Degenerate Business School

Doubtless THE story of financial markets in 2023 has been the astonishing comeback of MegaTech. When rates went to zero during the pandemic, the explosion in Tech valuations made sense both in terms of mechanics and narrative. If discounted cash flows were governed by the 10-year rate, then companies like Apple became something like 100 year bounds. Look far enough into the future and it was hard to imagine how the likes of Apple, Amazon, Facebook and the like could fail. But then the Fed tightened, rates went parabolic and old man favorites like Exxon Mobil had a moment in the sun. Surely MegaTech couldn't flourish until the return of ZIRP! Unless of course a narrative could sweep away all talk of mundane calculations like discounted cash flow. Because Artificial Intelligence is the end of business history. Right?Meanwhile out in the wilderness, buffeted all around by the winds of winter, Crypto has secretly grown up. This week Bitcoin was de facto legitimized by the SEC as the only investment grade asset in the whole ecosystem. In a way the Bitcoin Maxis were accidentally correct. No, Bitcoin won't sweep away the nation state, but it will be offered up by legitimate Wall Street firms. Like any good revolution, it has successfully been co-opted by the establishment. 

The Ancient Greeks used to say that Phobos, the God of Fear and Panic, ruled the battlefield. We might say the same of FOMO in the realm of financial markets. Even in the face of higher rates, an overblown debate about the debt ceiling and at least the theater of quantitative tightening, speculative fervor has returned once more to the American stock market. 2021 promised a revolution in Blockchain technology, whatever that means. And now 2023 foretells the end of human intelligence for all time. AI, it is said, will solve every conceivable problem. And therefore any company attending to its rise will capture all future financial value. By now call buying on Nvidia is more fashionable than wearing Crocs to a Shawn Mendes concert. And by now we have learned that average retail investors like us are chumps if we think we can chase such a rally as this. But we must remember that all innovations, whether destined to change business history and our lives forever, must first be overrated in the short term. Before they are underrated in the long term. See the internet in 2000. 

Over the past year, the S&P is down just 4%. In the world of equity markets, that is essentially...nowhere...a nothing burger. This on the heels of the Fed's most aggressive hiking campaign in living memory, one that began last March. Doubtless there have been puzzling rallies and plunges in between, a banking crisis, the makings of a bond market catastrophe and the looming debt ceiling debacle. But in the bigger picture, how do we account for the relative strength of the equity market in the face of this uncertainty?And here we return to our favorite topic of the year, the Fed Balance Sheet. Which, you may have guessed it, has shrunk just 4% in a year. Sift through all the divination that technicals provide and the market can neither correct nor break out without the gravity wave of top down QE or QT. Suffice it to say that bulls in this market are betting on just one thing. Not better earnings, or a better economic outlook than most are projecting. There is only one question worth asking. Will the Fed be forced back into QE and when. So go asset prices. In the end, if QE infinity is the way, Tesla might be worth a laughable amount. But Chipotle will cost $100 a meal. 

We spend a considerable amount of time on our silly little podcast agonizing over levels in the S&P 500. As we hover below 4,000, is the stock market overvalued or undervalued? Did the market bottom at 3,600 in October? Will this recession bring about the same relative decline as the Tech Bubble of 2001? But it bears reminding that levels are an illusion. Pop open a chart of the equity market over the last 20 years and you can't help but think the run-up is nonsensical. How could we not be on the precipice of an epic correction? A world gone irrational! But that chart is little more than an artifact of Central Bank largesse. Over time the Federal Reserve has accumulated the liabilities of the American Financial system. The practical consequence? The inflation of asset prices to previously unimaginable heights. We are left to wonder then, what will happen to the stock market over the next decade? Far be it from me to actually say. But as Michael Howell pointed out this week, we are witnessing in real time the de facto nationalization of American Banks. The unraveling of regional banking sets in motion the next play in the same endgame. Resolved to thwart any systemic crisis, the Fed and the Treasury will absorb for all time the liabilities of the American banking sector. And they will, as ever, monetize the ever increasing Federal debt. That means only one direction for the Federal Balance Sheet. Up again. And with it, asset prices...again. 

The halcyon days of quantitative easing made us all forget one simple truth. That in the annals of financial history, bank runs are numerous and inveterate. Like the coming of spring or another movie from the Marvel Cinematic Universe. Except that the Great Financial Crisis did in practice, if not in law, change the game for all time. There are now 4 unimpeachable megabanks enameled with Too-Big-Too-Fail status and unlimited deposit insurance. And there are all the other banks, to which depositors are merely unsecured lenders. But even then, The Fed and the Treasury are clothed in immense power, and can intervene in any financial calamity if they deem it to be systemically important. Thus, in the wake of even Silicon Valley Bank's collapse, they created the Bank Term Funding Program or BTFP. Do I really know what its provisions are? Of course not. I'm on Twitter too much to know the details.But we must ask the question, is this just Quantitative Easing by another name? And in the end, do all crises lead to unlimited easing by one road or another? For there is one thing that the events of 2008 made impossible. The collapse of collateral anywhere in the West. 

