The financial markets climbed a wall of worry through 2021, as investors drove up asset prices in the face of persistently high inflation, a global supply chain crisis and one of the most frenzied speculative booms in decades.
Shares rallied to record levels as money poured into stocks, deal-making soared and the gamification of investing hit new heights. Here are some of the biggest moments from a rollercoaster year.
Meme stock mayhem
The year’s drama began on Wall Street, where groups of retail traders teamed up through online forums to attempt one of the biggest short squeezes in market history.
Organised through Reddit’s Wall Street Bets group, they homed in on beaten-down stocks that hedge funds had shorted (by selling borrowed stock, planning to buy it back cheaper in future).
In a frenzy that gripped Wall Street, the WSB army used two weapons to cut down the hedgies: call options – derivatives that gave the right to buy shares at a certain price – and memes, to fuel their orchestrated buying, as they tapped into public distaste for predatory speculators.
The phenomenon started with GameStop, the US video game retailer, driving its share price up an astonishing 1,700% in a month, and briefly causing the markets to wobble as hedge funds ran up huge losses trying to buy borrowed stock back.
But this squeeze was dramatically, and controversially, punctured after trading app Robinhood curbed share buying. It blamed demands from its clearing houses; r/wallstreetbets cried foul, although a lawsuit claiming a conspiracy with market-maker Citadel Securities was thrown out last month.
The saga resulted in a new vocabulary entering the markets, with “diamond handed” traders refusing to fold their positions, and others crying “yolo” (you only live once) as they embarked on risky but potentially lucrative trades.
This GameStop frenzy was repeated with the cinema group AMC, the retail chain Bed Bath & Beyond, and the car rental group Avis, flaring up several times in the year.
This speculative fever was fuelled by a lot of money sloshing around the system, thanks to record low interest rates and pandemic stimulus programmes.
“The big theme remains how the price of all financial assets remains grossly inflated both on a relative and outright basis,” says Bill Blain, a strategist at Shard Capital.
Central bankers continued their ultra-loose monetary policy through 2021, repeatedly soothing the markets that rising prices would be temporary. America’s Federal Reserve kept buying $120bn (£89bn) of bonds each month, but finally started to taper the programme in November, as inflation hit its highest level in decades.
This “monetary distortion” has warped the way people think about capitalist free markets, Blain argues. “Distorted financial asset prices create all kinds of unintended consequences – from stalling the normal ‘business cycle’ by allowing obsolete zombie companies to survive, stifling and distorting business evolution, to facilitating the misdirection of capital within the economy.”
Or, as the Wall Street Bets crowd put it, “money printer go brrr”.
These massive distortions were most evident in the cryptocurrency market, where the combined value of bitcoin, ethereum and newer entrants such as solano reached $3tn in the summer, before prices chilled later in the year.
Crypto did hit some key milestones – El Salvador became the first country to make bitcoin legal tender, in a launch marred by technical glitches – but there were also several jolting crashes, including a Chinese crackdown on bitcoin mining. After hitting record highs about $69,000, bitcoin ends the year below $50,000, up 64% for the year.
Supply chain shocks
Supply chain problems gripped the global economy, with big consequences for commodity stocks. Covid disruption to trade networks and factory production was exacerbated after the Ever Given container ship became wedged in the Suez canal in March.
While iron ore and copper experienced volatility, lumber prices really stood out. They surged in the first half of 2021, jumping 400% to a peak of $1,700 per thousand board feet in May amid short supplies. But prices then tumbled, as builders put construction projects on ice. Agricultural inflation hit people in the pocket, too. Global food prices reached 10-year highs, with corn and wheat up 20%, and arabica coffee bean prices gaining 80%.
Had investors known on 1 January that US inflation would rech 6.8%, a 39-year high, by November, they would have be forgiven for investing in gold. But the traditional hedge against inflations had its worst year since 2015, losing about 4% and lagging many other assets.
Overall, the UK’s FTSE 100 had a solid year, gaining about 14%. Wall Street saw strong gains – with the Nasdaq Composite up 21% and the broad S&P 500 index surging 28% over the year, including a remarkable 70 record highs.
Big tech grew ever more powerful, with Apple, Google, Microsoft, Nvidia and Tesla accounting for more than a third of the S&P 500’s returns this year.
But smaller, less profitable tech stocks tumbled, as their pandemic sales growth slowed and the US Federal Reserve moved towards raising interest rates next year, dampening their appeal as growth stocks.
