alternative markets update march 2021

Alternative Markets Update March 2021
In the current uncertainty in the markets, macroeconomic factors play an important role aside from Covid-19 and the vaccination efforts. Inflation is a major concern in 2021, even though it was very obvious in 2020 already. However, in 2020, it was completely overshadowed by Covid-19 and the tremendous surge in equity markets among others. Inflation is a concern around the world, caused by the severe interventions undertaken by central banks. In particular in the US, where the FED intervened with money printing on such a scale that it cannot be compared to any other economy. This was largely required, as conventional monetary policy was not enough, for example, lowering the interest rates to the area around 0%. Even quantitative easing could not solve the problem, even though the FED’s balance sheet ballooned. Figure 1 shows the FED’s balance sheet over the last five years. At the beginning of the crisis, the federal reserve was at around $4.3tn. In 2020, this increased by 76% to $7.3tn and is still rising in 2021. Currently, it is at almost $7.7tn. In comparison to 2008, during which the federal reserve increased by 151%, the balance sheet increased by “only” $1.3tn in absolute terms. It is important to note that during the last two decades, the FED’s balance never declined by more than 1% on an annual basis with one exception being 2018 with a decrease of 8%. Interest rates in the US have recovered quite spectacularly over the last months. Figure 2 shows the development of interest rates in major economies over the last few months. The US interest rates are higher than any other interest rate from the UK, Europe or Japan, both short- and long-term. The short-term interest rates have remained very stable, while the long-term rates have increased a lot, for example, the 10-y US treasury note is soon back at 2%.

*|MC_PREVIEW_TEXT|*

RESEARCH PERSPECTIVE VOL. 152 March 2021 Alternative Markets Update March 2021 In the current uncertainty in the markets, macroeconomic factors play an important role aside from Covid-19 and the vaccination efforts. Inflation is a major concern in 2021, even though it was very obvious in 2020 already. However, in 2020, it was completely overshadowed by Covid-19 and the tremendous surge in equity markets among others. Inflation is a concern around the world, caused by the severe interventions undertaken by central banks. In particular in the US, where the FED intervened with money printing on such a scale that it cannot be compared to any other economy. This was largely required, as conventional monetary policy was not enough, for example, lowering the interest rates to the area around 0%. Even quantitative easing could not solve the problem, even though the FED’s balance sheet ballooned. Figure 1 shows the FED’s balance sheet over the last five years. At the beginning of the crisis, the federal reserve was at around $4.3tn. In 2020, this increased by 76% to $7.3tn and is still rising in 2021. Currently, it is at almost $7.7tn. In comparison to 2008, during which the federal reserve increased by 151%, the balance sheet increased by “only” $1.3tn in absolute terms. It is important to note that during the last two decades, the FED’s balance never declined by more than 1% on an annual basis with one exception being 2018 with a decrease of 8%. Interest rates in the US have recovered quite spectacularly over the last months. Figure 2 shows the development of interest rates in major economies over the last few months. The US interest rates are higher than any other interest rate from the UK, Europe or Japan, both short- and long-term. The short-term interest rates have remained very stable, while the long-term rates have increased a lot, for example, the 10-y US treasury note is soon back at 2%. Figure 1: Fed Balance Sheet (Total Assets in Billion USD) from January 2015 to January 2021, Source: Compound, March 2021 Figure 2: Interest Rate in Major Economies over the Last Few Months, Source: Barron’s Market Lab, March 2021 This macroeconomic ecosystem causes uncertainty ahead and is further amplified by the huge movement in stock markets. Some sectors have suffered, while others have flourished under the economic support caused by Covid-19. In particular, the tech sector has benefited largely, despite the losses occurred over the last months caused by inflation concerns and increased demand in value stocks. Many tech companies have directly profited from the measures imposed by governments to fight the spreading of the virus. An example would be the online payments which was further empowered by online shopping. Figure 3 show how the stock price of several