All about Investments!

[Paxter]

Slightly cooler print than expected. So yeah the market is going to rip here, tempered slightly perhaps by the crypto jitters that are spilling over into markets of late. As I’ve mentioned before, I’d expect a pretty good run for markets from the elections through to Jan and earnings season.

[Tywin et al.]

I told you all crypto was fucking trash. 

Listen to your neighborly drug dealer who can see a scam from 10,000 miles away, and I haven't sold drugs to anyone in over a decade. 

[Paxter]

1 hour ago, Tywin et al. said:

I told you all crypto was fucking trash. 

Listen to your neighborly drug dealer who can see a scam from 10,000 miles away, and I haven't sold drugs to anyone in over a decade. 

Absolutely. In every long bull run we see these manic price rises or mis-pricing of risk for particular asset classes - whether it's tulips, dot-com companies, Japanese corps in the 80s, CLOs/CDOs or CDSs. This time it's crypto and NFTs.

All worthless garbage. And in many instances, it's regulators with egg on our faces for making money too easy and letting financial risk build up. 

For once, we got it right with unbacked crypto, as essentially no systemic financial institutions have meaningful exposures.

Edited November 10, 2022 by Paxter

[Jeor]

The crypto meltdown has been a long time coming and now that it's hitting some of the big exchanges, that's going to hurt. In the absence of a central bank or governing authority, crypto completely relies on trust in the exchanges; after all, if there's no reliable way of buying and selling, then the asset is worthless.

That weaker inflation print came as I thought. Pity I lacked conviction to act on my theory more decisively, I've still only been drip feeding my cash into stocks. Still, I expect it will be a bumpy (but still upwards) ride ahead; the Fed will have to remind everyone that inflation with a 7 in front of it is still very bad and needs strongly restrictive monetary policy.

[Wade1865]

From its peak in late 2021, Bitcoin has dropped at least 75%. Unbelievable! It could go back up, though … 

[Paxter]

59 minutes ago, Jeor said:

The crypto meltdown has been a long time coming and now that it's hitting some of the big exchanges, that's going to hurt. In the absence of a central bank or governing authority, crypto completely relies on trust in the exchanges; after all, if there's no reliable way of buying and selling, then the asset is worthless.

That weaker inflation print came as I thought. Pity I lacked conviction to act on my theory more decisively, I've still only been drip feeding my cash into stocks. Still, I expect it will be a bumpy (but still upwards) ride ahead; the Fed will have to remind everyone that inflation with a 7 in front of it is still very bad and needs strongly restrictive monetary policy.

I think there will still be many opportunities to get all in if that fits your risk appetite. S&P earnings will be nowhere near current expectations if we head into a full-blown recession next year or in 2024. And that means plenty of downward revisions, high VIX days and re-testing of the 2022 lows. 

As for Bitcoin, don't be too surprised if it falls below $10,000 as some institutional players start to unwind their bets. 

[Jeor]

1 minute ago, Paxter said:

I think there will still be many opportunities to get all in if that fits your risk appetite. S&P earnings will be nowhere near current expectations if we head into a full-blown recession next year or in 2024. And that means plenty of downward revisions, high VIX days and re-testing of the 2022 lows. 

Yes, I'm telling myself (as my investing rules page says) not to chase the market up. My cash levels are still relatively high (17%) but that's coming from a recent high of about 30% in the past three months, so I have still benefited from some of the recent uptick, so I can't complain. And in these times, holding a bit of extra cash (I'd normally have about 10%) seems prudent and not particularly bothersome given I'm now getting risk-free interest rates of 4%.

25 minutes ago, Wade1865 said:

From its peak in late 2021, Bitcoin has dropped at least 75%. Unbelievable! It could go back up, though … 

3 minutes ago, Paxter said:

As for Bitcoin, don't be too surprised if it falls below $10,000 as some institutional players start to unwind their bets. 

Crypto enthusiasts will always say there have been crypto winters in the past and then it's always retaken its highs. However, I think the rules of the game have changed now and it's a riskier bet than ever.

