The Universe At The Edge Of The Restaurant

We sit here. Whether it be the early morning coffee, or the late night Grand Marnier, we all sit here and ponder the markets’ universe. Our chairs are comfortable enough, but the swirling mass of data, and projections, that surround us, is anything but that. “It’s all going to Hell in a handbasket” or “Equities are headed to the Moon” and the Sayers of Sooth seems to be staring at parallel universes.

There is a theory which states that if ever anyone discovers exactly what the Universe is for and why it is here, it will instantly disappear and be replaced by something even more bizarre and inexplicable. There is another theory which states that this has already happened.

– Douglas Adams

The total size of the assets of the world’s central banks are now 21.7 trillion, and they are growing by approximately $300 billion per month, according to Bloomberg data. Yardeni Research has updated its last report and now pegs the assets of the PBOC at $5.5 trillion, the assets of the ECB at $5.3 trillion, the assets of the BOJ at 4.6 trillion and, in fourth place, the assets of the Fed at $4.4 trillion. This totals $19.8 trillion for the world’s “major” central banks and, make note, this number is not decreasing or Flatlining but “Growing.” The assets of the major central banks were up 5% in December alone, according to Yardeni Research.

Yardeni Research also shows that BOJ’s assets are 92.9% of their nominal GDP while the ECB’s assets are 38.0% of their nominal GDP and the Fed’s assets are 22.4% of our nominal GDP. This should give you a comparative landscape for judgment. What we are actually looking at here, in my view, is money created from nothing but “Pixie Dust.”

The economists call it “Quantitative Easing” but it is actually a parallel universe where money is digitally concocted from nothing and tossed out to be spent. at will, on the markets. You see, it is money for the markets alone, because there are no goods or services or virtually any costs, in this newly created central bank economic universe.

There comes a point. I’m afraid, where you begin to suspect that if there’s any real truth, it’s that the entire multidimensional infinity of the Universe is almost certainly being run by a bunch of maniacs.

– Douglas Adams

Oh no!

The significance of all of this newly created money is beyond compare when considering the debt and equity markets, in my estimation. This $21.7 trillion, in newly minted assets, is larger than any economy on Earth, according to data provided by the IMF. The central banks have created a whole new nation, if you will, out of “Pixie Dust,” without any government, without any voting and without any representation.

You may say that each central bank reports to a specific government, but the money that they have created and provided to all of the world’s economies now reports to no one. It has already been tossed out of the various vaults and is useable just like the old, created by some country, money. We once thought all of this impossible. We have learned otherwise. It is Bitcoin, nationalized.

The impossible often has a kind of integrity to it which the merely improbable lacks.

– Douglas Adams

This 21.7 trillion is actually a “free cash flow.” It is unencumbered by wages, or cost of goods sold, or any other data attributed to arriving at the “free cash flow” of a corporation or a government. It is just money, after all, and the cost to make it was almost NOTHING. There are no capital expenditures.

Investopedia states,

Free cash flow (FCF) is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Let us then turn to data provided by the St. Louis Fed. They stipulate that the Corporate Cash Flow of the United States was $2.231 trillion at the end of the 3rd quarter of 2017. This data may be found here.

This is at a time when the GDP of the U.S. was $19.74 trillion, according to the Bureau of Economic Analysis. This means that America’s “Free Cash Flow” was 11.30% of our total GDP. Consequently, since the central banks’ creation of money is not encumbered by any capital expenditures, at all, no cost of goods or services, zero, this means that the “real value” of the $21.7 trillion is 8.87 times its stated value if compared with the United States in terms of the “actual” effect on both the debt and equity markets.

In other words, the comparison of the central banks’ $21.7 trillion in assets is most accurately compared to the “free cash flows” of a government. This pegs its “actual” significance at a whopping $175.094 trillion, if considered, again, utilizing the “free cash flow” of the United States. Consider that for a moment. Where did this unnamed country come from?

There is no problem so complicated that you can’t find a very simple answer to it if you look at it right.

– Douglas Adams

Given this massive and unprecedented “Free Cash Flow” I state, with a good deal of certainty, that it is the money the money and the money that is driving equity prices higher, keeping yields relatively low and compressing all risk assets in upon their benchmarks. The economists may call it Quantitative Easing, but I say that the central banks used “Pixie Dust” and poured it into the markets and that we have entered a sort of financial Wonderland where every day is “Happily Ever After.”