payment companies has evolved since January 2020. Paypal performed the worst among them but is still up more than 100%. Square was up more than 300% at the beginning of February 2021. However, it is also visible what impact the inflation concern and value rotation had during February 2021. Regardless of this effect, each company outperformed the S&P 500 by a wide margin. The high impact Covid-19 had on Western economies, has driven more attention towards Asian equities, China in particular, with its prosperous outlook. Among the most influential are certainly the internet companies of China, Tencent, Alibaba and Ant Group. Figure 4 shows the influence of those companies in China’s internet startups and their respective valuation. Figure 3: Stock Development of Online Payment Companies from January 2020 to March 2021, Source: The Economist & Refinitive Datastream, March 2021 Figure 4: Investments of Tencent, Alibaba & Ant Group in Chinese Internet Startups, Source: Bloomberg, CB Insights & Crunchbase, March 2021 Cryptocurrencies have not moved tremendously during the two weeks, especially in comparison to its price movements since December 2020. Since mid-March 2021, Bitcoin (BTC) remained in the interval from $53k to $60k. The situation is very similar for Ethereum (ETH) which remains in the range of $1,650 up to $1,950. In spite of the recent crash and relatively stable value over the last month, cryptocurrencies had a stellar Q1 2020. BTC is up 93%, while ETH is up 132% in 2021 (as of the time of writing). Unsurprisingly, the four crypto-related strategies we offer take the first four spots in this year’s YTD. The best performing strategy is up almost 200% as of February, whereas the worst performing crypto strategy is up 53%. Our tactical trading strategy index, which mostly consists of crypto strategies, is also up almost 100%. Nevertheless, it should be emphasized that there is considerable risk involved in the space. With this statement, it is not only the incredible high-risk nature of cryptocurrencies, but also current developments, which will be elaborated. The general ecosystem for BTC looks well, as a cornerstone of BTC is its fixed supply, which makes it resilient to inflation and increases its attractiveness in times of inflation or inflation concerns. However, there are several negative aspects, one should consider. For example, the returns of 2020 and 2021 cannot be considered as being healthy. This is even less the case for emerging altcoins and resembles of what happened in 2017/18. Figure 5 shows how prices of assets have developed after their bubble burst. While most assets came down to their initial prices or slightly higher after a recovery period, the picture of BTC looks entirely different. Its current price is a lot higher than it was when the bubble burst, which is certainly a reason to be cautious. Another bad indicator might be that gold has fallen again. Mostly, gold and BTC are seen as store of value. Over the recent months, when BTC rose strongly, gold continuously lost value, partly because investors sold their gold ETFs to move into BTC. Thus, it may indicate that the confidence in BTC is not that high anymore, as it did not rise in price as it did in the last few months. Figure 5: The Greatest Asset Price Bubbles in History, Source: Cryptocratie, BofA Merrill Lynch, Global Financial Data, Garber, Frehen & Bloomberg, March 2021 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 16th February 2021, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 60.3 billion. US$ 47.6 billion is mandated in hedge funds and US$ 12.7 billion in private assets and corporate finance (private equity, venture capital, private debt, real estate, fintech). Stone Mountain Capital has arranged new capital commitments of US$ 1.65 billion across hedge fund, private asset and corporate finance mandates and has been awarded over 50 industry awards for research, structuring and placement of alternative investments. As a socially responsible group, Stone Mountain Capital is a signatory to the UN Principles for Responsible Investing (PRI). Stone Mountain Capital applies Socially Responsible Investment (SRI) filters to all off its alternative investment strategies and general partners on behalf of investors.    Our Team   Our Mandates   Our Research   Our News     Contact We are able to source any specific alternative investment search and maintain relationships with dozens of best-in-class hedge fund managers, private equity and private debt general partners (GPs) and real estate and infrastructure developers. We don’t pass any costs on to our investors, since our compensation comes from our mandated managers, GPs and developers. Please contact us, should you require further information about our solutions.   