Firstly, crypto has never existed in anything other than a low-interest-rate environment (bitcoin having started in 2009). These conditions obviously created room for speculation and experimentation. But now, cash and bonds are not only a much safer store of value than crypto, they're also yielding non-zero interest rates which are probably headed to 5%. Secondly, ESG concerns have now started carrying weight and the environmental issue of crypto mining is not going to go away. Thirdly, the increase in hacking, cybercrime and the instability of exchanges raise real questions about the safety of crypto, not to mention the threat of regulation to address these, which always hangs like a Sword of Damocles.

[Week]

36 minutes ago, Paxter said:

As for Bitcoin, don't be too surprised if it falls below $10,000 as some institutional players start to unwind their bets. 

I had read somewhere that <16-17k or so was a break even point for a lot of miners that would be taken offline at those prices. If so, it would be interesting to see the reduction in energy consumption as a result.

[Paxter]

Who knows, maybe regulation will actually save crypto in the end. 

[Tywin et al.]

2 hours ago, Week said:

I had read somewhere that <16-17k or so was a break even point for a lot of miners that would be taken offline at those prices. If so, it would be interesting to see the reduction in energy consumption as a result.

Ethically I feel bad to root for this, many good people who were misled will have their finances destroyed, but this needs to die and die fast. It was always a horrible idea, and when your biggest proponents are criminals, drug dealers and get rich quick folks, RUN!  

[Wade1865]

Sam -- until recently, was the CEO of FTX. He screwed a lot of normal people by taking their investments and speculating with it via his adjacent firm, Alameda Research. Here's some mildly / moderately painful anecdotes:

Mr. Gibbs, a musician in Thailand, said he tried to withdraw his money Tuesday ... he had “a bit over one bitcoin” at FTX, with one bitcoin worth about $17,800 as of Thursday.

Julian Figueroa, based in Vancouver, British Columbia, had been using FTX to trade digital assets ... previously lost money in the collapse of QuadrigaCX, once Canada’s largest crypto exchange, which made the problems at FTX particularly frustrating ... has about a year’s worth of salary tied up at FTX ... “It hurts but I’m a young guy,” said the 27-year-old. “I have time to make back a year’s salary.”

Gianluca Giuffra, a 25-year-old investor from Lima, Peru, used FTX to trade digital assets and picked the exchange because he thought it was a safe bet ... “Sam looks like a very honest person,” he said, “He doesn’t look like the type of guy that would do crazy stuff behind users’ backs.” ... The experience has left him disheartened about the whole industry ... “I guess regulation is not that bad after all,” Mr. Giuffra said.

[Wade1865]

Fortunately, I never got into cryptocurrencies or NFTs. Real estate and stocks were lucrative enough, and continue to be. Don't gamble!

[Altherion]

I feel bad for the ordinary people who put money into cryptocurrency. This is why it is important to study at least some history: the crypto world is effectively reproducing the scams of ages gone by with the only difference being these online "currencies" (which are actually more commodities than currencies).

On a different note, what do people think about investing in funds that have dual purposes: to make money and also to move the world in a specific direction? Most of the big investment platforms have these now (here's an environmental one from Vanguard as an example). The good part of this is that if it works as intended, the investors would make the world a better. The bad parts is that these funds have much higher fees (because they need active management) and they're also riskier than an ordinary broad index fund (because they invest in a specific sector rather than in the economy as a whole and possibly not even the whole sector).

Does anyone have an opinion on this sort of investment?

[Wade1865]

27 minutes ago, Altherion said:

On a different note, what do people think about investing in funds that have dual purposes: to make money and also to move the world in a specific direction?

Altherion -- I was considering this line of thought just an hour ago, in reaction to learning about Sam and the fall of FTX / Alameda Research. Players like him are -- at best -- naïve; and -- at worst -- exploitative in their effort to make the world a better place. Normals who practice the same, who have no chance of making a beneficial global impact, are also -- at best -- naïve; and -- at worst -- arrogantly stupid. I acknowledge their good vibes, though; as I maximize my own returns.

I suspect a high proportion of Millenials and Gen Zs are getting decimated due to this line of thought, aggravated by the ongoing / lingering effects of a bad timeline (e.g., the GFC, SMC, COVID-19, Ukraine War and associated energy crisis, et al.). I've exploited every single one of these events, with no thought to making the world a better place beyond what's within my capacity to influence, which includes only me and my family.

