Commodities Supercycle

On this blog, I forecasted numerous times that like dot-com boom and bust in 1996-2001 followed by 2003-2008 emerging markets, commodities super cycle after the 2013-2022 smartphone, AI technology boom, soon the global capital flows will again be directed towards commodities and emerging markets.

And since most emerging markets are the main producers of commodities like oil, gold, silver, base metals, grains, softs etc. the money creating the new commodities super cycle will go obviously toward emerging markets.

I expect the stock markets of Brazil, South Africa, Russia, Argentina, Chile, Ukraine, Uzbekistan, Kazakhstan, Australia, Azerbaijan, Saudi Arabia, United Arab Emirates etc. to benefit from the aforementioned trend towards commodities investing I forecast.

Crypto As A Winner In The Current Crisis

For now Bitcoin, cryptocurrencies or crypto for short is emerging as a winner in the current crisis.

Bitcoin's price rose for the last 5 trading days.

This is remarkable, really since both the now practically defunct, government controlled Silicon Valley Bank, which started the crisis and Signature bank, also in trouble, were had large crypto business.

It remains to be seen, whether Bitcoin, cryptocurrencies, crypto's disruption capabilities will prove resilient, agile, adaptive, strong, robust, lean enough to survive and prosper.

Bitcoin And Cryptocurrencies' Prices Are Rising, While Bank Stocks' Prices Are Falling

 

Here, on this blog, as evidenced in numerous blog posts, I have expressed the opinion/forecast/opined that is only a matter of time, before the close to one correlation between Bitcoin, cryptocurrencies' prices and stocks breaks down. 

Bitcoin and cryptocurrencies' prices rise, while stocks' prices fall, I meant and posted here.

 

This is exactly what happened in the last trading week after the fallout, de facto insolvency and later forced government administration of Silicon Valley Bank, later Signature Bank and most recently First Republic Bank.

The stocks prices of both Wall Street Banks and regional banks fell, while Bitcoin and cryptocurrencies' prices fell.

In my view, this could prove a pivotal, breakthrough moment in crypto, which is modern day fintech and Bitcoin's slow progress to become a global electronic reserve currency.

 

Is The Technology Stocks Rout Over?

No.

Technology stocks' performance measured by the Nasdaq Composite have around 40 % to fall from current levels to around 8 400 points, in my personal opinion.

The technology sector is still overvalued by most valuations metrics.

Many listed, small capitalization, mid capitalization and even large capitalization are loss making or barely profitable.

The interesting thing is that stock market investors seem not to promote the profitable technology stocks, by assigning to them lower Price/Earnings, Price/Sales, Price/Book valuation multiples. 

Very interesting, indeed.

The stock market seems to go on and reward growth. Not only that, but stock market participants also seem to reward forecasted growth in the future. 

I personally invest in technology stocks, and I understand the reason for the conundrum above.

When a hot technology stock's price goes up, 3 times for example, it does not matter a lot if it falls by 30 %, 40 % or even 50 %. But that is only true, if one has invested in the aforementioned technology stock at or near the bottom of the stocks' price and this is not very easy, to say the least.

A notoriously difficult thing about technology stocks is investing when the stock bottoms out. Yes, if the investor is successful, he or she can make multiples of his or her initial investment.  A case in point is Snap Inc, Snapchat application's owner, when its stock price went from 4.99 USD to 83 USD in the space of 3 years. Before that Snap's stock price fell from 27 USD to 4.99 USD.

So, in short, technology stocks' volatility or risk makes it difficult for long-term investing. Timing is here more important.

And if interest rates levels are going up as they have done in the last year or so, technology companies which are mostly making losses and burning cash find it difficult to raise money.

And I forecast the Federal Reserve and the European Central Bank will go on raising their leading rates.

Gold Price. Silver Price

In my personal opinion, both the troy ounce price of gold and silver price have an upside from here.

I have observed closely both gold and silver's prices for 1 + year now and have thought for 6-8 months now gold and silver mining stocks are undervalued.

Gold and silver prices exhibit very close inverse correlation to the USD exchange rate to a basket of currencies, EUR/USD especially.

Simply because both gold and silver are quoted mainly in USD.

The main factor putting a cap on gold and silver's prices is the Federal Reserve's policy of raising the Federal Funds Rate.

All the other factors of rising gold and silver prices are in store: heightened geopolitical risk, large sum of outstanding newly printed money, wealth preservation concerns, intensive gold buying by central banks.

A 'wild card' factor is inflation and both Federal Reserve and European Central Bank's monetary policy hinging on it.

