I'm So Bearish, I'm Bullish
I'm So Bearish, I'm Bullish
In this week's MIM, we dive into bitcoin's path to "mainstream alternative" asset class, the roller coaster in stocks, inflation, white-collar recession & more...
📣 New segment
In the weekly survey, some of you asked about financial publications we follow. So, from time to time, we will share our favorite completely free resources with you.
Our first recommendation goes to: Crypty is Easy, If you are into podcasts, check out their weekly rundown, which goes over key crypto trends in just 5 min.
Morning MIMs,
On nerve-wracking days like Monday, remember that, statistically, the best thing you can do for your portfolio is do nothing (or play dead).
About that: Fidelity once did an internal study to determine which accounts score the best returns. And guess what, they found that their best performers were—get this—dead or otherwise inactive.
🚀 Digital Assets
Bitcoin One Step Closer to “Mainstream Alternative”
Rumor has it bitcoin will soon take yet another step to mainstream adoption.
People familiar with the matter told Wall Street Journal that Fidelity, the world's fourth largest asset manager overseeing $4.3 trillion in assets, is planning to let individual investors trade bitcoin.
This Monday, Mike Novogratz, CEO of Galaxy Holdings, one of Fidelity’s first crypto clients, said at a conference: “A bird told me that Fidelity, a little bird in my ear, is going to shift their retail customers into crypto soon enough.”
If the gossip comes to pass, it will mark Fidelity’s final step toward “mainstreamizing” bitcoin as an asset class to its massive 84 million investor base.
During the Covid crypto boom, Fidelity was one of the first asset managers to launch a private crypto fund for accredited investors. Then earlier this year, Fidelity was the first institution to add bitcoin to 401ks.
And now bitcoin is coming to its 34 million brokerage accounts.
🔍 Zooming out
What does Fidelity’s vote of confidence mean for bitcoin?
After more than a decade of being bullied as a Ponzi scheme, or as Warren Buffet called it, “rat poison squared,” bitcoin is finally carving itself out a place in portfolios as a legit alternative asset class.
The key here is alternative.
As we argued last year (and accurately predicted a bitcoin rally to near $70,000), bitcoin isn’t competing with traditional assets. And contrary to its original promise, it stands no chance of replacing fiat currencies—or CBDCs for that matter. Instead, it’s competing with insurance against traditional assets.
That is, gold.
Think about it. There’s about $11 trillion worth of this yellow metal stuff sitting in central bank reserves and investor portfolios. Retail investors alone have parked ~$2.5 trillion in this asset class. And over time, their holdings just keep on growing.
That’s because gold has just one job, and it does it very well. That is, sit tight in a vault and hold its value against traditional assets.
But gold is almost a relic at this point. It’s inconvenient to transfer, it has a high carry cost, and is otherwise impractical in the increasingly digitized and automated financial world.
This is where bitcoin comes in.
🔮 Looking ahead
Can bitcoin replace gold?
Its obvious allure is technological superiority—there’s no question about it. You are comparing an immutable store of value built on blockchain technology with a mere metal dug up from the ground here.
Bitcoin’s weak spot is that it’s still on a roller coaster. And for a store of value, 12 years and one recession are just baby steps compared to gold’s 5,000-year track record.
That said, each institutional win — like adding it to 401ks —brings it closer and closer to an inflection point.
What would happen if bitcoin replaced gold? According to JPMorgan's estimates, bitcoin’s price could pass $150,000 in the long run, only if it matched gold’s private investments (excluding central bank reserves and institutional investments.)
But what if bitcoin becomes a reserve asset?
These are the questions that will actually drive bitcoin in the long run.
📉 Stocks
I’m So bearish, I’m bullish
What’s up with the neck-breaking roller coaster in stocks?
Last Tuesday, stocks broke a month-long bearish streak and launched into a rebound. Over a week, the S&P 500 soared 5.1%, the tech-heavy Nasdaq jumped 6.3%, and the Dow was up 3.9%.
But then, this Tuesday, the stock market carriage tilted at a 90-degree angle and hurtled downhill again—wiping out $1.5 trillion in a single day.
🔍 Zooming out
What’s sending stocks through these steep slopes?
Short answer: Inflation, or expectations around it.
