This morning: Markets are celebrating spring, rebirth and recovery. The problem is the pandemic is not over, and may continue to cast is baleful malice over markets for decades. Meanwhile… would you appoint an ESG-compliant, full-on Woke gender & diversity championing Head-hunter to find you the next killer quant-trader?

While markets are basking in the joy of a never-ending spring of new index highs, calm conditions in bonds, soaring expectations for recovery, and rising growth estimates – everyone is finance is happy, happy, happy. What can possibly go wrong? (Rhetorical question – don’t ask! I will only spoil your weekend.)

The big issue remains the Pandemic.

As Europe experiences rising infections (France surpasses 100k deaths), its increasingly becoming clear COVID is going to be a long-term fact-of-life matter rather than a short-term winnable battle. Coronavirus and Chris Whitty are going to be with us, like the flu, for decades. Pfizer and others are warning we will need further booster jabs. New vaccines, like the yearly flu shot, won’t be guaranteed to protect us.

While we all know the death rate from the virus has been low, and was loaded against the elderly and infirm, the next one might be like Spanish Flu 100-years ago hitting the young and fit. The big issue determining future reaction to successive pandemics will be hospitalisations – no Government can withstand the political damage an overwhelmed health service would create. They will therefore likely continue to err on the side of caution with loads of rhetoric about saving the NHS rather than a focus on economic resilience and jobs.

Smart governments – much to my own surprise, I put the UK on that list – will spend whatever it takes to protect and survive, investing in new vaccines, therapies, logistics, and capacity. They will learn. The crisis in the UK is now one of “everything but Covid”, unravelling the 4 million plus treatment queue of procedures put on hold by the pandemic. There are still shocks to come as it becomes clear how many early deaths were accelerated by strokes, heart attacks and cancers missed because of the virus.

I reckon the market has overbought recovery. The economic damage done by the response to Covid isn’t going to be a simple V shape. It’s going to be more nuanced reflecting societal fears and changed behaviours. That’s what critical for today’s market. Every single sector that most impacted by the crisis is now seeing the recovery effect as bonds and stock prices bounce back. It’s an overplayed theme.

Take ocean cruising – reopening as fast as possible as long as passengers can provide vaccination proofs. But, the reality could be different. While tourist destinations will be anxious to welcome the commercial boost and mini-boom a cruise ship visit creates, there will be delays and frictions as health concerns remain. Some nations will refuse visits, others will remain unvaccinated – threats of importing and exporting infections. Where will cruise ships go?

More to the point is the aging customer base; its the same generation most afeared of the virus – realistically what percentage of cruise passengers will return? If it’s only 90% – then that’s still a serious overcapacity issue for the industry.

Having sailed past the Cruise ships anchored off the English coast rusting away (apparently the key thing is to keep their plumbing operating by flushing the loos every day), they aren’t quite as sparkly as they once were. With the cruise firms now cash-strapped and their future demand unclear – who would order new boats now? If the companies aren’t ordering new ships, then what happens to the boatbuilders and their skill-sets? Without new boats the next generation aren’t going to go cruising.

You can make similar arguments about the assumptions being made about the resumption of mass air-travel. How many folk will be happy with hanging around airports waiting for test results? Maybe that staycation looks a less-hassle option. I was chatting to one of my aviation clients last week. We are seeing a number of feelers, testing the waters for new deals – but our conclusion is we face a second dip in the aviation recovery as the future of the sector becomes clearer – and not in an optimistic way.

The reality is our lives and economies are going to adapt. Distancing, virus passports, masks? Who knows… Its not a simple slam-dunk reopening. Some sectors look overbought.

Meanwhile… 

Across markets there is so much going on. Its always good to be busy; rewriting the pitch-book on one deal to reflect the investor concerns we’ve uncovered, scrabbling to close funding on another, and even finding time to go out a learn more stuff I didn’t know while talking to funds about their market expectations – which can be summed up as “nervous about when this party might end”. 

