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The 7 Potentially Disastrous Investments of 2021

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Frequently cited over the last couple of years is the ancient Chinese curse – “may you live in interesting times.” 2021 was certainly interesting to say the least and, for many companies, the events of 2021 proved to be a curse as well. As we got further and further along the Greek alphabet thanks to new Covid variants (though for some reason we were told to skip over the letter Xi), 2021 was disastrous in many ways. Not just because of England’s heartbreak in the final of Euro “2020,” or because of a dodgy boat captain deciding to block the biggest shipping lane in the world. No, trying to keep up with some of the unfolding doom in 2021 was sometimes as confusing as trying to work out exactly what happened in the Wuhan Institute of Virology, or why precisely it was illegal to sit on a park bench.

Of course, all of this presented huge opportunities as well as risks. And it was fascinating for us here at DisruptionBanking to watch and analyse. So, as Christmas and the New Year approaches, pour yourself a glass of Bailey’s (or perhaps something more expensive if you’re one of this year’s crypto winners) and look back at some of the winners and losers of 2021.

Covid-19

After the terrible year of 2020, the world began 2021 fairly optimistically. While starting the year in another lockdown, the markets at least had the vaccine rollout – and the promise of an irrevocable reopening after a few months – to look forward to. In the UK, the markets reacted very positively to the rapid vaccination programme and how well the country appeared to be performing compared to rivals. The European Union tried to sue AstraZeneca and even tried to block exports of the vaccine from EU countries, despite the fact that senior leaders like President Macron had falsely declared it to be unsafe. This caused a bit of volatility (mainly in foreign exchange markets) but still the route to freedom seemed clear. The Capitol Hill riots on the 6th January briefly threatened a smooth transition of presidential power, but Joe Biden was nonetheless inaugurated on the 20th January.

GameStop Saga

Perhaps the major event in financial markets towards the start of the year was the GameStop saga. At the end of January, a group of Reddit traders realised that hedge funds had massively shorted the stock of this struggling company. They therefore decided to launch a “short squeeze” in retaliation, resulting in a 1500% increase in the price of GameStop shares – and billions of dollars in losses for various hedge funds. The trading platform Robinhood caused controversy when it temporarily stopped its users from buying GameStop shares – it’s a strange type of “Robinhood” that steals from the poor to give to the rich. For many, this episode symbolised the rise of the retail investor. Indeed, DisruptionBanking has been covering the changing dynamics in financial markets this has caused throughout the year, as power starts to ebb away from traditional financial institutions. If you’d invested $1000 in GameStop on the first day of trading in 2021, your shares would’ve been worth almost $19,000 by the end of January. At time of writing, your $1000’s worth of shares would now be valued at just under $8,800. Not a bad testament to this new phenomenon in financial markets.  

Credit Suisse Troubles

By contrast, this $1000 would now be worth over 30% less if you’d invested in Credit Suisse. On January 4thshares in the Swiss bank were trading at $13.69, and currently stand at $9.38. In the first quarter of this year, the bank was hit by two massive scandals. The first was when investment fund Greensill collapsed in March after it was unable to repay a $140 million loan to Credit Suisse. This failure was partly because Greensill was defaulted on by one of its main clients (GFG Alliance). Greensill focused on supply-chain finance, and was considered a very safe choice for investment as its loans were backed by invoices that were usually settled within days or weeks. But as Credit Suisse’s exposure to Greensill grew larger, the bank started taking more risks and ended up offering loans to the company on the back of expected future invoices – sales that were predicted rather than actual. Even the expertise of former prime minister David Cameron (who lobbied the government to try and secure public money for the failing company) was not enough to save Greensill, which eventually collapsed.

Then, even worse, Bill Hwang’s hedge fund Archegos also collapsed in March. This was after it failed to meet margin calls to cover the fund’s exposure to swaps on tech stocks. Credit Suisse lost an incredible $5.5 billion and was forced to beg its investors for an additional $1.9 billion to try and salvage its balance sheet. Without these two losses, the first quarter of 2021 would have been the bank’s best ever trading performance, but it ended up over $800 million in the red. Pretty rough.

