Barrons : Most Bitcoin Is Made in China. Competitors Are Chipping Away.

Bought any Bitcoin lately? Chances are it was made in China. That could be a problem for the burgeoning digital currency—and an opportunity for ambitious rival “miners” in the U.S. and elsewhere.

Bitcoin mining is virtual, but requires expensive real-world inputs. Simply put, miners compete to solve increasingly complex equations generated by the Bitcoin network. The first to solve one wins the right to process and confirm new Bitcoin transactions, and win newly minted coin as recompense. Being first requires massive computing power, which in turn requires huge amounts of electricity.

Chinese entrepreneurs jumped on this ecosystem in the early 2010s, while Westerners remained wary. Miners harnessed nearly-free hydropower near dams that the country had built with abandon. Beijing-based Bitmain got a lock on the specialized chips and machinery the miners needed (and is aiming for a blockbuster IPO this year). BTCC and other exchanges mushroomed to trade the products.

“You have these little cities in backcountry China where hundreds of millions have been invested,” says Taras Kulyk, head of blockchain business development at Core Scientific, which operates three competing mining sites in the U.S.

But Beijing authorities shuttered the exchanges in 2017, when a flurry of dubious “initial coin offerings” jacked up Bitcoin’s price sevenfold. A 70% crash followed in 2018. That left Chinese miners with a two-thirds global market share, but no dependable way to convert their Bitcoin into renminbi to pay non-virtual bills.

“They are reliant on over-the-counter brokers who are supposed to be banned but still operate,” says Simon Hawkins, a co-chair of law firm Latham & Watkins’ global blockchain and cryptocurrency task force. “The policy attitude is quite unclear.”

That lack of clarity opens a window for non-Chinese miners, as a near-quadrupling of Bitcoin prices since October promises fatter profits. Bitcoin topped $40,000 for the first time on Thursday.

Cheap electricity isn’t the only metric anymore. Investors are also weighing regulatory risk and management quality, says Michel Rauchs, who follows cryptocurrencies for the Cambridge Centre for Alternative Finance. “Better-capitalized firms are building out professionalized data centers,” he says. “China has lost some share, particularly to the U.S.”

Stockpickers are certainly enthusiastic about early movers like Marathon Patent Group (ticker: MARA), which mines in Montana and North Dakota. Its shares have exploded ninefold in the past two months. Competitor Riot Blockchain (RIOT), out of upstate New York, is up a mere seven times.

A peek under Bitcoin’s hood might cool markets’ ardor a bit, says Daniel Doll-Steinberg, co-founder of Frontier Technology venture capitalist EdenBase. About 18.5 million of the statutory maximum 21 million bitcoins have already been created. As the remaining supply dwindles, so does the fraction of a coin earned by each successful “hash,” or solution. That will ultimately multiply miners’ break-even costs.

That process will take decades, though, says Whit Gibbs, CEO of HASHR8, which enables retail investors to contract a bit of their own Bitcoin mining. Meanwhile miners are sucking in windfall profits from Bitcoin’s boom.

For all that, China’s huge lead in Bitcoin mining will erode only gradually, while the next move of its regulatory apparatus remains as opaque as ever. One more factor to consider before jumping on the Bitcoin wave.

Barrons : The Stock Market Had a Fantastic Week. Now It Needs to Drop.

The market has gotten so optimistic that it would make even Little Orphan Annie seem like a pessimist.

Emotionally, it was a bruising week. Rioters stormed the Capitol Building and disrupted the certification of the U.S. presidential results. The Democrats won the two Senate seats up for grabs in Georgia. Friday’s payrolls report showed that the U.S. shed 140,000 jobs in December, the first decline since April, a depressing sign for anyone whose gaze extends beyond Wall Street. All three could have—should have—caused the stock market to drop.

Rationally, the bad news can all be explained away. The assault on the Capitol—it sounds like a John Carpenter movie—might have raised questions about the state of U.S. democracy, but it did nothing to impact economic forecasts or earnings expectations. Democratic control of Congress is so narrow that legislators’ hands might be tied when it comes to making market-unfriendly changes. And December’s job losses were caused by massive drops in hospitality and leisure almost entirely because of renewed Covid-19 lockdowns. When the coronavirus starts to go away, those jobs should return.

