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Tag: capital markets

  • Financial Markets Outlook Q4 2022 – Thoughts on Late September/Early October Bear Market Rally

    As the sell-off of stocks intensified into late September 2022, the S&P 500 lost all gains from the previous calendar year in September 2021. Coupled with an annual slump of 24% – the lowest since November 2020 – many were quick to point out the likelihood of a short-term bear market rally. This wasn’t (and isn’t) unjustified at all. During inflationary periods, as we entered this year by definition after two consecutive quarters of negative GDP growth, current stock market trends seemed to point to a classic “bottoming out”. An asset that has “bottomed out” reached its low point and could be in the early stages of trending upward. That’s the real question most investors are asking. Given all the global financial market dynamics that have been putting downward pressure on prices, are they ready to rebound? Will it be a short-term bear market? Will there be any noticeable rebound at all? What are the chances of a long-term bear market cycle? These are all questions investors are keen on getting more insight into daily.

    How Are Financial Markets Looking for the Remainder of Q4 2022?

    Shaky and unpredictable, at best. Specifically looking back at the S&P 500 trends, October, like September, tends to be a comparatively volatile month. This is coming off a year where more than half the trading days saw movements above or below 1%, indicating high general volatility.

    Before we get to the Fed policy, let’s quickly mention something many people are overlooking; current problems plaguing the UK. When we’re talking about the general trend of global financial markets, the US and UK generally follow similar patterns. In 2008, when the US recession hit, did the UK not feel the impact too? Ominously, the UK has already been in recession for a full year. Furthermore, S&P Global is predicting a “tough winter” for EU markets. Add that to the ongoing currency crises the GBP and EUR are currently experiencing and one would not be out of line at all to believe that the UK, as well as struggling countries in the EU, will fall into an even deeper recession. Surely – if that were to happen – it would obviously not bode well for US financial markets.

    But more realistically, actions taken by the Fed regarding inflationary concerns are what investors are eyeing more closely. Let’s take a deeper look at the Fed’s policy to combat inflation and how that’s impacting financial markets.

    The Fed’s Continuously Shifting Narrative on Inflation

    It’s important to first point out the Fed’s inflation narrative and, accordingly, their policy has shifted dramatically the past year. In fact, just last year Fed officials said inflation “wouldn’t be a problem”. Shortly later, the Fed promised us it would be “transitory” inflation. Now, they’re shifting to a “soft landing” inflation for the economy, amidst hiked up rates and economic downturn. As evidence of the deflationary attempts being rejected mounts, the Fed will undoubtably continue to move the bar.

    Why is that concerning for financial markets and moreover, market participants? Generally – intuitively, this should be especially true during times of economic uncertainty – investors often look to the Fed for guidance. Meaning, the majority of market participants will react to news from the Fed in real time. Even more specifically, they’ll take a bearish or bullish position based on what the Fed is saying at that time. David Schassler, Head of Quantitative Investment Solutions for VanEck, noted the same.

    “Market participants have been slow to catch up with the party line — and that’s reflected in the wild volatility. The market has failed to recognize the threat of inflation. Unfortunately, we think the idea of a soft landing is a bit of a fairy tale, and investors can expect a lot more volatility”.
    -David Schassler, VanEck Investments
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    But what’s more concerning is that even the Fed knows, for deflation to be successful, there also has to be a drop in demand. It doesn’t appear, nor is anyone really reporting, that there is any drop in demand. That’s starting to have – quite significant at that – ramifications on the global supply chain. Regardless of the reason – it could be the “COVID-10 lockdowns” J.P. Morgan hypothesized – at this point we know we are heading towards a global supply chain “crisis”. On top of a potentially botched deflation, we could see increased – rather than decreased – demand meet supply shortages, which would equal very rapid, upward prices until demand swings back down. Factoring back in how shaky the global economy looks at present, I think it’s extremely difficult to confidently say we’re definitely not going to have a financial crisis-like recession sometime in 2023. As many have said, time will tell.

    Conclusion for Q4 2022

    Concisely, we’re likely entering even darker waters than we’ve been in. That goes for capital markets, equities, indices, and related securities. Savvy investors will start looking at alternative investment products, while at-risk assets continue to have a negative long-term outlook. During times of financial uncertainty, investments in real estate (physical assets, more broadly) are usually a better value risk. High-value commodities, like gold, are known to do well in recessions (no, not Blockchain technology). High-value commodities such as gold in general are a quintessential hedge against a deflating dollar (USD) value.

    While we want to make it abundantly clear if there is a bear market, we expect it to be a short-term bounce back. To reiterate, the long-term macroeconomic outlook right now looks bleak. However, we also don’t want to give the incorrect impression that we are predicting a 2008-like financial collapse. Many have speculated that today’s CDOs are the mid-late 2000’s MBS products that led to the widespread 2008 financial collapse, however the comparison is a false equivalency.

    The safeguards we’ve put in place since 2008 prevent the kind of collapse we witnessed during that time. We have new volatility ratios that dual-acting (depository/investment) banks must strictly maintain. We have new regulatory reporting and compliance procedures banks have entire departments of staff dedicated to. The biggest investment banks in the world have literally thousands of dedicated employees specifically for regulatory reporting and compliance projects. My genuine belief is most active market observers understand we’re smart enough to learn from 2008 and avoid a repeat.

    However – needless to say – we’re still imperfect. With the way the global financial system now operates, there can only be winners if there are also losers. That dynamic is becoming more apparent at an upward trajectory. The biggest winners are becoming bigger (wealthier) and the biggest losers are becoming poorer. Interestingly, according to Fox, the last few recessions have statistically benefitted the “rich of the rich”.

