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Market Update
February 1, 2021

The GameStop Short Squeeze Saga

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Thoughts Of The Week

Short Interest:

The big news this week – and one which has dominated market volatility - has been the short squeeze saga around certain companies, most notably GameStop (GME). There were many others too (such as AMC, BB, BBBY and EXPR). These stocks suddenly started soaring despite their ailing prospects.

So what happened?
Shorting is where you believe the price of a security will fall. How do you short something you don’t have? You borrow it from an International Securities Lender (ISL). At the appropriate time, you cover your short position by buying the shares back in the market and returning the shares to the ISL. You bag your gain - or loss!

Of course, whilst this may probably become a Netflix drama in the near future, in the long term, such events whilst headline grabbing today, should have no impact on your long-term investments. There are no guarantees of investment performance.

Corporate Fund Raising

Companies have raised $400bn in funds in just the first three weeks of 2021 alone. The reason? The sheer scale of Government and Central Bank stimulus being poured in to prop up economies. Already, this figure is some $170bn above what is considered usual for this time of the year (Refinitiv). In particular, SPACs (Special Purpose Acquisition Companies) are enjoying an absolute frenzy in the IPO space. Companies have raised $337bn in debt (to 22nd January) and $64bn in IPOs and Secondaries.

Vaccinations – Are They Working?

In short; Yes. Israel is furthest ahead in its vaccination programme and, clearly, hospitalisations are dropping (some 60%) amongst the 60+ age group. The overall decline in Covid19 infections is however falling more modestly suggesting it’s the behavioural issues we need to be really careful about now. The worry is that the vaccinated population are not cognisant of the infection risks they still pose towards others. Perhaps that’s the real reason why the likes of the UK want to extend the lockdown further – to wait until enough have been vaccinated to reach herd immunity across the population before easing the rules. *

* https://www.timesofisrael.com/israel-sees-60-drop-in-hospitalizations-for-over-60s-in-weeks-after-vaccination/

The Week That Was…

Boris Johnson was the first amongst European leaders to receive a call from Joe Biden since inauguration. Strengthening of bilateral ties, collective defence and fighting climate change are thought to have been discussed. Although a White House release made no mention of a trade deal.

In the US’s first Federal Open Market Committee meeting of 2021, the Fed kept rates (+0.25%) and pace of bond buying ($120bn pm) remains unchanged. *

* https://www.cnbc.com/2021/01/27/fed-decision-january-2021-rates-unchanged.html

Whilst in China figures showed that in December industrial profits surged +20.1% y/y (Nov: +15.5%); for 2020, and profits gained +4.1% y/y (2019: -3.3%) *

* https://www.reuters.com/article/china-economy-industrial-profits/china-industrial-profits-surge-201-y-y-in-dec-idUSB9N2JP00P

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Market Overview.