This week I had the pleasure to attend Consensus 2018 in New York, the premiere gathering for the who’s who in blockchain, bitcoin and cryptocurrencies. Attendance doubled from last year to an estimated 8,500 people, all of them packed in a Hilton built for only 3,000. Ticket sales alone pulled in a whopping $17 million, while event booths—the largest of which belonged to Microsoft and IBM—generated untold millions more.
The entire three-day conference, hosted by crypto news outlet CoinDesk, had the energy and flair of the world’s greatest carnival. Sleek lambos sat outside the hotel, attracting all sorts of gawkers. Passersby also stopped and stared at the “bankers against bitcoin” protest, conceived and funded by Genesis Mining, one of the largest bitcoin mining companies. (You can read my interview with Genesis cofounder and CEO Marco Streng here.)
The same money went to finance bitcoin awareness billboards outside the Omaha office of Warren Buffett, who recently bashed the cryptocurrency, calling it “rat poison squared.”
“Warren,” the billboards read, “you said you were wrong about Google and Amazon. Maybe you’re wrong about Bitcoin?”
Bringing #BitcoinAwareness to the Masses
That Buffett has a negative opinion of bitcoin shouldn’t surprise anyone. The “Oracle of Omaha” has famously been averse to emerging technology and tech stocks he doesn’t fully understand, including Google, Amazon, Microsoft and others. But he’s changed his mind in the past after he’s seen the value these companies provide.
I’m old enough to remember when Buffett was vehemently against airline stocks. The industry was a “death trap” for investors, he once said. Today, his company Berkshire Hathaway is one of the top holders of stock in the big four carriers—United Continental, Delta Air Lines, Southwest Airlines and American Airlines. He even told CNBC he “wouldn’t rule out owning an entire airline.”
Obviously there’s a world of difference between airline stocks and bitcoin—although blockchain, the technology that bitcoin is built on top of, is already being used in aviation to increase transparency in aircraft manufacturing and maintenance. All I’m saying is I wouldn’t rule out bitcoin, or cryptocurrencies in general, just because Buffett isn’t a fan. He doesn’t like gold as an investment either, and that hasn’t stopped it from being one of the most liquid assets on the planet.
The Future of Gold Mining (And Investing)
But back to Consensus. It wasn’t all fun and games, and there were some serious discussions on how governments might one day use cryptocurrencies; the future of bitcoin mining; and blockchain applications in finance, health care, insurance, energy and more. As I explain in this week’s Frank Talk Live, charitable giving is down because donors are increasingly concerned about fraud. Blockchain can help validate where your money is going.
I would include the mining industry to that list. Blockchain has the potential to revolutionize how gold and precious metals are manufactured and delivered. Consider the journey a gold nugget must take along its supply chain, from mine to end consumer—it cuts through several other industries and practices, including legal, regulatory, financial, manufacturing and retail, each of which might have its own ledger system.
These ledgers are vulnerable to hacking, fraud, errors and misinterpretations. They can be forged, for example, to conceal how the metal or mineral was sourced.
With blockchain technology, there’s no hiding anything. Decentralization guarantees complete transparency, meaning anyone along the supply chain can see how, when and where the metal was produced, and who was involved every step of the way.
This will give the industry a huge shot of trust, not to mention dramatically increase efficiency.
Many producers, tech firms and entire jurisdictions have already adopted, or plan to adopt, blockchain technology for these very reasons. IAMGOLD, a Toronto-based producer, announced last month that it partnered with Tradewind Markets, a fintech firm that uses blockchain technology to facilitate digital gold trading. IBM just helped launch a diamond and jewelry blockchain consortium, TrustChain, that will track and authenticate diamonds, metals and jewelry from all over the world. And sometime this year, the Democratic Republic of Congo will begin tracking cobalt supply from mines to ensure children were not involved.
With precious metals being used more widely in industrial applications, from smartphones to electric cars to Internet of Things (IoT) appliances, tracking metals across the supply chain has become increasingly more important to businesses and consumers. According to the Semiconductor Industry Association (SIA), global sales of semiconductors—which contain various metals, including gold—crossed above $400 billion for the first time in 2017. Total sales were $412.2 billion, an increase of nearly 22 percent from the previous year.
That’s a lot of metal and other materials that blockchain tech can help authenticate.
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Before I get off this topic, I want to mention that blockchain is also bringing change to gold investment. Consider Royal Mint Gold (RMG), which aims to provide the “performance of the London Gold Market with the transparency of an exchange-traded security.” There’s also the Perth Mint’s InfiniGold, which issues digital certificates guaranteeing ownership of gold and silver in the mint’s vault. A number of other platforms exist to help facilitate gold trading.