  • What’s Next for Cryptocurrencies and Digital Assets, Post-2020s Recession

    The macroeconomic outlook for the cryptocurrency/digital asset market is definitely not looking good, at this time. There are a multitude of reasons. I think this is largely because Cryptocurrencies are considered “trendy” in financial services, however I’ve recently been asked for my take on specific Crypto’s (Bitcoin primarily) and what I’ve come to refer to as “Complex Crypto’s” (ETFs, other Exchange Traded Crypto Securities, Crypto IRA’s, etc.). Of course, at the center of this conversation is Cryptocurrency mining and trading. As most who follow this market even casually know, the two are intimately related.

    Standpoint on Cryptocurrency and Digital Assets Throughout the Recession

    Disclaimer: Pro-crypto enthusiasts will not be happy. This is how I’d put it, favorably. I see the cryptocurrency market, coming out of the recession – assuming it does – with entirely new technologies, marketing strategies, market dynamics, etc. To elaborate, let’s take what we can all agree to be true about the cryptocurrency fan base today, largely speaking. They’re a) not long-term strategists, b) very weak (or completely incoherent) when it comes to basic knowledge of financial markets and even more complex financial instruments, and c) the composition of cryptocurrency investors is not one you’d generally – or ever – consider “cash rich” compared to other investors (both individual and institutional).

    We’re looking at a market with the majority of participants being short-term, stubborn and perhaps unqualified thinkers, with little to no savings to boot. Market dynamics aside, Bitcoin has been religiously dropping for quite a while now. If conceptually it doesn’t make sense and the numbers aren’t there, investors are in deep trouble.

    Fast forward a few months. The Fed continues their ongoing strategy of “deflating the inflation” with historically “aggressive” rate hikes. The participants in the market described above would generally be considered high in terms of price elasticity. Meaning, their sensitivity to pricing changes is above average. In prices rise, they are more likely to sell quicker than someone who is more price inelastic, perhaps because they have a larger savings (as an example). On average, the same cryptocurrency enthusiasts who decided to invest in a Crypto ITF are the ones who will be forced to sell off their digital asset portfolio the quickest.

    When the average cryptocurrency enthusiast starts to get more and more burdened by everyday essentials, their digital wallet’s intrinsic value will diminish rapidly. Are you willing to struggle to pay rent to hold onto Bitcoin at the price you bought it? If you’re already a short-term thinker, the answer is more or less common sense. No. Nor are you willing to sell your house to maintain a bullish position on Bitcoin (if you’ll be in one of the unfortunate groups that lose their job in the recession).

    The Cryptocurrency Enthusiasts with Never-ending Dedication

    Cryptocurrency enthusiasts will undoubtably disagree with the short-term thinking narrative, but it’s respectfully backwards. There’s no other asset in financial markets you’ve analyzed as a better bet for the long-term. Really? Not the S&P 500 Index? US Treasuries that have never defaulted? If you’re looking for enhanced potential for extravagant short-term returns, cryptocurrency is an area for you. But that’s a complete contradiction to the long-term value proposition. There is none.

    Their last standing argument: Blockchain Technology. This is debated in part, but the general consensus among the Crypto community appears to be along the lines of, “Blockchain technology is considered a commodity and regulated by the CFTC that we simply cannot live without as a society. Therefore, Bitcoin will survive and prosper through any recession, since we have propriety technology that will revolutionize the world” [I’m paraphrasing]. This technology is by no means universally accepted in traditional financial markets. Bill Murray’s Ethereum wallet was recently infamously hacked. This will no doubt bolster the SEC’s position against institutionalizing digital assets.

    It’s relied on even less so by traditional financial investors. Let’s not forget, the SEC is still unwilling to budge on a Bitcoin spot ETF with the number one concern being lack of technological innovation to eliminate jacking and market manipulation. If the SEC says it’s too dangerous, where do you think institutional investors will fall with the current macroeconomic trajectory? Why is Bill Murray’s Ethereum wallet suddenly the focus of all the daily financial newsletters?

    Near and Long-Term Cryptocurrency and Digital Assets Outlook

    In the near term (3-4 months), look for prices to continue dropping steadily. This goes across the board for all digital assets. In the long term (1.5-2+ years), that becomes a very complicated question when you dig into potential hypotheticals. Digital assets and cryptocurrencies are almost completely unregulated. There are no remotely serious regulatory requirements or disclosures of any information about holdings reports, portfolio allocation, investor reports, or any other typically standard financial accounting. That was part of the initial pitch: anonymity.

    Now, when purely digital asset portfolio managers like Grayscale want to get through to institutional investors, they start to create SEC approved Bitcoin Trusts, strategically push for Bitcoin spot ETFs, make it publicly known they own roughly 4% of all of Bitcoin, etc. That goes back to an original point. Bitcoin and cryptocurrencies may not get completely cratered like the dinosaurs did, but will we have thousands – or tens of thousands – of different cryptocurrencies, trading on infinite different platforms, with an unlimited amount of different marketed benefits? I don’t see it.

    Are Cryptocurrencies and Digital Assets Going to Crash from the Recession?

    To the more interesting question, can digital assets become the modern-day dinosaurs? It’s vaguely possible, but unlikely. This is where global politics, luck, and irrational/unconventional investor behavior tend to make the largest impacts. Let’s say Bitcoin drops below $5,000 and Grayscale, owning roughly 4%, assesses a further drop to $3,000 by next month. What does Grayscale do? Every financial product they sell is a digital asset and they’ve marketed Bitcoin as the obvious face. They get absolutely no protections from bankruptcy and neither do their investors. Yet, with the amount of Bitcoin they own, could they theoretically have backdoor discussions that would lead to the price of Bitcoin artificially being propped up? It’s a definite theoretical possibility.