Suez Canal Blocked

Here’s an interesting question, though: who has messed up more, the Credit Suisse executives who poured billions into Greensill and Archegos, or the bloke who blocked the Suez Canal? The latter was certainly more disruptive for global trade after the Ever Given ship put the world’s busiest shipping route out of action for almost a week. This caused a tail back of around 400 ships, preventing around $10 billion of global trade. Along with demand increasing after lockdowns partially ended around the world, this was partly responsible for massive supply-chain disruption throughout the year. Even the mighty Apple was hit by a global chip shortage and thus reported (for them) disappointing results in Q3. If you were being really ungenerous, you might even partly blame the Ever Given for increasing inflationary pressures (although there is plenty of that regardless).

COP26 and ESG

As we headed into the summer, the markets’ attention started to turn towards ESG issues and the COP26 summit planned for November. The UN scared many of us by publishing a climate report that – branded as “code-red for humanity” – warned the planet is on track for warming of more than 1.5 degrees. It was all a bit apocalyptic; the FT even quoted one scientist as saying we are on our way to “hell on earth” (given what the last two years have been like, I thought we were already there). All of this gave further impetus to the increasingly prominent ESG movement, particular in the sphere of shareholder activism. Perhaps most interesting was the work undertaken by the activist investor Engine No. 1. Despite investing a relatively meagre $12.5 million, and owning only a 0.02% stake in the company, the group managed to win three seats on the board of oil and gas giant ExxonMobil. This of course gives the group a significant amount of power to push the company towards green transformation. The shares of Exxon have actually strengthened by a decent amount since the start of the year’s trading – perhaps partly because investors increasingly think future profits will lie in a greener space. This is why Engine No. 1 sought to win their argument based on economic arguments and not idealistic environmental principles. Starting the year at a share price of $41.50, and currently trading at $59.50, a $1000 investment in Exxon would now be worth a decent $1433.73.

Delta, Omicron and Travel

For most of us, the summer was unfortunately not really a time for travel. Apart from a venture over to Amsterdam for Money 20/20 in September, I was one of many who remained stuck in the UK for the holidays. This was of course because strict travel restrictions remained throughout the year across Europe, Asia and the United States. One stock which appeared to be correlated strongly to Covid-related developments was (and it makes sense) Airbnb. Floating in December 2020, shares in the online marketplace for holiday rental properties initially soared – climbing on opening day from $68 to an impressive $144.71. On the back of vaccine optimism, Airbnb hit a record high on the 10th February, reaching $211.66. However, just as it looked like we were in the clear, the delta variant took hold in the UK and US towards the end of May and beginning of June. With travel appearing to be off the cards again, shares in Airbnb plunged and reached a low on the 17th May at $132.50 – staying at around this level for the entirety of the summer. Shares began to climb again throughout September and October as the coronavirus situation stabilised and almost touched record highs on the 15th November at $207.21. This was in response to the US reopening its borders on the 8th November for the first time since March 2020. However, trouble was in store yet again for the stock when the omicron variant suddenly threw plans into jeopardy once more. The share price has again plummeted and currently stands at $159.50. A turbulent year for the stock, to say the least. That said, a $1000 investment at the start of January would still give you a modest return ($1146.25), but Airbnb remains someway off its February and November highs. Clearly, though, the stock is very much dependent on Covid-related travel restrictions. If the pandemic is finally dealt with in 2022, and travel finally resumes properly, Airbnb could be one to watch.

El Salvador and All Time Highs

Notwithstanding all this, crypto-followers may have been tempted to holiday in El Salvador this year. In September, the country became the first in the world to accept Bitcoin (BTC) as legal tender in what was a landmark moment for the DeFi space. While many countries are now starting to experiment with Central Bank Digital Currencies (CBDCs), this is the first time that any decentralised currency has been accepted as an official medium of exchange. This prompted the value of Bitcoin to push strongly over $50,000. Bitcoin – and cryptocurrencies more generally – have of course strengthened considerably this year. In November, the crypto reached an all-time high of an incredible $68,990.90 and many have tipped it to surpass the $100,000 mark in 2022. Starting the year at $29,405.12, BTC stands currently at $46,910.25 – meaning a $1000 investment in January would now be valued at $1595.31 worth of Bitcoin. What has prompted this rapid rise? To name a few: its increasing acceptance as an actual method of payment (Elon Musk even suggested the crypto could be used to purchase a Tesla, before rescinding this offer…), greater widespread acceptance and use (especially in Wall Street and City institutions) and public endorsements from prominent business and celebrity figures. While volatility remains an inherent part of this market for now – and we saw how sharply BTC can drop when China announced a ban on crypto mining in May – these trends seem set to continue next year.

