Piers Bolger– Chief Investment Officer
There has been no shortage of amazing aspects over the last twelve months. But for me what took the cake was the RBA to cutting the official cash rate to 10 basis points, engaging in active yield curve control, providing term funding for the banks, and then combining it with a bond purchasing program. These actions in isolation would be fairly significant. To do it all in one hit, which resulted in domestic 10 year treasuries hitting and all time low of 74 basis points in 2020 was pretty incredible.
For the bizarre and surreal… well I can give you two
- Living through a pandemic and seeing the streets desolate during lockdown.
- Cathie Wood, the fund manager of the Ark Innovation ETF, making comment on how crypto mining is ESG friendly and “green” and how it promotes the development of renewable energy. Numerous comments factually wrong and left my heading spinning.
Ben Casley, CFA – Investment Analyst
I grew up studying the 2008 financial crisis, read about the hysteria and speculation of the dot com bubble in 2000. Then over I worked though the March 2020 crash. The worst ever recorded quarter in ASX history. I then witnessed speculation in meme stocks and crypto markets that would put the dot com bubble to shame.
In this time, I have taken a keen interest in money, central banks, and the role of capitalism in society. It appears so have many others, but I am not sure what lessons they have taken for it. We have seen speculators turning to financial markets en masse; coordinated attacks on heavily shorted stocks and buying of a cryptocurrency based on a popular 2013 meme of a Shiba Inu.
I have seen first-hand the importance of liquidity in financial markets and of the extreme structural leverage used to achieve liquidity. When credit becomes tight and positions need to be unwound, this has extreme consequences to the functioning of financial markets and asset valuations.
We also saw spot oil turn negative in April 2020, falling as low as -US$38 a barrel. People could have been paid US$38 to take a barrel of oil (literally could not give it away) and could have sold that same barrel today for US$70. A US$108 turnaround, that could have been some trade.
“Headline of the year: Bitcoin Dips After Musk Tweets Broken-Heart Emoji for Token”
Andrew Miles – Investment Analyst
I think the market’s reaction to the vaccine announcements in November was a fascinating sentiment change. The global stock market index was up 12% in the month, with many beaten up sectors leading the charge (financials, energy, airlines, and hotels). There were also sharp price appreciations in junk bonds, commodities, and cryptocurrencies.
One of the most astonishing things that I have witnessed over the last twelve months is the increased participation of the retail investor. The chart below from the Financial Times shows how retail trading volumes were twice that of mutual funds and traditional hedge funds combined, at the start of 2021.
It should be positive that more people are investing, but, as the following examples show, it is quite a concerning backdrop.
- A sandwich deli in New Jersey fetching a market value of $100 million USD despite only having revenue of $14,000 in 2020.
- ASX listed GME Resources rose 50% in a single day in January after “investors” mistook it for Gamestop.
No mad land for AMC’s valuation – Thomas Kertapati, Investment Analyst
The latest bizarre observation I’ve seen in markets is in AMC Entertainment Holdings, a movie theatre company in the USA that has suffered from the rise of streaming platforms such as Netflix and Disney.
Its share price has been rallying hard and with an all-time high closing price of $62.55, the stock has returned +3,012% since the start of the year.
But how high is too high? AMC traded at an average Price to Sales of 0.45 in the 5 years leading up to 2020, which would imply a valuation of $4.50 if revenue can recover to 2019 levels ($5.47 billion).
A $62 share price implies a market cap of $31.25 billion and revenue of $70 billion per annum today.
With the average ticket price at USD$9.50 and AMC’s ~20% market share of all ticket sales in the US, the average AMC customer (including babies) would need to watch over 110 films each year at AMC’s theatres to make the $62 share price valuation work out. On top of this, debt problems, free popcorn giveaways to their 3 million retail shareholders and $5 specials weigh on the company’s ability to survive and make it back to profit.
Dominic Mlcek – Portfolio Manager
From a technical perspective, it is incredible to think that 12 months on from debates about the shape of a potential recovery (‘V’, ‘U’, ‘W’, ‘L’ or some variant of) the Aussie equity market (barring a collapse in the next 3 weeks) is on track to deliver its strongest financial year return since pre GFC. And in the face of a crippling recession who would’ve picked the Aussie banks to be the best performing sector while a global pandemic would leave the domestic health care industry as one of the worst performing sectors in the financial year to date…
On the bizarre, pick any number of daily news feeds and or refer to any of the above. Having worked in investments for nearly 20 years I can’t remember a period with so many crazy headlines, tweets, wild daily stock moves etc. With celebrities plugging stocks and other investments and retail investors punting stimulus checks the stock market felt like a casino at times but reminds me of a quote from legendary investor Peter Lynch “know what you own, and why you own it” and that old saying…”if it seems too good to be true, it’s probably a fraud”, or something along those lines…
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