The markets are flying!

There is an art … or rather, a knack to flying. The knack lies in learning how to throw yourself at the ground and miss.

– Douglas Adams

S&P 500 Earnings: The Rally Is Being Supported By The Earnings Numbers

This we rearranged the presentation of earnings data a little bit to show the S&P 500 earnings growth and forward estimate growth in a different light. Also shown is the S&P 500 earnings yield relative to the 10-year Treasury or “Fed Model” calculation, showing the S&P 500 is still undervalued relative to the 10-year Treasury yield.

What a start to the year.

Note the accelerating pace of the growth in the forward 4-quarter estimate. I thought going over 10% growth was a big deal in November, December ’17, but in fact the “forward 4-quarter” growth rate has now accelerated to 15%.

Lots of Large-cap Technology companies reporting next week. Large-cap growth has been the “style-box” leader for a while now.

Microsoft (NASDAQ:MSFT) reports Wednesday night after the bell, while Amazon and Apple report Thursday night after the close.

Microsoft is up 9.5% year-to-date already in ’18 after its 40% gain in ’17. I would not be surprised to see the stock consolidate some of its 13 month gains, though Microsoft is a huge beneficiary of tax reform, almost as much as Apple (NASDAQ:AAPL). (Long MSFT, AAPL, AMZN.)

Dollar Falls After Mixed Signals From Trump Administration

Disappointing US GDP and contradictory comments on currency strength at Davos burden dollar

The USD depreciated against majors as soft Q4 GDP numbers on Friday and mixed comments on the desired strength and weakness of the currency made at the World Economic Forum in Davos put downward pressure on the greenback. The Trump administration is pushing its tough stance on trade, but tried to soften the tone in an effort to be more inclusive. Economic fundamentals and monetary policy have been supportive of the currency, but political lack of stability has hurt the buck. Next week the market will focus on the U.S. Federal Reserve and the U.S. non farm payrolls (NFP).

  • US President Trump to deliver his first State of the Union Address
  • Fed anticipated to keep rates on hold at 1.25-1.50 percent
  • US forecasted to have added 184,000 jobs in January

Dollar Confused Ahead of US Jobs Report and Fed Statement

The EUR/USD gained 1.73 percent in the last five days. The single currency is trading at 1.2426 after contradictory statements from the Trump administration confused markets. Secretary of the Treasury Steve Mnuchin said on Wednesday that the weaker dollar was good for the US in relation to trade. The USD retreated and the EUR touched three year highs. Next day President Trump said the he ultimately wants to see a strong dollar as the currency is a reflection of the strength of the economy. The USD recovered some ground versus the EUR, but the damage had already been done and the EUR advanced 0.27 percent on Friday.

The first estimate for US GDP for the fourth quarter was released and it was short of expectations at 2.6 percent. The forecast the market was looking for was 3.0 percent, but given its the advanced estimate there will be two more released that could see the final GDP figure higher in the following months.

The EUR has been rising despite the words from European Central Bank (ECB) President Mario Draghi. The central bank kept its rate and massive quantitative easing program untouched. Draghi made sure to mention that stimulus would remain for as long as needed, but had to concede there were few chances it will change interest rates. The ECB President made a comment warning about using verbal intervention to talk down a currency when asked about the Davos statement from Mnuchin.

US President Trump will deliver its first Sate of the Union address on Tuesday, January 30, at 9:00 pm EST. Failing to avoid a government shutdown Trump will focus on the positives during his first year. His achievements in passing legislation came late in 2017 but he is sure to mention the tax reform bill. The stock market record breaking pace and overall strength of the economy while inherited will also be mentioned with the infrastructure plan something to look for in the immediate future. The USD got a Trump bump in late 2016 when just after winning the elections

The U.S. non farm payrolls (NFP) will be published on Friday, February 2 at 8:30 am EST. Economists are expecting the US to add 184,000 positions in January. Last month’s report came in lower than expected but the saving grace for the USD was that hourly wages grew 0.3 percent as expected. There are similar gains forecasted for January wages with a special emphasis on inflationary data as the Fed ponders what to do with stagnant wages despite a strong job component.

The USD/CAD lost 1.38 percent during the week. The currency pair is trading at 1.2323 with a weaker greenback sliding against a stronger loonie. The Bank of Canada (BoC) lifted its benchmark rate 25 basis points earlier in the month and Friday’s release of Canadian inflation coming in even lower than expected at -0.4 percent and validates the slowing inflationary rise view from the central bank.