    Again, we don’t know who Grayscale would be in the room and how much bargaining power they’d have. To the cryptocurrency enthusiasts who think it’s “cool” to invest in cryptocurrencies specifically because executives at traditional investment institutions are known for appeasing shareholders (in other words, doing their jobs) and “throwing investors under the bus”, well what do you think will happen to you? Will the CEO responsible for making those decisions that has the potential to change investors lives do the “ethical” thing because they don’t have shareholders to protect? I think the fair and impartial response is that remains to be seen. That’s the truth.

    Let’s face it: cryptocurrencies and digital assets are in for the fight for their existence. This is newfound territory for this comparatively new market. It will absolutely shed so much more light than we have today about investors true perspectives and feelings on digital assets. At the end of the day, in a world where quantitative data leads investment decisions, rather than personal belief and alleged loyalty, we’ll have to see what executives and cryptocurrency holders alike do on a broad scale.

    The Bottom Line and What to Do

    The “correct” decision – meaning the decision statistically likely to have the most favorable outcome – would be to reinvest your holdings elsewhere. The risk is way too big, while the reward is way too small or nonexistent. Of the at-risk assets on the chopping block, digital assets are first in line. There is no remotely likely scenario where cryptocurrency supporters get to say “I told you so” anytime soon.

    In reality, what you do is listen to the experts, at least in this case. No one’s saying you need to get your IRA, or any other investment vehicle out for that matter, but you can’t think of a more prudent investment given the economic climate you’re being explained? What about real estate? You have the benefit of a physical asset, upside to earn capital gains if market prices increase, and at the simplest level, housing is essential. Individuals will never not need housing. If the recession impact results in a catastrophic scenario, you have an asset with no real danger of going to zero.

    If you’re going to hunker down and stay invested in digital assets until the end, you can still diversify and reduce your exposure. There are Bitcoin futures ETFs, like the VanEck Bitcoin Strategy ETF we discussed last time. There is the SEC-backed Bitcoin Trust; Grayscale’s GBTC. You can invest in hard currencies that would offset your exposure to digital currencies.

    There’s a plethora of options of the astute investor, but the question in my mind continues to be, why? Why go through an agonizing recession, where you’ll make difficult financial choices just to maintain your current cryptocurrency holdings? Again, if you’re so over-the-top for Blockchain technology, it will be available for purchase at a lower price in the future. But the near future? No chances from the present. Bitcoin will continue to systematically drop daily until there is major turnaround. There’s no telling what that will look like yet.

    The Warren Buffett Philosophy

    Consider this quote from Warren Buffett and how it applies to this debate. Buffett is universally known as the most intelligent and disciplined value-based investor of our generation.

    “People should only [make investments] in companies that exhibit solid fundamentals, strong earnings power, and the potential for continued growth.”

    -Warren Buffett, Unpublished

    Does the cryptocurrency market currently a) exhibit solid fundamentals, b) has strong earnings power, or c) has a solid potential for future growth? The answer to all three is no. That’s likely why Buffet has always remained a staunch opponent to digital assets. Buffet’s average holdings are somewhere from 10-34 years. It’s more than fair to say he views investing as a marathon, not a race.

    Concisely, as all other major financial news agree, the cryptocurrency market is at a crucial testing point, at bare minimum. We know crypto products aren’t going to gain market value during a recession, for sure. However, the extent of the damages digital assets will take compared to other “at-risk” assets remains to be seen. Time, Forbes, CNBC, and Reuters all predicted major cryptocurrency market tumbles during the recession just this week. Again, a lot of it will depend on luck and how things play out, but there are actions you can take as an investor to mitigate your exposure to the bullish side of the crypto/digital asset market during a recession.

    I’ll end with one final argument against cryptocurrencies and digital assets. Ironically, this goes against Warren Buffett’s main investing principle (at least in part). I believe he’s said that during a recession, his investment philosophy changes, but I was unable to find that quote.

    “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

    -Warren Buffett, Unpublished

    The Secret Behind Buffett’s Legacy: Some Deals are Simply too Risky

    Whether you agree with the risks to digital assets now or not, Buffett is spot on as usual. He has more famous quotes regarding investing in the stock market for the long-term, which is what he starts with. Buffett has held AXP (American Express) since 1964, KO (Coca-Cola) since 1988, and Wells Fargo (WFC) since 1989. Buffett’s outlook on the stock market is almost exclusively dependent on his analysis of that specific business. He’ll look at the financials in extensive detail, but he’ll also study the business model. How the company generates profits, what kinds of costs they incur. He’s the third richest person in the world off investments alone. Warren Buffett – rather than major investment banks or cash lenders – is known to have plenty of available cash during a recession or financial panic.

    Why? He hedges anywhere he’s far too overexposed and to boot, he has a knack for taking good bets on massively successful companies. In the context of cryptocurrency and digital assets, are they going to withstand all those arduous times? WWI & WWII, Vietnam, the Great Depression, over a dozen recessions and financial panics, oil shocks, a fly epidemic, and a political catastrophe? That wasn’t just an ego-trip; Buffett lived through those eras and more so, he prospered through them. Very few, if any, can say the same. Buffett stays away from a certain level of risk, period. No matter what the potential or hypothetical reward is, Buffett doesn’t execute the deal unless it’s met his standards.

    In Conclusion…

    With the way Blockchain was initially pitched, then repurposed, and gained little traction since is worrisome to me. The bottom line is cryptocurrency and digital assets have nowhere to go but down during an impactful recession. What you should do, in full sincerity, depends almost exclusively on your investing goals and available capital. In common, everyday situations – for example purchasing an overpriced digital currency – you should still mitigate your losses.

