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Market Update
February 15, 2021

Bitcoin: The Never Ending Story

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Thoughts Of The Week

Bitcoin: The Never Ending Story

This week saw TESLA announce it had bought $1.5bn of Bitcoin (BTC)*. This sent the BTC price soaring over 20% from $39,400 to $48,000 in under 24 hours.  As always though, the devil is in the detail. The statement that followed said:

“We have done this to further diversify and maximise returns on our cash that’s not required to maintain adequate operating liquidity”.

When seen in this light, it paints a very different picture to the idea that Tesla is all set to start letting people buy its cars via BTC.

The world of corporate cash management is all about investing in high quality, short term income securities. In other words, beating cash in a stable and secure way – which can’t be said of Bitcoin. Yes BTC’s recent returns have been extraordinary but it is also extraordinarily volatile and unlike most other investments, is not backed by anything other than market sentiment, which any seasoned investor will know can turn on a sixpence without warning.

$1.5bn represents about 8% of Tesla’s cash reserves.

* https://www.bbc.co.uk/news/business-55939972

Emerging Markets Inflation

Using simple averages, core inflation has settled around 3%. Energy has declined -4% (not surprisingly given the direction of oil last year). However, Food inflation runs at over 5% and presents the greatest problem. Food is the single, largest element of inflation baskets in many EMG markets. It accounts for 50% in countries such as India and Pakistan vs under 10% in the USA.

Food prices are being crimped by FX effects, rising commodity prices, supply chain disruptions from Covid19 and weather patterns. Brazil and Mexico have seen sharp spikes last year with food inflation up +14% and +7% respectively. Other emerging markets also suffered double-digit hikes. Substantial buying by China and lower production by the US have ramped up the impact. The result is global food prices have reached their highest in almost seven years.

The Week That Was...

Overall consumer spending in the UK for January plunged -16.3%* y/y (Barclaycard) as lockdown resumed.   Australia’s “Aware Super”, the country’s second-largest pension fund is on a drive for more investments overseas, especially in the EU and US where it is considering opening offices.

* https://www.barclayscorporate.com/insights/industry-expertise/uk-consumer-spending-report/

In the US, the median price of a single-family home gained +14.9% ($315,000) in Q4 2020**. The North East region led with a +21% rise while Fairfield County (Connecticut) jumped +39%. Prices gained in all 183 metros, 161 of which by double-digits (vs 115 in Q3)

* https://finance.yahoo.com/news/u-home-prices-post-14-150016170.html

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Market Overview.