We spend our days trying to guess which way financial markets will go, like medieval alchemists or broadcast news meteorologists. Is the bottom already in for the S&P and all degenerate risk assets? Where will rates go, and for how long? Is now the time to buy bonds? Does it even make sense to pick stocks?But why struggle, when staring us in the face for the first time in our investing lives, is a risk free rate of 4.4%. Plumb any mutual fund money market account from Fidelity or Blackrock and you shall find a yield of just that. Mind you taxes and inflation will still mean we're losing money, but we'll lose it more slowly. Why? Because Jerome Powell has raised the Fed Funds rate. The 1 month treasury yield is now 4.68%. Just 1 year ago, that figure was a mere 0.05%. So why not just hang out and collect? We discuss. 

With the S&P dithering in no man's land, we speculate on the implications of ChatGPT and its inevitable imitators. Needless to say it will trivialize the entire profession of data science. But will it become the greatest business-to-business software service in the history of capitalism?Next we discuss the re-emergence of short-dated options, and the potential consequences for market volatility.Lastly we wonder whether or not the zombie corpse of Bitcoin and Crypto assets writ large are breaking correlations with the Nasdaq. And if they are, does it imply institutional interest? And is that interest a hedge against the very collapse of the sovereign debt bubble? 

While the world's putative Illuminati gather in Davos, the S&P fails once more to escape its bear market structure. This in spite of some frisson over Netflix earnings and yet more bloodletting across Big Tech. Meanwhile Finance Twitter has begun to coalesce around a familiar narrative: over the next several years Emerging Market Equities will outperform the U.S. Thus we revisit one of our favorite topics. Will the emerging markets ever emerge? But this time, we turn to ChapGPT for help.And finally woebegone Bitcoin and Ethereum bounce back-ish. We discuss why, according to Alex Gurevich, if Bitcoin is Digital Gold then Ethereum is Digital Copper. 

This week with inflation cooling off and the Federal Reserve balance sheet unchanged, the S&P 500 stretched to near 4,000. But Jerome Powell has made it clear that no rally can long endure, not while unemployment hovers near 3.5%. For now the structure of this bear market remains intact. What's more we closed last week with Implied Volatility (VIX) revisiting a 52 week low. All this to say that with another week of earnings looming and a debt limit fiasco on the horizon, all signs point to more volatility in the week ahead. And just for fun, we entertain the idea of a Starlink IPO and whether or not it merits considering. 

We're back after a hiatus worthy of European aristocracy!Tesla, the last great hope of technology optimists everywhere, has at last succumbed to the Great Duration Bubble. From incomprehensible over-valuation to soul crushing underperformance, the likes of Crypto, the ARK innovation fund, Meta and now Tesla have all been deflated in their turn. And why? The Federal Reserve. Once the sponsor of the greatest financial binge in modern history, now the author of the most bloodthirsty tightening cycle in the last 50 years. But there is still a case for Elon Musk's beleaguered automaker / robotmaker. Because in the end few companies possess its engineering prowess and its formidable capabilities in Artificial Intelligence. With that in mind we asked ChatGPT to explain what drove the speculative technology bubble of 2001 (below). Swap out the word "internet" here for any of the high technology assets of the last boom-and-bust, and we have a perfect encapsulation of this moment. Needless to say ChatGPT will take our jobs sooner or later. The tech bubble of 2001, also known as the dot-com bubble, was driven by a combination of factors, including:The widespread belief that the internet was revolutionizing the way businesses operated and that investing in internet-based companies was a sure way to make money.The availability of venture capital, which enabled many start-ups to get off the ground and go public, even if they had no profits or viable business models.The abundance of "irrational exuberance," or overoptimism, about the potential for internet-based companies to generate profits.The low interest rates at the time, which made it easy for people to borrow money and invest in the stock market.The lack of regulatory oversight, which allowed many internet companies to go public with little or no financial disclosure.

The lurid collapse of FTX and with it Crytpo sentiment the world over bring to mind an old adage in high Finance. When the tide goes out, we find out who was really swimming naked. And it turns out, in the far off Bahamas, Sam Bankman-Fried was not only swimming naked. He was riding a jet ski that you paid for. What do we really mean? That in the end, the recent mania surrounding Crypto was only sustained by central bank policy. Put that much liquidity in the system, and the frontier of the risk curve, say a token like FTT, or any other crypto project with dubious innovation to recommend it, will rally. But drain liquidity, raise interest rates, crush institutional appetite, and an exchange collateralized only by the belief that Crypto was the future was bound to go bust. Say what you will about potential criminality. Bear and Lehman made the same mistake. Excessive leverage built on lofty valuations will always form dry grass for the next brushfire to carry out. In times like these, though, it is too easy to write off the whole space as trivial or deserving of its inevitable comeuppance. Every innovation is left for dead more than once. Even the internet was disparaged as little more than a cute version of the Fax machine. Until it became evident only in hindsight that it was just as consequential as the industrial revolution. In the end, it does force us to re-examine what projects actually have use cases, far off as they might seem. As ever, we discuss. 

Last week, Jerome Powell took the mic. And with the mystic language of macroeconomic policy said the equivalent of: we can't stop, won't stop, murdering your equity portfolio until inflation improves. Makes sense. The last best hope of a near term pivot died there on the podium. Practically speaking, the Fed will be hawkish throughout 2023.And so the S&P 500 lurches onward in No Man's Land at ~3,770. Who will win the day into year-end? Bulls or Bears?

