I got some useful feedback on the weekend about the formatting and style of my daily letter. The advice resonates as I always wanted to have a little more structure to the letter so regular readers could bounce around to the places of interest. The only issue I have with implementing a more structured letter is the time required. The letter goes out ready or note via automation at 11am. So depending on what happens in my morning I am either left with plenty of time or like most days I am writing with minutes to spare. This is a labour of love so I am not going to follow any advice that takes the passion out of the task but I am always willing to try and be better so here goes.
I have always been a huge believer in having a proper GPS of the markets performance. The Ditto Navigator is an excellent way of grasping in a snapshot what is happening and what has happened to your 20 favourite trading symbols. [any improvements required please let me know. I think a time stamp of the snapshot might be helpful and maybe the full symbol name for those not in the now?]
The talk at the moment is all about the weakness in the US Equity markets and Crypto. The Nasdaq has been particularly weak and desperately needs to hold this level of support that it has bounced off 3 times, we are also touching the upward sloping trend line and marginally below the 100 day moving average. This is popcorn time, expect action galore this week.
Crypto is very oversold at the moment, the Ethereum market is at its 3rd most oversold level ever but I issue a word of caution. After ETH grew 400% last year some healthy profit taking is not to be unexpected.
I always like to see the headline numbers first. While you can see a massive amount of money supply being created since the GFC in 2008, when we learned about the wonderful powers of quantitative easing, the super hero action really only began with the 2020 Covid pandemic.
What is interesting to note as you see in the next chart is that changes in the money supply have a 2 to 3 year lag before inflation trends appear. What was Powell thinking when he said inflation was transitory.
So now the question is what is so bad about inflation. History has shown that inflation weighs heavily on production as you can see with the ISM manufacturing index and its tight correlation with the inverted price of raw materials. This is not a good look for an economy and then there is the impact on Real Wages. It is rare for wages to keep pace with the increase in “other” goods which leads to a reduction in real wealth and one’s standard of living.
What is clear from this chart of new Unicorns, that is new companies valued at more than $1 billion, is that the increased money supply has lead to lots of money chasing few assets, not only commodities but also shares in companies and we are left now with very inflated business valuations, call it asset inflation.
While on the subject of correlations Tom McClellan is very into his lead lagging of correlations. I think this one is quite plausible. Most I feel are too “forced” but this one might be worth noting. The Commercials (Smart Money) in the Eurodollar futures space are net long in size relative to the shorts which is usually a 10 month lead to the yield on the 3 month US Treasury Bill yield so this chart is anticipating a spike in the short dated yields which we are currently seeing with more to be expected.
I remember being captivated by economist, demographer Harry Dent with his series of books calling Doom and Gloom. I found this book on my bookshelf.
Well nothing has changed, Harry has now come out with some updated Big Bang theories.
“I’m saying stocks in general in this crash will be closer to the 1929 to 1932 crash. I’m estimating 87% for the S&P 500 and maybe slightly higher for the Nasdaq. So this is not something to sit through and just rebalance as financial advisors say.
“You have to get out of the way of this and then we will have the buying opportunity in investments of a lifetime in around late 2023.”
Finally, those of you who are not crypto traders are unlikely to have heard of a company called Binance. They were my first crypto trading exchange and are the biggest by a long way. The CEO of this behemoth that most people have never heard of is Changpeng Zhao, a Chinese Canadian who is reportedly worth $96 billion dollars and one of the richest guys in the world. The Australian ran an article last week on the richest man in Australia that nobody knows is IC Markets founder and CEO Andrew Budzinski who took home a cool pay check of $900 million last year. The spectacular wealth that has been created in the last few years is staggering, but what is notable about the 2 Whales I just mentioned is their companies make money.
At the end of the day valuation is the present value of the sum of all cash flows, with these companies there is at least some value. Long live Ditto Trade Pty Ltd.