My curiosity knows no bounds.

I even found time to open a Coinbase account and bought a modest slug of Etherium and Cardano – I don’t know what they are, but on the basis no one could explain why any are better or worse than any other cryptos… why not? Since I reckon the Fed is right about the underlying value of cryptos potentially being zero, let’s just say the Blain family won’t be losing the family farm as a result of my little punt on digital currency if cryptos flatline. (Reminds me of the time years ago when I was sucked into going to the casino… At one point I was up the price of a decent new car. I had to borrow cash for a taxi home when I left. Haven’t been back.)

(Actually, to be honest – the real reason I bot into Crypto yesterday was my deeply held belief the Gods of the Markets hate me, and so the easiest way for me to prove my warnings on Crypto are right, is to buy into and lose money like everyone else. I really should set up the Blain Reverse Indicator Fund EFT… A long/short strategy mirroring my own portfolio.)

I read about Scottish Mortgage (the Baillie Gifford tech fund) which studiously ignored all my efforts to pitch them a UK satellite launch capability project based in Scotland. Instead, they have invested in a new blueprint stage US launch system utilising 3D printing to build cheap, efficient and less polluting rockets. Nice – when it works. I guess it ticked more of the tech future-stuff tick-boxes than our scheme which works today on the back of repurposing existing and proven launch technology to get satellites into Low Earth Orbit quickly and cheaply.

But, all-in-all, Thursday was quite a good day. The modern world was starting to make a little more sense. I am beginning to understanding stuff I never previously would have understood.

And then I opened a link celebrating a leading firm of global head-hunters announcing, with great pride, the release of their first ESG report.

Really?

Global head-hunters? ESG? Diversity? Inclusion? Gender politics?

The world has clearly changed.

When was I was young the role of a head-hunter was to go out and ruthlessly secure the best talents to fill the positions its clients needed filled. The best people, who could generate and develop the best deal flow were what made investment banks rich… There were no limits.

I wonder what the role of a head-hunter is today? Is it to offer clients advice on how diversity and inclusion principals will make them more effective organisations? Will it be to ensure client boars exceed diversity pledges? Is it to deliver learning experiences to employees to empower them in their career development? I am quite on board with any company wanting to offset its carbon profile – entirely the kind of thing we should all be doing – but it really shouldn’t take umpteen pages to brag about why, and if I wanted advice on it, it wouldn’t be from a head-hunter.

I should like to deliver the message back to head-hunters in general that pale, male and stale old buffers (just like me) are people too! PMS Lives Matter! We may be old, set in our ways, but we have experience (if only we can remember where we might have left it…)

Out of time, and back to the day job! Have a great weekend.

Bill Blain

Shard Capital

Health care is the latest Big Tech battleground.

It’s no secret that America spends on health care. In 2019, that spending reached $3.8T ($11.6k per person). By 2028, it’s projected to hit $6.2T.

To the folks in Big Tech, any number with a “T” means one thing: opportunity.

This week, Microsoft showed it’s serious about the space

The company announced the $19.7B acquisition of Nuance Communications, known for its AI transcription tools for health care professionals.

Nuance has a healthy following among…

• Doctors: 55%+ of physicians and 75% of radiologists in the US use its products
• Hospitals: 77% of US hospitals are Nuance customers
• Investors: Nuance’s Health Care Cloud revenue grew 37% in 2020

Doctors can use Nuance tech — which is already integrated with Microsoft Teams — to record conversations and automatically transcribe notes.

But Microsoft isn’t alone

Cook, Pichai, and Bezos want in, too:

• Apple is focused on selling hardware to health care providers and offering software platforms for medical record keeping
• Google recently introduced its Google-for-medical-records platform Care Studio and bought Fitbit for $2.1B
• Amazon is the gangster player, having recently released Prime-like online pharmacy and primary care service platforms

Bezos has also gone one step further, debuting the Amazon Halo that’s capable of calculating body fat (of which Bezos has none).