The uncertain future of NAFTA had previously sapped the loonie from any positive impact from the interest rate hike, but comments this week about the importance trade by the Trump administration have lessened the anxiety about the trade deal. While the US representatives were sure to mention America first, even Trump conceded that America is not alone. The March deadline is fast approaching and negotiations have little to show for it. Elections in Mexico and the United States will make the trade deal a heavy politicized item in 2018. The biggest surprise at Davos from the White House was the apparent softening of their hard line on the Trans Pacific Pact (TPP). The now 11 nation deal was one of the first casualties of the administration and the remaining members agreed to go ahead without the US this week.

Oil prices have been boosted by the weak US dollar and encouraging signs that the global demand for energy is on the rise. The Organization of the Petroleum Exporting Countries (OPEC) production cut agreement was instrumental in stopping the free fall of crude. US shale producers were predicted to have ramped up their supply by now, but weather and other factors have stood in their way. The main risk for crude is a sudden revival of the US dollar that could trigger a sell-off in commodities with investors looking to book profits at current three level highs.

Market events to watch this week:

Tuesday, January 30
10:00am USD CB Consumer Confidence
10:30am GBP BOE Gov Carney Speaks
7:30pm AUD CPI q/q
9:00pm USD President Trump Speaks
Wednesday, January 31
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
Thursday, February 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
Friday, February 2
4:30am GBP Construction PMI

*All times EST

Airbnb Adds Another Man to Its All-Male Board

Outgoing American Express CEO Kenneth Chenault is certainly keeping busy.

After being named to Facebook’s board last week, Chenault has now been added to Airbnb’s board of directors as well.

Read: Airbnb Has Some Breathtaking Listings in ‘Shithole’ Countries

Chenault is the company’s first independent board member, as well as its first African-American. However, critics have pointed out that Airbnb’s board remains all male. The short-term rental site has pledged that its next board hire will be female, saying that it is already in “serious discussions with a number of incredible people.” The company reportedly plans to include a woman before the end of the year.

Both minorities and women have historically been excluded from boards of tech companies—a prestigious and high-paying role. According to TheBoardlist, 68% of unicorn tech companies (those with billion dollar-plus valuations), have no women on their boards.

Read: Facebook Just Acquired This Company Focused on Authenticating ID Cards

Airbnb’s board currently consists of its three founders Brian Chesky, Nathan Blecharczyk, and Joe Gebbia, as well as venture capitalists Jeff Jordan and Alfred Lin. While there have been rumors that Condoleezza Rice, Valerie Jarrett, and Meg Whitman could be named to the board next, Recode reports that sources say these are not the names under consideration.

Airbnb is currently preparing for an IPO. It is valued at $30 billion, making it the second-most-valuable startup in the U.S. after Uber, according to data from CBInsights.

SK Hynix fourth-quarter profit rockets to record; chip demand seen surging this year

SEOUL (Reuters) – South Korea’s SK Hynix capped a record year in profit with a blockbuster fourth quarter and predicted a further surge in demand for memory chips this year, easing market concerns that the chip boom might be over.

The stock rose 5 percent on Thursday’s news after sliding about 20 percent since early November amid falling prices for NAND flash memory chips, used in USB drives and mobile phones, a mainstay for the company.

SK Hynix said fourth-quarter operating profit nearly tripled to a record 4.5 trillion won ($4.2 billion), higher than the 4.3 trillion forecast by analysts. Revenue jumped 69 percent to 9 trillion won. That lifted annual earnings to an all-time high of 13.7 trillion won.

Demand for more firepower, especially from servers in data centers, are seen driving 2018 profits for the world’s second-biggest memory chip maker after Samsung Electronics Co Ltd, SK Hynix said in a call with analysts and investors.

SK Hynix’s rosy outlook boosted investor confidence in the chip sector that had taken a hit after Samsung’s profit guidance earlier this month fell short of analysts’ estimates. This week, Texas Instruments Inc posted its slowest revenue growth in four quarters on softer demand for its chips.

“There had been various concerns such as the market slowing, NAND price dropping — but from today’s call, it doesn’t look like a slowdown is happening,” said Lee Seung-woo, an analyst at Eugene Investment & Securities.

“There were also worries that the Intel bug issue or the sluggish sale of Apple’s iPhones might hurt memory chip demand, but the company dispelled them,” he said.