Is The Financial Crisis Over? Bitcoin Implications

 

No.

If the solution was printing money or exporting, we would 3D print or export ourselves to Mars.

Yes, the Swiss National Bank provided a backstop for Credit Suisse.

Bank banking is a leveraged business. The central banks cannot save everyone.

Ah, the select few. And then what? Riots in the street, dictatorship, communism?

Central banks lead by the Federal Reserve should allow the system to, at least, partially clear.

I vaguely remember an interview with Kara Swisher where she said something like the following: 'They are all capitalists on the way up and socialists on the way down'?

But this could be generalized for technology, finance, automobile manufacturing, etc.

The government cannot and most probably will not save all.

Even if there is a repeat of the 2008-2009 banks, automobile producer's bailout, it should not be on the same scale.

Regarding cryptocurrencies, Silicon Valley Bank and Signature Bank are 'good' starting points.

Bitcoin and cryptocurrencies are the epitome of fintech, and they must prove their resilience, agility, survival skills with minimal government help, if at all. Crypto is fast, which is its main advantage.

Yes, the famous Peter Thiel line 'Every business strives to be a monopoly'.

However, why do we have competition promotion agencies then?

If the US ends ups with 4-7 large pillar, too big to fail banks, this would stifle innovation. Europe is a case in point.

However, there is a huge fight in Europe, brewing underneath the surface between the 'establishment' and the new. The old and the new industries need each other. This is not binary, I think.

In my personal opinion, if oil futures prices fall below 60 USD most oil companies would be undervalued. 

Soon gold and silver mining stocks will also be undervalued, according to my opinion.

Will The Federal Reseve Go On Raising Rates? Main Steet Against Wall Street?

Yes. I think the Federal Reserve will go on raising rates.

Inflation is just too high. Officially 6 %, but for basic products I would bet the inflation rate is more like 10 % year on year.

Yes, Wall Street is very powerful, but if Main Street depositors start withdrawing their deposits, large Wall Street banks would just go bankrupt.

Simply because banking is a leveraged business by default, fractional reserves. 

Regulation and people mindset are key, because they insure trust, stability and smooth functioning of the banking system.

And no, leverage banking should stay, I think. It just needs to be policed better.

Because what is the alternative?

Saving and loans cooperatives? Just search on the Internet for the US savings and loans crisis during the 1980s and 1990s. Sparkasse model in Germany? And you find it difficult to have global scale investment banking and you mostly rely on relatively cheap labor and cheap natural gas and oil from Russia to sustain a significant part of the industry, according to my opinion and observations and many media reports.

And no, the issue is not the salaries of the regulators. People in large financial centers get very large salaries and look what happens.

One just needs to be selective when hiring, I think.

'Human nature rarely changes, if at all' as per Warren Buffett.

True, but if one makes too many mistakes, things can run out of control. And the social contract could just be nullified, and we would all waiting at bread lines.

I remember my grandmother lining up for bread during the 1996-1997 hyperinflation crisis in Bulgaria and holding my hand.

I just hope humanity has learned its lesson, this time around.

Will Bitcoin And Cryptocurrencies Survive Silicon Valley Bank? Federal Reserve.

If I have to say with one word: Yes. Bitcoin and cryptocurrencies will survive the Silicon Valley Bank, SVB debacle.

With more words, it depends whether the government gets involved.

Government MUST NOT get involved into the crypto market, I am of the opinion.

The market must be allowed to clear.

The Federal Reserve must do its duty supervising financial institutions.

From various interviews, I hear large Bitcoin and cryptocurrencies market participants want the Federal Reserve to allow crypto banks to hold cryptocurrencies assets in the Federal Reserve, the central bank of the United States of America. The Federal Reserve via foreign currency swap lines with the EUR, JPY, GBP, CHF and the SEK is indirectly functioning as the central bank of the whole world, actually or at least is by far the most influential central bank. Regarding Crypto, the above implication by crypto participants amounts to the Federal Reserve directly backstopping the Bitcoin and cryptocurrencies market.

This must not be allowed, in my opinion!

The Federal Reserve is creating huge morale hazard even now, as it is bailing out incompetent banking management with taxpayer's money.

Ah, yes. We are all just going to print money ourselves out of this! To where, Mars?

Elon Musk has rockets.

Are We Experiencing A Great Financial Crisis?

It depends, is my short answer.

Largely on the Federal Reserve and the reactions of people around the world.

Yes, this time around shareholders and junior bondholders are getting wiped out.

