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The Silent Revolution

By Marius-Cristian Frunza
Weekly Briefs

Throughout modern times, financial institutions had almost an exclusive quasi-monopoly on the investment industry. Leading investment banks were giving the impression that they owned solely the ultimate truth about financial markets. The 2008 crisis and its dramatic consequences showed that bankers were as clueless and powerless as rudderless ships in a tempest. The big public understood that relying exclusively on Wall Street tycoons for getting righteous investment advice is a hazard. Over the past decade, retail investors decided to bypass the traditional avenues of investing and opted for alternative infrastructures. The current unprecedented pandemic accelerated the process triggered by the previous crisis.  A silent revolution is taking place in the way people relate to financial markets.

The democratization of investing comes in many shapes, shades and forms. From cryptocurrencies to equity crowdfunding, many services proposed traditionally by investment banks are repealed and replaced by alternative cost effective solutions. The ”Gamestop” story revealed the real stake of this silent revolution. The dialectic between individual inventors and Wall Street bankers is nothing else than amoder projection of Marx’s class struggle. There are two avenues to solve hegelian dialectics. One the one hand we have free markets whereas price is the ultimate solution. On the other hand we have socialism whereas equitable distribution of resources solves the equation. The silent revolution in investing comes with a paradigm shift. The class struggle is not solved by reallocating the means of production, but by competing for prices in financial markets.

The resultant democratization of investing will not remain unsanctioned. While retail investors are under the impression to have the upperhand, traditional financial institutions will not concede their turf under any circumstances. So, what could we expect in the foreseeable future?

The answer is that one should expect more regulation. The myriads of Fintechs that erupted over the past decade had the benefit of light scrutiny from market watchdogs. Therefore, Fintechs were able to erode banks’ market share. Will not be long until we see regulators stepping in the Fintechs’ den and asking uncomfortable questions.

The most important kind of freedom is to be what you really are. You trade in your reality for a role. You trade in your sense for an act. You give up your ability to feel, and in exchange, put on a mask. There can't be any large-scale revolution until there's a personal revolution, on an individual level. It's got to happen inside first. Jim Morrison, American artist

Market overview

The third wave of the new coronavirus pandemic is not anymore just a simple fear but became reality. Several European countries are currently overwhelmed by the resurgence of the sanitary crisis, thereby undermining the perspectives for a strong recovery in 2021.

Market volatility had a significant rebound, while the stock market stopped its progression and entered negative territory.  If the second quarter does not bring any sign of economic growth, there are serious reasons to anticipate a prolonged market bear.

Focus:

Ormat

The excess of liquidity injected into financial markets does in certain cases more harm than good. When the printing machine throws money to everybody, irrational decisions are made. Hindenburg research, a reputed shorter, published an acid report concerning Ormat.  

Ormat Technologies Inc. is an American Israeli company based in Nevada that supplies alternative and renewable geothermal energy technology. According to Hidenburg, Ormat is involved in “widespread and systematic acts of international corruption”. These controversial activities took place  mainly in emerging countries like Guatemala and Kenya where Ormat had vested business interests. Ormat’s share price plummeted by more than 40 % over the past week and this could be only the beginning of the turmoil for the Nevada based company.

Commodities:

Bullish corn prices

Since the beging of the pandemic, corn futures prices listed on CBOT increased by almost 50%. Corn is the biggest agricultural commodity in the United States , being one of the most common products in people’s daily diet. Such a price increase triggers fear about a foreseeable inflationary process. Oil pieces also had a solid positive drift over the recent months. Such signals suffice to let us think whether the printed monies through quantitative easing will end up in the real economy.

Cryptocurrencies:

Bitcoin at crossroads

Over the past week, Bitcoin oscillated above and below 48,000 USD and managed to climb up to 51,000 USD. Seemingly 50,000 is a psychological level for Bitcoin and the market needs in the near future to consolidate this position. Many are those that would like to see the leading cryptocurrency at higher prices, but given the past experience such development would be detrimental. Price is not an issue for Bitcoin. Consistency is the real challenge.

Market outlook

In a volatile context the Dow Jones ended the week above 31,000, thereby remaining in the same ranges as in the previous week.  There are reasons to believe that a market contraction could unfold over the next few weeks. Bitcoin floated around the 48,000 mark and there are chances to observe a rebound over the next week back above the 50,000 USD level.

Crude Brent reached 70 USD and is following its positive trend started towards the end of 2020. The increase in oil prices with no clear sign of economic recovery could signal a foreseeable bull in commodity prices.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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