Earnings season began this week with mixed results. And if there are two companies that tell the story of these times, they are Snapchat (SNAP) and Schlumberger (SLB). Snapchat you surely know. Once the darling of young people sending ephemera to each other during lockdown, it is now little more than a glorified penny stock sent reeling from its soaring pandemic-era valuation. A dreadful year for tech, social media most of all, and another dreadful earnings call to mark its passing. Schlumberger on the other hand sounds like a retail outlet for elderly European equestrians. It is in fact an Oil company. And its star is on the rise. The so-called Great Rotation, from overvalued Tech to undervalued Commodity companies, continues. Which begs a recurring question of this podcast? Are we entering the Last Great Age of Oil? A final shortage that will send commodity prices soaring and with it the profits of the fallen Oil Giants? Or will a recession wipe demand off the board? For the purposes of investing, does it even make sense to chase the rally in Oil, or has the opportunity already passed? 

This week inflation came in hot versus consensus. And while we have past the peak of so-called headline inflation, with energy costs abating somewhat, CORE inflation is still accelerating. Rent costs in particular are running wild. What does it all mean? As was, the Fed still has a data-driven license to hike rates with abandon. And in the equity markets, the price action around Thursday's print suggests traders have no conviction about the direction of travel in the S&P 500 over the medium term. They are only degenerately trading day to day moves. If we look then into the murky future, more downside feels more likely than not. Simply because there are no bullish catalysts to overcome the pall of Fed hawkishness. Patience remains the game. So with nothing to do but wait, we discuss Elon Musk's ongoing evolution into a movie character. You and I might pass the time watching TV or working out. Elon buys social platforms and tries to broker Putin-friendly peace deals. What does this portend for the future if technology entrepreneurs with unlimited wealth accrue supranational power? 

Every once in a while, we get to the point in financial markets where all that matters is...wait for it...you guessed it...BOND MARKET LIQUIDITY. In the simplest terms, there are not enough willing buyers to scoop up US treasuries. Or any government bond for that matter. Least of all, as was this week, British government debt. So dire did circumstances become in London that the Bank of England was forced to ease again and become the buyer of last resort. At the death, many pension funds were saved that otherwise would have gone out with the tide.But how did we come to this road? With the benefit of hindsight, or the foresight that very few had (like Joseph Wang), it all appears to be the work of quantitative tightening. With the Federal Reserve no longer buying treasuries with abandon, another buyer must emerge. But no such buyer exists, at least not at the margin or at least not at this scale. Tack on the global shortage of dollars needed by foreign central banks to service dollar denominated debt. And we get EPIC volatility.Some Finance Twitter experts like Lyn Alden have long argued that this dynamic is the real test for Central Banks. They might ideally like to keep tightening until inflation softens to 2%. But what might in the end trigger a pivot first is actually disorder in sovereign debt markets. The actual market that matters for all other markets. 

This week the European energy crisis took center stage on Finance Twitter. Is this right and truly checkmate for Europe? With Vladimir Putin throttling natural gas, and no longer under the pretense of scheduled maintenance, what does the winter hold for, say, German Industry?  The Germans might have enough in storage to weather the cold, but what will prices look like for European citizens and businesses?All of this has led to massively negative sentiment. Erik Townsend of Macro Voices ended his podcast this week with a prediction that the world might be ending. Well, at the very least he said the Halcyon days of cheap energy and easy living for the West are done and that World War III is at hand. Which was also his way of saying that commodities will become exorbitantly expensive over the next decade. Back in North America, we revisit the topic of Fed Policy. Sure enough, inflation and unemployment are the watchwords. But what about credit market liquidity? If that seizes up, they might be forced to waffle earlier than inflation would otherwise allow. So we turn to credit spreads. 

With the eyes of Finance Twitter fixed on Jackson Hole, Jerome Powell coolly reminded the investing public that a pivot is not in the offing. And if there is no self evident pivot, then the fever dream that was this summer's bear market rally might right and truly be over.Of course no one really knows as yet whether we're actually in a bear market or a bull market. Such is the divide in opinion around the Fed's actual willingness or ability to remain hawkish. Inflation might be the dragon of our time, in need of slaying at all costs. But is that even possible at the pinnacle of a generational debt cycle? Can the debt burden even coexist with a properly hawkish Fed. Either way, volatility looks poised to increase. But will it be a garden variety oscillation higher, or a proper capitulation and puke that sends the VIX to 40? The fabled next leg down? We discuss.

Last week, the Finance Twitter newsfeed produced an embarrassment of riches. Just to enumerate the highlights:Nancy Pelosi visited Taiwan and sent the CCP into a frenzy The jobs report blasted consensus, making way for more Fed hawkishnessAmazon bought Roomba, completing it's conquest of your homeMichael Saylor stepped down as CEO of Microstrat to work on Bitcoin full timeBlackRock announced it will now offer bitcoin trading for institutional clientsWhich of course bears not at all on the state of technicals. But it does appear that Friday's jobs report was the narrative capstone to a rally in the Nasdaq, that by all technical standards has reached very overbought levels. Is this the point of exhaustion, in the near term at least, for the counter rally?

