In today’s briefing:
- Stablecoin Part 1 – The Game Changing Tech in Crypto and a Real World Arb Trade
- Weekly Oil Views: Crude Looks past Omicron as Data Validates Mild Impact Expectations
- Crude Oil: Levels Are There to Be Broken
- Elastic: High-Profile Search Company With Attractive Fundamentals
- Is Trump’s Social Media Platform Really Worth $12.8 Billion?
- Fiserv – Investing In Transforming Leaders Rather Than Disruptors
- Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
- IBM: A Rising Tide Lifts All Boats
- Hindenburg Omen and Q1 Inflection Catalysts
Stablecoin Part 1 – The Game Changing Tech in Crypto and a Real World Arb Trade
- Stablecoins are the critical $170 billion dollar sector that is the key building block for the entire $2 trillion dollar crypto asset class with increasing attention from regulators
- In part 1, we explore some real world case studies on problems that stablecoins solved for crypto such as stability of payments to vendors, and the enabling of lending
- We also present a (almost) risk-free arb where traders pay 1.5% to borrow USD and receive 9% on stablecoin dollars
Weekly Oil Views: Crude Looks past Omicron as Data Validates Mild Impact Expectations
- Crude has rallied to 12-week highs as the market is looking past the Omicron wave, setting sights on a strong summer demand rebound.
- The view is supported by data, prominently from the UK, which is past its Omicron peak. The wave was bigger than the Delta much much shorter and far less lethal.
- Upgraded demand expectations are focusing attention back on reliability of supply and the growing shortfall in OPEC+ output against its target is a major worry.
Crude Oil: Levels Are There to Be Broken
- Oil is testing & threatening to take out the trend high at $86.70
- A number of levels converge in this area that extend up to $89.58
- A breach of that zone would open the way for further gains to the tune of 20%-30%.
Elastic: High-Profile Search Company With Attractive Fundamentals
- Elastic NV (ESTC US) has grown its ARR from ~$207 million as of Jul-18 to ~$760 million today and may become a multi-billion dollar unicorn in the future.
- We like the subscription-based freemium business model, strong net expansion rate, and acceleration in revenue growth of Elastic Cloud business, which currently represents ~33% of total revenue.
- Elastic Search is one of the most popular search engines globally, and the company’s products have been downloaded more than 350 million times since 2013.
Is Trump’s Social Media Platform Really Worth $12.8 Billion?
- Opinion about Trump Media and Technology Group (TMTG) is as polarising as Trump himself, and widely vary based on political affiliation.
- The platform could see a potential user base of around 35-50 million (for reference, 70 million voted for Trump in the 2020 election)
- Even if the company manages to hit its user & revenue targets, the stock seems to be trading at a lofty valuation to consider at the moment.
Fiserv – Investing In Transforming Leaders Rather Than Disruptors
- Fiserv is valued as a slow-growth and low return on capital legacy business, although this does not appear to be the case.
- At present, the expected topline growth rate is far from spectacular, but parts of the business are growing fast and could result in a multiple repricing.
- Due to the acquisition of First Data, the company’s improving profitability is a better measure of business performance than return on capital is.
Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
US equity markets ended slightly higher on Friday with the S&P and Nasdaq up 0.1% and 0.6% respectively. Sectoral gains were led by Energy and IT, up 2.5% and 0.9% while losses were led by Real Estate and Financials, down 1.2% and 1%. US 10Y Treasury yields were up 9bp to 1.79%. European markets were lower on Friday with the DAX, CAC and FTSE down 0.9%, 0.8% and 0.3% respectively. Brazil’s Bovespa was up 1.3%. In the Middle East, UAE’s ADX was flat and Saudi TASI was up 0.3% on Sunday. Asian markets have opened broadly higher following – Shanghai, STI and Nikkei were up 0.6%, 0.1% and 0.8% while HSI was down 0.6%. US IG CDS spreads were 0.3bp wider and HY CDS spreads tighter 0.4bp. EU Main CDS spreads were 1.3bp wider and Crossover CDS spreads were 4.1bp wider. Asia ex-Japan CDS spreads widened 3.5bp.
IBM: A Rising Tide Lifts All Boats
- Even though IBM shares ended 2021 in the green, total return was very disappointing on a risk-adjusted basis.
- Kyndryl shareholders were severely punished, and prospects for the company remain rather bleak.
- 2022 will be a critical year for IBM’s management to prove that it could turn the business around.
Hindenburg Omen and Q1 Inflection Catalysts
- The Hindenburg Omen is a bit of a controversial indicator but when combined with chart break points/catalysts, it becomes are more reliable set up with timing constraints.
- Breadth deterioration is a key component for top building. NDX 15,300 and Russell 2,100 major inflection supports hang in the balance.
- Late January cycle associated with false breakouts but will give us a preview of what lies ahead in Q2 if we manage re take support pivots.
Before it’s here, it’s on Smartkarma
