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Daily Intelligence Briefing

Tuesday, November 5, 2019

Identifying Change-Driven Investment Themes – Five sections, explained here.

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I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Crypto 2020: The Latest on Bitcoin Payments, Futures, and Institutional Adoption →

Summary: 2019 has been a renaissance year for cryptocurrencies and blockchain applications, but 2020 will be a year of massive implementation. After years of speculation, Starbucks has announced a partnership with Bitcoin (BTC) futures market and payment app Bakkt to enable BTC purchases of coffee at all 30,000 Starbucks around the world. While that is a huge step forward for consumer utilization, the development of BTC futures and stablecoins for institutional investors continue to be the primary drivers of blockchain innovation. Read more +


MRP added Short Autos to our list of themes on October 12, 2017, citing the decline of affrodable vehicles for the average American household, a resulting buildup of subprime auto loans, and rising inventories of new vehicles on dealer lots.


2 year later, MRP was clearly right on time with this theme. Rapidly weakening sales numbers threw the US auto industry into turmoil through 2018-2019 while China (the world’s largest car market) suffered their annual vehcile sales decline for the first time in almost 3 decades. Additionally, affordbility has not improved and subprime lending is back on the rise again.


However, signs of a turnaround have begun feeding through to US auto stocks. The Fed has cut interest rates by 75 bps over the course of the FOMC’s last 3 meetings and earnings at automakers like Ford and GM have begun to improve.


As such, we feel now is the time to call an end to this Short. Since the launch of the theme, the First Trust NASDAQ Global Auto Index Fund (CARZ) declined 17% versus an S&P 500 gain of 21%.

II. Updates of Themes on MRP’s Radar

Follow-up analysis of key market drivers monitored by MRP.

China Banks: China’s Country Banks Sing the Blues

Cannabis: Pot Stock Aphria Secures Key Piece Of Plan To Reach This Aggressive Target

Airlines: Ryanair hit by further delay to Boeing 737 Max deliveries

Solar: An Energy Breakthrough Could Store Solar Power for Decades

MedTech: Scientists 3D-Printed Living Skin, Complete With Blood Vessels

III. Joe Mac’s Viewpoint

Founder Joe McAlinden’s big-picture analyses of macro issues. More about him here.

September 30, 2019: Verbal Intervention →

August 30, 2019: The Booming Buck →

July 26, 2019: Spiking the Punch Bowl →

June 28, 2019: A Review of MRP’s Change-Driven Themes →

IV. Active Thematic Ideas

MRP’s active long and short themes, with an archive of follow-up reports.

See Them Here →

V. Macroeconomic Indicators

Key data releases relevant to MRP’s Active Thematic Ideas.

See Them Here →


Crypto 2020: The Latest on Bitcoin Payments, Futures, and Institutional Adoption

2019 has been a renaissance year for cryptocurrencies and blockchain applications, but 2020 will be a year of massive implementation. After years of speculation, Starbucks has announced a partnership with Bitcoin (BTC) futures market and payment app Bakkt to enable BTC purchases of coffee at all 30,000 Starbucks around the world. While that is a huge step forward for consumer utilization, the development of BTC futures and stablecoins for institutional investors continue to be the primary drivers of blockchain innovation.

Last week, Bitcoin futures exchange Bakkt announced that it would be launching a consumer app for cryptocurrency purchases by July 2020, with Starbucks will be its first launch partner. Traditional payment platforms are able to handle more transactions per second relative to public blockchains such as Bitcoin (BTC). Bakkt found a solution to this limitation by enabling customers to able to spend their BTC balance on coffee, via the app, without making direct blockchain payments from the person to the store. Rather the exchange will convert digital assets like BTC into US dollars, which can be used at Starbucks.” So far, Bakkt has only focused on BTC, but with the upcoming consumer app, it appears that it will branch out to other crypto currencies as well.


