Hi Again,
On 6/30/22, the market (S&P500) ended as the worst half year since 1970!
When interest rates go up, bonds and other markets go down. This is why in the 1980s, for his finance doctoral work, Martin Zweig came up with the term, “don’t fight the feds”. Jamie Dimon as the CEO of JP Morgan (who can see a shift in the economy) warned of a hurricane coming”. One person who has been doing this is Tom Lee. He was being super bullish for years and now he realizes that he was wrong as he recently said on CNBC ,”Now I have a lot of eggs on my face”. Years ago, Steve Weiss used to be his boss in the world of money management. On 6/14/22, Steve Weiss stated , that he will get back in to the stock market when Bitcoins go down to zero and there was never a time when Bitcoins had any real value and it is nothing but fraud. I agree 100%! I keep short selling and making money on cryptos by buying put options on RIOT and BITO. On 6/13/22, Jim Cramer stated that ‘NFT craze was a hoax and crypto banks are freezing as they are losing money”.
For the past 30 years, the Federal Reserve was heavily involved in the bond and mortgage market and some say that they hold 30% of all US Treasuries issued. Now as they increase rates and unload their balance sheet items, we will see bond rates and mortgage rates going up. If you watch TV, you will see all those commercials where companies offer to buy any real estate you want to sell as they assume real estate prices will continue to rise forever as they did in 2007. When these companies go bankrupt, real estate prices will go down and people will be able to afford housing again. On 6/8/22, CNBC reported that mortgage demand has dropped to its lowest level in 22 years! I should have started this months ago but “better late than never” so I have been shorting (with put options) treasury/bond funds and also real estate ETFs. For example, the Real Estate ETF IYR, put option expiring January 2024, with the strike price $50, went up by 145% within 6 hours on 6/13/22! Have you heard of “Rocket Mortgage” (RKT)? On 6/14/22, I purchased a put option on RKT that expire January 2024 with a strike price $8 for $140. On 6/14/22 morning RKT was at $7 and I expect RKT to go below $3 and go insolvent in 2022.
Rick Santelli joined CNBC as on-air editor in June 1999, reporting live from the floor of the Chicago Mercantile Exchange. His focus is primarily on interest rates, foreign exchange and the Federal Reserve. Rick has been the bond expert on CNBC for more than 25 years. On 6/29/22, Rick was saying that recently bond rates have been going lower while all central banks are in the process of raising interest rates and he added, “the market is not getting it”. I totally agree. I believe that this gives us an opportunity to short sell the bond market with puts on bond ETFs like the ETF, TLT.
Per market astrologer/analyst Merriman who has been advising major brokerage houses for 50+ years (yes, he is very old) states that he will not get bullish on the stock market till the Dow (DJIA) go below 18,000! After being around 33,000 recently, DJIA fell to 30,000 on 6/14/22. On 6/12/22, he predicted a major decline for the market followed by an immediate “dead cat bounce”.
With the S&P 500 down 21% year-to-date, the situation for stocks is pretty grim — but according to legendary investor Jim Rogers, it’s just the start. “This has to be the worst bear market in my lifetime, which means it will go down a lot and it will last a long time,”. Rogers knows a thing or two about making money in turbulent times. He co-founded the Quantum Fund with George Soros in 1973 — right in the middle of a devastating bear market. From then till 1980, the portfolio returned 4,200%, while the S&P 500 rose 47%.(Jing Pang, Moneywise,6/21/22)
Barron’s has been the #1 newspaper for the past 50+ years. On the 6/20/22, there was an article titled, “Crypto Winter Could Become Crypto Hell”.
