Will Support Hold?

Will they hold and what are risk assets telling us?

Another very red day. Bonds are up, oil is down, gold is down, crypto is down, and stocks are down. It’s a generalized risk-off day.

We are seeing Bitcoin up against support at 60k, ETH at support at $3k, QQQ and SPY both at fibonacci retracement levels. I’m worried that this sell off has the juice to break through the support, but I’m not taking action yet.

I don’t want to be trading too short term here. The bears are taking their victory laps here and calling for BTC $52k, and QQQ and SPY to retest their 2021 ATH breakout. If that happens we will have another 3-4% to go in the indexes, which will be painful.

But we are halfway there now, and I am seeing the claims widespread enough to think they might get front run.

What will happen is one day soon everyone will wake up and decide that it’s over. We will have a 150 bps up day in the indexes, a 8% day in BTC etc.

I don’t want to sit here and pretend that I know what will happen in the next 7 days, because I don’t. But we have a massive tail wind from fiscal policy.

Should we have bought the cheap puts and played the correction before deploying our capital on a dip? In retrospect, yes. But the truth is if we hadn’t gotten the exogenous event that popped the string of winning days we could have had another 10% up before a correction like this. You can’t time everything perfectly.

Oil and Geopolitics

I predicted a while back that Oil was a short and would come down. I got a little scalp in there and got out before the geopolitics stuff reared it's head. We are off big from the peak, and that is good for inflation.

I’ve seen a lot of people, especially Luke Gromen, claiming that $85 oil is a catastrophe for fighting inflation. It is certainly not good. But it is nowhere near as bad as people are saying.

Since January 2021, the average price of oil has been $80.

Since January 2014, the average price of oil has been $65.

If you inflation adjust $65 in 2014 to 2024 dollars you get… $85.

And as of today’s writing, oil is $82. Unless we get regional contagion in the Middle East, we are going to see oil in the $70s. Oil is not going to be the thing driving inflation higher, with the usual caveats about war.

What’s The Worst Case?

The worst case here is that the market is going to suddenly reckon with US fiscal policy and inflation, price dramatically higher rates, and send growth stocks tumbling. It’s possible, and one day the market will grapple with those issues.

But there is nothing forcing the market to grapple with that today. And there are massive incentive alignments for people not to think that far ahead. And as I keep saying, there is nowhere else to put the money. Are you going to buy European stocks? Are you going to buy bonds?

I didn’t think so.

Still, that is what we will need to watch. We are looking at a 4-8% correction but that could send us into a 10-20% correction.

My Biggest Fear

My biggest worry is crypto. It is trading like absolute dog shit, and there is less fundamental bid there than there is for equities. We are looking at 60k holding or a quick move to 52k in BTC. Still, it’s a disgusting spot to sell to try to bid lower. I’m getting ready to buy a $60k break with staggered bids into the $50s.

Unironically decision time soon.

The True Lesson

This environment is the perfect example of why we don’t use leverage (anymore). Rich people have a lot of different stories about how they got rich, but the ones who blow up all blow up the same way: leverage.

This is the spot to consider your long term goals and look to accumulate spot bags of the assets that you want exposure to. I am in 40% cash, and unlevered everywhere else.

One More Lesson

“Sell when you can, not when you have to.”

This is a saying that goes around in finance circles. I think another lesson would have to be:
”Hedge when you can, not when you have to.”

We missed the put buys with VIX at 12. We missed them for good reason (allocating fresh capital), but nevertheless we missed them.

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Please also always remember... none of this is financial advice. I’m not a professional. I quite literally don’t know what I’m doing.