The market certainly was sanguine. The S&P 500 rose 1.8%, to 3824.68, while the Dow Jones Industrial Average advanced 491.49 points, or 1.6%, to 31,097.97, and the Nasdaq Composite gained 2.4%, to 13,201.98. All three closed Friday at record highs. The small-cap Russell 2000, up 5.9% to 2091.66, left them all in the dust by notching its best start to a year since 1987.

Of course, the market’s continued rise makes little sense except under the most optimistic projections. They start with the vaccines, which should allow people to get out of their homes and back to the office at some point in 2021. And if that happens, economic growth should surge and earnings should rebound, making an expensive market—the S&P 500 now trades at 22.8 times 12-month forward earnings—look far more reasonably priced.

But what if the getting back to work signals a top for the market? It’s not that far-fetched. Retail trading has spiked during lockdown because people have the two things they need to actively engage with the market: time and money. They’ll get more of the latter as stimulus checks go out—and maybe more to come. That means there’s more money to buy Tesla (ticker: TSLA)—up 37% over an 11-day winning streak, its longest on record—and Bitcoin—which has gained more than 250% over the past three months and even breached $40,000. “It’s reminiscent of the dot-com period,” says Peter Andersen of Andersen Capital Management.

People will also have less time to trade once they can return to work, and the money might be spent on restaurants, concerts, and vacations. “When the market opens back up and people have other things to do besides play the stock-market video game, maybe that is when a large reversal in [speculative tech stocks] happens,” writes Evercore ISI strategist Dennis DeBusschere, tongue planted firmly in cheek.

But whatever is propelling the market higher, it’s starting to get worrisome. Bank of America’s Bull & Bear indicator hit 7.1 this past week, up from 6.7 in mid-December, and is getting ever closer to where the indicator starts to signal extreme bullishness.

It’s been driven by a decade of the Federal Reserve pumping money into the economy, and technological disruption that has caused parts of the market to trade ever higher, explains Michael Hartnett, chief investment strategist at BofA. Given valuations, rising rates, and other indicators, a correction should occur during the first three months of the year. If it doesn’t, that would be a good sign the froth is unsustainable. “We’ll know if it’s a bubble by end-Q1,” Hartnett writes.

It’s not as if the market isn’t unaware of the risks, both to the upside and the downside. The Cboe Volatility Index, or VIX, closed the week at 21.56, above its long-term average of around 20. And investors are even more worried about the future as VIX futures expiring past March trade above 25. “Options markets are not yet complacent, even as stocks march higher,” writes DataTrek Research co-founder Nicholas Colas, pointing to “a classic wall of worry.”

But the market’s worries aren’t the day-to-day worries of a human being, particularly one riveted by the news in Washington and Georgia. The market, it seems, is worried about rate hikes. In the minutes of its December meeting, the Fed said it would give plenty of warning before “tapering” its bond purchases, which sounds great. But soon enough, investors started worrying about when tapering would end—and rate hikes would begin. Though the Fed had promised no hikes through 2023, expectations have already started shifting. Not enough to cause a big drop, but enough to shake up the market a bit on Friday.

It makes you wonder how long before we queue up “It’s the Hard Knock Life.”

BArrons : U.K. Stocks Are at 20-Year Lows. Why It’s Time to Buy Post-Brexit.

U.K. Stocks Are at 20-Year Lows. Why It’s Time to Buy Post-Brexit.

Since the Brexit referendum in June 2016, when Britons voted to leave the European Union, stocks in the United Kingdom have been one of the worst- performing major global markets. Uncertainty left valuations for U.K. equities near 20-year lows, relative to Europe.

But on Christmas Eve, the U.K. and the European Union struck a historic trade deal after nine months of protracted negotiations—raising hopes that the new year will be a bumper one for equity investors. Nigel Green, CEO of financial advisory deVere Group, says there could be more “major opportunities now than in perhaps the last 10 years.”

A Brexit deal means firms have avoided some additional tariffs and the potential for significant border delays when importing and exporting goods. Nick Nelson, an analyst at UBS, wrote in a December note that the U.K. is one of the favored global equity markets, “as we suspect a large proportion of the return for international investors will come from the strengthening currency.”

The uncertainty that surrounded Brexit depressed equity valuations, with 18 out of 24 sectors currently trading at a larger discount than usual to their European peers, according to Nelson.

But before identifying the hot sectors and stocks, it is important to factor in the macro and geopolitical landscape. While markets typically soar in the first few weeks of a new year, the U.K. could fall back fast as unemployment weighs on consumer demand and economic growth. U.S.-China trade relations and rising border tensions between China and India could also impact investor returns, Green says.

