The Wolf Den #885 - Hey Stupid!
Being called stupid can be a good thing.
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In This Issue:
Hey Stupid!
Bitcoin Thoughts And Analysis
Legacy Markets
In the name of Lord Satoshi, Yahtzee!!!
It’s A Big Day For Coinbase
Watch This Clip of Howard Lutnick
The Spot Bitcoin ETF is a Smashing Success
Next Bitcoin Narrative: What Will Drive The Price Of Bitcoin To A New All Time High?
Hey Stupid!
After penning almost 900 newsletters, I've grown to appreciate the various perspectives of other writers. One of my foremost fears as a writer is that, over time, my best effort might start sounding familiar, and my once-vibrant grass no longer appears green or smells garden-fresh. You gotta keep the yard looking good. What will the neighbors think?
I'll do whatever it takes to combat creative droughts, and sometimes, that means acknowledging the masterful originality of others. I am very selective about what I share at length because, ultimately, it’s still a reflection of my thoughts. Today, I found an idea that deserves praise.
I came across an article entitled 'The Art of Looking Stupid' by Eric Cinnamond at Palm Valley Capital Management, which was just released yesterday. In all my years of emphasizing the importance of contrarianism, I have never seen the idea expressed in such a perfect (and contrarian/0 way. Allow me to share it here.
The investment management industry is filled with thousands of extremely smart people. Top in their class smart. It could easily be argued that there is an oversupply of smart investors. Throughout their lives they’ve received accolades and pats on the back reconfirming what they already know—they’re extraordinarily smart. One thing we’ve learned over the years is smart investors, understandably, don’t like to look stupid. While we have absolutely no data to support this, with an investment world overflowing with smart people, we believe there is a shortage of professional investors willing to look stupid.
That’s a shame because looking stupid is often necessary when practicing absolute return investing. Throughout our careers, we’ve proven we’re more than willing to look dumb. There have been times when our relative performance was so bad, Bloomberg ranked it “N.A.” Based on our history with Morningstar, we’ve destroyed more stars than most black holes! While this would be embarrassing for most managers, we view our past “stupid” positioning as a necessary part of our investment process, providing us with the ability to generate attractive absolute returns over a complete market cycle (our investment objective).
Instead of being embarrassed, we view our ability and willingness to look stupid as a competitive advantage. If there were market leaders in looking stupid during irrational markets, we would like to think we’d be on the short list. As long as performance deviations aren’t due to valuation errors or permanent losses to capital, investing differently during periods of inflated prices may not be stupid at all, but a sign of discipline, perseverance, and even intelligence. In other words, looking stupid is not the same as being stupid.
The secret of looking stupid is not caring about what other people think. Perception risk is a very real and underappreciated risk in the investment management industry. In our opinion, it’s one of the leading threats to maintaining investment discipline and one of the reasons so many active funds act the same as their peers and benchmarks. If you’re constantly concerned about what your firm, peers, and clients think about you, you’ll never master the art of looking stupid.
To be clear, looking stupid indefinitely is not a smart long-term strategy. For instance, absolute return investors should not remain patient or overly conservative throughout the entire market cycle. The goal of positioning differently, or remaining patient during market extremes, is to take advantage of the inefficiencies and distortions created by groupthink. For example, when the current cycle ends, we expect there will be tremendous opportunity, which should allow flexible investors to transition from being patient to aggressive. In effect, there are periods in every market cycle when opportunistic and aggressive positioning is necessary, and ultimately beneficial.
In our opinion, current equity valuations do not justify aggressive positioning. However, as we witnessed in Q4 2023, valuations alone have not deterred investors from chasing asset prices higher during the current market cycle. With small caps soaring into the end of the year, we're sure our patient positioning didn’t look very bright. But this isn’t new for us. Patient positioning almost always looks unintelligent during periods of sharply rising asset prices. And while we can’t predict the future, we expect we’ll continue to experience periods of looking stupid, and maybe even smart, but rarely will our paths look the same.
The purpose of looking stupid is to look smart over a complete market cycle. To successfully look stupid and generate attractive full-cycle absolute returns, investors might consider setting their egos aside, thinking independently, and eliminating the importance placed on perception. Good luck. Looking stupid isn’t as easy as it appears!