Video-conferencing operator Zoom fell 45% during the year, while Peloton flopped 75% close to its pre-pandemic lows, dragged down by a reluctant cameo in Sex and the City.
“At the outer extreme, stocks that wouldn’t have looked out of place in the tech bubble of 2000/2001, are 60% lower on average than earlier in the year,” points out David Miller, the Quilter Cheviot investment director.
“Chinese technology companies are down a similar amount but for different reasons. The growth to value rotation still being trotted out by one trick pony strategists looks like it might already have happened.”
Beijing gave the markets several scares, with the indebted property group Evergrande threatening to cause a messy collapse, and jolt the Chinese economy.
In the summer, President Xi Jinping launched a crackdown on technology companies, sending shares in overseas-listed companies such as ride-hailing service Didi plunging. Curbs on the education sector, and tighter controls on children playing video games, also rattled some stocks.
It was a record year for global merger and acquisition (M&A) activity, with stacks of capital and sky-high valuations leading to a whirl of dealmaking. The value of M&A globally topped $5tn for the first time ever, according to Dealogic data, beating the record of $4.42tn set in 2007, before the financial crisis.
But the veteran investor Charlie Munger had a word of caution this month. Munger, 97, told a conference that the markets are wildly overvalued in places, warning that “I consider this era an even crazier era than the dotcom era.”
I am a child of the internet. I was always drawn to computers and tech, and used to beg my dad to bring us to his office on a weekend so we could use the high-speed internet to play Neopets games. As I got older it was all MSN, MySpace, Paramore fan forums, Tumblr, Twitter and now TikTok. I want nothing more than to zone out and look at my little pictures.
One of my favourite things about the internet is that it allows you to see everyone’s best joke. The moment in their life where they were at their absolute funniest – whether it be because they had a moment of brilliant wit or because they got pulled through a panel roof while practising for a high school play (I assume).
The internet has rotted my brain with the following content. Please now allow it to rot yours.
The Pandemic Years have (and continue to be) difficult for everyone. Who among us has not, at one time or another, needed to just explain themselves by saying: “It’s mental illness, innit?”
2. Perfect burger
When I showed this video to my fiancee, she flatly said: “I like how absurdist it is.” That’s her code for, “I don’t get it, but I’m happy you’re happy.” And I am happy. Look at how confident and brave this burger is – ready to take on the world, come what may. I wish to be the burger.
I have been to court precisely once because I inadvertently got in a cop’s way and he was grumpy about it so he booked me. The penalty was dismissed but not before I cried in front of the judge trying to explain what happened because I was so stressed out. Court is a daunting place and I simply cannot imagine walking in there with any level of irreverence. However, I’m extremely glad there are people who simply do not care, will say whatever damn thing and then an internet angel turns them into TikToks.
4. Turtle choir
This tweet is made all the more majestic by the vaguely threatening Sylvanian Families-style profile picture, on a Twitter account named @bigfatmoosepssy.
5. Trying coffee with pasta water
Climate change is slowly turning the Earth into a barren ball of pain as Mother Nature smacks us for being extremely bad. Even though individual responsibility for climate change isn’t enough to turn the tide, I still applaud those who try. Twitter user @madibskatin woke up in the morning and decided to be the change she wants to see in the world, tastebuds be damned. One could argue that it’s pretty obvious that pasta water isn’t going to make a good coffee but like my dad says as he puts pineapple juice in his coffee: “If no one tries it, how will we know? What if it’s secretly good?”
6. Soaring, flying
If you look closely, this video is actually a metaphor for the ways in which we attempt to break free from our circumstances, yet are entirely at the mercy of them.
7. You cannot trick me
This may be a parody Twitter account, but the spirit of Gail Walden speaks truths. There is no victory sweeter than that which is gained on thine enemy’s own soil.
8. Self-deprecating jokes
Humour is a coping mechanism. I am coping.
Dairy products are delicious. Ice-cream? Revolutionary. Cheese? Life-changing. Whipped cream on a pavlova? Essential. But milk? Disgusting. It’s not a drink, it’s a stepping stone to greater things.
I am absolutely 100% not at all lactose intolerant (I promise) so I don’t relate to this video at all (not even a bit).
The artist formerly know as F5 Networks – it moved to plain old F5 in November – is clipping revenue forecasts for fiscal ’22 by $30m to $90m because it can’t source enough specialised chips to produce systems.
The continued impact of the shortfall was outlined in F5’s Q1 results to 31 December and subsequent earnings conference call, during which chief exec François Locoh-Donou opened up on the challenge of suppliers cancelling orders because they can’t meet demand.