    You don’t want to be taking a bigger loss because you were too stubborn to take a much smaller one initially. I believe we’ll wind up seeing a lot of cryptocurrency investors in that boat. At what point will they be willing to toss it in and accept this investment just didn’t work out? Will they get to that point? Time will tell. What’s certain is the magnitude the recession’s impact will have on the cryptocurrencies and digital assets markets.

  • What’s Next for Cryptocurrencies and Digital Assets, Post-2020s Recession

    The macroeconomic outlook for the cryptocurrency/digital asset market is definitely not looking good, at this time. There are a multitude of reasons. I think this is largely because Cryptocurrencies are considered “trendy” in financial services, however I’ve recently been asked for my take on specific Crypto’s (Bitcoin primarily) and what I’ve come to refer to as “Complex Crypto’s” (ETFs, other Exchange Traded Crypto Securities, Crypto IRA’s, etc.). Of course, at the center of this conversation is Cryptocurrency mining and trading. As most who follow this market even casually know, the two are intimately related.

    Standpoint on Cryptocurrency and Digital Assets Throughout the Recession

    Disclaimer: Pro-crypto enthusiasts will not be happy. This is how I’d put it, favorably. I see the cryptocurrency market, coming out of the recession – assuming it does – with entirely new technologies, marketing strategies, market dynamics, etc. To elaborate, let’s take what we can all agree to be true about the cryptocurrency fan base today, largely speaking. They’re a) not long-term strategists, b) very weak (or completely incoherent) when it comes to basic knowledge of financial markets and even more complex financial instruments, and c) the composition of cryptocurrency investors is not one you’d generally – or ever – consider “cash rich” compared to other investors (both individual and institutional).

    We’re looking at a market with the majority of participants being short-term, stubborn and perhaps unqualified thinkers, with little to no savings to boot. Market dynamics aside, Bitcoin has been religiously dropping for quite a while now. If conceptually it doesn’t make sense and the numbers aren’t there, investors are in deep trouble.

    Fast forward a few months. The Fed continues their ongoing strategy of “deflating the inflation” with historically “aggressive” rate hikes. The participants in the market described above would generally be considered high in terms of price elasticity. Meaning, their sensitivity to pricing changes is above average. In prices rise, they are more likely to sell quicker than someone who is more price inelastic, perhaps because they have a larger savings (as an example). On average, the same cryptocurrency enthusiasts who decided to invest in a Crypto ITF are the ones who will be forced to sell off their digital asset portfolio the quickest.

    When the average cryptocurrency enthusiast starts to get more and more burdened by everyday essentials, their digital wallet’s intrinsic value will diminish rapidly. Are you willing to struggle to pay rent to hold onto Bitcoin at the price you bought it? If you’re already a short-term thinker, the answer is more or less common sense. No. Nor are you willing to sell your house to maintain a bullish position on Bitcoin (if you’ll be in one of the unfortunate groups that lose their job in the recession).

    The Cryptocurrency Enthusiasts with Never-ending Dedication

    Cryptocurrency enthusiasts will undoubtably disagree with the short-term thinking narrative, but it’s respectfully backwards. There’s no other asset in financial markets you’ve analyzed as a better bet for the long-term. Really? Not the S&P 500 Index? US Treasuries that have never defaulted? If you’re looking for enhanced potential for extravagant short-term returns, cryptocurrency is an area for you. But that’s a complete contradiction to the long-term value proposition. There is none.

    Their last standing argument: Blockchain Technology. This is debated in part, but the general consensus among the Crypto community appears to be along the lines of, “Blockchain technology is considered a commodity and regulated by the CFTC that we simply cannot live without as a society. Therefore, Bitcoin will survive and prosper through any recession, since we have propriety technology that will revolutionize the world” [I’m paraphrasing]. This technology is by no means universally accepted in traditional financial markets. Bill Murray’s Ethereum wallet was recently infamously hacked. This will no doubt bolster the SEC’s position against institutionalizing digital assets.

    It’s relied on even less so by traditional financial investors. Let’s not forget, the SEC is still unwilling to budge on a Bitcoin spot ETF with the number one concern being lack of technological innovation to eliminate jacking and market manipulation. If the SEC says it’s too dangerous, where do you think institutional investors will fall with the current macroeconomic trajectory? Why is Bill Murray’s Ethereum wallet suddenly the focus of all the daily financial newsletters?

    Near and Long-Term Cryptocurrency and Digital Assets Outlook

    In the near term (3-4 months), look for prices to continue dropping steadily. This goes across the board for all digital assets. In the long term (1.5-2+ years), that becomes a very complicated question when you dig into potential hypotheticals. Digital assets and cryptocurrencies are almost completely unregulated. There are no remotely serious regulatory requirements or disclosures of any information about holdings reports, portfolio allocation, investor reports, or any other typically standard financial accounting. That was part of the initial pitch: anonymity.

    Now, when purely digital asset portfolio managers like Grayscale want to get through to institutional investors, they start to create SEC approved Bitcoin Trusts, strategically push for Bitcoin spot ETFs, make it publicly known they own roughly 4% of all of Bitcoin, etc. That goes back to an original point. Bitcoin and cryptocurrencies may not get completely cratered like the dinosaurs did, but will we have thousands – or tens of thousands – of different cryptocurrencies, trading on infinite different platforms, with an unlimited amount of different marketed benefits? I don’t see it.

    Are Cryptocurrencies and Digital Assets Going to Crash from the Recession?

