24 Nov 2021

I cannot just let Bitcoin City go quite yet. Yesterday I wrote about the Narcissist Nayib Bukele and his idea for creating a “bitcoin city.” What shouldn’t of surprised me was how quick the Bitcoin maximalist community was to come out in support of the idea. Without mentioning names one of Australia’s premier Crypto hedge funds came out in support of the plan. Folks this is the difference in the critical thinking between the bond market and the typical crypto punter.

The Bitcoin City bond is going to be sold in the market in $100 tranches at a yield of 6.5% with a 50% kicker of any gains made on Bitcoin after El Salvador recoups its investment. Yeah cool that is a tasty yield compared to no yield on Bitcoin and money in the bank. One only needs to dig a tiny bit deeper and see that the dog and pony show Bukele is presenting is a million miles away from the reality on the ground. Let me spell it out El Salvador is bankrupt and has no chance of paying its outstanding debt obligations without the help of the IMF.

An US$800m bond maturing in Jan 2023 is trading at a yield over 25% so this gives you an idea of the “hope” being priced into the sale. Let me take it a little further, according to Blockstream models the El Salvador bond’s projected performance is based on the aggressive assumption that Bitcoin will trade above $1m in 5yrs time. I may be dumb but I am not stupid. My prediction is that they get this bond away, as there are enough “coined” up maximalists. To give you an idea of how crazy this space is, in April the 2032 El Salvador Government bond traded above 110 cents on the dollar, it is now trading below 75 cents.

Jumping on the band wagon of things only go up is the current craze of M&A. The global head of M&A at Goldman Sachs is saying in his 25yrs in the business he has never seen things as good as they are now. [anyone interested in buying an online broker startup without any revenue for $1 billion, pinky promise its worth it].

A quick aside Xi Jinping, continues to flex his muscles the other side of Bondi Beach. He is not happy with Australia and the AUKUS partnership. Lets pray this is all words and doesn’t escalate to anything serious. Quite amazing how Australia has adapted from being a country dependent on the Chinese for tourism, property, university students, business investment, including buying our wine and meat. However the one thing Australia is still heavily dependent on China for is its purchase of commodities that we export. Iron ore is staging a little bit of a rally as is oil.

Its quite amazing in the chart below the daily move up of 3.5% doesn’t even register as a big move compared to all the big moves over the last few years on the lowest pane of the chart below. If you want my prediction for Brent Oil in the next couple of weeks is that we get up to the downward sloping upper trend line around $88 before we see a large selloff. If we brake through the support line I have drawn, the selloff has started.

OMG the Turkish Lira is seriously getting the “bull” spanked out of Istanbul. I don’t mean to make light of a serious situation which is no doubt causing hardship to millions of Turkish citizens. I am sitting here in the comfort of my home office sending buy and sell orders into the markets of the world with robotic impassion. I think this is a very important for those people who are interested in trading. To trade effectively you need to see it as a simulation and stay divorced of emotions.

The chart by JP Morgan below shows the last 8 global recessions I always like looking at history just to understand the bigger picture and move away from the myopic vision we tend to bias towards.

As everyone is speaking about Central Banks with Jerome Powell’s reappointment and the current Inflation buzz lets take a look at a couple of the big boys balance sheets and how they have grown and shrunk in billions of $’s. The clear trend suggests that 2020 was the peak and we are going to continue shrinking. Lets see how long it takes for this to be felt on main street and wall street for that matter. Wall Street is meant to anticipate Main Street, no anticipation yet it seems other than its still bullish.

Another chart that suggests that the inflows into the equity market may have peaked around midyear is worth factoring into your views for the markets in the near term. We have a little bit of seasonality wind in our sales but at nose bleed all time highs and the Central banks adding marginally less liquidity into the system, there isn’t much room left for any of the potential existential obstacles waiting in the wings. I remain short the S&P500 emini.

I have one last bit of info to share on the crypto space. Take a look at the staggering daily volume levels in 2021 for both BTC and ETH since 2018. This is quite incredible and I guess speaks to why so many online brokers (Ditto included) and now banks want to get in on the action. Gazing into my crystal ball I actually think these volume levels are likely to persist as there is still a very small % of the economic active who have any holding in crypto. I am not suggesting we wont have a crash or another dark crypto winter, I am just thinking the sector now is too large to ignore which will bring more mainstream participants and we will all play as the market gyrates up and down which to use a dangerous term made famous by economist Irving Fisher, I think “we have now reached a permanent high plateau”. [gulp]

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