LD Capital Weekly Report: Optimistic Margin Coverage Continues, BTC Futures Players Add Short

来源：LD Capital

In the shortened trading of the holiday, U.S. stocks rose slightly, U.S. bonds fell slightly, the dollar fell, cryptocurrencies, gold rose, crude oil was basically flat, and the overall market sentiment was optimistic. The current S&P 500 is currently trading near its July highs, with the Nasdaq 100 trading just above its July highs. The rebound was mainly driven by the decline in interest rates in the secondary market, passive margin calls by institutions and the corporate repo window, and the macro background is that the market’s confidence in the peak of interest rates has little to do with the improvement of the economic fundamentals or earnings growth, and may lead to large back-and-forth fluctuations as the flow of funds changes.

Cryptocurrencies fluctuated at their highs, with BTC and ETH both hovering at their highs since April last year, with Altcoins lagging behind:

Implied volatility has fallen to all-time lows again, and often, this is a reversal signal:

Hedging demand fell sharply, and the cost of protecting against market sell-offs fell by about 10% (one standard deviation) to the lowest level in the data since 2013. Demand for tail risk hedging also hovered near its lowest level since March.

Despite the rally in the broader market in recent weeks, the sell-off in tech stocks is an undercurrent that cannot be ignored. According to GS Prime Book data, last week’s net sell-off in U.S. technology stocks hit the largest since July, mainly due to the start of the reduction of long positions before, and the amount of long positions reduced exceeded the amount of short covering.

The share of technology stocks in GS Prime’s net customer position fell to 30%, from a high of around 36% at the end of October, and overall this 30% is in the 36th percentile over the past year and in the 16th percentile over the past five years, which is not high.

This week is another big week of bond issuance, with the Treasury selling $54 billion of 2-year Treasuries + $55 billion of 5-year Treasuries on November 27 and $39 billion of 7-year Treasuries on November 28. Auctions have been a significant contributor to market volatility across the market. Last Wednesday’s 15 billion 10yr TIPS and 26 billion 2yr auctions turned out to be cool, but Monday’s 16 billion 20yr auctions were in strong demand, so bond market interest rates showed a V-shaped trend of falling first and then rising, and the overall closing recorded higher yields, especially on the short end:

Bond markets could also see disruptions from Europe. Because the German court ruled last week to deduct 60 billion euros from the federal budget, resulting in a 60 billion euros of funds available to the German government, the German government will suspend its debt ceiling again, which may trigger an increase in German debt issuance, if you directly abandon spending, it may reduce Germany’s GDP by 0.5 percentage points, which is not a good thing either way, but this matter is still in the early days. Judging from the attitude of the court’s decision, it ruled that the use of 60 billion euros of pandemic aid funds to finance climate protection from 2021 onwards was illegal, so this has led to speculation about whether the German government’s other extrabudgetary funds totaling 770 billion euros may be illegal in the future.

Coincidentally, there was news that the budget deficits of the United Kingdom and Canada exceeded expectations last week, and the increase in the supply of global government debt is an inevitable trend, and I don’t know when it will become the subject of hype again.

Both Powell and the Fed minutes mentioned that continued tightening financial conditions could replace interest rate hikes. However, financial conditions have not been sustained, and the degree of policy has fallen by 50% since October:

But since job preservation is also one of the Fed’s two core goals, if the labor market softens further, this could prompt the Fed to start cutting interest rates even if inflation remains above target.

A drop in bond yields from 5% to 4% means a soft landing and should be bullish, but if the yield falls from 4% to 3%, it means that the market is worried about a recession and risk assets are bearish, so the best case scenario is that bond yields stay at current levels and don’t continue to fall too much.

On the exchange rate front, the dollar continued to fall last week, but the decline narrowed, and the weakening of the dollar was positive for commodity assets. The RMB has risen 2% against the US dollar in the past two weeks to a range of 7.14~15, but the rebound has not led the major currencies:

NV’s earnings report beat expectations

Third-quarter revenue tripled year-over-year and EPS earnings nearly sixfold, both significantly exceeding Wall Street expectations:

• Third-quarter revenue of $18.12 billion, up 206% year-over-year, and analysts expected a 171% increase to $16.09 billion, nearly 13% higher than expected, and well ahead of Nvidia’s own guidance range of $15.68 billion to $16.32 billion, and revenue in the first quarter and second quarter increased 101% year-over-year.
• Non-GAAP adjusted EPS for the third quarter was $4.02, up 593% year-over-year, compared to analysts’ expectations of a 479% increase to $3.36, nearly 20% higher than expected, and a 429% year-over-year increase in the second quarter.
• Non-GAAP adjusted gross margin was 75.0% in the third quarter, up 18.9 percentage points year-over-year, above analysts’ expectations of 72.5%, above Nvidia’s guidance range of 72% to 73%, and up 3.8 percentage points from the second quarter.