Now go cut the grass, it looks awful.
Bitcoin Thoughts And Analysis
I have spoken a few times about the fact that Bitcoin recently lost the daily 50 MA as support, which it continues to test as resistance.
I decided to zoom in today to the 4 hour chart. As you can see, all meaningful MAs (50, 100, 200) are above price, meaning they are resistance. Price lost the 200 MA as support for the first time since the middle of October when the run up really gained steam. It has been retested as resistance.
I am still seeing a bit more downside or at least a lot of chop, but this is Bitcoin... nothing would surprise me! And to be honest, we have some mixed signals, making this a no trade zone for me. What mixed signals?
Oversold bullish divergence with RSI many days ago on the chart that I somehow completely missed. I rarely miss this, as they are my favorite signal.
The reaction to this has been muted, although it was great for a scalp and catching the bottom if you were paying attention.
Mixed signals.
Legacy Markets
Global markets experienced a significant selloff as central bankers, including European Central Bank President Christine Lagarde and Federal Reserve Governor Christopher Waller, expressed concerns over premature bets on interest rate cuts amid ongoing inflation struggles. This cautionary stance led to a decrease in the likelihood of a Fed rate cut in March from 80% to 65%. Consequently, bond yields, such as the German two-year yields, rose, indicating a pushback against earlier market expectations of easing monetary policies.
In response to these developments, major stock indices like the Stoxx Europe 600 and futures on the Nasdaq 100 saw declines. The Treasury two-year yield and the dollar also experienced upticks, reflecting increased market volatility and investor caution.
Adding to the market turmoil, unexpected inflation spikes in the UK led to a reevaluation of rate cut expectations by the Bank of England, causing shifts in the bond and currency markets.
Concerns were not limited to the West; China's economic indicators also pointed to a worsening housing slump and tepid domestic demand, affecting markets across Asia and contributing to declines in sectors sensitive to Chinese demand.
In the commodity markets, oil prices dropped amidst a stronger US dollar and geopolitical tensions, while gold prices stabilized after a significant drop. In the cryptocurrency space, Bitcoin and Ether both experienced declines amid the broader market uncertainty.
Key events this week:
Eurozone CPI, Wednesday
US retail sales, industrial production, business inventories, Wednesday
Fed issues Beige Book survey of regional economic conditions, Wednesday
New York Fed President John Williams speaks, Wednesday
ECB Governing Council member Boris Vujcic speaks at Davos, Wednesday
US housing starts, initial jobless claims, Thursday
Republican presidential primary debate in New Hampshire, Thursday
ECB President Christine Lagarde participates in Davos panel discussion, Thursday
ECB publishes account of December policy meeting, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
Canada retail sales, Friday
Japan CPI, tertiary index, Friday
US existing home sales, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak in Davos, Friday
San Francisco Fed President Mary Daly speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.1% as of 10:22 a.m. London time
S&P 500 futures fell 0.4%
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.4%
The MSCI Asia Pacific Index fell 1.7%
The MSCI Emerging Markets Index fell 2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0877
The Japanese yen fell 0.3% to 147.59 per dollar
The offshore yuan was little changed at 7.2184 per dollar
The British pound rose 0.4% to $1.2688
Cryptocurrencies
Bitcoin fell 1.6% to $42,724.98
Ether fell 2.3% to $2,546.6
Bonds
The yield on 10-year Treasuries declined one basis point to 4.05%
Germany’s 10-year yield was little changed at 2.27%
Britain’s 10-year yield advanced seven basis points to 3.86%
Commodities
Brent crude fell 2% to $76.73 a barrel
Spot gold fell 0.2% to $2,024.56 an ounce
In the name of Lord Satoshi, Yahtzee!!!
As per tradition, I had to share Arthur Hayes's picture of Lizzy whispering to Gary in knit hats, alongside highlights from his recent blog. The first half of the blog is dedicated to discussing the symptoms and aftermath of money printing and the hidden reasons why the government needs an ETF: “If all capital wishing to flee a blowup in the global government bond markets purchases a Bitcoin ETF managed by large TradFi firms such as Blackrock, then the capital is still safely within the system.”