“As a result of persistent strong system demand, our systems backlog continued to grow in Q1,” he said. “Over the last 30 days, suppliers of critical components that span a number of our platforms have informed us of significant increases in decommits.
“These came in the form of both order delivery delays and sudden and pronounced reduction in shipment quantities. The step function decline in components availability is significantly restricting our ability to meet our customers’ continued strong demand for our systems.
“Like others in the industry, we are seeing worsening availability of specialized networking chipsets. Within the last 30 days, we have learned that deliveries for 52-week lead time components or at a year ago have been pushed out and that our expected quantities have been reduced.”
Group turnover grew 10 per cent year-on-year to $687m in F5’s Q1, fuelled by a 47 per cent leap in software to $163m, 2 per cent in services to $344m, and 1 per cent in hardware to $180m.
“Our software transition continues to gain momentum,” said Locoh-Donou, adding later in the earnings call: “While we are solely disappointed that supply chain challenges have gated our ability to fulfil customer demand for systems in the near term, we are more confident than ever in our position, our strategy and our long-term opportunity.”
The backlog grew by 10 per cent so the sales pipeline is looking healthy, said the exec, who was at great pains throughout the call to tell analysts: “It absolutely is a supply issue. And the revision we’ve just done to our annual guidance is 100 per cent linked to the supply issue.”
For the year, F5 now expects sales to grow 4-8 per cent ($610m to $650m).
“The issue with our supply chain has deteriorated steadily. And last year, we were not able to ship the demand, which is why our backlog grew so much during the year.
“Things have been getting worse. And at the beginning of our fiscal year, when we were doing the planning for this year, we actually took into account the number of decommits that we were getting from various suppliers and a situation that was already very tight on a number of components.”
He said in the past month it was seeing more than 400 cancellations from suppliers, “and we were running about 30 per cent less than that even just a month ago – the situation is quite unprecedented.”
In a bid to ameliorate the supply situation, F5 said it is working to design and qualify replacement parts – which may improve thing in the second half of the year. It is also trying to pre-order more components.
F5 is confident that it will not see orders cancelled. “The demand we have is very real. Our lead times, unfortunately, have gotten progressively worse over the last five, six quarters, but we haven’t seen any increase in order cancellation, and we don’t expect to see that going forward,” Locoh-Donou stated.
Supply chain problems with silicon components have been hitting companies in the IT industry and beyond for multiple quarters now, and networking vendors are no less vulnerable.
Last year, Arista warned that lead times for key chips were extending out to 60 weeks, twice what would be expected before the pandemic. Both Arista and Juniper announced they were being forced to bump up prices in November, while Cisco warned its buyers and investors that supply chain issues were likely to persist for several months more, although it expected to see some improvement in the situation for Q3 and Q4, taking us into the second half of 2022. ®
Munters, a Swedish air treatment technology company, will use the Edpac acquisition to expand into the European market.
Irish data centre equipment manufacturer Edpac has been acquired by Swedish company Munters in a €29m deal.
Based in Carrigaline, Co Cork, Edpac manufactures cooling equipment and air handling systems for data centres in the European market, with additional sales in the Middle East, South America and Asia.
For Munters, which has significant operations in North America, the acquisition is an opportunity for it to expand in the European market. Once complete, the deal will see the transfer of Munters’ technologies and engineering capabilities to Ireland.
“The European data centre market is a prioritised segment for Munters, and the acquisition is a significant step in our growth strategy,” said Klas Forsström, president and chief executive of Munters.
Forsström said that Munters’ experience in the North American market will provide Edpac with “opportunities for further profitable growth” by collaborating on “technology development and establishing unified processes”.
Edpac has two manufacturing facilities in Ireland – Newmarket and Carrigaline – and employs around 150 people in the country. Currently a manufacturing partner for Munters, Edpac sees approximately 7pc of its revenue come from the sale of Munters products.
In the financial year ending April 2021, Edpac reported net sales of €17m and earnings before tax of €1.7m. According to The Irish Times, Edpac managing director Noel Lynch has led the company since it was bought from its Swiss parent in 1991.
“We are excited to welcome Edpac to Munters. Edpac brings an attractive, differentiated customer base and high-quality products,” Forsström said, adding that Edpac’s operating model “is a perfect match with Munters ways of working.”
Founded in 1955, Munters aims to create energy efficient air treatment technologies for customers in a wide range of industries. Listed on Nasdaq Stockholm, it employees 3,300 employees across 30 countries – with annual sales exceeding 7bn Swedish krona in 2020.
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