When a traditional bank fails, a SWAT team of regulators swoops in, winding it down in secret and preventing a panic that could spread throughout the financial system. In cryptocurrency banking, the demise happens in full public view—and there is no regulatory SWAT team to keep the markets calm. That story unfolded this past week as Celsius Network, a major crypto lender that had more than $11 billion in deposits, froze withdrawals. “Celsius has billions in liquidity,” CEO Alex Mashinsky said publicly on Friday, June 10. Less than 72 hours later, Celsius halted all withdrawals, swaps, and transfers between accounts. No investors have been able to get their money out since then. And there is nothing like the Federal Deposit Insurance Corp. in crypto to repay depositors in an insolvency scenario. Crypto is having a “Lehman moment,” a shattering of confidence triggered by plunging asset prices, liquidity freezing up, and billions of dollars wiped out in a few scary weeks. What started with the demise of a stablecoin called TerraUSD- wiping out $60 billion—has now spread to the potential failure of a giant crypto bank. That, in turn, is raising questions about how far the contagion will spread and whether crypto will survive as a viable asset class. “Is there contagion? Of course there is,” says Chris Matta, president of 3iQ Digital Assets, which manages about $2 billion of crypto investments. “It’s just a question of who’s going next.” What the industry calls a crypto winter is looking more like a crypto hell. Bitcoin fell 30% over the past week and is now down 70% from its peak, trading around $21,000. Ether, the second-largest token, has dropped 77%, to $1,080. Overall, the token market has lost $2 trillion of value since last November, going down to $900 billion. The pain is spreading as companies that had projected unbridled growth suddenly retrench. Coinbase Global the big, publicly traded exchange, said this past week that it plans to lay off 18% of its workforce. BlockFi, another crypto lender, announced job cuts, as did Crypto.com, an exchange touted in ads by Matt Damon with the motto “Fortune favors the brave.” Other crypto platforms are freezing up. A high-yield lender called Finblox capped withdrawals and halted interest payments as a hedge fund backing the company withdrew support. Babel Finance, another lender, suspended withdrawals on Friday, citing “unusual liquidity pressures.” Higher costs of capital are pushing down equity valuations. And nowhere is the pressure being felt more than in crypto—a tech area teeming with questionable projects and speculative excesses. If nothing else, the Celsius debacle should dispel illusions that crypto is immune from the contagion effects that plague the traditional financial system. While crypto enthusiasts say the industry is “decentralized,” in reality it’s dominated by a handful of major investors and platforms. As in 2008, when one major company teeters, the pain spreads fast. The difference now is that blockchain transactions are public; investors can watch the train wreck in real time. Financial regulators may be quietly gloating. Lenders like Celsius have long been under fire from federal and state regulators who argue that their high-yield products should be banned for use by retail investors or registered as securities. “You have companies out there saying, ‘Come hither, give us your hard-earned money and we’ll get you 17% returns or 19.5% returns or 7.1% returns,’” said Securities and Exchange Commission Chair Gary Gensler at a conference this past week. “Frankly, in this interest-rate environment, one has to wonder where those returns are coming from.” (Barons, Crypto Winter..,6/20/22)
More on cryptos! I have been warning about this from day 1!
Elon Musk sued for $258 billion over alleged Dogecoin pyramid scheme. Elon Musk was sued for $258 billion on Thursday by a Dogecoin investor who accused him of running a pyramid scheme to support the cryptocurrency. In a complaint filed in federal court in Manhattan, plaintiff Keith Johnson accused Musk, electric car company Tesla Inc (TSLA.O) and space tourism company SpaceX of racketeering for touting Dogecoin and driving up its price, only to then let the price tumble. "Defendants were aware since 2019 that Dogecoin had no value yet promoted Dogecoin to profit from its trading," the complaint said. "Musk used his pedestal as World's Richest man to operate and manipulate the Dogecoin Pyramid Scheme for profit, exposure and amusement." The complaint also aggregates comments from Warren Buffett, Bill Gates and others questioning the value of cryptocurrency. Tesla, SpaceX and a lawyer for Musk did not immediately respond to requests for comment.(Jonathan Stempel, Reuters, 6/17/22)
There is another aspect to cryptos/fintech people do not understand. China (PRC) was initially very supportive but later they realized that this could lead to big problems for governments. Sri Lanka is having a huge problem as the country and the government has no foreign exchange to import essentials as food and fuel. One big problem is that when foreign exchange comes through the traditional banking system, the central bank (on behalf of the government) gets access to those “dollars” so now the government is going to change laws to make sure that foreign exchange flow through the traditional banking system. On 6/17/22, CNBC reported that Dubai based Crypto Fund is close to insolvency. What will happen to Miami? Miami has been advertising itself as the first Bitcoin/Crypto city in the world! Most gamblers live in China and Asia so most of crypto trading takes place in Asia.
However, I believe that Bitcoins and Cryptos are close to a temporary bottom so we might get a short-term trading opportunity. However technical analyst Tom De Mark states that the technicals are so broken, it could decades to regain previous highs. I have my doubts.
Then on 7/1/22, CNBC announced that yet another crypto broker, Voyager Digital froze assets of their customers! Surprise! Surprise! Billionaire Mark Cuban for years used to say Bitcoins/Cryptos were the “gold of golds”. He was putting millions in to imaginary NFTs. It is economics 101 that when the central banks (ie US Federal Reserve) go on a money printing spree, it creates inflation. Now experts say that as long as the Feds are raising interest rates, bitcoins cannot go up. Rising interest rates will increase the confidence in the US dollar.