However, the strong earnings report failed to translate into a further climb in the stock price as usual, and the NV stock price closed down 3.5% for the week, indicating that investors are generally overweight, and are reducing their holdings on the upside when the stock price has risen 240% this year, and investors want to see the current extremely high growth rate continue for several years, and even if there are signs of abating, it will trigger a capital cash out. Some people believe that it is the impact of the US government’s export restrictions on new products to China, but NV itself believes that the overall demand is strong enough to make up for the gap in GPU sales in China. Overall, the current market performance can be seen that the market is not buying it, and the stock price continued to fall on Friday after NV postponed the launch of a new AI chip for China that meets the latest U.S. export restrictions the following day.

As far as tech stocks go, NV has been a reliable leading indicator for most of the year, and a buck-trend decline these days is not a good sign.

From a valuation point of view, if you use a FY25 earnings forecast of $16.6 per share, NV’s current price of 480 is only 30 times the price-to-earnings ratio, which is not an exaggeration, for example, AMD is also trading at around 32 times PE. There are two main long-term challenges for NVs: First, many customers, including Microsoft and Intel, have been developing their own AI chips to reduce their dependence on NV chips. Second, if the AI bubble bursts, the demand for its data center chips may also disappear.

OPEC+ meeting postponed

With the OPEC+ meeting postponed this week due to disagreements among member states on the size of the cuts, the rescheduling of such a meeting is a major and rare event, and the main contradiction is that the production cuts led by Saudi Arabia and Russia demand further cuts from other members. Crude oil futures were volatile last week due to an unexpected postponement of the meeting, falling more than 10% over the past six weeks. The meeting was significant because crude oil prices will be key to interest rates and market performance next year. On the other hand, the U.S. election is approaching, and former Republican President Trump, who is leading in the polls, said that if elected, he will repeal the Biden climate bill and “maximize fossil energy production”.

Argentina’s “full dollarization”

Milei, the candidate of the far-right electoral coalition “Free Forward Party”, won the Argentine presidential election, and Milei advocated a series of measures such as full dollarization, the closure of Argentina’s central bank, and social welfare cuts. Argentina is currently one of the countries with the highest inflation in the world (140%), and Milei hopes that dollarization can boost confidence and curb currency depreciation, and in the eyes of many, Milley is the savior of Argentina. However, Argentina’s net foreign exchange reserves are negative, and the central bank is unlikely to raise enough dollars for the market to convert, at least in the short term, and the local currency is still at risk of continuing to depreciate sharply. In addition, Milei “sees Bitcoin as a key tool in the fight against the inefficiencies and corruption of the centralized financial system” and “a viable alternative to traditional economic structures”, and his election is seen by crypto players as the beginning of a wider acceptance and consolidation of cryptocurrencies in the Argentine economy, offering a potential solution to the problems of inflation and financial instability.

However, Milei’s post-election speech was not as unrestrained as promised in his campaign speech, which requires us to back down on the pricing of his aggressive policies.

Judging from the results of the experiment in El Salvador, the first country to adopt cryptocurrencies as legal tender, there is very little use in the private sector (according to the Central Bank of El Salvador, in the first six months of 2023, only about 1% of the remittances received were in Bitcoin; the transaction speed and cost of Bitcoin are not suitable for everyday payments, but it has a huge cost advantage for cross-border remittances, the World Bank will calculate the average cost of $200 cross-border remittances of 6%), but it drove the rebound in El Salvador’s national debt (0.26– 0.8), the good performance of the price of bitcoin this year is an important reason behind it, a bit like Microstrategy, in short, bitcoin has not been able to become a currency, but has become a reserve that outperforms the dollar.

Since there are no public government records, the exact amount of Bitcoin owned by El Salvador is unknown. According to the previous plan, it is estimated that El Salvador’s holdings will reach 2,744 bitcoins (now worth $100 million) as of November 14, and the average purchase price will be about $41,800, which is still a loss of more than $10 million based on the current price of bitcoin.

##巴以停火

Israel’s interim ceasefire with Hamas, which came into effect last Friday, calls for a cessation of hostilities for at least four days, during which the two sides will exchange hostages and humanitarian aid to Gaza will increase. With only a brief truce and little impact on financial markets, gold closed last week back above $2,000.

Thanksgiving consumption is on fire

This year, consumers have been surprisingly resilient as their spending has been unaffected by inflation, spikes in interest rates, and the resumption of student loan repayments. According to Adobe statistics, U.S. consumers spent a record $5.6 billion online on Thanksgiving, up 5.5% year-on-year, and $9.6 billion on Black Friday the next day, up 6% year-on-year. According to the National Retail Federation, more than 182 million people are expected to shop during the Black Friday sale, up 9% from last year and the highest since tracking began in 2017. Deloitte estimates that their average spend during the Black Friday sale will be 13% higher than last year, reaching $567 per person. According to estimates by the National Retail Federation, Americans will spend between $957.3 billion and $966.6 billion during Thanksgiving, Christmas and New Year, up at least 3% from last year, but that figure may only be in line with inflation, confirming that recent price cuts have offset increased demand.