What do we make of this rally? Is it a 2005 Donovan McNabb pump fake? That is, a bear market rally? Or the beginning of a pivot to accommodative policy once more? On Wednesday Jerome Powell said, and didn't say, just enough to prolong a run up in risk assets into the weekly close. Why?In short, he didn't say anything that was incrementally hawkish. Crack the window open for those itching to go long, and in the short-run, they will pile in and duly vaporize short sellers. As ever, we resort to charts and lines to settle the case. And in the Nasdaq, we don't yet see a decisive break above the defined down channel that has dominated this year. Best guess? Bear Market Rally. But who can say? And is there a trade worth taking in this milieu? 

This week the Consumer Price Index, the inflation measure that now governs the market, came in higher than consensus at 9.1%. And yet the 10 year treasury yield didn't move. And the equity market chopped sideways.What do we make of this? According to the high priests of the bond market, we've priced in an even more hawkish Federal Reserve in the near term. And thereby a higher chance of a recession later on. In this milieu, the long bond ETF TLT might be forming a bottom. But still the game is patience. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------In the era of quantitative easing that has predominated since 2008, bad news is good news. And good news is bad news. Take for example GDP. The Atlanta Fed Nowcast has telegraphed we're already in a recession. Bad news for America, but good news for stocks badly in need of more Federal Reserve accommodation. On the other hand, Friday's jobs report shows ongoing strength in employment. Good news for America. Bad news for stocks, which remain vulnerable to the tightening cycle. And in the context of low unemployment, the Fed has yet more license to tighten. But on the doorstep of June's CPI print on Wednesday, we ask: what is actually priced in? 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------While multiples have been smashed in the wake of this tightening cycle, the equity market may yet be vulnerable. Two things will govern the next quarter and beyond.1. The next inflation print. This above all else will govern Federal Reserve policy. When June CPI is published, will the fabled base effects kick in? Or will CPI prove sticky and persistent? Until it is clearly and sequentially down, all accommodative policy is gone.2. Corporate earnings. They may yet disappoint as costs rise and the economic environment worsens.All this to say, not a time to go long, but a time to raise cash.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------Since the Great Financial Crisis of 2008, it has never made sense to be bearish. Why? The so-called Fed put. The belief that, should financial markets ever wobble, the Federal Reserve would step in to allay concerns, prevent contagion and generally ensure the upward march of asset prices and collateral. That all worked in a regime of low-inflation.But what happens when inflation is persistent and material? Then the world's leading central bank can no longer afford to accommodate financial markets. And in the end, if asset prices have to go down, thereby destroying demand, then so be it. Which is to say that the Federal Reserve won't back stop this sell-off until inflation comes down in a clear and obvious way. And right now, it's difficult to say when that may be. So we raise cash, the least trash. 