On the upside, vaccine programs offer hope of a return to a normal economic environment, and central banks and governments continue to prop up economies. On Tuesday, the U.K. offered £4.5 billion British pounds ($6.1 billion) in new lockdown grants to support businesses. And the Jan. 20 inauguration of President-elect Joe Biden points to stability from one of the U.K.’s biggest trading partners.

Areas such as retail, leisure, and transport, known as the bounceback sectors, are likely to make a swift return to health post-Covid as consumers return to shops, restaurants, bars, and trains and buses after lockdown.

With Brexit, however, there will be a period of adjustment as firms get used to the new trading arrangements. UBS flagged the sectors and stocks most affected by Brexit by searching news reports, research, and industry journals to find which companies were linked to positive or negative phrases on days when there was Brexit news. The analysis showed that the sectors most insulated from negative Brexit sentiment are generally the large internationally exposed ones such as beverages, household products, telecoms, energy, and pharma.

Pharma firm GlaxoSmithKline (ticker: GSK), consumer-goods giant Unilever (UL), and household cleaning company Reckitt Benckiser (RB.UK) outperformed on negative shifts in Brexit sentiment. Home builders Bellway (BWY.UK), Barratt Developments, (BDEV.UK), and Lloyds Banking Group (LYG) are among the most exposed to a positive shift in Brexit sentiment.

That said, investing in domestic stocks—firms that don’t need to trade across borders—should be a consideration. UBS screened for companies with high estimated domestic sales exposure of over 70% (it is just 23% for the total market), that trade at a price/earnings discount to European peers, and that are rated Buy or Neutral.

The top five stocks are property concerns British Land (BLND.UK) and Land Securities Group (LAND.UK), vehicle-listing classified site Auto Trader (AUTO.UK), and grocers Wm. Morrison Supermarkets (MRW.UK) and J Sainsbury (SBRY.UK).

Nelson, in a 2021 Outlook report, targeted 7,200 on the FTSE 100 index by the end of 2021. That would represent a gain of nearly 10% from recent levels.

It could be time to pick up some post-Brexit British stocks.

>>> US Close Dow +0.18% S&P +0.55% Nasdaq +1.03% Russell -0.25%

Closing Stock Market Summary

The S&P 500 (+0.6%), Nasdaq Composite (+1.0%), and Dow Jones Industrial Average (+0.2%) closed at fresh record highs on Friday despite a weak December employment report. The Russell 2000 (-0.3%) set an intraday all-time high at the open but closed lower. 

Briefly, December nonfarm payrolls decreased by 140,000 (Briefing.com consensus +112,000), private sector payrolls decreased by 95,000 (Briefing.com consensus +100,000), and the unemployment rate was unchanged at 6.7%, as expected. The unexpected decline in payrolls was partially offset by large upward revisions to November payrolls.

The market presumably interpreted the report as a blip in the labor market recovery due to ongoing vaccination efforts and less consequential to the economic growth outlook due to prospects for more fiscal stimulus. It was also backwards-looking based on the renewed lockdown measures enacted to curb the spread of the coronavirus. 

In the stock market, the S&P 500 consumer discretionary (+1.8%), real estate (+1.1%), information technology (+0.8%), and utilities (+0.9%) sectors carried the market higher, with Tesla (TSLA 880.02, +63.98, +7.8%) disproportionately aiding the consumer discretionary sector and Nasdaq. 

On the downside, the materials (-0.5%), financials (-0.2%), industrials (-0.2%), and energy (-0.1%) sectors finished in the red. Micron (MU 77.42, -1.69, -2.1%) shares gave up an early 6% gain and closed lower despite reporting positive earnings results and upbeat guidance. 

Separately, the S&P 500 briefly turned negative on reports that Senator Joe Manchin (D-WV) said he will not support $2000 stimulus checks, but Mr. Manchin quickly clarified that "if the next round of stimulus checks goes out, they should be targeted to those who need it." Stocks recovered. 

President-elect Biden said he will propose a complete economic package next week that will include a range of issues and said the "price tag will be high."

Longer-dated Treasuries continued to face selling pressure amid expectations for economic growth and possibly inflation. The 10-yr yield increased another three basis points to 1.11%, while the 2-yr yield decreased one basis point to 0.13%. The U.S. Dollar Index increased 0.3% to 90.06. WTI crude futures increased 2.8%, or $1.44, to $52.25/bbl.

