Insights: All of a sudden: Decentralization

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January 30th, 2021

The GameStop (GME) blame game is in full swing. Politicians from the left and right are heaping scorn on operators of the Robinhood app for limiting trading access to GME and some other stocks. Yet, those same legislators have failed to address the complexities of the US market structure which allows for short positions to exceed a stock's float. The liberal use of shorting by hedge funds set the stage for the melt-up in GME. 

As a side note, it is nice to see INK Edge signals winning in the US market. GameStop was a top-10 ranked stock in the INK October 28th US Market Report.

As the dust settles from the mayhem of last week, it is becoming clear that one of the losers is Robinhood who ended up making some unpopular decisions about market access for its customers. As Jack Farley suggests in the Friday Real Vision Daily Briefing (see below), there are two leading explanations for Robinhood's decision to clamp down on trading. The first being it decided to help the hedge fund community (who could be buying their order flow) and second being they were facing market-structure liquidity issues. We agree with Ed Harrison who in the same broadcast suggests that it does not matter which explanation is right because Robinhood has lost in the court of public opinion. 

The Robinhood GME events last week, in our view, will accelerate the trend to decentralization. Social Capital CEO and INK Ultra Money guest Chamath Palihapitiya made the observation today on Twitter that the driving force behind the GME melt-up was a decentralized Reddit Forum WallStreetBets.

We have already seen Injective Protocol list GME on its 24/7 decentralized finance (DeFi) exchange. If you are not familiar with Injective (INJ), Guy from Coin Bureau provides an overview in this October 22nd YouTube video. We are now featuring Coin Bureau along with shorter videos from Exodus wallet as part of Canadian Insider cryptocurrency coverage. Both are independent shops and have impressed us with the substance they bring to the table.

We originally made cryptocurrencies a key component of Canadian Insider because we believed the blockchain would ultimately be part of the reconstruction of the global financial system. In that light, cryptocurrencies are central to our core investment theme #3 preparing for a monetary reset with exposure to cryptocurrency opportunities and commodities including precious metals. We may be seeing that financial reset starting to take place in real-time. In the meantime, insiders continue to point to the group for opportunity at the stock level.

In fact, a bitcoin miner was one of the top movers up our INK Edge rankings over the past week. We have posted the Top Movers in the stock_ideas channel of INK Chat. If you have not registered already, Canadian Insider Club members please check your email inbox for your invitation. If you did not receive it please contact us.

GME and cryptocurrencies were not the only major developments last week that could shape asset price returns in the weeks ahead. The Gold/Silver Ratio put in a multi-year low on Friday which if sustained is a positive development for inflation-sensitive assets. The January INK Top 20 Gold Report released Friday highlights some names that could provide relative performance opportunities during inflationary times.

The Gold/Silver Ratio has moved below 69 for the first time in years

 

It is not just Canadian Insiders that are pointing us towards inflation-sensitive assets. Some financial industry heavyweights also seem to see the writing on the wall. In a terrific interview with Grant Williams and Bill Fleckenstein, Paul Singer, Founder, President, Co-CEO and Co-Chief Investment Officer of Elliot Investment Management L.P. makes the case for an inflation surprise in the not-so-distant future. He predicts that supply chains will be moving from "just-in-time" to "just-in-case". He questions the wisdom of buying long-term bonds right now. It is good to know we are in such good company when it comes to a bullish outlook for inflation.

Mr. Singer is not so enthusiastic about bitcoin, and it is probably safe to characterize him as not being sold on the value proposition behind proof-of-work cryptocurrency mining. Perhaps, he might have second thoughts about proof-of-stake DeFi as we travel further down that road. The interview is part of The End Game podcast series available on the insights-packed Grant-Williiams.com.

We will close off this edition highlighting our Friday morning report which featured Peyto Exploration & Development (PEY) as a leader in climate change reporting in the Canadian oil patch. If there is one lesson from the Keystone XL cancellation, it is the high costs of being behind the climate change policy curve. We have made the Friday report and video summary free on INK Ultra Money. In the January INK Top 30 Energy Report also released Friday, we described our broad framework for assessing oil patch companies on their climate change strategy and reporting.

Disclosure: One or more INK employees holds Injective.


Top 3 Gainers Last Week

Company NameStock Symbol1 Week %
TFI InternationalTFII30.5
SunOptaSOY9.1
AutoCanadaACQ5.3

Top 3 Losers Last Week

Company NameStock Symbol1 Week %
Hudbay MineralsHBM-15.3
Lithium AmericasLAC-15.0
LinamarLNR-11.11

Returns are as of the last trading day of the previous week.

Featured Broadcast

Insider of the Week

Peyto Exploration & Development CEO Darren Gee

Congratulations to Darren Gee and the Peyto team as they pulled off an A grade in our initial ESG Climate Change ratings of selected oil & gas companies. We apply a three-factor framework to evaluate firms: benchmarking, seizing leadership opportunity and reporting risks. Peyto came out on top. Read more about our analysis in our January Top 30 Report.

INK Canadian Insider Index

1 Year Total Return Performance


Historical Performance

Annualized Total Return as of January 29, 2021 04:49 pm
1 Year 13.01%
3 Years 2.77%
5 Years 9.14%
10 Years 6.79%


To learn more about the Index please visit
https://index.inkresearch.com

5 Year Total Return Performance


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