SK Hynix said it has not detected any slowdown in memory chip demand due to the Intel security issue, for which patches were released to counteract vulnerabilities that slowed some servers. The problem could even increase server demand as it affects high-traffic work that might have to be supplemented by server expansion, the company said.

In answer to a question on China’s smartphone makers resisting higher memory chip prices, SK Hynix said low-end smartphones have little room to handle rising memory prices and the firm will consider such matters in pricing, without elaborating.

To meet demand, especially from server clients, SK Hynix said it is considering moving up the construction of a new chip production line from year-end as originally planned. However, the new line wasn’t expected to contribute to chip supply this year because of the time it takes to install and test equipment.

For the industry as a whole, SK Hynix predicted NAND chip supply would grow in 2018, gradually easing a shortage. Supply of DRAM chips, used in mobile phones, computers and servers, will remain tight due to limited production capacity.

The company said that slower sales of some smartphones would have little impact on overall DRAM demand as other phone and PC makers would snap up the chips.

Total memory chip industry revenue in 2017 was a record $132 billion, up from $80 billion in 2016, and is set to rise further to $150 billion in 2018 before falling to about $130 billion in 2019, according to research provider Gartner.

Reporting by Joyce Lee; Editing by Sandra Maler, Rosalba O’Brien and Malcolm Foster

Google, Tencent, Sequoia China join $15 million funding for pharma startup XtalPi

BEIJING (Reuters) – Alphabet Inc’s Google, Tencent Holdings Ltd and Sequoia Capital China have joined a $15 million B series funding round for Boston- and Shenzhen-based artificial intelligence (AI) pharmaceutical firm XtalPi Inc.

Sequoia led the round, which brings the startup’s total funding amount to $20 million, XtalPi and Google said in statements on Wednesday.

XtalPi uses AI, cloud computing and quantum physics to improve drug design processes.

The deal is the first co-investment by Google and Tencent since the two companies revealed this month that they have signed a patent sharing agreement, paving the way for cooperation between the two firms.

Google has recently ramped up investment in the Chinese market where its search engine remains blocked. Last month it announced it had launched a dedicated AI lab in the country.

Reporting by Cate Cadell; Editing by Himani Sarkar

Intel Says the Patch Designed to Fix Flawed Chips Is Faulty

Intel Corp (intc) said on Monday that patches it released to address two high-profile security vulnerabilities in its chips are faulty, advising customers, computer makers and cloud providers to stop installing them.

Intel Executive Vice President Navin Shenoy disclosed the problem in a statement on the chipmaker’s website, saying that patches released after months of development caused computers to reboot more often than normal and other “unpredictable” behavior.

“I apologize for any disruption this change in guidance may cause,” Shenoy said. “I assure you we are working around the clock to ensure we are addressing these issues.”

The issue of the faulty patches is separate from complaints by customers for weeks that the patches slow computer performance. Intel has said a typical home and business PC user should not see significant slowdowns.

Intel‘s failure to provide a usable patch could cause businesses to postpone purchasing new computers, said IDC analyst Mario Morales.

Intel is “still trying to get a handle on what’s really happening. They haven’t resolved the matter,” he said.

Intel asked technology providers to start testing a new version of the patches, which it began distributing on Saturday.

For more on the chip security flaw, watch Fortune’s video:

The warning came nearly three weeks after Intel confirmed on Jan. 3 that its chips were impacted by vulnerabilities known as Spectre and Meltdown, which make data on affected computers vulnerable to espionage.

Meltdown was specific to chips from Intel, as well as one from SoftBank Group’s ARM Holdings. Spectre affected nearly every modern computing device, including ones with chips fromIntel, ARM and Advanced Micro Devices.

Problems with the patches have been growing since Intel on Jan. 11 said they were causing higher reboot rates in its older chips and then last week that the problem was affecting newer processors.

The Wall Street Journal first reported Intel asking customers to halt using the patches.

Bitcoin’s Lightning Network Upgrade Gets Some Hands-On Testing

Lightning Network, a technology that many hope will make the Bitcoin payment network substantially more efficient, is becoming a reality. Standards have been adopted, Lightning transactions were first demonstrated in early December, and late last week, the VPN service TorGuard touted what might have been the first purchase of physical goods using Lightning.