One indication is that the relief rally perfectly coincided with the lead up to August’s CPI release, which came out this past Tuesday. And before it, economists were dead convinced inflation would slow, if for no other reason than falling gas prices:
But it wasn’t just the August CPI.
Over the past few weeks, there were a few seismic macro developments giving hope that the worst inflationary fears for the winter may not materialize, or materialize to a lesser extent than feared.
For starters, the West’s military support for Ukraine is starting to bear fruit.
In the past week, Ukrainian forces have mounted a history book-worthy counteroffensive, freeing 2400 sq. miles of land, reclaiming control over Kharkiv, its second-largest city, and pushing Russian troops past the war’s principal frontline.
Ukraine’s advances offer hope that Russia will be pushed into some kind of resolution.
For their part, Europe’s major economies have signed off on an unprecedented $375 billion in fiscal spending to freeze energy prices.
Germany unveiled a $65 billion package ($315 billion in US economy terms) and the UK pledged to spend a mind-boggling $150 billion in the next 18 months (equivalent of $1 trillion in the US economy).
A fiscal spending approach to this energy crisis is good news for stocks because it won’t be consumers or businesses who bear most of the cost of exploding energy prices, it will be governments.
Of course, these billions of euros aren’t a free lunch. They are a huge addition to deficits and come hot on the heels of Covid spending, which raises the question of unsustainable federal debt.
But hey, that’s a problem for another day.
That said, the August CPI came out on Tuesday and drowned out all this positive news. Contrary to the projected fall, inflation, in fact, rose 0.1% month over month despite a drop in gas prices.
And we are back at it again…
🔮 Looking ahead
Still hard to tell where the stock market will steer for the end of the year.
On one hand, you’ve got extremely bearish sentiment and defensive positioning. For example, one of the most followed sentiment indicators, BofA’s Bull and Bear Index, is at absolute zero (that is, you can’t get lower than that).
The paranoia is evident in massive outflows from stocks. In the week of Sep 7, investors pulled $10.8 billion from US stocks, according to BofA data. That’s the biggest exodus in 12 weeks.
Not only that, stocks haven’t seen any flows (net) over the past half year.
Such a defensive positioning is one of the key contrarian signals BofA and JPmorgan strategists are banking on. As BofA wittily titled its July Global Fund Manager Survey, “I’m so bearish, I’m bullish.”
On the other hand, with the Ukraine war still not resolved and the cold season kicking in, there's a real risk the historic energy crunch will spark a devastating recession in Europe, which will spill over globally.
In that scenario, brace for an onslaught of downward earnings revisions and a fat “I told you so” from Morgan Stanley’s bears.
🏛️ Macro/Policy
Here are a few tidbits on the macro front that have been acting on the markets lately
Inflation isn’t letting off. As we just touched on, in August, US headline inflation unexpectedly rose 0.1% month over month and 8.24% compared to a year ago, which will likely lock in yet another jumbo Fed rate hike. The biggest contributors were food prices, rising 11.4% (most since 1979), electricity prices - 15.8%, and shelter costs - 6.2% (the highest increase since 1990). Meanwhile, gasoline prices fell to the biggest monthly drop in two years.
Tech layoffs keep on. Last week, Snap let 1,200 employees go (~20% of its staff) and joined Netflix, Shopify, Microsoft, and other tech giants that are culling their workforce. In all, tech axed 37,000 employees in Q2, 2022 — a 20x jump compared to a year ago. Economists are dubbing it a “white-collar recession” because layoffs are dealing the heaviest blow to higher-paid positions that potentially over-hired during the pandemic. That includes finance and business services, as well as tech.
After hotter than expected inflation, rumors are floating across Wall Street that Powell will hike 100 basis points at the FOMC meeting next week. Brokerage Nomura Securities is the first Wall Street institution to call for the first full percentage point rate hike in over 40 years. The market seems to be on the same page. As Bloomberg reported, the overnight index swap contract for September (which basically tells where traders see interest rates winding up this month) hit 3.18%, 81 basis points above the current rate. That suggests the market is pricing in a hike of at least 75 basis points.
💬 Quote MIMs Are Pondering
“You make most of your money in a bear market, you just don’t realize it at the time.”
— Shelby Cullom Davis