While this doesn’t necessarily create widespread “circulation” for BTC and other crypto, a key qualification for something to be considered a legitimate currency, it’s certainly a step in the right direction since Starbucks is the largest coffee chain in the world, owning almost 40% of the U.S. coffee market, and boasting more than 30,000 stores across the globe.


Along with enabling payments, Bakkt was originally launched as the latest futures market for institutional trading of BTC (the first to provide physically-backed contracts in the US), beginning operations in September 2019 . Bakkt’s futures trading volume recently hit an all-time high of $ 10.3 million on October 25, 2019, it has been holding up consistently since then. The volume of Bakkt already showing signs of a noticeable increase less than three months after its launch suggests that BTC as a store of value is appealing to accredited and institutional investors.


Apart from the trading volume, Bakkt’s total Open Interest reached a new all-time high of over $1 million. Open Interest (OI) represents number of perpetual futures contracts in existence, serving as a useful proxy for the amount of leverage in the market. According to Bloomberg, regulated futures trading volume and OI have followed Moore’s law, doubling every 18 months, following BTC futures exchange launches from CBOE, CME, and LedgerX. Although open interest is only 0.1% of total BTC supply, even small numbers attached to exponential growth rates are worth noticing. Delphi Digital’s latest report suggested that total OI for BTC repeatedly hit $1 billion, consequently resulting in the development of a new trading strategy.


Futures trading has grown from almost nothing to about 50% of spot trading, according to data from 13 top exchanges. It has reduced both actual and implied volatility, increased liquidity, broadened the investor base, improved portfolio management and soothed regulatory concerns. Additionally, futures trading seems dominated by solidly capitalized crypto entities―miners, dealers, venture investors, issuers, lenders, businesses―managing portfolio exposures. This adds a stabilizing force to historically volatile crypto markets.


In 2019 all the major crypto exchanges are offering futures trading along with crypto borrowing and lending. It’s now easy for any crypto owner to earn interest―usually around 10%, very attractive for inflation-proof currencies―on their holdings, as well as to make leveraged bets for or against crypto for future delivery.


Blockchain technologies continue to revolutionize FinTech and even traditional banking models as well. Fnality, a London-based company is banking on blockchain technology to usher in an era of digital financial markets, infrastructure, and wholesale banking.


Backed by $63.2 million in fresh funding from a consortium of financial institutions, including some of the world’s most important banks: Banco Santander, BNY Mellon, Barclays, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, Mitsubishi UFJ Financial Group Inc., Mizuho Bank, Ltd, Nasdaq, Sumitomo Mitsui Banking Corporation, State Street Corporation, and UBS, Fnality will offer the Utility Settlement Coin (USC). Notably, the USC will be fully backed by cash collateral held in accounts at central banks around the world. To start, the USC will represent five different currencies: U.S. dollar, euro, UK pound sterling, Japanese yen and Canadian dollar. The cash collateral ensures that the value of the USC remains stable, while the Fnality platform enables interoperability through its connection to any blockchain network or legacy system.


Much like JPM Coin, JP Morgan’s stablecoin that MRP covered back in April, Forbes writes the USC will allow banking participants to engage in exchange for value transactions, to include cross-currency transactions, without many of the traditional intermediaries and their associated costs. Banks will be able to clear and settle transactions virtually instantaneously, improving efficiency, and reducing cost and risk.


Fnality’s complex roadmap will see things begin to come to fruition in 2020 with the first products being simple payments. Then, it would move to more complex currency swaps, for example, as in classic foreign exchange, or involving some kind of security, formalized as delivery versus payment (DvP), meaning both sides of the trade are completed simultaneously.


While these developments have been exciting, Western institutions have likely begun looking over their shoulders to the East, where China appears to have re-ignited their crypto ambitions following the Chinese government’s 2017 blanket ban on initial coin offerings (ICOs) and centralized crypto exchanges.