Gold’s Underperformance

Perhaps because new digital assets have captured the markets’ attention, it has been a strange year for gold. Starting the year at $1880 per troy ounce, you would’ve expected all of 2021’s turbulence to have made its safe-haven status all the more attractive and, therefore, for its value to have strengthened accordingly. Not only this, but the story of the second half of the year has been inflation. With economies reopening this summer, consumer spending rocketed and pushed up prices. The huge stimulus programmes introduced by central banks worldwide also introduced trillions of cheap money onto global markets, increasing inflationary pressures. With inflation eroding the value of paper assets like cash, many believed the inherent value of gold (and its position as a counter-inflationary asset) would attract greater appeal. This did not happen. In fact, it dipped to a year-low in August (going below the $1720 mark) and now stands significantly below its January price. At time of writing, it is trading at $1795.86. It is rather strange that, in such unpredictable and uncertain times, we now have two highly volatile cryptocurrencies – Bitcoin and Ethereum – commanding a higher price than a troy ounce of gold. Gold’s underperformance would have cost you if you’d trusted it to perform in January – you would’ve lost about $40. Will gold recover any of its previous strength in 2022? It’s impossible to say, but will be interesting to watch.

Elon Musk

Finally, it seems fitting to end with (according to the FT) 2021’s “Person of the Year:” Elon Musk. 2021 has been another year of rapid growth for Musk and Tesla, which has now become a $1 trillion company. This has been reflected in Tesla’s performance on the stock market: starting the year at $729.77, it is now trading considerably higher at $912.67 (and reached an all-time high in November of $1222.09 after the company reported record profits in Q3). All of this has largely been driven by what investors expect the company to be worth in years to come: it is based on future expectations regarding the prominence of electric vehicles and Tesla’s share within that market. In this sense, the stock could ended up suffering a sharp correction if these expectations aren’t realised (particularly if people decide they don’t really like Tesla’s questionable involvement in the DRC…). However, with ESG considerations pushing the world to a greener, electric future, Tesla – which already commands two-thirds of the all-electric auto market – seems poised to continue its stratospheric rise. That, combined with the huge retail investor market Tesla appeals to thanks to Musk’s tweets and cult status, should make the company well-set to continue growing in 2022. Of course, Musk is also known for his involvement in the crypto space and particularly Dogecoin, which he pledged to “send to the moon” back in May – and recently suggested it might be accepted as a form of payment for Teslas. If you wished to invest in the less speculative Tesla stock, a $1000 investment in January would already have offered you a return of over $250 (the investment would currently be worth $1250.63) – but the sky might be the limit for this one.

So, there we are. Our seven investments of 2021 – some excellent and some disastrous. By way of summary, this is what a $1000 investment in these companies or assets would now be worth compared to their first day of trading in 2021:

GameStop – $8800

Credit Suisse – $685.17

ExxonMobil – $1433.73

Airbnb – $1146.25

Bitcoin – $1595.31

Gold – $955.24

Tesla – $1250.63

With all this in mind, there is little else for me to do apart from to wish all our readers a very Merry Christmas and Happy New Year. While we still live in difficult times, and many remain unsure whether Christmas will even be able to go ahead in the usual way, at least you can console yourself by not working for Credit Suisse. Let’s hope for brighter things in 2022, as well as more success for DisruptionBanking and our readers.   

Disclaimer: The opinions expressed in this article are solely personal and do not constitute financial advice.

Author: Harry Clynch

#Covid19 #SuezCanal #Lockdown #Vaccines #GameStop #RedditTraders #CreditSuisse #Greensill #BillHwang #Archegos #EverGiven #Apple #Inflation #ESG #COP26 #UN #EngineNo1 #ExxonMobil #Oil #Gas #GreenTransformation #Money2020 #Airbnb #IPOs #Delta #Omicron #Crypto #DeFi #Bitcoin #CBDCs #Ethereum #Tesla #WallStreet #Gold #Stimulus

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