop in global gold demand. Worldwide, demand dropped by 3,760 tons. It was last so low during the 2008 financial crisis.
Jewellery industry demand fell by more than a third from 2019, despite a rebound in demand in the second quarter. On the other hand, demand from investors has grown by as much as 40%. For eleven months, investors bought more and more gold, until November this trend was replaced by a decline in the price of gold and investor activity.
First of all, exchange-traded “gold” funds, which experienced a record inflow of 877 tons, had to sell 130 tons again between October and December. In total, by the end of 2020, the volume of world "gold" funds amounted to 3,751.5 tons of gold worth $ 228 billion.
But the demand for bullion and coins was also high. Due to the economic recovery in China and India in the second half of the year, the demand for it increased by 3% in annual comparison. In the fourth quarter alone, sales of bullion and coins rose 10%. The rise in gold prices in 2020 is associated primarily with high demand from investors, according to the document of the World Gold Council. It is likely that the price of gold would have increased even more if central banks did not become more restrained in buying gold and there was no downturn in the jewellery industry. Compared to the previous year, demand from central banks decreased by 59%, amounting to only 273 tons in 2020. In the fourth quarter, they still returned to purchases, gold reserves increased again by 44.8 tons.
“Buyers around the world stayed at home due to lockdowns, weak market conditions and high gold prices. This has led to a new annual low in the jewellery industry, ”says Louise Street, lead analyst at the World Gold Council, to explain the impact of the pandemic. “Nonetheless, gold funds on the exchange, thanks to low-interest rates and high levels of uncertainty, and despite an outflow in the fourth quarter, posted a record year-on-year gold inflow - highlighting gold's role as a safe haven for assets.”
According to the expert, a number of factors that contributed to the growth in demand for gold from investors in 2020 will be observed in 2021. “Overall, we expect the effects of the pandemic to likely continue in the first quarter of 2021, and possibly longer.” We proceed from the assumption that in the future there will be a great need for hedging, and the continued growth of the money supply in an environment with low-interest rates will lead to inflationary pressure. In addition, strong fluctuations and significant rebounds are possible due to high performance on exchanges.
Therefore, we believe that in 2021 gold expects a positive, albeit somewhat smoothed, development in terms of value.
Trump's business affected by coronavirus pandemic
The business of former US President Donald Trump has been hit hard by the coronavirus pandemic.
Revenues from his hotels in Washington and Las Vegas fell by more than half. It's became known from his declaration.
The business also suffered from golf courses located in the UK and Ireland. The crisis also did not pass by the sales in Trump Tower stores in New York. Overall, the Trump Organization generated $ 278 million in revenue, down 38% from 2019. In total, Trump has estimated his assets in the range of $1.3 to $1.7 billion US dollars. His declaration also details more than $ 40,000 in gifts he received over the past year.
Trump is currently worth $ 2.45 billion. This amount is $ 500 million less than what he had when he took over as president. In the next three years, he will need to pay off debts for his buildings. The amount of debts exceeds a billion dollars.
Large investors have reduced the volume of investments in cryptocurrency by 97%
Trading floor reserves decreased by 20% to 8 million ETH. Users have been actively withdrawing coins from platforms for more than six months, for several reasons.
In the first week of January, institutional investors invested only $ 29 million in cryptocurrency, according to the CoinShares fund in its report. Thus, the volume of investments of large players decreased by 97% compared to the last week before Christmas (December 25) - then it amounted to a record $ 1.09 billion.
CoinShares also emphasized that in early January, capital outflows were recorded for multinomial crypto instruments. This may indicate that large players have begun to take profits, the company believes.
From September to early January, bitcoin showed significant growth - by January 8, the price rose to $ 42 thousand per coin. Yesterday, January 11, there was a correction in the market. The value of BTC fell sharply - below $ 31 thousand, and then partially recovered, to 35 thousand.
Investment bank JPMorgan believes that a new decline may occur in the market, which will be caused by a temporary increase in the outflow of funds from institutional investors. The company's strategists, led by Nikolaos Panigirtzoglu, suggested that the launch of a Bitcoin exchange-traded fund (ETF) could be approved in the US. In this case, the big players are likely to start taking funds invested in the Grayscale crypto fund, which is now a monopolist in this market. This could cause a strong, short-term correction in the price of BTC, Bloomberg reports.