Schedule a call with the team Main UK Tel.: +44 207 268 4905 Main Switzerland Tel.: +41 44 586 45 55 Main UAE Tel.: +971 4383 5386 We have updated our privacy policy to take into account the new requirements of the GDPR. Please take some time to read the policy, which explains what personal data we collect, why we collect it, how we use it and other relevant information. You can review our privacy policy here, our anti-bribery policy here and our commitment to the UK stewardship code here. Stone Mountain Capital LTD is registered (Reference: ZA589246) in the data protection public register of the Information Commissioner's Office ('ICO') in the United Kingdom. No action is required if you wish to remain in contact, however please reply if you want your details removed by contacting us at [email protected] or by using the unsubscribe button below. In case this newsletter has been forwarded to you and you want to subscribe, please click here. Stone Mountain Capital is a limited company (LTD) registered in England & Wales with registered number 8763463. The registered address is: One Mayfair Place, Devonshire House, Mayfair, London W1J 8AJ, England, United Kingdom. Stone Mountain Capital LTD is authorised and regulated with FRN: 929802 by the the Financial Conduct Authority (‘FCA’) in the United Kingdom. Stone Mountain Capital LTD is the Distributor of foreign collective investment schemes distributed to qualified investors in Switzerland. Certain of those foreign collective investment schemes are represented by First Independent Fund Services LTD, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (‘FINMA') as Swiss Representative of foreign collective investment schemes pursuant to Art 13 para 2 let. h in the Federal Act on Collective Investment Schemes (CISA). Stone Mountain Capital LTD conducts securities related activities in the U.S. pursuant to a Securities and Exchange Commission ('SEC') Rule 15a-6 Agreement with Crito Capital LLC, a U.S. SEC registered broker-dealer, and member of Financial Industry Regulatory Authority (‘FINRA’), Securities Investor Protection Corporation (‘SIPC’) and Municipal Securities Rulemaking Board (‘MSRB'). Stone Mountain Capital Partners LLP is incorporated as limited liability partnership in England & Wales with company registration number: OC430515. Its registered office is: One Mayfair Place, Devonshire House, Mayfair, London W1J 8AJ, United Kingdom.  Stone Mountain Capital Partners LLP is registered as Appointed Representative with FRN: 934964 of Stone Mountain Capital LTD which is authorised and regulated with FRN: 929802 by the Financial Conduct Authority (‘FCA’) in the United Kingdom. Stone Mountain Capital FZC is registered at: Business Center, Al Shmookh Building, Umm Al Quwain Free Zone, Umm Al Quwain, United Arab Emirates. All information in this perspective including research is classified as minor acceptable non-monetary benefits ('MNMB') in accordance with article 11(5)(a) of the MiFID Delegated Directive (EU) 2017/593 and FCA COBS 2.3A.19. Copyright © 2021 Stone Mountain Capital LTD. All rights reserved. Any business communication, sent by or on behalf of Stone Mountain Capital LTD or one of its affiliated firms or other entities (together "Stone Mountain"), is confidential and may be privileged or otherwise protected. This e-mail message is for information purposes only, it is not a recommendation, advice, offer or solicitation to buy or sell a product or service nor an official confirmation of any transaction. It is directed at persons who are professionals and is not intended for retail customer use. This e-mail message and any attachments are for the sole use of the intended recipient(s). Our LTD accepts no liability for the content of this email, or for the consequences of any actions taken on the basis of the information provided, unless that information is subsequently confirmed in writing. Any views or opinions presented in this email are solely those of the author and do not necessarily represent those of the limited company. Any unauthorised review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please notify the sender by reply e-mail and destroy all copies of the original message and any attachments. By replying to this e-mail, you consent to Stone Mountain monitoring the content of any e-mails you send to or receive from Stone Mountain. Stone Mountain is not liable for any opinions expressed by the sender where this is a non-business e-mail. Emails are not secure and cannot be guaranteed to be error free. Anyone who communicates with us by email is taken to accept these risks. This message is subject to our terms at our Disclaimer.