Following Chinese President Xi Jinping’s speech last month, embracing blockchain technology and calling on his country to advance development in the field, the People’s Bank of China expressed concern about the impact that a cryptocurrency outside of its control might have on the economy and the financial system. That’s one reason it’s hard at work on its own digital currency, so that China won’t be forced to adopt a technology developed abroad.


After China Merchant Bank recently invested in the crypto wallet platform BitPie, one of the longest-serving BTC wallet platforms in China, speculation surrounding leaked Chinese state licenses for cryptocurrency trading services started spreading online. The license in question seems to be for a digital asset trading service based in Guangdong. While the licenses have not been independently verified yet, Guangdong is the province of Shenzhen, the so-called ‘Silicon Valley’ of China. Millions of blockchain-based invoices have been sent out this year as part of an experiment in the city which now seems to be state policy.


Blockchain and cryptocurrencies have come a long way from the Bitcoin bubble of 2017. While many pundits proclaimed the death of crypto in the months and years following the subsequent crash that sent BTC spot prices as low as $3000, down from a peak of almost $20,000, new projects and an injection of optimism has not only seen BTC spike almost 140% year to date, but the entire market cap for cryptocurrencies break back above $250 billion.


Investors can gain exposure to blockchain via the Amplify Transformational Data Sharing ETF (BLOK) and First Trust Indxx Innovative Transaction & Process ETF (LEGR). Other assets related to the blockchain include ETFMG Prime Mobile Payments ETF (IPAY) and Bitcoin (BTC).


For more of MRP’s crypto coverage see previous articles below:


DIBs September 12, 2019:
Central Banks are Now Issuing Cryptocurrencies. Is this the Tipping Point?


DIBS June 19, 2019:
Facebook’s Calibra Could Compound Mainstream Crypto Adoption

Blockchain (BLOK, FEGR) vs Payments (IPAY)

vs Bitcoin (BTC-USD) vs S&P 500 (SPY)

Source material for today’s market insight…


Bakkt’s Bitcoin Futures Volume Explodes 260% to Trade $11M in 24 Hours


Institutional Bitcoin (BTC) trading platform Bakkt is on course to treble its all-time high for trade volume after hitting new records last week.


According to data from Twitter-based monitoring resource Bakkt Volume Bot on Oct. 26, Bakkt traded 1,183 Bitcoin futures contracts, or 1,183 BTC ($11 million) on Friday. Compared to just 331 contracts ($3.1 million) on Thursday, the increase in just 24 hours was 257%, dwarfing previous jumps, which themselves had resulted in all-time highs earlier in October.


Compared to its launch in September, Bakkt’s success is all the more remarkable. As Cointelegraph reported at the time, opinions were split on Bakkt’s futures ― day one saw just 71 BTC (around $700,000 at the time) traded.


Read the full article from Cointelegraph +



End of Ban? China Merchant Bank Invests in Crypto Wallet Platform


China Merchant Bank reportedly invested in the crypto wallet platform BitPie,one of the longest-serving Bitcoin wallet platforms in China. Through the crypto industry in the country remains in a blackout for over two years, the wallet platform successfully retained its customer base by relocating its base to Australia.


On Friday, a speech by Chinese President Xi Jinping on adopting blockchain and digital currencies gave the sector a massive boost, both in terms of investment and trading. “All I can say is this to me it’s a sign of beginning of the nationalization of Bitcoin/Cryptocurrency related infra in mainland, Wan added. “Eventually, all things can be state-owned, or at least partially (mining, ASIC, exchanges, wallets, etc etc).”


China was once the largest crypto market on the globe, handling the highest Bitcoin trading volume prior to the country-wide ban.


Read the full article from Finance Magnates +


14 Banks, 5 Tokens: Inside Fnality’s Expansive Vision for Interbank Blockchains


Fnality International is building the missing link in the banking blockchain.