    To the more interesting question, can digital assets become the modern-day dinosaurs? It’s vaguely possible, but unlikely. This is where global politics, luck, and irrational/unconventional investor behavior tend to make the largest impacts. Let’s say Bitcoin drops below $5,000 and Grayscale, owning roughly 4%, assesses a further drop to $3,000 by next month. What does Grayscale do? Every financial product they sell is a digital asset and they’ve marketed Bitcoin as the obvious face. They get absolutely no protections from bankruptcy and neither do their investors. Yet, with the amount of Bitcoin they own, could they theoretically have backdoor discussions that would lead to the price of Bitcoin artificially being propped up? It’s a definite theoretical possibility.

    Again, we don’t know who Grayscale would be in the room and how much bargaining power they’d have. To the cryptocurrency enthusiasts who think it’s “cool” to invest in cryptocurrencies specifically because executives at traditional investment institutions are known for appeasing shareholders (in other words, doing their jobs) and “throwing investors under the bus”, well what do you think will happen to you? Will the CEO responsible for making those decisions that has the potential to change investors lives do the “ethical” thing because they don’t have shareholders to protect? I think the fair and impartial response is that remains to be seen. That’s the truth.

    Let’s face it: cryptocurrencies and digital assets are in for the fight for their existence. This is newfound territory for this comparatively new market. It will absolutely shed so much more light than we have today about investors true perspectives and feelings on digital assets. At the end of the day, in a world where quantitative data leads investment decisions, rather than personal belief and alleged loyalty, we’ll have to see what executives and cryptocurrency holders alike do on a broad scale.

    The Bottom Line and What to Do

    The “correct” decision – meaning the decision statistically likely to have the most favorable outcome – would be to reinvest your holdings elsewhere. The risk is way too big, while the reward is way too small or nonexistent. Of the at-risk assets on the chopping block, digital assets are first in line. There is no remotely likely scenario where cryptocurrency supporters get to say “I told you so” anytime soon.

    In reality, what you do is listen to the experts, at least in this case. No one’s saying you need to get your IRA, or any other investment vehicle out for that matter, but you can’t think of a more prudent investment given the economic climate you’re being explained? What about real estate? You have the benefit of a physical asset, upside to earn capital gains if market prices increase, and at the simplest level, housing is essential. Individuals will never not need housing. If the recession impact results in a catastrophic scenario, you have an asset with no real danger of going to zero.

    If you’re going to hunker down and stay invested in digital assets until the end, you can still diversify and reduce your exposure. There are Bitcoin futures ETFs, like the VanEck Bitcoin Strategy ETF we discussed last time. There is the SEC-backed Bitcoin Trust; Grayscale’s GBTC. You can invest in hard currencies that would offset your exposure to digital currencies.

    There’s a plethora of options of the astute investor, but the question in my mind continues to be, why? Why go through an agonizing recession, where you’ll make difficult financial choices just to maintain your current cryptocurrency holdings? Again, if you’re so over-the-top for Blockchain technology, it will be available for purchase at a lower price in the future. But the near future? No chances from the present. Bitcoin will continue to systematically drop daily until there is major turnaround. There’s no telling what that will look like yet.

    The Warren Buffett Philosophy

    Consider this quote from Warren Buffett and how it applies to this debate. Buffett is universally known as the most intelligent and disciplined value-based investor of our generation.

    “People should only [make investments] in companies that exhibit solid fundamentals, strong earnings power, and the potential for continued growth.”

    -Warren Buffett, Unpublished

    Does the cryptocurrency market currently a) exhibit solid fundamentals, b) has strong earnings power, or c) has a solid potential for future growth? The answer to all three is no. That’s likely why Buffet has always remained a staunch opponent to digital assets. Buffet’s average holdings are somewhere from 10-34 years. It’s more than fair to say he views investing as a marathon, not a race.

    Concisely, as all other major financial news agree, the cryptocurrency market is at a crucial testing point, at bare minimum. We know crypto products aren’t going to gain market value during a recession, for sure. However, the extent of the damages digital assets will take compared to other “at-risk” assets remains to be seen. Time, Forbes, CNBC, and Reuters all predicted major cryptocurrency market tumbles during the recession just this week. Again, a lot of it will depend on luck and how things play out, but there are actions you can take as an investor to mitigate your exposure to the bullish side of the crypto/digital asset market during a recession.

    I’ll end with one final argument against cryptocurrencies and digital assets. Ironically, this goes against Warren Buffett’s main investing principle (at least in part). I believe he’s said that during a recession, his investment philosophy changes, but I was unable to find that quote.

    “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

    -Warren Buffett, Unpublished

    The Secret Behind Buffett’s Legacy: Some Deals are Simply too Risky

    Whether you agree with the risks to digital assets now or not, Buffett is spot on as usual. He has more famous quotes regarding investing in the stock market for the long-term, which is what he starts with. Buffett has held AXP (American Express) since 1964, KO (Coca-Cola) since 1988, and Wells Fargo (WFC) since 1989. Buffett’s outlook on the stock market is almost exclusively dependent on his analysis of that specific business. He’ll look at the financials in extensive detail, but he’ll also study the business model. How the company generates profits, what kinds of costs they incur. He’s the third richest person in the world off investments alone. Warren Buffett – rather than major investment banks or cash lenders – is known to have plenty of available cash during a recession or financial panic.

    Why? He hedges anywhere he’s far too overexposed and to boot, he has a knack for taking good bets on massively successful companies. In the context of cryptocurrency and digital assets, are they going to withstand all those arduous times? WWI & WWII, Vietnam, the Great Depression, over a dozen recessions and financial panics, oil shocks, a fly epidemic, and a political catastrophe? That wasn’t just an ego-trip; Buffett lived through those eras and more so, he prospered through them. Very few, if any, can say the same. Buffett stays away from a certain level of risk, period. No matter what the potential or hypothetical reward is, Buffett doesn’t execute the deal unless it’s met his standards.