Should even one of these become hugely popular, it “could be as big a change to the gold markets as the development of ETFs, but with the added advantage of appealing to younger generations,” according to the World Gold Council’s (WGC) chief strategist, John Reade.
Who Says Size Matters?
The small-cap Russell 2000 Index closed at its third straight record high today after putting up bigger gains than the larger-cap S&P 500 Index and Dow Jones Industrial Average.
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As I’ve explained before, President Donald Trump’s protectionist policies and low corporate tax and regulatory environment strongly favor small-cap stocks. Investors hate uncertainty, which is precisely what the market is feeling with regard to tariffs and global trade. Because small-cap companies don’t rely as heavily on overseas markets as huge multinationals do, it’s little wonder why we’re seeing money flow into the Angie’s Lists and Yelps of the world right now.
Learn more about small and mid-cap stocks by clicking here!
Index Summary
- The major market indices finished mixed this week. The Dow Jones Industrial Average lost 0.47 percent. The S&P 500 Stock Index fell 0.54 percent, while the Nasdaq Composite fell 0.66 percent. The Russell 2000 small capitalization index gained 1.23 percent this week.
- The Hang Seng Composite gained 0.21 percent this week; while Taiwan was down 0.26 percent and the KOSPI fell 0.69 percent.
- The 10-year Treasury bond yield rose 8.8 basis points to 3.059 percent.
Domestic Equity Market
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Strengths
- Materials was the best performing sector of the week, increasing by 1.60 percent versus an overall decrease of 0.54 percent for the S&P 500.
- Macy’s was the best performing stock for the week, increasing 14.57 percent.
- Macy's reported stellar results for the first quarter of fiscal 2018. Revenue rose 3.6 percent year-over-year last quarter, reaching $5.54 billion – far ahead of the average analyst estimate of $5.39 billion. Comp sales surged 4.2 percent, driven in part by the timing of Macy's annual Friends and Family promotion. Further, sales to international tourists rose by nearly 10 percent, following years of declines. This gave management the confidence to raise its full-year guidance.
Weaknesses
- Real estate was the worst performing sector for the week, decreasing by 3.21 percent versus an overall decrease of 0.54 percent for the S&P 500.
- Campbell Soup was the worst performing stock for the week, falling 15.51 percent.
- Snap hit a record low of $10.51 on Tuesday as the company struggles to rebound following the disastrous Snapchat redesign.
Opportunities
- Pluralsight saw a big surge in its trading debut. The company that teaches technical skills and markets its online, on-demand classes to enterprises popped 35 percent in its Thursday trading debut on the Nasdaq.
- Nintendo will re-release its classic NES on June 29. The first re-release sold out immediately when it went on sale in November.
- JPMorgan is making a big move into China. It’s setting up a new brokerage in China in which it would own a 51 percent stake — but first, it must gain regulatory approval.
Threats
- The owner of MoviePass said it could stay afloat for 17 months without raising money. MoviePass owner Helios & Matheson Analytics CEO Ted Farnsworth told Variety that the company has a $300 million line of credit that can keep it afloat without raising additional cash.
- Elon Musk may need to tap capital markets for more than $10 billion by 2020 to fund Tesla’s auto-making operations, new products and an expected expansion into China, according to Goldman Sachs. While Tesla has options to issue new bonds, convertible notes or equity, each choice would have downsides for investors, analyst David Tamberrino said in a research note. Additionally, Tesla's engineering head took a leave of absence, with timing of his return unknown.
- Nordstrom comparable sales missed estimates. The retailer beat on both the top and bottom lines, but comparable store sales increased 0.7 percent at its full-priced stores, missing the 1 percent gain that analysts were expecting.
Gold Market
This week spot gold closed at $1,292.60 down $25.70 per ounce, or 1.95 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 3.26 percent. Junior-tiered stocks outperformed seniors for the week, as the S&P/TSX Venture Index rose 0.44 percent. The U.S. Trade-Weighted Dollar continued higher this week, climbing 1.22 percent.
