Bitcoin above, Ethereum below
All the other cryptos are down bigly too. Last December, I said that crypto would drop in value this year. It is. That doesn’t mean I don’t think there is a future for crypto, there is. But, it’s gonna get hit a lot harder the rest of this year. So is the stock market. I think the S+P is heading to 3200. We will regroup, reassess, and then figure out where it goes from there. It could still go lower.
I was wrong about supply chains. I thought coming out of Covid, they would get up to speed faster but they haven’t. The forced government shut down along with Covid policy totally messed them up. It is incredible how much damage the government did. Inflation is here to stay for a while and we won’t see prices stabilizing until the government quits spending money and gets out of the way.
There were those that called for even more spending during Covid and they are being proven to be terribly wrong.
Mark my words, the next thing that class will be chattering about is how bad the strong dollar is.
We have had a generation of investors that grew up with a BTFD (Buy the…dip) psychology. The Federal Reserve was always there to save them. This has been and continues to be a STFR (sell the … rip) market. The Fed is on the sidelines.
It’s a given that we have terrible leadership coming out of the White House and all its appointees right now. Perhaps the worst in the history of the United States. They aren’t interested in building wealth or doing right by Americans. They are only interested in indoctrinating and installing their worldview. Their worldview isn’t good for most of us. To escape the effects of their worldview you have to be pretty wealthy.
Howard Lindzon penned a post my friend William alerted me to. Howard likes the current leadership team. If you want to see Howard and his crowd seethe, just whisper the word “Trump” in their ear. Unlike Howard, I am a fan of Bill Gurley’s. He’s a great investor with a track record to prove it.
Howard mentions private equity is sitting on a mountain of cash, and that’s true. He also mentions that sitting in a personal portfolio of cash might not be a bad idea either. Except, inflation is crushing the value of your cash.
I blogged a long time ago about investing in private markets. Howard basically says that is the place to be. The problem is that most investors are prohibited by the IRS and SEC from investing in them. They aren’t “smart enough” or “wealthy enough”. It’s not a haven or option for the masses.
If you invest in a private market company you are hoping that its growth will beat inflation, taxes, and the stock market. I do think that some private company businesses will take a hit on valuation in an extreme bear market. Some of the best news you can get out of a venture-backed portfolio company is that they are growing and they’re cash flow break-even. Of course, that’s a rare bird.
Most venture-backed companies that are cash flow break-even are ones that you don’t want to be invested in. The reason they are break-even is growth is slow.
Some bulls mention housing as a place to hang your hat. I think that will be very spotty. It’s easy to say, “The Fed is raising rates so housing will go down.” But, that correlation isn’t like a puppet on a string. Housing might take a hit in places that don’t have economic opportunities or are highly taxed. Places like Texas and Florida might also take a hit but the marginal drop in housing in those places will be less than a place like New York because I don’t think the demand drops as much. It will more likely be people in high tax states can’t sell or won’t sell at a particular price and they are trapped. In my new home state of Nevada, California Democratic Governor Gavin Newsom is the best realtor we have.
Permabear Tim Knight (@slopeofhope) who wears that badge proudly, had a guest post on his blog about the potential for a stock market crash. People always talk about crashes but mostly it’s to get on television and sell books. It’s impossible to predict a crash and have it actually happen. But, I do think that is what the conscience of the stock market is pondering right now.
Paraphrasing Professor Eugene Fama, “You only see crashes in the rearview mirror and you only find the reasons for them after they happen.”
If you are a crypto investor, you have been told it is different than stock, it’s not a commodity and it shouldn’t trade with the stock market. It’s a new age. Of course, the detractors will be out there in full force talking about tulip bulbs but they were saying that in 2001 too about “internet stocks that didn’t make money”. Amazon ($AMZN) was a good buy then no?
Why hasn’t crypto decoupled from the stock market?
The new age hasn’t happened at all yet despite the fact that crypto is 11-12 years old. There isn’t one system, function, or process that has jumped from what it was to a crypto-only or crypto-focused process.
By this time in Web 1.0, we saw that. Netscape (Mosaic) came out in 1994 and Google followed shortly thereafter in 1998. Web 1.0 started around 1985 at the earliest with the founding of AOL. We can quibble about exact dates, but you get the gist.
I can speculate on crypto. I can own crypto. But, I can’t do anything with crypto. If the world melted down tomorrow, crypto has significantly less value than gold. I have been buying crypto for a while now. I own/mine Helium and have watched its value tumble. I haven’t sold because my position doesn’t make a material part of my net worth and I can afford to wait. I am willing to take the pain and make the short term tradeoff versus the hope that the company can build something of value long term.
Hence, in a risk-off market people will dump anything risky. What’s more risky than crypto?
Please leave your thoughts on the market in the comments. Especially if you have an investing strategy that won’t lose you a ton of money in the Joe Biden market that someone could execute today without being a bagholder. I am interested to hear them, even if the perspective is 100% different.
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A word about real estate:
1. Commercial real estate and residential real estate are two entirely different businesses. Never, ever forget that.
2. Commercial real estate is multi-faceted -- land, improved land, office, retail, apartments, hotels, industrial, warehouses, storage, specialty real estate of all kinds.
3. Residential real estate is only single family or condo owner occupied real estate.
Any demand driven real estate will do fine. It will capture every % point of inflation and it will capture every bit of demand growth.
The rest of it is a little dicey as it is driven by a different type of demand and that is based on sentiment.
When the dentists/VCs get in, get out.
When the institutions get out, get in.
There will be fortunes made in bad times in real estate as it is an asset that lasts for 100s of years and will bridge any time period. It is a long term asset and it can be highly illiquid.
JLM
www.themusingsofthebigredcar.com
If you look at the dollar in terms of what products & services it will buy, it is losing value: that is inflation. But if you look at it in terms of what other major currencies it will buy, it is doing quite well. An interesting disconnect.
This analysis
https://mises.org/wire/why-yen-fell-while-dollar-rallied
explains the disconnect largely in terms of the carry trade.