    In Conclusion…

    With the way Blockchain was initially pitched, then repurposed, and gained little traction since is worrisome to me. The bottom line is cryptocurrency and digital assets have nowhere to go but down during an impactful recession. What you should do, in full sincerity, depends almost exclusively on your investing goals and available capital. In common, everyday situations – for example purchasing an overpriced digital currency – you should still mitigate your losses.

    You don’t want to be taking a bigger loss because you were too stubborn to take a much smaller one initially. I believe we’ll wind up seeing a lot of cryptocurrency investors in that boat. At what point will they be willing to toss it in and accept this investment just didn’t work out? Will they get to that point? Time will tell. What’s certain is the magnitude the recession’s impact will have on the cryptocurrencies and digital assets markets.

  • What America’s Past in Real Estate Tells Us About the Future

    Some experts have argued that we’re at a torrid time in the future of the US real estate market. Others have argued NYC’s housing market has been roaring, with no sign of slowing down. With inflation continuing to cripple the value of the USD, prospective home buyers face pressure to invest in tangible assets. Many Americans are realizing a home is the most sensible shelter for their savings (Nguyen, Forbes).

    However, home supplies in coveted markets are scarce. Prices are ever-climbing and competition for homes is currently relentless. That’s generally where America’s market currently stands. The main question on the minds of homeowners and prospective buyers continues to be: “Where will markets go from here?”

    Of course, no one can say with certainty. Nevertheless, select lessons from America’s history provide a blueprint for home buying at this unique historical juncture.

    Lesson from the Great Depression

    Principally, you cannot separate the national economy from the nation’s housing markets. The American economy and the American housing market are akin to dominos aligned in the same row. On some occasions, the economy is the domino at the front of the row. Whereas there were other times – the subprime mortgage crisis (Great Recession, 2008) – the housing market is first in line.

    Arguably no time in American history better exhibits the inextricable link between national economic performance and the American people’s ability to both purchase, as well as hold onto, long-term houses. As the stock market crashed in 1929, bank runs quickly ensued, and mass unemployment followed closely behind. A staggering 273,000 Americans lost their homes in 1932, plus even more suffered foreclosure in the following year. Americans simply did not have the wherewithal to keep up with mortgage payments when crushing stagflation hit.

    Some things have not changed since the onset of the Great Depression. Americans today have become far more cognizant of a future possibility of widespread economic downturn. An economy in contraction means jobs lost, wages uncollected, and mortgage payments undelivered. Ultimately, this means foreclosures.

    Current Home-Buying Spree Continues

    Yet, even facing economic hardship triggered by the pandemic, America finds itself in the midst of a record home-buying spree. This may suggest any of the following three (Nguyen, Forbes):

    • A new segment of Americans (including former apartment-dwelling city residents) are injecting unprecedented capital into newfound housing markets.
    • Home buyers see houses as a sound investment, even as many expect the economy to take a turn for the worse.
    • The demand for homes in America is far greater than supply, increasing competition for each home.

    On one hand, the Great Depression is a necessary reminder for prospective home owners to not purchase beyond their means. However, many who lost their homes during the Great Depression certainly weren’t living lavishly. This is a critical takeaway – though one we must extract – from the hardships of the late 1920s and 1930s.

    Moreover, there are notable differences between 1930’s America and 2021, which bode favorably for today’s housing market. Incentive-laden tax policies, enacted since the Depression, made it more affordable to purchase homes and make the requisite mortgage payments. Today, Americans have a variety of investment options to mitigate risk. Additionally, federal policy has prevented bank failures from the magnitude witnessed during the Great Depression.

    Lesson from the GI Bill (1944)

    Concisely, cheap credit can set you up for life (Nguyen, Forbes). If you’ve been relishing your prevailing 3% interest rates, prepare for disappointment (by comparison).

    Not long after the Allied invasion of Normandy Beach, US President Franklin Roosevelt signed the GI Bill (1944). The was portrayed as a token of appreciation to a generation of young Americans, who risked their lives at war. Upon returning home, those GIs received government-backed loans that all but guaranteed homeownership, amongst other benefits. Banks the US government deemed a guarantor were overwhelmingly likely to approve a mortgage application.

    With access to such favorable loan conditions, veterans went on to purchase 20% of all homes built after the war. GIs took full, absolute advantage of the easy credit they undeniably earned.

    Fast forward to the present. While a government-guaranteed loan might sound ideal, you truly cannot complain about today’s prevailing 3% interest rates (Campisi, Forbes). To compare, interest rates topped 17% in 1982, then hovered around 10% for significant periods in the 1990s. That means two decades ago, you’d have to pay 8% for a home loan. Quite staggering compared to today’s housing market climate, to say the least.

    To reemphasize, the prime takeaway from the GI Bill, is that favorable credit should be pounced on, while it’s available. Historically, the sub-3% rate, which we’ve seen for the vast majority of 2021, is a statistical anomaly. Based on the frenzy of home buying we’ve witnessed, it seems that many Americans and foreign investors know their history. Perhaps much more than some casual real estate investors may think.

    Conclusion

    Seemingly, the two monumental American national economic events discussed provide opposing lessons for today’s prospective home buyer. The sudden, near-total crash of the Depression-era housing market reminds us the importance of consumer’s buying within their means. The GI Bill reinforces the importance of closing on a home, especially while lending terms are favorable. Upon extensive examination, these lessons can be very much complimentary in the future.

    As we’ve noted, today, Americans find themselves at a confounding point. Interest rates are very favorable; however, the economy is riddled with inflationary concerns and general uncertainty. It’s a time both reminiscent of GI Bill-era opportunity and Depression-era anxiety (Nguyen, Forbes).