The consumer price index, the flagship indicator of inflation, came in at 8.6% on Friday. Not only did this flout consensus of 8.3%, but it put down an emerging argument that inflation would soon begin a sequential decline. And thereby open the door for a return to the much worn, accommodative policy of the Federal Reserve. Not so fast. What was to blame? An outrageous run-up in energy prices driven by the Russia-Ukraine crisis, and beyond that, the persistent incapacitation of China's busiest port cities. It turns out inflation is sticky and difficult. What it does portend in the near term is more pain ahead for risk assets. Stocks, crypto, bonds. All must pay tribute to the most stubborn inflation and the prime directive of the Fed right now. To reign it in.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------Technically, but for a moment on Friday, the S&P 500 entered a bear market. This according to the priestly record that marks the bull and bear runs of all market history. We now stand down ~19% from the peak in early January. Obviously, the superficial question heavy on our minds remains: is this the bottom? But more consequential is a broader mystery. How long will the Federal reserve remain hawkish, targeting the gremlins of inflation? Their resolve to see inflation tamed will dictate in the course of time how long this (now almost) bear market endures. For there can be no increase in asset prices without the easing that central banks provide.A clue might be found in the trajectory of 10 year US treasury rates. Is it possible that bond rates have finally tested resistance, near the high in 2018? And what might that portend for equities?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The pandemic era in the stock market felt like something new. A time when all the treasure of the West could be called into service, ensuring the endless march of untold riches, economic juice and asset prices. In short, anyone with a Robinhood account and the will to win could make money. But those were the halcyon days, the times of plenty. And every generation must in its turn learn the old lessons. It turns out, at the end of the Everything Bubble and in the cold clarity of hindsight, investing is still hard.  This week, with high inflation and financial tightening wrecking stock indices, the once darling Crypto complex Luna-Terra fell into the sea. The promise of algorithmic stable coins remains elusive. What comes next we ask in this newest Crypto winter?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------With Netflix falling into the sea and the indices vaporizing, we beg the question. Is a repeat of 2018 finally at hand? We think it is. In late 2018, the Federal Reserve tightened financial conditions such that the S&P 500 sold off roughly 20% from peak to trough. But it was a turbulent road to the bottom. We explore what the next several weeks portend if history does rhyme. And what we intend to do with it.Plus, just for fun we wade into the machinations of Elon Musk's Twitter bid. And we realize slowly that we've actually become Elon bros. How did this happen?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The ye olde bond market is having its worst year...EVER. At least in total return terms, and since proper statistics are available. Why should we care? Well it's probably a signal that financial conditions are set to tighten. Which until now has not worried the equity market whatsoever, even as a seeming bear rally begins to roll over. According to Julian Bridgen's financial conditions index, we are only getting started. For the Federal Reserve has no choice but to slow down the economy. There we see the echoes of 2018. So we hang on to cash, get defensive and weight for the correction...still. But when it does come, are there value opportunities in the realms of old men? To wit...we assess metals and mining. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------Few if any in all the world understand the bond market. Certainly not we here on this podcast. Like a vast ocean on the earth, the bond market contains multitudes and governs equities in ways we fail to understand everyday. And yet we barely ever speak of it except to note the 10 year yield as an input for stock valuations.But when rates surge as they did this last week and the fabled yield curve teeters on inversion, we must take note. And if Jim Bianco is right, the world of credit has figured something out that the stock market hasn't. In practical terms it means that in 2022, as Thomas Thornton says, we must focus on the tactical short-term trade to find any luck. For volatility will reign in concert with uncertainty. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The Federal Reserve at last raises rates, hewing to a broader consensus about the need to combat inflation. But just as significant to sentiment were the words spoken by Jerome Powell, not the substance of the actual policy. And as he said or didn't say the right things, the much beleaguered tech sector marched higher blowing up short positions in its path. But is this optimism in stocks durable? Probably not in the short term. Furthermore amidst all this macroeconomic conjuring, is the time at hand to look at bonds? If we're asking a question about bonds, surely we live in strange times.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------What does a person do...when American dollars are devaluing at ~8% per year, when stock indices are melting lower, when Crypto is rattling sideways and when commodities (the one sector no one understands) are going parabolic. The answer, by way of mental paralysis, is nothing right now. So we take an opportunity to zoom out and explore two topics that might instruct us on future events (or not):1) How World War II affected the stock market of both America and Germany.2) The End of the Gold Standard in 1971.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The fog of war hangs over everything, including the parochial interests of financial markets. What will the crisis in Ukraine lead to in the end? Or even myopically...this year. Terrifyingly, no one can say. But here's what seems likely in the prosaic language of markets:A surge in the price of commodities precipitated by the conflict (see wheat, oil)An already febrile state of inflation made more explosive by commodity supply shocksA flight to conventional financial safety (US treasuries, the US dollar)A tenuous hand of support for the S&P 500 in the form of the Federal Reserve balance sheetA Great Muddling in CryptoWhich is to say...much hangs in the balance. And in times like these, what's a person to do? For now we observe for lack of a better idea.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------We live in strange times. With Russian armed forces bursting into Ukraine, uncertainty reigns. We see no better testimony than the bizarre behavior of markets and the market regime that governs it. The rational mind might think the specter of war would create panic in western financial markets.Not so this past week. At least not yet. Why? Because, perversely, sentiment congealed around the idea that the Federal Reserve might now be forced to think twice about tightening financial conditions in the context of a geopolitical crisis. That's right. Nothing makes sense.  The S&P is up on the week? Gold is up and then down? Bitcoin is down and then up? What does a person do?As Carter Worth instructs, look to your charts. And if we do that, the technical breakdown in the S&P is still in effect. The question remains only this. How deep will the correction be?

