Congratulations on surviving another week of the markets being at the whim of the decisions made at the Federal Reserve. In times like these, it is impossible to hold onto convictions for too long. When uncertainty and volatility reign supreme it is important to keep cash on the side and be open to new trades. This week we saw the real possibility of a banking crisis before the Fed stepped in to rescue SVB. The ramifications of these actions will take months and maybe years to pan out, but here are our thoughts at Robert Ventures:
1) Mixed Signals from the Federal Reserve
Since early 2022, the Fed has been in Quantitative Tightening mode, increasing interest rates to remove the froth from the economy. This has come at the cost of many investment portfolios as the S&P 500 is down nearly 20% from its high.
As a result of the SVB emergency lending required to keep the economy intact, the Fed’s balance sheet ballooned by $300B last week. They claim this will not come out of the pocket of taxpayers, but overnight this move wiped out the last 4 months of pain in the market caused by QT. It is unclear how this increased liquidity mixed with high-interest rates will play out, but if removing liquidity was an attempt to curb inflation then increasing it could have the opposite effect.
On paper, this increased liquidity should be a bullish sentiment for equities, but the market this week has responded with sideways movement and increased volatility. As we mentioned previously, it is important to have cash on the sidelines and stay nimble as there are numerous landlines of systematic risk that threaten to topple the market.
Nonetheless, there is a chance that liquidity re-enters the market causing an increase in asset prices which will be needed to keep things as they are currently since inflation would likely follow in that scenario.
2) Increased Risk at Small Banks
If you haven’t seen this viral video of Oklahoma Senator Lankford Spars discussing the treatment of big banks, I would highly suggest you take the time to watch and digest the implications. In a calm 6 minutes, Spars is able to point out a major flaw in the US banking system that big banks will be protected and regional banks may or may not be bailed out if they do not pose a systemic risk to the economy.
The notion of “too big to fail” is alive and well showing that our banking system remains on an unfair playing field. Just looking at the plummeting price of these small banks exemplifies the concern Spars notes that the government is encouraging people to move their money to big banks if depositors of over $250,000 at regional banks may not be made whole.
There were numerous reports that big banks like Citi, Bank of America, and Wells Fargo experienced a significant increase in deposits this past week. It can’t hurt to begin to spread money across multiple banks especially when some give you a sign-up bonus.
Although SVB depositors were made whole in the end, they still had a weekend without access to their wealth which is a scary thought.
3) Bitcoin Effects
With trouble in the traditional banking system, the Bitcoin network marched on unphased and saw an incredible 28% rise from around $22k to above $28k at the time of writing. More importantly, Bitcoin has erased all of its 30-Day Correlation to the stock market.
At the end of January when Bitcoin and stocks were rising, the BTC-Nasdaq correlation stood at a high of 93%. Today, the Nasdaq correlation is down to 7% with a negative correlation to the S&P 500. This is a fantastic show of strength showing that people are seeing cash in the bank with increased risk and self-custody of Bitcoin with decreased risk.
In a world where banks are steadily losing trust and the dollar is devaluing faster than ever before, Bitcoin looks less like a speculative asset and more like a store of value that was always promised. It provides both a level playing field and a non-confiscatable store of wealth that the world desperately needs.
Remember how I started off this article talking about how markets are being dictated by the actions of our government? Bitcoin is a way to opt out of this system.
Joe Robert is currently the Chief Executive Officer of Robert Ventures, with over 20 years of asset management experience. Since he started Joe has created predictable double-digit returns for investors & Partners. Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top cryptocurrencies.
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