    Of any lesson investors should takeaway, it’s this: you can embrace the benefits of comparatively cheap credit while remaining within your spending means. Be sure you don’t miss out on a prime real estate investment, while interest rates are so favorable. Stray away from overextending yourself to the point where you cannot keep up with future payments, should times get tough.

    For strategically sound real estate investing, you must look to the past to help predict the future. If nothing else, for guidance. That includes the better parts, but perhaps even more importantly for investors, the worse.  

  • What America’s Past in Real Estate Tells Us About the Future

    Some experts have argued that we’re at a torrid time in the future of the US real estate market. Others have argued NYC’s housing market has been roaring, with no sign of slowing down. With inflation continuing to cripple the value of the USD, prospective home buyers face pressure to invest in tangible assets. Many Americans are realizing a home is the most sensible shelter for their savings (Nguyen, Forbes).

    However, home supplies in coveted markets are scarce. Prices are ever-climbing and competition for homes is currently relentless. That’s generally where America’s market currently stands. The main question on the minds of homeowners and prospective buyers continues to be: “Where will markets go from here?”

    Of course, no one can say with certainty. Nevertheless, select lessons from America’s history provide a blueprint for home buying at this unique historical juncture.

    Lesson from the Great Depression

    Principally, you cannot separate the national economy from the nation’s housing markets. The American economy and the American housing market are akin to dominos aligned in the same row. On some occasions, the economy is the domino at the front of the row. Whereas there were other times – the subprime mortgage crisis (Great Recession, 2008) – the housing market is first in line.

    Arguably no time in American history better exhibits the inextricable link between national economic performance and the American people’s ability to both purchase, as well as hold onto, long-term houses. As the stock market crashed in 1929, bank runs quickly ensued, and mass unemployment followed closely behind. A staggering 273,000 Americans lost their homes in 1932, plus even more suffered foreclosure in the following year. Americans simply did not have the wherewithal to keep up with mortgage payments when crushing stagflation hit.

    Some things have not changed since the onset of the Great Depression. Americans today have become far more cognizant of a future possibility of widespread economic downturn. An economy in contraction means jobs lost, wages uncollected, and mortgage payments undelivered. Ultimately, this means foreclosures.

    Current Home-Buying Spree Continues

    Yet, even facing economic hardship triggered by the pandemic, America finds itself in the midst of a record home-buying spree. This may suggest any of the following three (Nguyen, Forbes):

    • A new segment of Americans (including former apartment-dwelling city residents) are injecting unprecedented capital into newfound housing markets.
    • Home buyers see houses as a sound investment, even as many expect the economy to take a turn for the worse.
    • The demand for homes in America is far greater than supply, increasing competition for each home.

    On one hand, the Great Depression is a necessary reminder for prospective home owners to not purchase beyond their means. However, many who lost their homes during the Great Depression certainly weren’t living lavishly. This is a critical takeaway – though one we must extract – from the hardships of the late 1920s and 1930s.

    Moreover, there are notable differences between 1930’s America and 2021, which bode favorably for today’s housing market. Incentive-laden tax policies, enacted since the Depression, made it more affordable to purchase homes and make the requisite mortgage payments. Today, Americans have a variety of investment options to mitigate risk. Additionally, federal policy has prevented bank failures from the magnitude witnessed during the Great Depression.

    Lesson from the GI Bill (1944)

    Concisely, cheap credit can set you up for life (Nguyen, Forbes). If you’ve been relishing your prevailing 3% interest rates, prepare for disappointment (by comparison).

    Not long after the Allied invasion of Normandy Beach, US President Franklin Roosevelt signed the GI Bill (1944). The was portrayed as a token of appreciation to a generation of young Americans, who risked their lives at war. Upon returning home, those GIs received government-backed loans that all but guaranteed homeownership, amongst other benefits. Banks the US government deemed a guarantor were overwhelmingly likely to approve a mortgage application.

    With access to such favorable loan conditions, veterans went on to purchase 20% of all homes built after the war. GIs took full, absolute advantage of the easy credit they undeniably earned.

    Fast forward to the present. While a government-guaranteed loan might sound ideal, you truly cannot complain about today’s prevailing 3% interest rates (Campisi, Forbes). To compare, interest rates topped 17% in 1982, then hovered around 10% for significant periods in the 1990s. That means two decades ago, you’d have to pay 8% for a home loan. Quite staggering compared to today’s housing market climate, to say the least.

    To reemphasize, the prime takeaway from the GI Bill, is that favorable credit should be pounced on, while it’s available. Historically, the sub-3% rate, which we’ve seen for the vast majority of 2021, is a statistical anomaly. Based on the frenzy of home buying we’ve witnessed, it seems that many Americans and foreign investors know their history. Perhaps much more than some casual real estate investors may think.

    Conclusion

    Seemingly, the two monumental American national economic events discussed provide opposing lessons for today’s prospective home buyer. The sudden, near-total crash of the Depression-era housing market reminds us the importance of consumer’s buying within their means. The GI Bill reinforces the importance of closing on a home, especially while lending terms are favorable. Upon extensive examination, these lessons can be very much complimentary in the future.

    As we’ve noted, today, Americans find themselves at a confounding point. Interest rates are very favorable; however, the economy is riddled with inflationary concerns and general uncertainty. It’s a time both reminiscent of GI Bill-era opportunity and Depression-era anxiety (Nguyen, Forbes).

    Of any lesson investors should takeaway, it’s this: you can embrace the benefits of comparatively cheap credit while remaining within your spending means. Be sure you don’t miss out on a prime real estate investment, while interest rates are so favorable. Stray away from overextending yourself to the point where you cannot keep up with future payments, should times get tough.

    For strategically sound real estate investing, you must look to the past to help predict the future. If nothing else, for guidance. That includes the better parts, but perhaps even more importantly for investors, the worse.  