Date |
Event |
Survey |
Actual |
Prior |
May-14 |
China Retail Sales YoY |
10.0% |
9.4% |
10.1% |
May-15 |
Germany ZEW Survey Current Situation |
85.5 |
87.4 |
87.9 |
May-15 |
Germany ZEW Survey Expectations |
-8.2 |
-8.2 |
-8.2 |
May-16 |
Germany CPI YoY |
1.6% |
1.6% |
1.6% |
May-16 |
Eurozone CPI Core YoY |
0.7% |
0.7% |
0.7% |
May-16 |
Housing Starts |
1310k |
1287k |
1336k |
May-17 |
Initial Jobless Claims |
215k |
222k |
211k |
May-23 |
New Home Sales |
678k |
-- |
694k |
May-24 |
Initial Jobless Claims |
220k |
-- |
222k |
May-25 |
Durable Goods Orders |
-1.4% |
-- |
2.6% |
Strengths
- The best performing metal this week was silver, down just 1.34 percent. Both gold and silver stabilized by Wednesday, after real yields surged about 9 basis points the first few days of the week, and then largely traded sideways the rest of the week. Despite the dollar the interest rates continued higher, but at a slower pace.
- During the first quarter of 2018, demand for gold jewelry was up 7 percent, totaling 187.7 tons. Chinese jewelers said they are working to attract a younger, wealthier generation of customers by expanding their collections of gold jewelry. According to Seeking Alpha, Chinese investors are turning to bullion as an economic hedge against political tension, with first-quarter demand at 78 tons.
- Bloomberg reports that the world’s biggest farm machinery maker, Deere & Co., dropped early Friday morning after reporting disappointing first-quarter earnings and saying that it will increase prices due to higher raw material and freight costs. Sam Allen, Deere & Co CEO said that the company is grappling with higher expenses. Here we find an “Easter Egg” in this press release where a company, literally at the bottom of the food chain, opining on passing its input costs and higher delivery costs on to the base of the food growing chain. Farmers will now need higher retail food prices to recover their expenses too. Sounds like the virtuous inflationary cycle is being unleashed upon us.
Weaknesses
- The worst performing metal this week was platinum, down 3.78 percent and never closed a trading session with a positive print. Bloomberg reports that gold posted its biggest weekly drop since December due to a stronger U.S. dollar and the 10-year Treasury yield piercing 3 percent. Data shows that retail sales rose for the second straight month in April and the Empire State Manufacturing Index rose this month, both of which point to an improving economy.
- Reuters reports that gold fell to a 2018 low as the dollar continued to rise. The dollar has climbed nearly 4 percent this quarter on the heels of expectations that the Fed will raise interest rates later this year, according to media.
- Detour Gold announced that its CEO Paul Martin will retire on June 1 and will be replaced with Michael Kenyon. While Detour is in the penalty box, the retiring of its CEO likely does not mean it’s time to load up on the stock at current gold prices. While management set expectations too high perhaps, it is the asset that did not perform, and analysts have free cash flow going to nil for the second quarter and the third quarter of 2018.
Opportunities
- The SPDR Gold Shares ETF saw $396 million of inflows in the first quarter this year, boosting holdings to its highest level since 2013. Bloomberg writes that top hedge-fund managers John Paulson and Ray Dalio have kept their faith in bullion after a strong first quarter. Paulson & Co. had 4.32 million shares in SPDR Gold as of March 31, and Bridgewater Associates also maintained its stake in the second largest bullion-backed ETF.
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- Credit Agricole strategists Valentin Marinov and Manuel Oliveri wrote in a note this week that the dollar’s recent rally has “pressured gold to levels where it is a worthwhile investment” with limited downside risk, reports Bloomberg. The gold-silver ratio shows that an ounce of gold can buy you 79 ounces of silver, compared to the average of 63 ounces since 1994, which indicates that silver is poised for a rebound. Silver could rise at a faster rate than gold due to stronger industrial demand and the Chinese middle class boosting demand for silver jewelry, writes Bloomberg Intelligence analyst Eily Ong.
- Bloomberg reports that Zimbabwe is set to unveil a program in three weeks to boost gold production, with output forecast to rise 15 percent to 30 metric tons this year. The southern African nation is home to the second-largest deposits of platinum group metals plus substantial deposits of chrome, lithium, coal and iron ore. The plan, called Vision 2030, implemented by the government, would help miners increase production over the next 12 years in an effort to build Zimbabwe’s economy.
Threats
- According to ABN Amro’s Georgette Boele, a gold price below $1,250 per ounce is an “opportunity to position for higher gold prices next year.” ABN predicts that 10-year Treasury yields will rise to 3.2 percent before year-end and that the Fed will hike rates another 75 basis points this year.
