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What is a Cash Crash?

The consequence of this action is that cash will lose its value by a lot more against other assets that give you a good return or even just merely hold their value (due to their finite quantities and scarcity).

We have been saying for a long time now that cash is trash, and anyone who wants to preserve their wealth should get out of cash ASAP. Invest in assets that are finite and that will hold their value as time passes.

Because as time passes, governments, with the help of their respective central banks, have told you that they want to erode the value of your cash by at least 2%. This is their official inflation target as measured against a basket of necessary consumer goods.

The consequence of this action is that cash will lose its value by a lot more against other assets that give you a good return or even just merely hold their value (due to their finite quantities and scarcity).

Everyone knows what an asset crash is and fears it. A cash crash follows an asset crash as governments try their utmost to reverse the asset crash and tend to overcompensate for too long. As a result, asset bubbles result. Many are afraid of getting invested when they hear of “bubbles” but if you think of it getting out of an asset that is crashing (cash) into other assets which are holding their value or rising, then the necessity of getting invested becomes more obvious.

Invert any chart of a good, finite asset (stocks, bitcoin, commodity) and you will see what we mean. The Crash of Cash is well and truly underway and is about to accelerate.

As US Treasury Secretary Yellen said to the world at the G7 summit last week, “The time to go big is now.”

TRADING PLAN

  1. Currencies : Keep short USD and long NZD, CNH & TRY. USD continues to trade weakly and hangs on to the low end of recent trading range. Against the Turkish Lira, TRY, the USD has broken psychological support at 7.00 and hit the lowest levels since Aug 2020. With the break, below 7.00, we have initiated shorts at 6.98, with the intention to sell more on the bounce.
  2. Commodities : Silver — Supports for Silver are at 21.80–90 and at 24.70–80. Silver continues to play ball and head higher, slowly but surely. Stay patient.

Key risks: Higher US long end bond yields that results in a stronger USD..

3. Equities : Keep long US Tech and China A50 Index Futures. Stay long, and stay happy. A50 is building support at 19050–19100. Keep to the path.

Key risks : Stimulus progress and vaccine distribution/efficacy.

WHAT HAPPENED YESTERDAY

As of New York Close 15 Feb 2021
  • U.S. markets were closed yesterday for Presidents Day. China markets remain closed for Lunar New Year holidays. Expect lower than usual trading volumes.
  • The U.S. Dollar Index fell 0.09% to 90.36. Vaccine optimism boosted the GBP to an almost three-year high (+0.32%, 1.3914), while rising oil prices and buoyant expectations for global recovery supported commodity and trade-based currencies. Trading was relatively subdued due to the US holiday.
  • Treasury markets were closed yesterday.

HEADLINES:

Israeli study finds 94% drop in symptomatic COVID-19 cases with Pfizer vaccine

Notable Snippet: Israel’s largest healthcare provider on Sunday reported a 94% drop in symptomatic COVID-19 infections among 600,000 people who received two doses of the Pfizer’s vaccine in the country’s biggest study to date. Health maintenance organization (HMO) Clalit, which covers more than half of all Israelis, said the same group was also 92% less likely to develop severe illness from the virus.

THEMATIC CONTEXT :“We believe that we will get a picture of vaccine efficacy by the end of Feb 2021. If the vaccine proves successful in achieving herd immunity, risk assets will do well and sectors like cyclicals and energy will outperform. Conversely if the vaccine proves to be a dud, risk assets will be thrown a wrench hammer and the growth and reflation theme will undergo some sort of repricing.” — 11th Jan 2021

“As a small country with universal healthcare, advanced data capabilities and the promise of a swift rollout, Israel provided Pfizer with a unique opportunity to study the real-world impact of the vaccine developed with Germany’s BioNTech. Along with the UK, these are two very important ongoing case studies we need to monitor and markets are already starting to get euphoric with energy and cyclicals leading risk sentiment in recent days. A confirmation of success in vaccine efficacy will have a profound impact on energy prices (North Dakota oil prices surge and output stalls as pipeline’s fate awaited).” — 11th Feb 2021

U.S. cold snap leaves 5 million in Texas, Mexico without power

Notable Snippet: The freeze took a toll on the energy industry in Texas, by far the country’s largest crude producer, shutting oil refineries and forcing restrictions from natural gas pipeline operators.

The storms knocked out nearly half the Texas wind power generation capacity on Sunday. Wind generation ranks as the second-largest source of electricity in Texas, accounting for 23% of state power supplies, ERCOT estimates.

THEMATIC CONTEXT: “Shale wells enjoy strong initial production rates but suffer from sharp subsequent declines. Basin production falls quickly unless new wells are constantly drilled and completed to offset the base declines. Considering US shale production was already falling sequentially back in November 2020 when the rig count was above 700, today’s 180 rigs all but guarantee production will collapse going forward. Analysts continue to focus their attention on what has already happened (shut-in of existing production) instead of looking at what is yet to come. The unprecedented drilling slowdown over the past year is starting to impact production.

Going forward, supply will plummet leaving the market in an extreme deficit starting. In addition, the above article confirms what we have been speculating, that Biden’s tough stance against traditional energy will inevitably be good for oil prices and bring forward the huge supply deficit and the impending energy bull market. — 11th Feb 2021

COMMENTS/IMPACT: Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.

BHP sees robust China demand, declares dividend bonanza

Notable Snippet: BHP Group on Tuesday reported its best first-half profit in seven years and declared a record interim dividend, as top metals user China’s strong appetite for iron ore to support its infrastructure push kept prices elevated.

DAY AHEAD

GDP data from Eurozone and ZEW Economic Sentiment Index from EU and Germany will be published today but are unlikely to have much of a market impact. The market is trading off very strong risk sentiment and will likely continue to do so barring bad news on the stimulus or vaccination efforts front.

US Earnings — Key Reports — Tue: Palantir Tech (PLTR)

SENTIMENT

FX

STOCK INDICES

MARKET OBSERVATION

Macro Environment (Acquittal, then Stimulus)

The past couple weeks in the US Senate have been consumed by the trial of former President Trump regarding incitement of insurrection. The House impeached him for the second time, which brought it up to the Senate. A 57-vote majority of senators voted guilty, including several Republican senators, but a supermajority is required for this big event, which was not reached. So, Trump was acquitted.

Going forward, more emphasis in the Senate will be on debating the various fiscal aid proposals. Watching those will be important for inflation expectations, money supply growth, long-end Treasury yields, and the dollar over the coming months.

We’re in a “macro heavy” environment, with a lot of asset correlations tied together around the inflation/deflation theme. Doing a $1.9 trillion stimulus or not doing it, and when, has a big impact on several asset classes, and is a key development to watch regardless of which side of the political spectrum we’re all on.

The massive stimulus plan, given what we know, is a matter of when, and not if. Stay invested and get more invested if any opportunity should arise.

Phan Vee Leung
CIO & Founder, TrackRecord

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