Formerly known as Utility Settlement Coin (USC), the newly rechristened U.K.-based project is developing blockchain versions of five major fiat currencies: the U.S. dollar, the Canadian dollar, the British pound, the Japanese yen and the euro. The consortium boasts an ample budget, having just raised $63.2 million from 14 shareholder banks.


What’s the point of representing fiat currency, the very thing bitcoin sought to usurp, on a blockchain? According to Ram, it’s a means to an end, not an end in itself. He pointed to the many private blockchain projects trying to tokenize wholesale markets, either at the proof of concept stage or close to production. All are lacking one thing: fiat currency on the ledger.


In other words, it’s all well and good if a stock or bond zips around on a distributed electronic network, but if the cash side of the trade is being done the old-fashioned way, it’ll still take days to settle, defeating much of the purpose. Hence, the USC would address what many in the industry have come to refer to as the “cash on ledger” problem.


Read the full article from CoinDesk +


Bakkt crosses $1m in open interest, what does it show about Bitcoin?


According to researchers at Skew Markets, total open interest at Bakkt’s Bitcoin futures market ― operated by NYSE parent company ICE ― crossed $1 million. Cryptocurrency investors are closely observing the performance of Bakkt as a key platform to facilitate the demand for Bitcoin from accredited and institutional investors.


Bakkt is also the provider of the first physically-backed Bitcoin futures in the U.S., indicating that contract holders on the platform are delivered with physical bitcoin.


The volume and total open interest of Bakkt in comparison to major cryptocurrency exchanges that have existed for well over five years are substantially small. But, because of its physically-backed contracts, Bakkt has the potential to affect the price trend of Bitcoin in the long term.


As such, as the utilization of Bakkt rises, it could bring more balance into the global bitcoin market.


Read the full article from CryptoSlate+


Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.






Robotics & Automation




U.S. Pharmaceuticals


Electric Utilities




U.S. Asset Managers





United States Factory Orders Slowing


New orders for US manufactured goods fell 0.6 percent from a month earlier in September 2019, following an unrevised 0.1 percent decrease in August and compared with market expectations of a 0.5 percent decline.


Click here to access the data +


 United States ISM New York Index Rebounds, Still in Contraction


The ISM New York Current Business Conditions index rose to 47.7 in October 2019 from the previous month’s 40-month low of 42.8 and above market expectations of 45.8.


n the price front, prices paid inflation slowed from a four-month low. The Six Month Outlook increased to 53.6 in October from a ten-and-half-year low of 45.2 in September.


Click here to access the data +


Germany Manufacturing PMI Improves, Sector Still Shrinking


The IHS Markit/BME Germany Manufacturing PMI was revised higher to 42.1 in October 2019 from a preliminary estimate of 41.9 and compared to the previous month’s final 41.7. Still the latest reading pointed to the tenth month of contraction in the factory sector, as output dropped at a softer pace and new orders fell for the thirteenth consecutive month, albeit at a slower pace.


Meanwhile, the job shedding rate accelerated to its fastest pace since January 2010, as firms reported lower staffing number mostly attributed to a reduction in temporary workers.


On the price front, input costs declined at the quickest rate since March 2016, mainly due to lower prices of metal components, raw steel and plastics, and output cost fell for the fourth successive month and at the sharpest pace since November 2009.


Click here to access the data +


Turkish Inflation Rate at Near 3-Year Low


Turkey’s annual inflation rate dropped to 8.55 percent in October 2019 from 9.26 percent in the previous month. It was the lowest rate since December 2016, mainly due to a slowdown in food and housing inflation.


Annual core inflation rate, which excludes energy, food and non-alcoholic beverages, alcoholic beverages, tobacco and gold, eased to 6.67 percent in October from 7.54 percent in September. That was the lowest rate since August 2013.


On a monthly basis, consumer prices jumped 2 percent.


