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In This Issue:
The Lost Decade
Bitcoin Thoughts And Analysis
Legacy Markets
Jerome Powell Was Duped
Meta Left The Metaverse To Find Success
The Banks Will Boost Bitcoin
Coinbase Goes On The Offensive
Is Anyone, Anywhere Actually Using Crypto?
The Lost Decade
If you're ever looking for some free entertaining and to pass some time, analyzing the S&P 500's returns over the past several decades can be quite fascinating. Did you know that the historical average annual return of the S&P 500 index, including reinvested dividends, is approximately 10%? However, it's also worth noting that if you had invested in the S&P 500 in September 2000 and held on for a full decade until September 2010, your annualized return would have been a disappointing -0.9%. This period has been dubbed "The Lost Decade."
For your reference, here is a chart illustrating the S&P 500's year-to-year annualized returns:
With a reference point established, let's delve into some interesting scenarios.
Did you know that if you had invested in the S&P 500 at the nadir of the dot-com bubble in October 2002 and held your position for 10 years until October 2012, the average annual return would have been approximately 8.2%?
Similarly, if you had invested during the trough of the Great Recession in March 2009 and held for 10 years until March 2019, the average annual return would have been an impressive 17.2%?
However, not everyone can perfectly time the market lows and highs. So, what if you invested during 'bad times?'
If you had invested at the peak of the dot-com bubble in March 2000 and held for 10 years until March 2010, the average annual return would have been a mere 0.5%.
Furthermore, if you had invested at the high point before the Great Recession in October 2007 and held for 10 years until October 2017, the average annual return would have been about 7.2%.
In essence, if you invested in the S&P 500 at the 'best' times, your average returns over 10 years would be 8.2% or 17.2%, while investing at the 'worst' times would yield returns of 0.5% and 7.2%. This leads to a simple conclusion: buy and hold. In reality, most people won't be able to time their investments perfectly, and that's okay. Some moments may be better than others, but investing at any time can still be worthwhile.
Returning to our main focus, the first decade of the century was rather unique in terms of S&P 500 returns. When you crunch the numbers, from the start of 2000 through the end of 2009, the S&P 500 returned -0.95%, hence its moniker, "The Lost Decade." It's unlikely that many investors purchased the S&P 500 exactly at the turn of the century and sold precisely a decade later, but that timing was particularly unfortunate.
Further analysis reveals that investing from 1998 to 2008 yielded an annual return of 3.33%, while the period from 2002 to 2012 saw a return of 6.13%. The Lost Decade was primarily 'lost' due to bubbles and bursts at both ends of the time frame, eroding returns. When investing, a decade shouldn't be measured by arbitrary points. As the time frame expands and the data is further dissected, we approach the average annual return of 10% when dividends are reinvested.
What does it all mean? You should do your best to buy during dips and hold your investments, allowing the market to work its magic… and a decade is nothing for an investor with a truly low time preference.
Bitcoin Thoughts And Analysis
Do we really need a Bitcoin chart today? Things have not changed… have a great weekend.
Legacy Markets
US equity futures fell as the tech stock rally waned and ongoing inflationary pressures strengthened expectations of further interest rate hikes in the US and Europe. Contracts on the S&P 500 and Nasdaq 100 dropped after Amazon warned of a slowdown in its cloud computing business growth. Meanwhile, Treasuries regained some of Thursday's losses, with the 10-year benchmark yield falling by around five basis points. Data revealing a surprise increase in US inflation pressures bolstered expectations of a Federal Reserve interest rate hike next week and possibly in June. European Central Bank rate increases are also expected due to rising consumer price gains. The strong year-to-date equity gains have been attributed to resilient earnings and reduced pessimism on economic growth, but risks remain skewed to the downside due to tighter policy, margin headwinds, and a potential US recession.
Here are some of the main moves in markets:
Stocks
S&P 500 futures fell 0.4% as of 7:02 a.m. New York time
Nasdaq 100 futures fell 0.2%
Futures on the Dow Jones Industrial Average fell 0.4%
The Stoxx Europe 600 fell 0.3%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.5%
The euro fell 0.4% to $1.0984
The British pound fell 0.3% to $1.2463
The Japanese yen fell 1.6% to 136.06 per dollar
Cryptocurrencies
Bitcoin fell 1.3% to $29,262.06
Ether fell 0.5% to $1,910.37
Bonds
The yield on 10-year Treasuries declined four basis points to 3.48%
Germany’s 10-year yield declined eight basis points to 2.38%
Britain’s 10-year yield declined five basis points to 3.75%
Commodities
West Texas Intermediate crude rose 0.4% to $75.05 a barrel
Gold futures fell 0.3% to $1,993 an ounce
Jerome Powell Was Duped
The details of this story are quite astonishing. It has come to light that in January this year, Fed Chairman Jerome Powell was unwittingly involved in a prank call, believing he was conversing with Ukrainian President Volodymyr Zelensky. In reality, he was speaking with two infamous pranksters who support President Vladimir Putin. During the call, Powell did disclose plans for two more rate hikes, which indeed occurred, but he didn't reveal anything overly sensitive. Market analysts are now scrutinizing the leaked conversation to predict further hikes, although the more pressing issue may be the initial security breach. Additionally, Powell stated during the call, "a recession is almost as likely as very slow growth," which shouldn't come as a surprise to most people. At times, it seems as if we are living in a simulation.
Meta Left The Metaverse To Find Success
I must admit, the title of this article might be somewhat clickbait-y, as Mark Zuckerberg himself has stated, "a narrative has developed that we're somehow moving away from focusing on the metaverse vision. I just want to say upfront that is not accurate." However, it does seem that Meta is currently prioritizing its core business model. Regardless, the stock is up, and the public is relieved to see billions of dollars aren't disappearing into the metaverse, at least for now.
The Banks Will Boost Bitcoin
Analysts from Bernstein Private Wealth Group are fully on board with the idea that the banking crisis could drive a new Bitcoin high. If you didn't know, Bernstein is not a small institution either, they manage somewhere between $600 and $700 billion and probably will offer Bitcoin to their clients in the future. I copied below a statement from their analysts during an inteirvew, it is along the same lines as what a lot of us believe here in crypto.'
Coinbase Goes On The Offensive
Coinbase, the crypto exchange, has issued a strong response to the Securities and Exchange Commission's (SEC) Wells notice last month, arguing that an enforcement action against the company would pose "major programmatic risks" to the SEC and "fail on the merits." The company maintains that it does not list, clear, or effect trading in securities, and the SEC's analysis is based on superficial and incorrect comparisons. Coinbase also argues that the proposed charges rely on "flawed and untested" theories involving investment contracts, spot markets, and custody services. The dispute between Coinbase and the SEC could be pivotal for the future of the crypto industry in the U.S. This development demonstrates Coinbase's willingness to stand up against regulatory pressures, which could potentially benefit the entire crypto industry as it navigates an evolving regulatory landscape.
“Banks’ woes will fuel a new crypto cycle. The safe haven signal will lead to a new crypto cycle, pushing digital wallets as on-chain savings accounts. The gap between Treasury rates and bank deposit rates will continue to hollow out banks, with weak balance sheets leading to another round of mass migration to money markets. To rescue the ship, the Fed will have to resort to dollar debasement and monetary printing again, bringing back the role of Bitcoin as digital gold.”
Is Anyone, Anywhere Actually Using Crypto?
Live panel with Seth Hertlein, Global Head of Policy at Ledger, and Katie Talati, Director of Research at Arca.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.