But didn't they get wiped out in the Great Recession in 2008-2009.

No matter how much capital you hold, banking is a leveraged business.

That is, if you are not leveraged, you are not a bank. Or you are not able to do maturity transformation.

The Federal Reserve cannot save all!

There must be some lessons learned.

Currently, I put the probability of a global financial crisis at 35 %.

Everything is conditional on the central authority - Federal Reserve's actions and the way ordinary people react.

Will Bitcoin And Crypto Survive The Silicon Valley Bank Collapse?

Yes. I am of the opinion that Bitcoin and most cryptocurrencies will survive the Silicon Valley Bank, SVB blowup. SVB entered government administration/control last Friday on asset/liability mismanagement, bad risk management, that is.

The proverbial question is whether crypto should be regulated? No, I think.

Silicon Valley Bank, SVB was a Federal Reserve Regulated institution and the Federal Reserve will take care of it.

Yes, there will be cases like Silicon Valley Bank, SVB. There was Lehman Brothers, Bear Stearns, AIG, Merrill Lynch, etc. in 2008, when Bitcoin did not exist.

Freedom and innovation, Bitcoin and cryptocurrencies in finance currently, MUST be left alone, is my humble opinion!

Silicon Valley Bank And Possible Financial Contagion

 

Silicon Valley Bank was taken over by regulators yesterday.

Only several years ago Silicon Valley Bank's market capitalization was close to 50 billion USD.

Silicon Valley Bank has 209 billion USD in assets.

Silicon Valley Bank has 150 billion USD + in deposits above the 250 000 USD mark, which is guaranteed by the Federal Deposit Insurance Commission, FDIC.

 

 

In my opinion, if these large scale depositors with 150 billion USD + in SVB, a large sum even for USA, are not made whole or paid in full or at least receive something like 86 % of their money back, financial contagion could quickly infect Wall Street money center banks, later Main Street and thereafter the whole world could experience a large scale financial and economic crisis.

Actually, a large part of Silicon Valley Bank's assets are in private assets, startups share participations making up a significant part, which are difficult and time consuming to turn into cash.

Regulators must act swiftly, decisively and efficiently, I think.

Silicon Valley Bank In Administration. Analysis

Silicon Valley Bank, where a large percentage of Silicon Valley companies bank by taking out loans, transferring payroll funds, utility bills funds and utilizing credit card services today was shut down by regulators. 

Basically, because of a bank run.

Well, this is serious, in my humble opinion.

Other local California banks' stocks prices are down 20 % to 30 %.

Silicon Valley bank has approximately 209 billion USD in assets. A very large notional number, even by US standards.

The technology sector boomed since 2013.

All the large money center banks like JPMorgan, Morgan Stanley, Citigroup, Bank of America, Goldman Sachs, Wells Fargo are moderately exposed to large technology companies like Apple, Microsoft, Meta, Alphabet and Amazon, etc.

Moderate is the exposure, however, only as a percentage of the US largest banks' assets or credit portfolios, but not in notional terms. I guess US Wall Street and Main Street Banks' exposure towards to the technology sector runs into trillions of USD.

If the Federal Reserve and US banking regulators do not act decisively and restore confidence quickly, I actually fear there could be a funds, credit crunch and Wall Street and the USA could relive something very close to the Lehman Brothers moment crisis and the global economy also, along with the USA.

Actually, Silicon Valley Bank could be the last shot, before a full-blown global financial crisis erupts, as Bear Stearns was, before a Lehman Brothers moment.

I personally think in this environment gold, silver and gold, silver companies' stocks are undervalued in the mid-term and also small, deep tech and future technology companies, which are developing moonshot technology are undervalued in the midterm, due to their idiosyncratic product nature, be it with a high volatility.

If a full-blown crisis erupts, I expect the EUR/USD exchange rate to break through 0.80.

Can Snapchat Replace TikTok?

Snapchat, the ephemeral camera application is cited by some analysts as a potential contender to replace the short video forms Chinese platform TikTok, now that the US Congress members are openly discussing banning TikTok usage.

Yes, Snapchat owned by Snap Inc did make large inroads into social media and videos and photographs.

That said, however, Snapchat could not on several occasions live up to the expectations and become a 300 billion USD in market capitalisation company, on par or to rival Meta Inc, Facebook's owner.

I do not know if management, products or just timing is the reason, but I would say the chance of Snapchat fully replacing TikTok is circa 30 %, a personal opinion.

