Four Things Driving Markets This Morning

By Peter Tchir of Academy Securities

Let’s take a quick look at things influencing markets:

No Red Wave

As of this morning, neither the House nor the Senate have “flipped” to the Republicans. The House seems like to go that way, though, which should give just enough “gridlock” to keep markets somewhat happy. From the reporting I see, the one thing that did seem clear was that Trump’s back and denying the previous election was a liability and not an asset. Maybe that will shift the discourse in this country in a good way? Slightly good for markets.

Crypto

I’ve written my “Three Rules of Crypto” for years, the only one of which is really important, is Crypto Rule #3 – There are No Rules! At its simplest, we just had one billionaire poke holes in another billionaire’s business, who didn’t respond well, who now has an agreement in principle to sell what’s left of his company to the person who started the attack? I’m sure that isn’t entirely accurate, but sadly, it doesn’t seem too far off.

The good news is that stocks have decoupled from this space to a large extent.

1. Bitcoin held in reasonably well during recent stock market swoons (though I suspect that a lot of the inflows were from Chinese elites who “knew” that Xi was going towards further disconnecting China from global markets), so they tried to get money out of the system. China, I bet, will find ways to punish them, but that isn’t today’s story.

2. As discussed YET AGAIN yesterday, the crypto world puts “real world” labels on entities that don’t face the scrutiny and regulatory requirements it takes to “earn” those labels and titles in the “real world”. You can call something an “exchange” but if it isn’t regulated and well capitalized and transparent, it might as well be a flea market. A rule of thumb, that I like, is don’t invest your money in a place set up to avoid any sort of law enforcement, where the owner(s) also live in a legally “friendly” domicile. Yes there are business reasons, though one of those reasons may be to avoid giving up too much if things go wrong.

3. Every single NFT or ICO or alt-coin or stable coin will face additional scrutiny. I suspect more will struggle (FTT is down to $4.6 now, from $22 on Monday). Bitcoin is within a hair of its closing low of 17,785 on June 18th (closing low on something that is 24/7 is a bit of an oxymoron, but close enough for my purposes). Look at that low to break, creating yet more stop loss selling. The hidden issue will be just how much debt, by companies and investors is linked to crypto? I certainly think that we could see selling beget more selling. The crypto miners seem to be facing some additional issues as the hashrate has been increasing (a measure of computing power devoted to solving crypto algorithms) which decreases their profitability as the underlying “commodity” prices are also declining.

More trouble for crypto, but only minimal knock-on effects. Chip buying and ad spending should slow, but energy consumption might be reduced.

Rewarding Tech Lay-offs

Meta announced 11,000 job cuts and the stock popped in the pre-market. The growth at all cost investing style seems to have shifted to something that is more “traditional” which could be a good thing.

CPI Details will Matter

Last month, all that mattered was core. This month, I suspect more people will dig into the decomposition of CPI and if rents is the big driver, once again, the market will dismiss that aspect of core CPI to a large extent.

If inflation is high and driven by areas other than rent, markets will struggle, but I don’t expect that to be the case.