Still, challenges abound

If history is any indication, Big Tech’s success in health care is hardly a given:

• IBM hyped Watson’s AI-cancer diagnosis capabilities but is now exploring a sale
• Amazon’s health care venture with Berkshire Hathaway and JPMorgan Chase failed to get off the ground
• Google faced privacy hurdles when trying to gain access to health care provider data

Regardless, the digitization of health care is a huge market, and Big Tech is gearing up for battle.

The private equity titans behind 3G Capital Inc. and their families are taking advantage of distressed real estate prices in Brazil, where the economy has been battered by Covid-19 and the botched government response.

Firms linked to billionaires Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira are increasing bets on strip malls, office space and long-term rental apartments. The goal is to seize opportunities created by the pandemic in a nation that’s leading the world in daily Covid deaths.

“The next 18 months will be very challenging for commercial real estate and that’s the time to make purchases, because sellers tend to get more flexible on prices,” said Fabio Itikawa, chief financial officer of Sao Carlos Empreendimentos e Participacoes SA, which was created by the 3G founders and is now owned by their heirs.

Brazil is suffering its worst phase of the pandemic, with more than 340,000 dead from the disease and records being broken daily for the number of new cases. Vaccinations are progressing slowly, with only 10% of its 212 million inhabitants having received their first shot and just 2.9% fully immunized, according to data compiled by Bloomberg. The forecast for shipments of new doses was recently cut. The economy is struggling as some activities are in lock-down with rising unemployment and dwindling growth.

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How the billionaire Winklevoss twins are betting on a decentralized future

Many of us know Tyler and Cameron Winklevoss as the statuesque Harvard rowing twins who sued Mark Zuckerberg for ownership of Facebook.

That image — along with Justin Timberlake’s curly hair as Sean Parker (“a billion dollars is cool”) — was seared into the public consciousness by the 2010 movie The Social Network.

Since then, the Winklevii have cut their own path… one that potentially threatens Facebook itself.

The Winklevii scored a $65m legal settlement…

… against Zuckerberg in 2008. And, as reported by Forbes, they have since built a multibillion-dollar fortune with bets on Bitcoin and startups focused on a crypto/decentralized future:

• Bitcoin: The twins started investing in the crypto asset in 2012 when it was priced at $8. With the price now hovering at ~$58k, they turned a $10m bet into a $6B fortune.
• Gemini: In 2014, the twins founded cryptocurrency exchange Gemini, which trades 33 crypto assets. While much smaller than Coinbase, Forbes notes that the exchange could raise money at a $5B valuation.
• Nifty Gateway: In November 2019, they acquired Nifty Gateway, a non-fungible token (NFT) art marketplace that helped propel digital artist Beeple, who recently sold an NFT for $69m at a Christie’s auction. In March, Nifty Gateway processed 70% of the $188m in art sold across the top 7 NFT marketplaces.
• BlockFi: The twins backed this crypto startup, which lends money against crypto holding and just raised $350m at a $3B valuation.
• Protocol Labs: An open-source project that helps build decentralized services. One example is Filecoin, a decentralized computer storage system where users earn money by renting out their own storage space.

Winklevii companies make money from marketplace and trading fees

And not the monetization of personal information… like, say, Facebook. The twins’ portfolio doesn’t just have a different business model than Zuckerberg’s baby; it has a totally different operating philosophy.

“The idea of a centralized social network is just not going to exist 5 or 10 years in the future,” Tyler Winklevoss tells Forbes.

While this prediction sounds extreme, there is momentum towards stripping power away from the Big Tech platforms… especially after Donald Trump was wiped off the internet virtually overnight after the Capitol riots.

The Winklevoss bets are on a decentralized future, including a social network — BitClout — that resides on a blockchain and isn’t controlled by a single entity.

However it plays out, we’re ready for The Social Network II.