The second half of the essay focuses on the market impact of the spot Bitcoin ETF, including arbitrage opportunities and the escape hatch Bitcoin provides for money managers and investors who opt out of the TradFi system. “Bonds stop doing their job within a portfolio at the zero bound of interest rates, and even more so when there is persistent inflation. The market will slowly realise this, and the rush out of the >$100 trillion bond market will destroy nations.”
“All around the world central bankers and governments are creating the reasons why the money printer must go brrr. Once the narrative is in place, and a sufficient crisis allows the politicians and bureaucrats to use the fear of a financial systemic collapse to frighten the public into accepting more destructive fiat debasement, money will gush out of central banks and we will enter another leg up in the crypto bull market.”
It’s A Big Day For Coinbase
There is an important hearing today during which the court will address Coinbase’s Motion for Judgment on the pleadings. This entails a request from Coinbase for the court to make a ruling based solely on the legal arguments presented in the pleadings, eliminating the need for a full trial. MetaLawMan outlined the four scenarios the judge can decide on Twitter, and this article has paraphrased them. Take a look below.
Option 1: Denial of Coinbase Motion
If the judge denies Coinbase’s motion, the SEC’s low bar for plausibility would be met, leading to a continuation of the case into a lengthy discovery phase, similar to the situation with Ripple.
Option 2: Granting Coinbase’s Motion “with Prejudice”
A favorable outcome for Coinbase would see the judge dismissing the entire case. However, this would likely prompt the SEC to appeal at the Second Circuit Court of Appeals.
Option 3: Granting Motion “Without Prejudice”
This scenario would allow the SEC a chance to amend its complaint to address cited deficiencies. Yet, if the court questions the SEC’s authority to regulate crypto exchanges, an amendment might be futile.
Option 4: Partial Granting of Motion
The judge could grant the motion for certain claims related to specific crypto tokens while denying it for others, splitting the case into distinct focuses, such as the staking service.
If you want to know more, crypto law legend John Deaton is joining me on YouTube ON HIS WAY TO THE TRIAL at 9 AM EST.
Watch This Clip of Howard Lutnick
It’s always nice to see a new credible name and face speaking on crypto in a positive way. Cantor Fitzgerald has billions in AUM and has completed hundreds of billions in transactions over the years. Cantor is the ‘size’ we like to joke about in crypto. Also, in the interview, which I didn't quote below, Lutnick talked about why crypto matters in countries experiencing hyperinflation. This guy gets it.
Before I quote Lutnick, let me just say one thing: we are still in the early stages until these asset managers have Bitcoin on their balance sheets, and even then, it's not the end of the asset's growth; rather, it's just the beginning of a new phase.
“Remember when gold ETFs started? They were very exciting in '04, and it kind of stayed steady. There was all this hype that everyone was going to buy gold. Oh, come on. So, I think Bitcoin ran up, and it’s going to stay steady. But when the halving comes, it’s going to start rallying and growing. Bitcoin will grow.
There’s a company I like called Tether; it’s a stablecoin, and you know I manage many, many of their assets. Tether Holdings is the name of the group, and the group I want to share here with you— from what we have seen and we did a lot of work— they have the money they say they have.
In the last attestation, they said they had $86B in assets and $83B in liabilities, and I have seen a whole lot from the firm, and they have the money. There has always been a lot of talk: do they have it or not? So, I am with you guys, saying we have seen it, and they have it.”
Did you read that? Read it again. One of the most powerful CEOs of one of the most respected financial institutinos in the world just confirmed that Tether is fully backed.
The Spot Bitcoin ETF is a Smashing Success
By all measures, the spot Bitcoin ETF has been a massive success, yet some ‘experts’ want to call it a failure because price isn’t going up immediately. Like the halving, on its own schedule, it’s going to take time for ETF inflows to materialize in recognizable price swings. Funds are shuffling around, and investors are just getting warmed up to these products. Big things are coming, it just requires a bit of patience.
Next Bitcoin Narrative: What Will Drive The Price Of Bitcoin To A New All Time High?
Bruce Fenton is joining me to break down the latest in Bitcoin and find the next crypto narrative.
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Agreed!