When it comes to financial markets, do narratives really matter? Or do patterns, the rhyme of bull runs and corrections, mark the true path of stocks and bonds?  With Ukraine on the brink of war, inflation at 7.5% and consumer sentiment falling into the sea, all signs point to downside in the stock market. But do these themes actually predict anything? Narrative or not, the S&P index is repeating a pattern that it showcased in 2018 when the Fed tightened, inciting a sharp sell-off. This makes it more likely than not that a similar sell-off is just beginning. For us, it is time to hedge that downside in the guise of our old nemesis: SPXS. As the great Jim Bianco put it, the Fed must now make a choice. Stem inflation or let the market melt up higher. It can not do both. And the political tide is moving inexorably in the direction of everyday Americans at the expense of wealthy elites.Not that any of that actually solves the root problem, as Alex Gurevich points out. Inflation is a symptom of supply shocks as much as it is excess liquidity. Stretch this out on the horizon to 2023, and we might actually be tightening into an inverted yield curve and a recession. But those are problems for another year. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------Well...just when you thought Facebook was potentially undervalued...it turned out to be wildly overvalued. Or IS IT? Search the constellation of the Megacaps, and it still has the lowest multiple of all the technology giants out there. Especially now after a devastating earnings call that saw user growth petering out and forward guidance slashed.PE Ratios of MegaCap Tech:Facebook: 17Google: 25Apple: 29Microsoft: 32Netflix: 36Amazon: 54Tesla: 288But there's something else lurking beneath the surface. The specter of tightening means that any misstep in earnings, any perceived weakness in growth, can send your stock through the floor like an alternative cryptocurrency. Meanwhile, Bitcoin defies all human reason and reclaims 40k. What the?As ever the question remains, where are we in this window of uncertainty? Arguably this earnings slate has done nothing but pause downward pressure posed by the looming tightening cycle. Hard to believe at this point, with bond yields still on the march, that the equity market has priced in the Central Bank's intentions.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------As we expected, the markets bounced this week after Apple obliterated earnings on Friday. This followed a renewed bout of volatility as Jerry stepped to the mic to speak on the Fed's intentions. What did he say? Well...in the context of an exceedingly tight labor market, there is but one objective: battling inflation. But assured as everyone is that rate hikes are coming the question remains, when and how many? Uncertainty reigns in financial markets.For guidance we return to the chart of (maybe truth): The S&P 500.But with high flying technology names and crypto currencies foundering, we renew our debate about their near term prospects. Do they actually look so bad they're good? See NFLX, TSLA, BTC, etc. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The last best hope of the market...that the party wasn't really going to end...that the Fed wasn't really going to slam the brakes. Well that dream ended this week. From what we can tell, the great pandemic rally, the single greatest display of central bank largesse in living memory, is finally over. So what do the charts suggest? The S&P is in a sorry technical state. The S&P has finally closed below its 200 day moving average. The last time this happened in recent memory? You might have guessed.February of 2020: An initial drawdown of 13% that paused on the way to a 32% peak to trough October of 2018An initial drawdown of 9% that paused on the way to an 18% peak to trough Where are we now? Down ~8% from the weekly peak of December 31st, 2021. We likely have more pain ahead. But in the end, the real question is this. How far down and how long before the Federal reserve back pedals? Or not? And what shape will it take?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The table is slowly being set for 2022. So what has the market priced in so far?Over/under ~3.5 rate hikes in 2022 A question mark on Quantitative Easing vs TighteningThus the drubbing in growth/small tech endures and the breakout in Energy/cyclicals abides. Meanwhile JP Morgan earnings fatigue as Financials retreat from overbought territory.We are left to wonder what shall become of Crypto in the short-term. Somehow Bitcoin has managed to hover at ~$43k and Ethereum at ~$3.3k.But in the long-term, what will the 2020s be remembered for:On that note, veteran fund manager Bill Miller reveals that his personal portfolio is half Amazon and half Bitcoin. Truly stunning. 1) Will Megatech returns slow down? Or will we see exponential dominance?2) Is Oil the value bet of the decade?3) Will logarithmic growth in Crypto continue like Mobile phones or the Internet?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------The Fed minutes dropped...and with it: sentiment, the Nasdaq and any stock that doesn't make money. Yes the party is finally, truly, and they really mean it this time...at an end. Rate hikes and tapering will come faster than expected. On the news treasury yields shot past a significant level of resistance (~1.70% on the 10 year). This triggered a blast higher for real world sectors like Energy, and immiseration lower for ARKK and other growth names (e.g. SNAP). Why? Because the liquidity bonanza of this late pandemic is reaching its final chapter. And so the erstwhile darlings of the future economy that don't really make money will probably find more pain in 2022 as the Fed pulls back on the reins. Sad to say, but we finally capitulate on ARKG and LABU to rotate more into the old man sector of the day...Oil and Gas (XLE). There may come a time to come back to genomics, but that time is not now. Meanwhile, what will become of Crypto as it tests support? Will the risk-off trade send Crypto into the sea in 2022? Or will the march to ETH 2.0 in the first half trigger a move higher? Or will it simply chop along sideways? No one seems to know.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------2021 Winners:Cyclicals and Crypto2021, the year of the great reflation, approaches its end. Who won the day in equities? Cyclicals mainly, meaning Financials and Energy. Not that the Nasdaq did poorly. And in the long view, it still dominates performance. And of course BioTech had the year of death. Can it get much worse?But the real winner, even in December with sentiment falling into the sea, was Crypto as an asset class. Specifically Ethereum and other adjacent protocols and layers (SOL, MATIC, AVAX, etc). Though even OG Boomer Coin Bitcoin outperformed cyclicals. 2022 Risks and Opportunities:So where do we rotate in 2022?Let's start with equities. With this week's FOMC, Jerry confirmed the end of the party, with 3 rate hikes and double the pace of tapering in the offing. Which puts cyclicals back in the lead, and risk assets out in the cold. Primary risks & opportunities : The party really is over: With the Fed incrementally hawkish, and a historic run for risk assets behind us, we might see the risky, degenerate order of the day cool-off as Millennials and Gen Z exchange assets for fiat and buy houses.  The Fed missteps: Maybe it's another taper tantrum or worse, raising rates in the midst of a historic debt cycle. But the Fed is the backstop for everything. Should they incite a panic, however, it would present a buying opportunity as the Fed are forced to step in. Crypto on the knife's edge: Will 2022 be the capital tsunami of institutions buying Bitcoin, or the death of retail sentiment leading to another Crypto winter? I have no idea. 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------After a fit of liquidation sent Bitcoin below near term support ($53k), sentiment now hangs by a knife's edge around ~$47k. Despite the world's most riveting Matt Damon commercial for Crypto.com, the Crypto markets chop into consolidation (for now). While the HODLers buy the dip, December wears on to tell us which way the price action will break. Meanwhile, Ethereum flashes a key signal that it will outperform no matter where Crypto sentiment goes in the near term. Degenerate Champion of the week Raj Rajaratnam, prominent insider trader and hedge fund extraordinaire, appears on Bloomberg. Claiming he was the victim of prosecutorial overreach, he then proceeds to pump his largest holding Crowdstrike. Fantastic work.We then pivot the macro sphere, where a debate rages on about the consequences of fiscal and monetary interventions. Aggregate demand is so stupendously overpumped, supply chains so epically snarled, workforce participation so indelibly low that the Fed might be turning hawkish-ish. And if that means impending rate hikes in 2022, an accelerated pace of tapering and whatever else, is that really priced into the markets writ large?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz----------------------------------------------------We come back from Thanksgiving to find growth stocks in shambles. Chief among them, the previous darling of our eye, genomics. Do we give up? Or do we accept soul crushing volatility as the price of asymmetric upside? Meanwhile, the Nasdaq retreats to its 100 day moving average in dramatic fashion. But this we have seen many times before. What then is driving this panic, beneath the masthead of the Omicron variant?Meanwhile in Crypto, Bitcoin and Ethereum struggle to break out as the promise of a bull cycle from Twitter remains elusive. 

