What a week of excitement! The weak-hearted probably would have had a heart attack by now as the financial world went haywire and into all unexpected directions.
The media buildup to Tuesday’s US mid-term elections was another confirmation that poll results cannot be trusted anymore. The expected Republican red wave did not happen and the final results on who controls the house and senate are still being decided. It’s the economy, stupid! It’s abortion rights and the fight for democracy, you idiot! Do I really care as an outsider?
Knives are now being sharpened for the scapegoating execution process. And it seems like we have a winner! The orange one claims all winnings are because of him and denies responsibility for any GOP losses. He successfully lost the house and senate in the last mid-terms, then the Presidential re-election. The current mid-terms will be his 3rd striaght turkey shoot failure as he grapples with his economic survival on the back of multiple pending lawsuits. A reasonable man would conclude that he has managed to turn himself into a political pariah. Hopefully, it is good riddance this time.
We can expect the 2 party system to go into a deadlock again and continue to fight to cripple each other at the expense of the majority. Screw the citizens! Let the 30% control the 70%. So much for democracy at its best. The only thing that they can agree upon is to continue to bash China. The long-term decline of America is painful to watch. We would see more posturing into the year end debt ceiling wayang show next month.
Then we had the spectacular downfall of FTX in internet warp speed. Who would have thought that the king had no clothes on? It took just a weekend to see that CEO SBF was naked when the tide receded (Warren Buffet inside joke here).
The masters of the crypto universe are crumbling faster than we can recover from the last scandal. This triggering of the dominoes is a further confirmation that perhaps everything is a Ponzi scheme which I talked about in my previous blogs. Are there any more black holes out there that are screaming to be revealed?
When one gets too powerful, it sometimes gets into your head to make you think that you are invincible. Look at Elon and his Twitter mess now as another example. The crypto exchanges originally wanted to create their own exchange token as a way to reduce transaction gas fees. But in a rising price situation where the exchange controls the supply of the token, they will be tempted to monetize the token value that they can create out of thin air (eg. like central banks printing money) to fund their excesses and agressive bets like yield farming into more shit coins. The pyramid works only in a rising market. If a weak link is uncovered, the house of cards will collapse.
Binance has its BNB token and FTX had FTT. Both worked well as prices rise, until they didn’t. FTX lent funds to its sister company Alameda, which used its huge hoard of FTT tokens as collateral to pledge back to FTX. When Coindesk mentioned this big hidden risk, Binance CEO CZ tweeted a “sell all” FTT call which tipped the iceberg into an avalanche of client withdrawals from FTX.
It forced FTX to immediately approach Binance for help. CZ issued a non-commital takeover proposal but subsequently pulled out after a day, citing grave concerns. What a brilliant way for Binance to kill its main competitor in one masterful stroke! FTX has now applied for bankruptcy and the authorities are circling in. It does not help that the FTX legal and compliance department had also suddenly resigned.
With FTX happening so soon after the LUNA stablecoin fiasco, sentiment has turned very bearish for cryptos. There could be nowhere to hide as no one is safe. There is now a rush to move cryptos to cold storage, to put all your asset private keys into a thumb drive and hide it under your bed. BTC and ETH were also sold down as there is a rush back to fiat currencies for withdrawal.
The final thing that happened that caught every by surprise this week was the explosive rise of the Dow by 1,200 points on Thurs. The Oct CPI was much better than expected and an improvement over Sep. This is the first concrete data to have come out which suggests that inflation may have peaked. It means that the Fed need not have to continue with its aggressive rate hikes to tame the inflation monster.
Investors who shorted equities panicked and rushed to cover their positions. Retail demand that had been sidelined jumped in, wanting to participate in the bottoming of the stock markets. This amazing almost 5% rise in one trading session caught everyone by surprise. The strong USD also did a dramatic retreat and weakened substantially against all major currencies within 24 hours.
There is too much volatility this week alone. While I was expecting higher volatility with lower liquidity going into year-end, the concentration of these 3 events in one week has led to wild swings all over the place. It is hard to position one’s portfolio in such sudden market turnarounds. What looked good for the past few weeks can easily evaporate within hours.
There is still 7 more weeks to 2022 and I expect more surprises and knee jerk reactions head. Banks are also starting to close their books for the year and liquidity will thin out. It seems that the beginning of 2023 will signal a bullish trend for stocks as the global economy finally put Covid behind us and ramp up to pre-2019 levels again, baring any new conflicts developing.
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