The most efficient / effective way to invest is through self-interest. Anything less than this (e.g., incorporating the principles of ESG) would have moderated gains while providing the globe nothing beneficial. Note, this is not advice; and, self-interest isn't enough.

[Wade1865]

FTX / Alameda Research -- rumor had it that Sam fled for Argentina, but he and a couple other former FTX executives remain in the Bahamas under Bahamian supervision, hahaha. Which exchange is next? Coinbase, Binance, Kraken, or another out of the hundreds that exist?

[Paxter]

2 hours ago, Wade1865 said:

FTX / Alameda Research -- rumor had it that Sam fled for Argentina, but he and a couple other former FTX executives remain in the Bahamas under Bahamian supervision, hahaha. Which exchange is next? Coinbase, Binance, Kraken, or another out of the hundreds that exist?

It’s not a certainty that we will see a lot of contagion from the FTX collapse. It looks to me like the problems were relatively idiosyncratic in that the exchange had loaned client monies Alameda. I wouldn’t assume that other exchanges are engaging in this sort of behaviour.

But you are quite right that FTX is increasing “run risk” across the entire crypto system. 

Edited November 13, 2022 by Paxter

[Wade1865]

 

12 minutes ago, Paxter said:

It’s not a certainty that we will see a lot of contagion from the FTX collapse. It looks to me like the problems were relatively idiosyncratic in that the exchange had loaned client monies Alameda. I wouldn’t assume that other exchanges are engaging in this sort of behaviour.

Paxter -- yes; I think you're right in that a systemic collapse is unlikely. Assuming cryptocurrencies survive to become trusted and useful for the mainstream, which I think they will, one or two legitimate exchanges would be needed. In fact, the situation feels like the dot.com bubble to me. Thus, out of the major exchanges remaining, which do you think has the best chance of turning into something as healthy as an AMZN, EBAY, or BKNG?

[Jeor]

I think the healthy thing about crypto issues is that they're still largely disconnected from the mainstream financial system. Apart from some venture capitalists who've had to take a haircut on their investment in FTX (note investment, not actual accounts) the pain is largely being felt by retail speculators and alternative money managers.

While there will always be bargain hunters out there propping up the Bitcoin price (more than the other cryptos), I think the downtrend is going to continue for a while. It's shown it doesn't work as a store of value, and it also doesn't work as a transactional thing, so its use is limited to speculation. The exception to this being in places like Turkey and Lebanon where apparently there is more adoption of crypto as it's the only thing that holds its value as compared to the rapidly devaluing home currency. Previously people with the means would use US dollars as the hedge against their own hyperinflationary economies, but I guess crypto is a lot easier to get a hold of, so maybe that's one genuinely useful part of it.

[Wade1865]

TOP TEN MOST EXPENSIVE ZIP CODES -- USA

Amusingly, Beverly Hills, 90210 made it to third spot. It was also a popular 90s television show in the US; couldn't stand it but was part of my generation, and I even wore sideburns for awhile...

8 out of 10 zip codes are located in New York or California; 1 each, Massachusetts and Florida.

[Paxter]

1 hour ago, Jeor said:

I think the healthy thing about crypto issues is that they're still largely disconnected from the mainstream financial system. Apart from some venture capitalists who've had to take a haircut on their investment in FTX (note investment, not actual accounts) the pain is largely being felt by retail speculators and alternative money managers.

While there will always be bargain hunters out there propping up the Bitcoin price (more than the other cryptos), I think the downtrend is going to continue for a while. It's shown it doesn't work as a store of value, and it also doesn't work as a transactional thing, so its use is limited to speculation. The exception to this being in places like Turkey and Lebanon where apparently there is more adoption of crypto as it's the only thing that holds its value as compared to the rapidly devaluing home currency. Previously people with the means would use US dollars as the hedge against their own hyperinflationary economies, but I guess crypto is a lot easier to get a hold of, so maybe that's one genuinely useful part of it.

Some pension funds too had exposure to FTX equity which was…dumb. Ontario Teachers (one of the world’s largest funds) is on the hook for $100m. But yeah, regulators have largely done a good job of ensuring limited exposures on this occasion.