For the many still trying to figure out exactly what Bitcoin itself is, understanding why Lightning matters might be tough. At the bottom is Bitcoin’s scaling challenge, which has kept it from fulfilling its promise of rapid, cheap money transmission. The search for a solution has led to major personal and technical schisms in the open-source, democratically governed project. Lightning Network is regarded by many as the most promising long-term answer to the scaling issue, though in a sense it solves the problem by not solving it at all.

Get Data Sheet, Fortune’s technology newsletter.

Blockchains like Bitcoin are inherently inefficient, trading speed for decentralization, reach and security. To get around that fundamental challenge, Lightning conducts transactions on private channels outside of the main network, then settles them to the primary blockchain in batches. That makes transactions much faster and much cheaper, while theoretically keeping most of the security advantages of a blockchain. A simple way to think of it is that Lightning transactions are equivalent to gold-backed paper money, while the main Bitcoin blockchain is the gold. If that metaphor isn’t quite satisfying, Wired last week released an excellent deep dive into Lightning’s history and technical details.

Like most elements of Bitcoin, the rollout of Lightning is entirely decentralized, and actors have to specifically choose to deal with Lightning-based payments. For now, only the very bold are taking that risk, and the various implementations of the protocol are officially still being tested (TorGuard promised to reimburse customers if anything went wrong). But even with a gradual rollout, there’s hope that offloading a portion of payments to Lightning will reduce load on the main Bitcoin network.

Despite early-adopter feedback that occasionally borders on euphoric, global cryptocurrency markets don’t seem to have taken much notice of Lightning’s progress. Since peaking and crashing in mid-December, Bitcoin’s price has been in a gradual slump in lockstep with most other cryptocurrencies. That arguably demonstrates just how far 2017’s crypto-mania divorced speculation from fundamentals.

Space Startup Rocket Lab Has Reached Orbit For the First Time

The six-year-old startup Rocket Lab has successfully put a rocket into orbit, and deployed a payload of three satellites. The launch started from New Zealand at 2:43 Sunday afternoon, or 8:43 p.m. Saturday U.S. Eastern Time. The mission, dubbed “Still Testing,” was the second using the company’s lightweight Electron rocket.

Rocket Lab streamed its launch live, and it can still be viewed on YouTube, complete with informative commentary.

Rocket Lab aims to lower the cost of access to space, in a way parallel to, but distinct from, the mission of Elon Musk’s SpaceX. Where SpaceX seems near mastering the art of landing and reusing large rockets, Rocket Lab wants to produce smaller ones, using lower-cost methods like 3-D printing.

Get Data Sheet, Fortune’s technology newsletter.

Those smaller rockets — including the current Electron model — are meant to serve the growing demand for deployment of small satellites known as microsats or cubesats. According to the Wall Street Journal, Rocket Lab is aiming to double its rocket production by this summer to meet that demand.

The payload for the launch, according to SpaceNews, included two cubesats for the data company Spire and one for Planet Labs. Rocket Lab CEO Peter Beck told SpaceNews that the succesful launch meant the company would move forward with commercial missions.

Google CEO Has No Regrets About Firing Author of Anti-Diversity Memo

Google CEO Sundar Pichai on Friday expressed no regret over the firing of James Damore, author of an infamous memo criticizing Google’s pro-diversity policies and culture.

During an appearance with YouTube CEO Susan Wojcicki, Pichai said, “I don’t regret it,” when asked about Damore’s firing by Recode head Kara Swisher. He insisted that the firing was primarily a strategic decision for Google. “The last thing we do when we make decisions like this is look at it with a political lens,” Pichai said, according to TechCrunch.

Google has been working to increase its hiring of women. Damore’s memo, which became public in August, argued in part that women might not be biologically suited for careers in engineering or technology. Many commentators felt that retaining Damore after the memo’s distribution would make Google a hostile work environment for women.

Wojcicki also described the firing as “the right decision.”

Get Data Sheet, Fortune’s technology newsletter.

Though Google’s priority was internal cohesion, Damore’s memo was broadly criticized by many in the tech sector and beyond, including for faulty interpretations of biological science. Damore quickly revised inaccurate representations that he had completed a Harvard PhD in biology.

At the same time, reports did indicate that Damore’s views were quietly widespread in the lower ranks of Google.

Damore earlier this month initiated a lawsuit against Google, alleging that the company discriminates against white men. That case seems difficult to make on its face, since its most recent diversity report found that the company is 69% male and 91% white or Asian, with black or Hispanic people making up only 3% and 4% of new hires, respectively.