A wedge is forming as Bitcoin retreats to ~$57k, a level that is technically insignificant. But which way will it break? Meanwhile, we have developed a full blown addiction to ALT coins. This week GALA and POWR enter Robert's portfolio of interests. But in the end, the whole ecosystem rests on the momentum of Bitcoin and Ethereum.  In other bizarre Crypto news, billionaire Ken Griffin outbids a Crypto collective to purchase a first edition of the US Constitution for $43M. The future is here. And finally, with the illustrious Nasdaq 100 at new all time highs and technically overbought, I submit that a near-term pullback might be in the offing. Why? The debt ceiling fracas is destined to return in early December.

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------We discuss the alarming number of potentially worthless cryptocurrencies we've purchased. On the one hand, there might be wisdom in buying a basket of tokens with asymmetric upside. On the other hand, they may all plummet to zero one day. In other news Elon drains the parabolic momentum out of Tesla, deflating the near term run-up in the Nasdaq. How? By invoking a Twitter poll to sell a portion of his stock. And Roblox finally explodes, fueling the hypothesis that the Metaverse is at hand. We then turn to a bit of investing philosophy for these modern times. Specifically, will it ever make sense again to "value invest"? Meaning, in the age of exponential innovation, will it ever make sense to diversify with "undervalued" sectors and emerging markets when we can just stake our money on MegaTech, Cathie Wood and Crypto? 

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------In US equities, all major indices climbed to fresh all-time highs, buoyed by a favorable jobs report and another piece of elegant choreography from the Fed. Jerome Powell has finessed a taper, without inciting a tantrum. All that's left to do is hope the much discussed supply chain snarls unwind over time, because a rate hike we shall not see. As we look back in repose, does Jerry deserve a pat on the back for his time in command?Money printing and balance sheet expansion have buttressed the markets since March 2020, thereby safeguarding market cap and securing corporate employment. But asset prices are now inaccessible to all but the wealthiest. Is this the best of all outcomes?Crypto looks poised for another bull run as Ethereum eclipses $4,600 and Bitcoin consolidates after the release of a futures ETF. We hope for a parabolic move higher. And Greg pitches Bobby a potential breakout for ARKK in 1Q of 2022. And will it also make for joy in the beleaguered biotech sector?

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------In Tech, SNAP falls ~27% after slashing its revenue guidance, citing the impact of Apple's privacy guardrails. With it, Facebook sheds its progress on the week as worries brew over advertising business models tethered to Apple's ecosystem. Otherwise, the Nasdaq ebbs closer to all time highs as sentiment improves. All this as US 10-year treasury rates scrape 1.7%. Which means inflation is fully baked perhaps? And for MegaTech it no longer matters.But all eyes turn to the price action in Crypto. Bitcoin rides the release of a futures ETF to a new all time high of $66k, before pulling back on Friday as the frenzy cools. Ethereum likewise matched it's all time high of ~$4k. Will we see a further pullback on an otherwise parabolic arc?This week's chart: Bitcoin BTCUSDhttps://www.tradingview.com/x/6IQk5P8o/

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------Inflation is officially not transitory. But with economic growth prospects dimming (see Goldman and the IMF) and fossil fuels in scarce supply, the 10 year treasury yield retreats below 1.6%. With the benefit of hindsight, we observe that limited MegaTech panic selling was driven by the suddenness of bond yield moves. But as for the rates themselves, they make little difference (unless we verge back to 1.7% in a hurry).Against that backdrop earnings season begins favorably, injecting risk appetite back into equity markets sector-wide. The established banks all posted strong results, though traditional loan growth is waning. And Bitcoin breaks above $60k, capping a rally from last month's low of ~$40k as anticipation builds for SEC approval of a Bitcoin futures ETF. According to anonymous Twitter sage PlanB, the next level of resistance is $63k. We watch.Plus, the latest on FB, MRNA and TIGR. As well as Bobby's wave surf on AMZN.This week's charts: Bitcoin and Moderna!BTCUSDhttps://www.tradingview.com/x/IzRBcgIi/MRNAhttps://www.tradingview.com/x/0xpLohvX/