Reviewing Friday's economic data:

  • The December employment report disappointed on the headline level as nonfarm payrolls declined by 140,000 (Briefing.com consensus 112,000) against expectations for an increase. However, the drop was partially offset by a large upward revision to November figures and an increase in December average hourly earnings. December private sector payrolls decreased by 95,000 (consensus 100,000). December unemployment rate was unchanged at 6.7% (consensus 6.7%)
    • Capital markets are likely to look past this report and focus on the expected increase in fiscal spending once a new administration is inaugurated, but the December report shows that the labor market is facing an uphill climb.
  • Consumer credit increased by $15.3 bln in November after increasing a revised $4.5 bln (from $7.2 bln) in October.
    • The key takeaway from the report is that revolving credit decreased for the eighth time over the last nine months dating back to February, which preceded the initial pandemic lockdown period taking hold in the U.S.
  • Wholesale inventories were unchanged in November (Briefing.com consensus -0.1%) following an upwardly revised 1.3% increase (from +1.1%) in October.

Investors will not receive any notable economic data on Monday.

  • Russell 2000 +5.9% YTD
  • Nasdaq Composite +2.4% YTD
  • Dow Jones Industrial Average +1.6% YTD
  • S&P 500 +1.8% YTD

>>> 2021 5 First Days of Performance on SPX +1.83%

Solid across the board gains today lifted S&P 500 to a year-to-date gain of 1.8% at today’s close and thus our First Five Day (FFD) early warning system is positive. Combined with this week’s positive Santa Claus Rally (SCR), our January Trifecta is now two for two. The January Trifecta would be satisfied with a positive reading from our January Barometer (JB) at month’s end.


The best case, most bullish scenario is when all three indicators, SCR, FFD and JB, are positive (in table above). In 31 previous Trifecta occurrences since 1950, S&P 500 advanced 87.1% of the time during the subsequent eleven months and 90.3% of the time for the full year. However, a January Indicator Trifecta does not guarantee the year will be bear or correction free. Of the four losing “Last 11 Mon” years, shaded in grey in the above table, 1966, 1987 and 2011 experienced short duration bear markets (2011, S&P 500 –19.4% peak to trough). In 2018, S&P 500 retreated 19.8% from its September high close to its December low close.
Even if S&P 500 was to suddenly reverse course and finish the full month in the red, the prospects for the next eleven months and the full year remain decent. Of the last 11 times since 1950 (last year, 2020 is the most recent) that the SCR and FFD were both positive (and the full-month January was negative), the next eleven months advanced 81.8% of the time and full year advanced 72.7% of the time with gains of 8.2% and 4.1% respectively.
Positive SCR and FFD are encouraging, and further clarity will be gained when the January Barometer (page 16, STA 2021) reports at month’s end. A positive January Barometer would certainly boost prospects for full-year 2021. The December Low Indicator (2021 STA, page 34) should also be watched with the line in the sand at the Dow’s December Closing Low of 29823.92 on 12/1/20.

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:

  • BNGO -7.8%, VLDR -4.8% (guides Q4 revs below consensus, cites COVID-19 related disruptions), NBIX -3.7%, ASX -0.6%

Other news:

  • SRPT -47.5% (reports data for SRP-9001 for the treatment of Duchenne; primary endpoint did not achieve statistical significance)
  • SLDB -20.4% (in sympathy with clinical data release from SRPT)
  • GXGX -8.6% (GX Acquisition Corp and Celularity announce merger agreement to create a publicly listed leader in allogeneic cellular therapy)
  • BNGO -7.6% (stock offering)
  • CERC -6.2% (prices offering of 12,323,077 shares of common stock at $2.60 per share and pre-funded warrants to purchase up to an aggregate of 1,676,923 shares of common stock at a purchase price of $2.599 per pre-funded warrant)
  • UBER -4% (union announces effort in Chicago to drive up wages, according to FreightWaves.com)
  • CS -2.6% (provides updates on trading and Q4 RMBS-related provisions; expects to report loss in Q4)
  • BLNK -1.8% (prices public offering of 5,400,000 shares of its common stock at a public offering price of $41.00 per share, for total gross proceeds of approximately $221.4 mln) ARGX -1.6% (provides priority outlook and cash burn for 2021ahead of J.P. Morgan Healthcare Conference)
  • MOD -1% (COO resigns)

Analyst comments:

  • SCWX -4.2% (downgraded to Sell from Neutral at Goldman)
  • XYL -3.2% (downgraded to Mkt Perform from Outperform at Raymond James;downgraded to Underperform from Market Perform at Cowen)
  • AEG -2.3% (downgraded to Hold from Buy at HSBC Securities)
  • AVA -1.9% (downgraded to Underperform from Neutral at BofA Securities)
  • CMC -0.8% (downgraded to Hold from Buy at Deutsche Bank)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • OEC +15% (raises Q4 adjusted EBITDA guidance), WDFC +13.8%, NEWR +7.4%, HOME +6.7%, SQNS +5.2%, FFIV +4.4% (also to acquire privately held Volterra; reiterates commitment to return $1 bln to shareholders over next two years), MU +3.5%, UMC +3.3%, STM +2.9%, TSM +2.5%, IMOS +2.4%, NOG +1.8%, AIRG +1.8%, BDSX +1.8%, ACCD +1.2%, INSP +1%

Other news:

  • MRUS +25.3% (receives FDA Fast Track designation for Zenocutuzumab)
  • CMRX +16.5% (acquires Oncoceutics to expand pipeline with late-stage oncology program)
  • SOL +13.8% (to sell a portfolio of projects located in Hungary to Obton, an international solar investment company headquartered in Aarhus, Denmark)
  • ACEV +12.4% (to combine with Achronix Semi)
  • CATM +12.2% (receives higher takeover bid at $39/sh)
  • MICT +10% (moves core operations to Hong Kong; announces departure of CFO)
  • SCOR +7.4% (announces strategic investment by Charter, Qurate Retail and Cerberus)
  • DRTT +6.5% (enters into C$35 mln financing of convertible debentures)
  • BNTX +6.4% (BioNTech and Pfizer (PFE) study shows its vaccine elicits antibodies that neutralize SARS-CoV-2 with a mutation associated with rapid transmission)
  • NBTX +5.4% (provides update for Key Development Milestones for 2021)
  • JFIN +4.7% (announces that Mr. Chunlin Fan tendered his resignation from the position as the Company's Chief Financial Officer due to personal reasons, effective from January 8, 2021)
  • TSLA +4.1% (introduces less expensive lower range Model Y, according to Verge)
  • MESA +4.1% (reported operating performance for December 2020)
  • PME +3.2% (entered into a Securities Purchase Agreement for registered direct offering of 4 mln Series A Convertible Preferred Shares)
  • HOLI +3.1% (has determined that the unsolicited offer to acquire all outstanding ordinary shares of the company for $15.47 in cash per share substantially undervalues the company)
  • ONCT +2.5% (collaboration with Karolinska Institutet)
  • MRNA +1.6% (UK confirms Moderna vaccine becomes third COVID-19 vaccine approved by regulator)
  • MXL +1.5% (WAV664 Wi-Fi SoC selected for Wi-Fi Alliance Wi-Fi 6E certification test bed)
  • PBR +1.5% ( discloses that it has registered records in its 2020 annual oil production and total annual production (oil and gas) of, respectively, 2.28 million barrels per day of oil and 2.84 million barrels of oil equivalent per day)
  • IIPR +1.5% (properties expands real estate partnership with holistic industries in California)
  • RGNX +1.5% (announced the pricing of an underwritten public offering of 4,260,000 shares of its common stock at the price of $47.00/share)

Analyst comments:

  • GT +4.1% (upgraded to Overweight from Sector Weight at KeyBanc Capital Markets)
  • PING +3.9% (upgraded to Buy from Neutral at Goldman)
  • CB +3.5% (added to Conviction Buy List at Goldman)
  • EURN +2.9% (upgraded to Buy from Neutral at BTIG Research )
  • X +2.8% (upgraded to Buy from Sell at Deutsche Bank)
  • HUN +2.4% (upgraded to Outperform from Sector Perform at RBC Capital Mkts)
  • CVX +2.1% (upgraded to Overweight from Neutral at Piper Sandler)
  • PTON +1.8% (initiated with a Buy at Gordon Haskett)
  • NSA +1.6% (upgraded to Outperform from Market Perform at BMO Capital Markets)
  • DHI +1.5% (upgraded to Outperform from Sector Perform at RBC Capital Mkts)
  • CVS +1.4% (upgraded to Buy from Hold at Jefferies)
  • NVST +1.4% (upgraded to Outperform from Neutral at Credit Suisse)
  • AFL +1.2% (upgraded to In-line from Underperform at Evercore ISI)