"The cascading capital outflow from Grayscale is likely to have negative short-term impacts on bitcoin, given the importance of the fund and the volume of its assets," JPMorgan explained.
As of January 11, the volume of assets managed by Grayscale was $ 24.5 billion. More than $ 20 billion of funds were invested in bitcoin.
In early January, JPMorgan strategists predicted a rise in the price of bitcoin to $ 146 thousand in the long term. They stressed that it is impossible to exclude the possibility of speculative mania, which soon may provoke an increase in the rate of the first cryptocurrency to $ 50-100 thousand, but such price levels will turn out to be unstable.
Reuters predicted bitcoin rate citing astrologer
The international financial information agency Reuters turned to the American astrologer Maren Altman to predict the course of the most famous cryptocurrency - bitcoin.
New Yorker, bitcoin investor and astrologer Maren Altman “has been following the movement of celestial objects since last summer, predicting bitcoin rate fluctuations. And although many may laugh at her methods, she gained one million subscribers on TikTok, ”writes Reuters.
So, last week, a 22-year-old girl advised her subscribers to watch the price correction on January 11, as Saturn was about to get closer to Mercury. Bitcoin fell 21% that day.
Altman herself says she never gives specific advice on buying or selling cryptocurrency. “I can predict price trajectories, but I don’t pretend to be a financial advisor with knowledge of anyone’s particular situation, and therefore never give advice on buying or selling,” she said.
Speaking about the future rate of bitcoin, the astrologer said that she sees "some favorable indicators ... in February and early March." “However, closer to mid-March, I see a big correction. The middle of April is also less optimistic. May is optimistic, ”she said.
Experts are skeptical about such predictions. “I'm a bit of a cynic when it comes to Bitcoin price predictions. I think this (predictors) is just a bunch of people grabbing at straws and trying to come up with any reasons for optimism, ”says analyst Craig Earlam.
Recall that recently, Bitcoin has repeatedly updated its historical maximum. On January 7, it was reported that Bitcoin at its peak reached $ 40,000, on January 8 - it exceeded the level of $ 41,000. Analysts at JPMorgan believe that its value could rise to $ 146,000. However, on January 11, the value of bitcoin fell by 20%.
Coronavirus defaults
The coronavirus pandemic has turned into an economic paradox for the whole world. Huge spending, which has become one of the main signs in 2020 for many countries, threaten them with a debt crisis and ruin. However, the richest - for example, the United States, China and Japan - even with the accumulation of huge debt, only benefit and become even richer. How can this happen?
By the end of 2020, the total debt of all countries of the world may reach a record $ 277 trillion, or 365% of world GDP. During the year, due to the coronavirus, this figure increased by $ 15 trillion.
The first "coronavirus" default, in May, Argentina was unable to pay off its foreign obligations of $ 500 million, whose debts at the beginning of the year amounted to $ 323 billion - this is the ninth default in the country's history.
For Lebanon, the $ 1.2 billion default on Eurobonds announced in March was the first such case, but the country's financial situation steadily went in this direction - Lebanon's national debt reached 170% of GDP, which is several times higher than the level recommended by international institutions. Zambia was the first African country to declare that it was unable to service its debt in November. In Latin America, in addition to Argentina, Ecuador, Suriname and Belize were also in default.
But there is a factor that is holding back the chain reaction of defaults around the world. It is a continuing opportunity to borrow at minimal rates. Besides, the programs of quantitative easing were expanded - permanent buyout of debt obligations by regulators. This tool has proven itself even after the 2008 crisis.
As long as borrowing rates remain low in the world, the likelihood of a large-scale “parade of defaults” is not so high. However, it will increase significantly with an increase in interest rates.
Probably, the only real way to solve the problem of large debts is to launch a high inflation regime in the euro and dollar zones for 10-15 years. Only 10% of inflation - and in 10 years 60% of the debt will be "written off", in 15 years the debt will decrease fourfold.
American debt is in demand in a wide variety of countries, and as long as people believe in the dollar, the United States can finance its needs by building up debt - and the payback will come sometime later.
The markets are flooded with liquidity, the situation is developing according to the Japanese scenario of the “lost decade”, and very few people know what will happen next.