- Bloomberg reports that institutional prime money funds drew a net $8.1 billion in the week ended May 9, to the most since mid-2016, which is a signal that repatriated profits from U.S. companies are ending up in money-market funds, after last year’s tax overhaul. Much of the money held overseas is thought to be already held in dollars, but that might not be the case considering the 4 percent rise in the dollar this quarter coincides with the surge in money market flows. Thus, the U.S. dollar could continue to surge due to investors focusing more on the short-term upside. Richard Benson, head of portfolio investments at Millennium Global, said that “the very slow and gradually widening interest-rate differentials against the euro have now reached a tipping point where that is very powerfully positive for the U.S. dollar.”
- Glencore is being investigated by the U.K.’s Serious Fraud Office on bribery suspicion over its work with Israeli businessman Dan Gertler in the Democratic Republic of Congo, reports Bloomberg First World. Goldcorp Chairman Ian Telfer predicts that the world has reached peak gold supply and mine production will continue to fall, reports Seeking Alpha. Telfer said, “Are we not looking for it? Are we bad at finding it? Or have we found it all? My answer is we found it all. At $1,300/ounce gold, we found it all.” Shrinking gold supply could be positive for the bullion price, while it could be negative for the larger gold mining companies.
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May 16, 2018
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May 14, 2018
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May 14, 2018
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Emerging Europe
Strengths
- The Czech Republic was the best performing country this week, gaining 1.2 percent. Cez AS, a utility company, was the best performing equity trading on the Prague stock exchange, closing up 2 percent. A decision on a new nuclear plant has been delayed until year-end, while the previous target for a decision was by the end of June.
- The Russian ruble was the best relative performing currency this week, losing 60 basis points against the dollar. Emerging market currencies declined as the dollar continued its uptrend. The ruble was the least affected by the dollar’s strength and supported by the upward price action of oil. Crude oil gained 1.8 percent, closing at $78.61 per barrel.
- The health care sector was the best performing sector among eastern European markets this week.
Weaknesses
- Greece was the worst performing country this week, losing 4.8 percent. Banks were the biggest losers trading on the Athens stock exchange. The banking index lost 11 percent, reversing the strong rebound as markets are awaiting ongoing negotiations to conclude on the fourth review of the Greek bailout program.
- The Turkish lira was the worst performing currency this week, losing 4 percent against the dollar. Domestic political noise ahead of next month’s snap election weighed heavily on the currency with the lira reaching new multi-year low. The next central bank meeting is scheduled for the beginning of June.
- The information technology sector was the worst performing sector among eastern European markets this week.
Opportunities
- Russia could record a budget surplus this year for the first time since 2011. When budget was set at the beginning of the year, it was estimated that Russia would run a deficit of 1.3 percent of GDP, based on the oil price at $40 per barrel. However, crude oil is now trading above $70 per barrel. Thanks to higher oil prices, Russia may record a budget surplus of 0.45 percent of GDP this year, according to the finance ministry’s draft.
- Italy, Europe’s third largest economy, may have a new government next week. After 10 weeks of political stalemate, two Eurosceptic populist parties, Five Star Movement and the far-right League, sealed a coalition deal to govern together. Both parties must agree on a choice of prime minister to present to President Sergio Mattarella by Monday.
- According article published this week on Bloomberg by Anna Andrianova and Constantie Courcoulas, the ruble is once again an attractive carry trade in times of a weak Turkish lira. Russia competes with Turkey, and South Africa, for investments because they are grouped together as three high yielding currencies in the European time zone. The ruble was plagued last month by sanctions risk, but has strong fundamentals due to a conservative central bank, high interest rates and a budget surplus. Money managers at Goldman Sachs Asset Management and Aberdeen Standard Investments said in recent interview that they are buying the ruble because it has underperformed this year’s 16 percent surge in crude oil.
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Threats
- First quarter gross domestic product (GDP) data slowed down in Central and Eastern Europe (CEE). Poland was the only major CEE economy to report faster growth. Romania recorded the sharpest decline in economic activities. The pace of expansion slowed marginally in Hungary and the Czech Republic. The Capital Economics research team expects the gradual slowdown in CEE growth to continue over the course of 2018 and into 2019, as rising inflation and interest rates will weigh on domestic demand.
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- The Turkish lira has fallen further in recent days after President Erdogan said that he would lower rates after he wins the snap election next month. A weak currency will keep inflation high, which stood at 10.8 percent at the end of April, well above the central bank’s target of 5 percent. High inflation will lead to a faster wage growth and higher prices.
- Next week preliminary May PMI data is set for release for the European region. The region has recorded weaker PMI data each month this year and Bloomberg’s survey estimates that Manufacturing PMI will decline further to 56 in May from 56.2 in April and the Service PMI to remain unchanged, at 54.7. Although the PMI data has been weakening, they still stay well above the 50 level that separates growth form contraction.
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