UBS: The Fed’s interest rate cut and the sharp drop in real interest rates will hit a new high next year

In the latest annual outlook for precious metals, UBS Joni Teves analyst team pointed out that investors’ current exposure to gold is not high, and as the global economy continues to recover from the pandemic, they have unloaded most of their exposure to gold, but their attitude towards gold will change accordingly as the cycle matures and policy shifts.

UBS expects the Fed to cut rates in the first quarter of 2024, and if there is a pause in December, this will continue to confirm that the Fed is inclined to cut rates around 6 months after the last increase.

Looking at gold’s performance after the Fed’s previous rate hike cycles, UBS found that gold tends to fall by 2% or so in the last three months or so after the end of previous rate hike cycles, but rises 7% over the next six months.

UBS expects gold to hit new highs in 2024 and 2025 as the U.S. economy enters a recession, the Federal Reserve weakens the dollar due to interest rate cuts, and the real yield on 10-year Treasury bonds falls 160 basis points from its 2023 highs.

According to UBS’s baseline forecast, gold will be $2,000 an ounce by the end of this year, $2,200 in 2024, and fall back to $2,100 in 2025 but remain high.

(A lot of the market’s optimistic logic about gold can also be reused in Bitcoin, and alternative allocations can prepare for lower interest rates in the future)

JPM Asset Management: Alternative asset allocation will be important next year

The correlation between equity and bond prices is expected to remain in a higher range in the future, as inflationary pressures ease and economic growth slows, and the higher correlation makes the diversification of alternative investments more prominent, as alternative assets can provide a yield premium for portfolios due to their higher expected returns.

(This logic is also applicable in the cryptocurrency market, taking BTC as an example, whether you agree with its valuation logic or not, its price history Sharpe and Sortino ratio is higher than the Nasdaq 100, and it is difficult to jump out of it when a large amount of money is making alternative asset target selection)

China real estate stocks and bonds rise

This comes as China is stepping up pressure on banks to support distressed property developers, such as allowing banks to lend unsecured short-term loans to qualified developers. Authorities are finalizing a draft list of 50 developers eligible for financial assistance, people familiar with the matter said. Chinese developer stocks and bonds rose last week. For example, Country Garden’s share price jumped 20%, and its bond price jumped 50%. Sino-Ocean Group’s share price rose 50%, Xuhui Holdings rose 50%, MSCI China Real Estate ETF rose 10% last week, and CSI 300 Real Estate Index 2~3%. Most developers in China are facing a liquidity crisis, not a solvency crisis, which means they can survive if the government provides sufficient financing cash flow. If left unchecked, developers will default on their debts and the situation of unfinished buildings across the country will intensify, which will only create a vicious circle in the market. Since the amount of guaranteed funds needed to be delivered may be as high as 3 trillion yuan, it is unlikely to rely on the market to take over, and debt monetization may be the only solution.

Positions and Money Flows

The measurement of the overall equity position rose further this week, reaching the moderately overweight territory (58th percentile), and in particular, the positions of independent investors continued to rise sharply, reaching their highest level since the end of July (78th percentile), but not yet to the extreme. Positions in systemic strategies continue to rise slightly and remain slightly below neutral (percentile 38):

Equity funds received inflows for the third consecutive week ($13.1 billion), with the United States ($12.4 billion) receiving most of the money again. Inflows into bond funds ($6.7 billion) accelerated, with investment-grade bonds ($4.1 billion) the biggest weekly inflow since early April. Money market funds saw inflows for the fifth consecutive week ($30.9 billion), with total inflows exceeding $222 billion during the period.

In the past two weeks, the inflows in the sector have been marked by telecommunications and technology and finance, and there have been significant outflows in utilities, health care and energy:

Since October, the stocks with the largest short percentage (top 10%) have caught up with the broader market:

The CTA significantly increased its equity allocation to neutral (percentile 25):

According to BoA’s predictions, CTAs will continue to be big buyers in the market this week:

In terms of BTC futures, asset management (blue) holdings continued to hit a record high, retail investors (purple + red) turned net short last week, market makers (gray) net short hit a new high since February this year, and leveraged fund (green) net short decreased, but still maintained a high level. We have previously analyzed that most of the rise in asset management positions is contributed by BTC futures ETFs, so it can be seen that players in the futures market other than ETFs are not actively long BTC. Historically, the behavior pattern of leveraged funds operating against the trend is very obvious, always reducing positions when they are rising and increasing their positions when they are falling. Since players outside of ETFs are obviously short, you can understand that these people think that the market may have peaked. But if they misjudge, the motivation for short-covering is bound to be stronger.

Sentiment Indicator

The BofA CBBS indicator rose to 2.1, indicating a shift in investor sentiment from extreme pessimism to neutral, and the bank recommends a cautious optimistic approach at best:

CNN’s Fear and Greed Index jumps sharply into the Greed Zone:

Sentiment indicators for AAII and Goldman Sachs have not been updated this week.