On 7/1/22, CNBC had a program called “Crypto Night America”. According to that program Bitcoins/Cryptos have been operating like a big ponzi scheme!
However I believe we are close to a “dead cat bounce” in Bitcoins/Cryptos. “When everyone gets fearful, get greedy” or “buy when there is blood on the streets”.
We can easily go from one extreme to another. Now all over the world, people complain about high energy prices. Remember when the price of a barrel of oil went negative for the first time in history?
The following is from 4/21/20:
“The price of a barrel of benchmark U.S. oil plunged below $0 a barrel on Monday for the first time in history, a troubling sign of an unprecedented global energy glut as the coronavirus pandemic halts travel and curbs economic activity.” Such a steep drop in the oil benchmark prompted strong reactions beyond trading floors. The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling. Because of oversupply, storage tanks for WTI are becoming so full it is difficult to find space. The U.S. Energy Information Administration said last week that storage at Cushing, Oklahoma, the heart of the U.S. pipeline network, was about 72% full as of April 10. “There’s no available storage anymore so the price of the commodity is effectively worthless,” said Bob Yawger, director of futures at Mizuho in New York. “So when it’s minus a dollar, they’ll pay you a dollar to get it out of there.” (Leita Kearney, Reuters, 4/21/20)
A few weeks ago when everyone was expecting higher energy prices, I wanted to short sell energy with puts on XLE and XOP but I was too late to the party. We are expecting a global recession and energy prices go down when we expect a recession.
Per Fed Chair Powell’s testimony in congress, they take rent and housing costs as 1/3 of CPI (inflation gauge). Inflation has been a big problem for 35% of US householders who rent housing. Per NBC Nightly News 30% of all houses are bought by Wall Street companies by paying 100% cash! Homeless population is at 500,000 in the US; and growing in the US. The Federal Reserve has stated that it wants to take these speculators out of the market (by bankrupting them?) and then lower rates so the middle class people can buy houses again. Companies like Zillow lost a lot of money when the prices of their inventories went down. Much more yet to come. Zillow stock was at $197 on 2/8/21 and on 7/1/22, it was below $34! I wish I bought some puts on 2/8/21! Now these Wall Street companies are buying these houses and renting them and increasing rents 100% to 1,000% per year! Recession will make renters to look for other alternatives and states like California should have more rent controls to help the renters. This is a worldwide problem. Canada and California are considering banning or controlling these “Wall Street/Money Manager” transactions. New Zealand resolved their housing problem by banning “foreigners” from buying housing in New Zealand.
Inflation is expected to peak soon; however. getting it under 2% is going to be a challenge. The Federal Reserve and others look at commodity prices to look at future possibilities for inflation. In March 2022, oil (WTI) was at $123 per barrel but on 6/23/22, it was down to $105. Price of lumbar has fallen 48% from 6/1/21 to 7/1/22. Believe it or not, in the commodity markets, even with the Russian invasion of Europe, price of wheat has fallen 4.77% over the past 4 months. On 6/6/22 Natural gas was at $9.14 and on 6/30/22, it was at $5.44. I am buying more stocks related to Natural Gas as we get close to winter, with no Russian Nat Gas for Europe, this will surely go much higher. Sugar was at $20 on 4/1/22 and on 6/30/22, it was at $ 18. Expecting a bad global recession is the worst thing that can happen to commodity markets. In June 2022, most experts on Wall Street expected to see signs that inflation has peaked but that could happen in 2022.
As an expert money manager stated on CNBC, “First the stocks bottom, then corporate earnings bottom, then the economy bottoms”. How can we translate that in to a strategy for ourselves? We have to start “nibbling” or buying little at a time now and keep buying more as prices decrease. Beware of FOLO! What is FOLO? Fear of Losing Out! Or else, you will put most of your money in now and lose it all soon- “like catching a falling knife”. It is better to keep away from companies who have been losing money as they have to pay more to borrow to stay alive (if that is feasible). Also some believe that when the big players like Apple, Microsoft, Google, Amazon go down by about 50% from their previous highs, that too is a sign that a bottom is close. The market (S&P500) peaked on 11/2/2007 at 1509 and fell till 2/27/2009 with a bottom of 735 (more than 50%). Then it peaked at 4682 on 11/12/21. We cannot predict a bottom but if we can get close, within the next 5 years, we will have terrific gains on our portfolio- probably!