Click here to access the data +


Euro Area Manufacturing PMI Revised Higher


The IHS Markit Eurozone Manufacturing PMI was revised higher to 45.9 in October 2019 from a preliminary estimate of 45.7. Still, it was little-changed from September’s seven-year low as new orders continued to contract at a sharp rate and export orders fell to a considerable degree, again led by sharp reductions in Austria and Germany.


Output and purchasing activity also declined and employment shrank by the most since the start of 2013. Input inventories were lowered to the greatest degree since March 2013, whilst finished goods inventories deteriorated to the greatest degree for over three years.


On the price front, input costs fell the most since March 2016.


Click here to access the data +


Australia Performance Services Index on the Rise


The AIG Australian Performance of Services Index climbed to 54.2 in October 2019 from 51.5 in the previous month. New orders rose 0.4 points to 55.0, and sales advanced 7.5 points to 56.1. In addition, employment jumped 4.2 points to 54.7. On the price front, input prices edged down 0.8 points to 59.3, and selling prices decreased 1.5 points to 44.5.


Click here to access the data +





China Banks

China’s Country Banks Sing the Blues


On the face of it, the situation at China’s small rural lenders seems alarming. Nonperforming loans have been rising and stood at just under 4% of all loans in mid-2019. That far outstrips the NPL ratios of commercial banks as a whole at 1.8%, and small and medium-size city commercial banks at 2.3%. Part of the rise can probably be explained by tougher rules on acknowledging bad loans beginning in 2018, but the deterioration in rural lenders’ finances began well before that, suggesting more fundamental problems.


While rural financial institutions are mostly small individually, they are hefty in aggregate. Including commercial banks, credit cooperatives and the like, such institutions had 36.5 trillion yuan ($5.2 trillion) of assets by the end of the second quarter, slightly more than midsize city commercial banks, whose troubles have received far more investor attention.


However, rural commercial banks are much less important in the negotiable certificate of deposit market, the corner of China’s money markets where this summer’s troubles began. Midsize city commercial banks account for 39% of outstanding NCDs, according to Wind, against just 9% for rural commercial banks. NCD rates have risen modestly over the past week, but so have government bond and commercial paper yields, suggesting broader liquidity and inflation trends may be to blame.


Read the full article from WSJ +





Pot Stock Aphria Secures Key Piece Of Plan To Reach This Aggressive Target


Canadian pot producer Aphria on Monday said it received a grow license for its Aphria Diamond greenhouse, widening its production footprint and giving it a key piece of its plan to meet aggressive sales targets for the year.


Aphria Diamond is Aphria’s second cannabis greenhouse facility in Leamington, Ontario. The facility gives Aphria an extra 1.3 million square feet of production space, and is capable of growing 140,000 kilograms of cannabis per year, the company said. At an annualized rate, total resources give Aphria a production capacity of 255,000 kilograms.


Getting Aphria Diamond online is a crucial component of the producer’s plans to put up sales of 650 million-700 million Canadian dollars for its fiscal 2020.


Read the full article from Investor’s Business Daily +



Ryanair hit by further delay to Boeing 737 Max deliveries


Ryanair has warned there is “a real risk” it will have no Boeing 737 Max planes flying next summer because of further delays to the delivery of the grounded aircraft.


Ryanair’s chief executive, Michael O’Leary, said: “We have now reduced our expectation of 30 Max aircraft being delivered to us in advance of peak summer 2020 down to 20 aircraft and there is a real risk of none.”


All three US airlines that operate the 737 Max – Southwest, United and American – are now planning to hold hundreds of demonstration flights to reassure passengers that the model is safe to fly, according to the Wall Street Journal. A planned public relations drive will involve 737 Max flights taking off without passengers but carrying senior airline executives.


Read the full article from The Guardian +

There is much more to this report! McAlinden Research Partners offers Hedge Connection members weekly access to the Daily Intelligence Briefing research for free – click here to view. (You must be logged in first). Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting and mentioning “Sent by Hedge Connection”

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