This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Rig Count Rises 80%
Monthly Chart Book
Oppenheimer
March 12: As crude oil prices have normalized to prepandemic levels in recent months, U.S. oil production has also begun to recover from the pandemic’s impact.
U.S. crude production reached about 10.9 million barrels per day in the week ended March 5, 2021,up from a recent low of 9.7 million daily barrels in late August 2020. U.S. crude production averaged about 13 million barrels per day before the pandemic.
From a low of 172 rigs in operation in late August 2020, the Baker Hughes rig count has risen 80% to 310 rigs as of March 5, 2021. As these rigs ramp up production, they could help further reduce U.S. reliance on imported oil.
The U.S. imported about 5.7 million barrels of crude oil each day during the week of March 5, down from an average of 6.5 million barrels per day in February 2020 prior to the pandemic.
—John Stoltzfus, Jim Johnson
Walmart’s Fintech Ambitions
Morning Briefing
Yardeni Research
March 11: Small tech companies have elbowed their way into certain areas of banking and financial services with little capital but lots of tech savvy. They’ve often entered the market in low-margin areas, like payments or retail trading, relying on traditional banks to accept insured deposits or provide the capital for loans. Now Walmart looks to be forming its own fintech company, while fintech companies Social Finance and Square have grown up and received banking charters that will allow them to avoid relying on outside banks or the capital markets. If the large establishment banks weren’t paying attention before, they certainly should now.
Instead of buying a large bank as an entryway into banking, Walmart may be betting on technology to help it break in. Walmart has hired Omer Ismail from Goldman Sachs Group, where he led Marcus, the firm’s online consumer-banking business.
In his new post, Ismail will lead a fintech partnership between Walmart and venture firm Ribbit Capital. Walmart, which tried but failed to get an industrial loan charter in the mid-2000s, already offers credit and prepaid debit cards, check cashing, money transfers, and installment loans through third parties. It also has 200 million customers a week visiting the company’s 10,500 stores and clubs in 24 countries and its e-commerce websites.
Goldman, which received a state banking charter during the financial crisis, has used technology to help it break into consumer banking. Marcus is an online-only bank that offers high-yield savings accounts, certificates of deposit, and personal loans. It also recently announced plans to launch Marcus Invest, a low-cost, digital investment platform. The company gained broad recognition when Apple chose Marcus to be the bank behind Apple’s credit card. Marcus doesn’t offer checking accounts, ATMs, branches, or mobile check deposits. But it did generate $1.2 billion in revenue last year and held $97 billion in deposits.
—Ed Yardeni
A Technical Analysis of Bitcoin
Quick Takes
The Institutional View
March 10: Bitcoin suffered a bearish key reversal after reaching our $55,000-$60,000 target. The bearish reversal was only the second since Bitcoin began trading. The occurrence after a long and big percentage gain warns us that a top may form.
How well prices absorb the strong selling pressure will be critical in determining future price action. $58,000-$60,000 offers strong resistance. On the downside, $40,000 is critical support. A break of $40,000 closing support would force us to re-evaluate our position...
Despite a critical period ahead from a price perspective, relative strength remains powerful! The monthly relative strength chart versus the S&P 500 Equal Weight index shows a dramatic breakout from a halfway consolidation. Emerging as recently as October, relative strength still has much further to climb in price and time.
—Andrew Addison
Mr. Powell, Listen Up
Rates Strategy
MUFG Securities
March 10: Why is the Federal Reserve’s Federal Open Market Committee continuing its emergency pace (i.e., of a total $120 billion per month) of quantitative-easing asset purchases of Treasury securities, and of agency mortgage-backed securities, as the economy is tracking a near-complete recovery to its pre-pandemic, full-employment stature by year-end 2021?
In our models, before the March 16-17 [FOMC] meeting, we would deliver to Mr. Powell [Fed Chair Jerome Powell} the following monetary policy recommendations:
a. The FOMC likely is NOT the only ‘game in town’ over years 2021 and 2022 and 2023,
b. The economy is far more resilient and flexible than the committee’s assessment(s) for it over the prior twelve-months,
c. The FOMC should reduce the pace of asset purchases at the June 15-16, 2021, meeting to $60 billion per month in Treasury securities (from the current $80 billion per month) and to $20 billion per month (from the current $40 billion per month) in agency mortgage-backed securities,
d. The FOMC should maintain that cumulative pace of $80 billion per month in asset purchases until 1Q-2022, when it will, again, review the “progress” towards its mandate,
e. Outline at that time (at the March 2022 meeting) another reduction to the pace of asset purchases and, then, by the September 2022 meeting likely cease the QE asset purchase program,
f. After the September 2022 meeting, simply embark upon a program to “re-invest” maturing proceeds of the Federal Reserve’s balance sheet.
—John D. Herrmann
Emerging Markets Bet on Tech
Blog
William Blair
March 4: The drivers of value creation over the past decade have shifted, transforming the shape of emerging-market equities as an asset class. The MSCI EM Index has gone from being highly dependent on energy and commodities to being driven by IT [information technology], media, and consumer companies.
The four largest components of the index in 2020— Alibaba Group Holding, Tencent Holdings, TSMC, and Samsung Group—account for nearly a quarter of the index weighting. We find that current valuations in emerging markets don’t fully reflect the index’s shift toward higher-growth sectors.
The transformation of India’s Reliance Industries is a microcosm of the shift in emerging markets broadly. Reliance was originally an oil and gas infrastructure and energy company, but in the past decade the company has invested heavily in telecommunications and other less commodity-driven areas. As part of that change, Reliance has built a wireless and fiber optic network in India and then moved to capitalize on e-commerce, fintech, and social media opportunities from the broad consumer base it built through that rollout.
Country weightings in the index have changed significantly as well, shifting toward Asia at the expense of Latin America and the Europe, Middle East, and Africa (EMEA) region.
—Todd McClone
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