Roku Valuation As Of 7th March 2023

 

Roku Inc, the streaming device producer is valued at 8.9 billion USD on the Nasdaq currently.

According to my estimates, Roku is worth 40 billion USD in reality.

Streaming is the future of video, which is the contemporaneous mega trend.

In crisis times like now, video streaming is a luxury, but video helps people learn and heal, so video streaming is here to stay and flourish, in my humble opinion.

Roku Inc is the hardware vehicle of streaming currently basically, so in my opinion Roku Inc is fundamentally undervalued.

 

Is Bitcoin Truly Independent?

Bitcoin is seen as a free, distributed, open-source, independent alternative to finance.

Bitcoin and crypto can do equity capital raising, soon perhaps bond capital raising, money transfers and even lending. That is, Bitcoin can replace traditional banking intermediaries. 

Yes. In my opinion, Bitcoin mining and cryptocurrencies' creation for the moment is independent.

Bitcoin is free, independent, distributed, scalable, actionable, agile and powerful.

Provided that crypto was not a clandestine government, deep state project, Bitcoin and crypto is free market epitomised.

Bitcoin, cryptocurrencies and the blockchain algorithm will change, disrupt, transform, enhance, make more agile, stronger, resilient and efficient almost everything is my personal opinion.

Crypto As A Way to Transfer Money

Banks, both investment banks and corporate banks have two main business stables

Investment banks do more investing and less lending, while corporate banks do lending and money transfers.

Bitcoin and other cryptocurrencies are still far off to serve as a way to raise capital or as a means of giving out credits, though as a capital raising vehicle cryptocurrencies briefly did prove efficient.

Bitcoin and cryptocurrencies could serve as a means to transfer money or wealth.

That is what actually lies at the core of the business strategy of many of the modern day financial technology companies or fin-tech for short

Many fin-techs want to get a hold of a small part of the money transfers market using the less or virtually nonexistent regulation in Bitcoin and cryptocurrencies and slowly move into lending and financing, giving out credits to small, medium sized and eventually large corporations and individuals.

GitLab Valuation As Of 4th March 2023

Interestingly enough, GitLab has as an investor, shareholder Credit Suisse AG.

Actually, the team collaboration software development market is actually a duopoly between Microsoft owned GitLab and GitHub.

In my view, GitLab's intrinsic worth is 30 billion USD. Compared to its current 7.8 billion USD market capitalization. If GitLab goes on increasing revenue year on year by 50 % + GitLab's value could actually start jumping higher.

GitLab's business is part of the Infrastructure of a Service market, which is the largest part of the cloud computing market, which many analysts foresee could reach a 700 billion USD a year revenue run rate.

Bitcoin And Technology Stocks

Bitcoin's price volatility is similar to that of small and mid capitalization technology stocks.

However, I expect sooner rather than later Bitcoin's price to decouple from the movement of technology stocks' prices.

Bitcoin is financial technology or fin-tech, but it is also a financial asset which could exhibit a slightly different price behavior.

I believe Bitcoin and the underlying blockchain is too disruptive a technology to be merely compared to information technology companies.

Bitcoin Once The Federal Reserve Stops Raising Rates

Once the Federal Reserve, the central bank of the United States stops raising the federal funds rate and thus the interest rates the world over and ceases selling government bonds and mortgage backed securities Bitcoin and other cryptocurrencies should be a star performer, in my view.

Usually, at least historically, the assets with the most growth potential like Bitcoin, crypto and cryptocurrency related stocks like Coinbase and Robinhood fall in price the most when the macroeconomic picture turns negative, but later when the economy picks up the assets with the greatest future opportunities like Bitcoin, crypto, cloud computing and artificial intelligence stocks rise the most, almost exponentially.

If the global economy, strangely enough, enters a growth phase soon, I expect Bitcoin and cryptocurrencies to be a star performer among all financial asset classes.

Commodities And The Conflict Between Russia And Ukraine

There are news today that Russia could stop the export of grains, predominantly wheat from Ukraine via Black Sea.

I think we are in a new commodities super cycle.

The capital recycled in technology will go to commodities and emerging markets where most commodities are produced. Countries as Brazil, South Africa, Saudi Arabia, Russia, United Arab Emirates, Argentina, Mexico, Canada and so on.

This will cause further price inflation, of course.

Commodities stocks could benefit, of course.

AI, Crypto and Cloud stocks will eventually recover.

A quote: 'All models are wrong, but some are useful'.

Artificial intelligence is the future, but singularity is infinity away.

There is vast room for model improvement, though.