The US is Officially in Recession, as the Bear Market Rally Takes Off.
Domestic and geopolitical tensions rise as financial institutions embrace the bear market(s).
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Our latest video covering the events within Taiwan / China, and its impacts to capital and crypto markets. Apologies for the sound, the background music is slightly louder than we’d prefer. We were just wanting to get a rough take and get the data out ASAP.
Let’s dive in -
It’s been an eventful last two weeks for equities and crypto. For those of you that followed our NVDA signal by tracking the Pelosi’s stock trades, congratulations. Another example of how limiting your surface-area to losing (day) trades, and taking Asymmetric Opportunities is simply the best risk/reward strategy these days.
We often get asked why we don’t post more day trades from our newer members, so let’s take a moment to clarify (for our seasoned investors, please skip to the BLUF).
Historically, Day Trading in a bear market is very time-intensive, and incredibly risky. More importantly, Day Trading widens your surface area for risk and losses.
Day Trading during a period of unprecedented geopolitical events (War in Ukraine, Taiwan Tension, WEF Project30, etc.) and adverse macroeconomics (recession anyone?) is just plain stupid.
No hedge funds, capital allocators or professional traders are engaged in any form of day trading. The only exceptions to that rule are those of us conducting Programmatic Trading. (We’ll be sharing our Proprietary Quant Trading soon)
There are plenty of other methods to generate outsized returns without YOLO’ing Call options. (Delta-Neutral Strategies, Complex Options Spreads, Macro/Geopolitical Asymmetry, etc.)
These strategies also yield greater returns-on-investment than a small 1%-2% day trade.
We hope this was able to shed some honest light on the current state of Day Trading. Anyone saying differently is selling you a dream, and not your friend. If you’re looking for Day Trade gurus, move along. We’re here to deliver asymmetric intelligence across the markets that limit risk exposure, and promote wealth creation/preservation.
This is a jam-packed INTSUM, please be sure to read till the end!
BLUF (Bottom Line Upfront)
US Officially in Recession (Two Quarters of Negative GDP Growth)
Wikipedia coerced to change their official definition of “Recession”…
China escalates tensions as Speaker Pelosi visits Taiwan.
China conducts large-scale joint air, sea and maneuver military drills near Taiwan as a show of force.
BlackRock announces significant partnership with CoinBase(COIN ) to allow investors to “Manage their portfolios and conduct risk analysis…”.
Institutional Investors are deploying capital at current levels across both equity and crypto markets. Local bottom is officially priced-in now, as big money is going “risk-on”.
Fairfax County Retirement Systems CIO, Katherine Molnar announced that their pension plan has received approval to deploy $70 million in DeFi Yield Farming Strategies.
“Some of the yields that you’re able to achieve in a yield farming strategy are really attractive because some of the people have stepped back from that space.”
Katherine Molnar, CIO, Fairfax County Retirement Systems
US Senate bill will give CFTC Crypto Market Oversight
With Bitcoin officially labeled a commodity, how will regulatory bodies determine which Crypto/Tokens are Commodities or Securities?
Multiple DeFi/GameFi especially Play-to-Earn (P2E) protocols are flying under the radar, as large venture firms allocate millions to the space.
Star Atlas, Big Time and other Crypto GameFi Protocols are poised to capture huge market share once the next bull market rolls around.
Ethereum merge to proof-of-stake (POS) is nearing completion. The upcoming merge will render Ethereum miners obsolete. Miners are understandably upset, and seeking ways to counter.
Russian troops are accepting and leveraging crypto donations to equip paramilitary forces in the Donbas Region.
Equity Macro Intelligence
Market Snapshot (8/4/22, 15:05 EST)
In the July FOMC meeting, the Fed raised interest rates by 75 bps - very much expected by investors. The market priced this news in favorably, as both capital and crypto markets have rallied significantly. This signals the beginning of a bear market rally, wherein risk-on assets experience short-term volatility to the upside. With the Fed’s Powell ditching forward guidance, market participants were given the go-ahead to freely implement their own probability distributions across capital and crypto markets.
“The appropriate level of financial conditions will be reflected in the economy with a lag and it’s hard to predict. We will be fully data dependent.
Jerome Powel, July 2022, FOMC Press Conference
This is a rather intriguing statement that indicates a trend reversal to the upside across most asset classes in the short to mid term. We would like to double-click on Mr. Powell’s message on being “…fully data dependent”. What exactly does that mean? Well the Fed really only cares about one metric in this case, and that is how inflation manages in the coming months. The Bond Markets is a great way to maintain a pulse, on the current opinion for inflation. Let’s take a look.
Calculated via CPI inflation swaps, the chart above indicates that the expected real, rate of inflation to be at ~2.9% between July 2023 - July 2024. We see this as a cautiously bullish sign, and expect to see some liquidity start to pour back into equities and crypto. As of now, we assess that the Fed will refrain from blindly rate-hiking us into a deep recession, and that we should experience less rate hikes now. Perfect storm for high-multiple, risk-on assets to rally in the short and mid terms. Historically, it’s important to remember that slaying inflation requires a lot more time and pain. And with the Fed already easing off the QT gas pedal, we could see an uglier CPI print in the future. This could prompt the Fed to rate hike 100 bps, thus, generating mass chaos and downside volatility in the markets again (80% confidence interval).
Just a reminder that in the meantime, inflation continues to erode buying power, with middle to lower-income families experiencing the brunt of the damage. With disposable income continuously eroding month-over-month, a majority of retail investors have been completely wiped out of the market. Anecdotally, you can see this, as all of a sudden many retail investors are touting stock and crypto markets are “scams”, “ponzi schemes”, etc. Be cautious following the crowd into oblivion, by choosing to evade market volatility. Wealth is created in the depths of bear markets, and realized during peak bull markets.
Real Estate and Alternative Investments (used car market, watches, etc.) continue to experience insanely high-prices. Below is a chart depicting the most recent cost of new homes.
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