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Good morning. The reflation trade is alive and well, with stimulus talks in the U.S. boosting global equities. That, and a flurry of M&A activity have put investors in a risk-on mood. Elsewhere, crude and Bitcoin continue to soar, and GameStop is up 10% in pre-market trading.
I would be remiss if I didn’t get in a little sports mention up high this morning. Your correspondent tuned into the world’s biggest sporting event yesterday. Yes, I’m referring to the Alpine World Ski Championships in (sigh) Cortina, Italy. If you have 50 seconds to spare, check out the men’s Super G run on the notorious Vertigine—that’s “vertigo,” in English. Let’s hope I don’t need to fish for downhill metaphors to describe the markets this week.
In other sports news, some dude in his 40s won the Super Bowl last night.
In honor of Tom Brady, let’s see if we can find a G.O.A.T. or two—greatest of all trades.
- The major Asia indexes are solidly in the green in afternoon trading, with Japan’s Nikkei up 2.1%.
- Hyundai and Kia Motors both issued unusual regulatory statements saying they were not in talks with Apple to co-develop an electric vehicle. Shares in both bombed on the news, with Hyundai off 5.8% and those of Kia down nearly 15% lower.
- Key to the global economic recovery is a successful effort to vaccinate everyone, everywhere. Fortune‘s David Meyer digs into the huge cost of vaccine nationalism for everyone, everywhere.
- The European bourses were gaining out of the gates with the Stoxx Europe 600 up 0.4% two hours into the trading session.
- Shares in Dialog Semiconductor were up 16% on news it had agreed to a $6 billion takeover by Japan’s Renesas Electronics.
- Elsewhere in the world of M&A, Birkenstock is said to be siding with French private equity firm, L Catterton, valuing the iconic sandal maker at as much as €4.5 billion ($5.4 billion).
- U.S. futures are pushing higher this morning. That’s after the S&P 500 closed Friday at a fresh all-time high. The Dow too is on its longest winning streak since August.
- U.S. Treasury Secretary Janet Yellen hit the Sunday talk shows to talk up stimulus package No. 3, and the markets like what they heard. We’ll get more details on the size of the $1.9 trillion proposal this week—and who won’t qualify for $1,400 stimmy checks.
- Earnings season continues this week with reports from Twitter (tomorrow), Coca-Cola, Uber and General Motors (Wednesday), and Walt Disney on Thursday.
- Gold is up, trading around $1,820/ounce. The shiny yellow metal is having a tough 2021.
- The dollar is up after a big drop on Friday.
- Crude is up again, with Brent trading at a 12-month high, above $60/barrel.
- Bitcoin topped $40,000 this weekend, before retreating to $39,200 this morning. Meanwhile, Dogecoin hit a record overnight after Elon Musk tweeted, “who let the Doge out.”
On satire, stonks and Wilde rides
You know things are not quite right with the markets when Wall Street analysts start quoting Oscar Wilde in their investor notes.
Searching for a metaphor to sum up the recent frenzied trade in meme stonks such as GameStop, the crack Goldman Sachs equity team headed straight to the pages of Wilde’s Lady Windermere’s Fan. You may recall from that comic classic that Wilde explained the difference between a cynic—”a man who knows the price of everything, and the value of nothing”—and a sentimentalist—”a man who sees an absurd value in everything, and doesn’t know the market price of a single thing.”
In this market, the cynics would probably be your shorts. They see froth, and even misconduct, everywhere, and believe asset prices are greatly inflated. The sentimentalists are your YOLO day-traders. They see tendies, bro! Their stonks are heading to the moon.
Sure enough, at its peak, GameStop was trading at 250 times 2022 estimated earnings, Goldman notes. To put that in perspective, Amazon trades at (a still lofty) 50 times 2022 estimated earnings. Hold your top hat, Algernon.
In Wilde’s day, the cynic and sentimentalist characters made for good theater. In 2021, they will make for good drama on Capitol Hill.
Next week, the House Financial Services Committee will convene a hearing to try to get to the bottom of how social media, gamification, zero-commission trading and the emergence of retail investing are influencing the markets.
In the case of GameStop, both the cynics and sentimentalists have been misbehaving. The YOLO crowd is pumping a stock that is bound to burn the next guy who piles into the trade. Their tactics feel like textbook greater fool theory at work. The cynics, meanwhile, shorted GME to heights rarely seen in the past decade—to well north of 100% of the stock’s total float. That may or may not be legal.
When the two forces collide, you get charts that look like this:
Judging by the chatter on investor message boards, in Reddit and on Twitter, day traders are already looking for the next GameStop. They may not see “absurd value” in absolutely everything, but they do see plenty of misfits that have what it takes to go on the next to the moon.
The rocket fuel for these recent wild stock rides, too often, is alternative facts and misinformation. That will be a fascinating area of inquiry at next week’s hearings.
Call it the importance of being honest.
On my very first trip to Italy, in the autumn of 1998, the Italian government collapsed. I was on vacation, and learned about the constitutional crisis nearly a full day afterwards in the pages of the International Herald Tribune. (I probably only bought the paper to check the baseball box scores, and review the exchange rate.)
Late as I was to a story unfolding under my nose, I was disappointed that the whole ordeal lacked any immediate drama. There would be no marches on Florence’s Piazza della Signoria that day, or the next. But I was also relieved my vacanza italiana wouldn’t be in the slightest way inconvenienced. There’d still be cappuccino and cornetto at the bar for breakfast, and, for lunch, plenty of pappardelle al ragù di cinghiale.
Che vuoi di piú? (What more could you possibly want?)
Italians are remarkably unperturbed by government collapses. They happen a lot. Since the end of World War II, there have been 66 governments in 75 years—which averages one shiny new government every 14 or so months. The last government collapse—that of the Giuseppe Conte government—happened just last week.
Here’s what it usually looks like:
When the prime minister loses his majority (this is Italy, the PM is always a “he”), he resigns and then tries to cobble together support from a dizzying number of parties who all have a seat inside Italy’s BIG-tent government. It’s more high school popularity contest than Hamilton v. Burr.
If the prime minister can’t find enough willing dance partners, he informs the president of the republic of his helpless unlikability. The president, always a serious old-timer, then calls in a ringer to form a caretaker government. (To avoid the tedious bits, I’ve skipped a few steps).
Italy has had a surprising number of caretaker governments over the years. You may gasp at the notion of an unelected dude appointed to take over the government for an undetermined period, but Italians have become fairly accustomed to it. (And, if you think about it, a caretaker in place of, say, the U.S. Senate might not be the worst option every now and then.)
This time, Italy’s appointed caretaker is Mario Draghi, a figure better known to the outside world than just about anybody in the Italian government not named Silvio Berlusconi. This caretaker is Super Mario. Signore Whatever it takes. That Mario Draghi.
Over the weekend, Draghi scored crucial support from the left, center and right of Italian politics. That means he could officially take over the keys to the government in the coming days. His rise to power is a story with all kinds of intrigue. Draghi is an adept economist who’s been called on to get the bel paese out of all manner of crises over the years, usually by selling assets to get the country out of some financial hole. But this time Job One is to figure out how best to spend money, namely, €200 billion in EU recovery funds.
In this way, it’s a very different Italian crisis, one that’s wholly unfamiliar to a lot of us around here.
Whatever happens, Italians will still be able to find a fabulous cappuccino and cornetto for breakfast. Whether or not their favorite local bar is still in business is another question entirely.
Have a nice day, everyone. I’ll see you here tomorrow… Until then, there’s more news below.
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Correction: An earlier version of Bull Sheet wrongly stated the size of the latest U.S. stimulus package. It is $1.9 trillion.