  • The Future of Capital Markets Technology

    Capital Markets are where savings and investments are channeled between suppliers, people, or institutions with capital to lend or invest — as well as those in need (Hayes, Investopedia). Suppliers typically include banks and investors while those who seek capital are businesses, governments, and individuals. Capital markets are composed of primary and secondary markets.

    The most common capital markets are the stock market and the bond market. However other, more complex, markets include the CRE (Commercial Real Estate) Market, Equity Capital Market (ECM), as well as many others that are typically geared towards a specific investor. Therefore there is not as much trading volume or frequency, since the broader excitement is not the same. Even though real estate is the world’s largest asset class, we’ve seen a recent decline in CRE investment. Medium recently posted an article detailing the advantages of a platform called Beacon Platform, Inc, which was a critical, major acquisition for Centena.

    Medium: Modernizing the Capital Markets Technology Stack: Centana’s Investment in Beacon Platform, Inc.

    Why do customers choose Beacon?

    Time-to-Value and ROI. Today, companies continue to deal with cumbersome internal applications that have been stitched together, often with legacy code and/or 3rd party vendors in the Trading and Risk Management space, which are “black box” and difficult, if not impossible, to alter.

    Beacon’s entire code base is flexible and transparent (i.e. the code is made available to customers) and seamlessly integrates with existing software and other 3rd party solutions (like Murex and Calypso), or in-house proprietary solutions, which helps drive quick time-to-value and high utility.

    In a fraction of the time and cost of alternative solutions, Beacon has helped customers achieve objectives such as migrating workloads to the cloud, expanding into new markets, upgrading legacy code by placing it within a modern developer wrapper and extending analytics and applications to customers’ end-users.

    -Matt Alfieri
    Key Takeaways

    When it comes to capital markets technology, the evolving nature of the tech space all but ensures we will see new technologies introduced into capital markets operations. Additionally, while this may sound like an advertisement for Beacon (though FinYork has absolutely no affiliation to it), the critical feature to note is this is an exemplary illustration of where capital markets technology appears to be heading.

    Vertical SaaS or cloud industry solutions, instead of legacy or proprietary in-house solutions, are showing us that they’re easier to replace than many executives originally thought. You should expect to see a similar effect here as with PropTech, as it becomes more widely available and accepted by savvy executives and high net worth real estate investors. You definitely do not want to be the firm who is continuing to use antiquated capital markets technologies. This puts you at an immediate, huge disadvantage. It makes it that much harder to catch up with your competitors, who have a leg-up as they’ve already implemented innovative technologies.

    All this goes to say that SaaS, digital transformation, cloud technologies, PropTech, and even niche technologies that aim to improve efficiency in capital markets are going to play an integral part of the future. The success of firms who will adapt them largely depends on the success those firms will have in the implementation process. To be sure, capital markets technology is only going to continue getting more efficient, robust, and easier to adapt.

  • The Future of Capital Markets Technology

    Capital Markets are where savings and investments are channeled between suppliers, people, or institutions with capital to lend or invest — as well as those in need (Hayes, Investopedia). Suppliers typically include banks and investors while those who seek capital are businesses, governments, and individuals. Capital markets are composed of primary and secondary markets.

    The most common capital markets are the stock market and the bond market. However other, more complex, markets include the CRE (Commercial Real Estate) Market, Equity Capital Market (ECM), as well as many others that are typically geared towards a specific investor. Therefore there is not as much trading volume or frequency, since the broader excitement is not the same. Even though real estate is the world’s largest asset class, we’ve seen a recent decline in CRE investment. Medium recently posted an article detailing the advantages of a platform called Beacon Platform, Inc, which was a critical, major acquisition for Centena.

    Medium: Modernizing the Capital Markets Technology Stack: Centana’s Investment in Beacon Platform, Inc.

    Why do customers choose Beacon?

    Time-to-Value and ROI. Today, companies continue to deal with cumbersome internal applications that have been stitched together, often with legacy code and/or 3rd party vendors in the Trading and Risk Management space, which are “black box” and difficult, if not impossible, to alter.

    Beacon’s entire code base is flexible and transparent (i.e. the code is made available to customers) and seamlessly integrates with existing software and other 3rd party solutions (like Murex and Calypso), or in-house proprietary solutions, which helps drive quick time-to-value and high utility.

    In a fraction of the time and cost of alternative solutions, Beacon has helped customers achieve objectives such as migrating workloads to the cloud, expanding into new markets, upgrading legacy code by placing it within a modern developer wrapper and extending analytics and applications to customers’ end-users.

    -Matt Alfieri
    Key Takeaways

    When it comes to capital markets technology, the evolving nature of the tech space all but ensures we will see new technologies introduced into capital markets operations. Additionally, while this may sound like an advertisement for Beacon (though FinYork has absolutely no affiliation to it), the critical feature to note is this is an exemplary illustration of where capital markets technology appears to be heading.

    Vertical SaaS or cloud industry solutions, instead of legacy or proprietary in-house solutions, are showing us that they’re easier to replace than many executives originally thought. You should expect to see a similar effect here as with PropTech, as it becomes more widely available and accepted by savvy executives and high net worth real estate investors. You definitely do not want to be the firm who is continuing to use antiquated capital markets technologies. This puts you at an immediate, huge disadvantage. It makes it that much harder to catch up with your competitors, who have a leg-up as they’ve already implemented innovative technologies.

    All this goes to say that SaaS, digital transformation, cloud technologies, PropTech, and even niche technologies that aim to improve efficiency in capital markets are going to play an integral part of the future. The success of firms who will adapt them largely depends on the success those firms will have in the implementation process. To be sure, capital markets technology is only going to continue getting more efficient, robust, and easier to adapt.