For data visualization, please use the links below or follow us on Twitter @DegenerateBiz-----------------------------------------------------In equities the debt ceiling panic attack triggered further selling in MegaTech. Facebook, under renewed outrage over its unscrupulous yet massively profitable modus operandi, took the worst of it. But sentiment steadied into repose after the Senate reached a deal to kick the can down the road until December. Is this a good time to accumulate more Facebook stock? We discuss. Energy prices continue to surge on fears of a winter shortage apocalypse. And finally in Blockchain, sentiment turns heavily bullish as American authorities say Crypto shall not be banned in the West. This week's chart: Facebook!https://www.tradingview.com/x/edrVOpjX/

In Equities:A Tech and Growth sell-off drags the S&P lower. As the third quarter grinds to a close, we are roughly 4% off the all time high reached in early September. So for all the clamor and discord of impending doom and the end of days, still not technically in a correction. What's happening? A host of anxieties building to moody sentiment and a rapid, incremental climb in treasury yields. To recap:A more hawkish tone from the Fed (which is still extremely dove-ish in historical terms)Contagion risk from Evergrande and the Chinese real estate sector it representsDebt ceiling angstSensational chatter of oil and gas shortages, with pictures from the UK showing scenes from 28 Days Later at the petrol stationAll of that compounded by ongoing bottlenecks in the Global Supply ChainWhere did this lead 10 year yields?Current rate of 1.472 is above the 200 day moving average (1.40) and the 50 day moving average (1.32)But we are still below the ~panic button level of 1.70And what does this mean in terms of sector rotation within equities?A bullish, cyclical trend in traditional energy (XLE, ERX)A further drubbing for Cathie's funds and growth-y future things (ARKK, XBI)In Crypto:Not to leave Crypto behind, Bitcoin is showing a promising technical pattern of consolidation around both the 200-day and 50-day moving average that telegraphs more upside...IF historical patterns hold. To boot, there is generally a flash of seasonal growth in the 4th quarter. Charts:S&P 500https://www.tradingview.com/x/41RdtZZf/US 10 Year Yieldhttps://www.tradingview.com/x/9ZRyXV8w/XLEhttps://www.tradingview.com/x/9FwDClmL/ARKKhttps://www.tradingview.com/x/7Trt0G1c/BTCUSDhttps://www.tradingview.com/x/JO74iVEj/

In Equities:With sentiment firmly cautious the major indices grind to a fork in the road, teetering on the edge of price action in either direction. What lurks on the horizon? The prospect of a crack up in the Chinese economy presaged by the implosion of real estate firm Evergrande. A soft taper so well telegraphed by the Fed that policy in the West couldn't possibly be a surprise. And a general spirit of caution in the markets that suggests...surely a correction must be coming? No one knows for sure.In the interest of a selective trade, we turn to traditional Energy (XLE), a sector so badly drubbed by talk of electric vehicles, the carbon future and the death of fossil fuels that it starts to look appetizing. But is it a proper value trade or a value trap? We think oil and gas might be due for a final moment in the sun. But not content to go long in conventional fashion, we look at ERX (2x leveraged XLE).In Crypto:With the majors Bitcoin and Ethereum in consolidation, we broaden our exposure to Crypto with a host of dubious alternative tokens. Each more ridiculous sounding than the next:1) Internet Computer (ICP)2) Axie Infinity (AXS)3) Chiliz (CHZ)4) Polkadot (DOT)Charts:XLE (Energy Index)https://www.tradingview.com/x/gNzNMjcu/ERX (2x leverage bull Energy Index)https://www.tradingview.com/x/ml3sxVk4/

For data visualization, please use the links below or follow us on Twitter @DegenerateBizIn Equities:The jobs report disappoints, which is utterly meaningless for the inexhaustible rally of the S&P. For all rests on the great taper. Leading the way is the Nasdaq, with QQQ approaching overbought territory. Maybe a correction is in the offing, but recent history suggests we're only in for a speed bump as Tech melts up (chart 1).Meanwhile, the US 10 year yield moves sideways. Nothing to report there (chart 2).On another note, the VIX approaches the bottom of its recent channel (chart 3). What are the implications for long-date call options?In Crypto:But all eyes turn to the logarithmic return of Ethereum (chart 4), which has now busted through all Fibonacci sequences to ~$3,900+. Not only that, the price action suggests a broader allocation away from Bitcoin into Ethereum in pursuit of yield. Having left $1,800 ETH on the floor, we're content to watch the rally play out.But there is still joy for Bitcoin, which has raked above 50k once again. In the Altcoin zone, would-be Ethereum killer Solana explodes. Why? Maybe James knowsBut I ask the big question, which is...are equities a waste of time next to Crypto (chart 5)?Charts:QQQhttps://www.tradingview.com/x/qgSL0TR5/US10Yhttps://www.tradingview.com/x/3tzGp0jd/VIXhttps://www.tradingview.com/x/5IIlHuJ8/ETHUSDhttps://www.tradingview.com/x/Mnwj1dO5/TQQQ (3x leveraged Nasdaq 100) vs ETH vs BTChttps://www.tradingview.com/x/LKjepu5J/