“Markets can stay irrational longer than you can stay solvent."
John Maynard Keynes
Saying it’s been tough to be an investor in 2022 would be an understatement. Just look at the performance of the following assets and indices:
Long-term US Treasuries: -23%
S&P 500: -23%
NASDAQ: -31%
Bitcoin: -55%
Ethereum: -71%
Mohamed El-Erian offered a good summary of the various phases financial markets went through in just a week.
Crypto has been hit particularly hard under the combination of an unfavorable macroeconomic environment, the $60 billion LUNA ponzi collapse, the likely insolvency of the Celsius platform (a centralized platform offering yield on crypto deposits), and now the demise of a well-known and respected crypto hedge fund: Three Arrows Capital. It’s impossible to time this market and to know when the bottom is in, but it’s pretty much as bad as it gets already.
Dan Held summarized the various collapses in the following thread.
If you want to dig deeper into what happened with Celsius, here is a very well-researched article by Dylan LeClair.
What may be coming next? Listen to Brian Brooks (former Acting Comptroller of the Currency) and current CEO of BitFury (Bitcoin miner).
The good news is that Bitcoin price corrections already happened before, many times actually. And Every time it feels like it’s the end of the world, but every time it recovered.
Your key to survive this crypto bear market: Be disciplined, be convicted, and do not use leverage. Read below the excellent thread that Punk6529 had published back on January 1.
The macro environment is extremely difficult. The extent of the collapse in the bond market cannot be overstated. It is unprecedented.
Why is it tanking so hard? Luke Gromen breaks it down in the thread below. Basically, you couldn’t think of a worse combination of factors.
Interview of the Week
Stanley Druckenmiller at the Sohn Conference
This is a must watch if you want to try and make sense of what is happening in financial markets. Stanley Druckenmiller is a billionaire hedge fund manager who used to work under George Soros decades ago. He explains in this interview how the current environment is unlike anything he has ever seen in his 45-year career.
Macro Corner
Odd Lots | Jim Chanos on Why Some of the Worst Hit Parts of the Market Still Have More Pain Ahead
Legendary short seller Jim Chanos explains why despite the plunge in stocks, there are numerous swathes of the equity market with plenty of downside risk. On this episode, the Chanos & Co. fund manager, argues that the market overall has simply not internalized what sustained higher rates will mean to business models and valuations across a variety of sectors, including real estate, utilities and consumer packaged goods. He walks through the various excesses that we've seen over the last several years, and why investors are all paying the price for them now.
Macro Voices | Dr. Anas Alhajji: There Is No Escaping The Coming Energy Crisis
Energy markets expert Dr. Anas Alhajji takes a deep dive on energy markets – particularly oil and gas. He discusses Russia’s war campaign, OPEC+ spare capacity, Europe’s dependency on Russian natural gas and how much U.S. exports can ease that dependency. Gloomy outlook, so be prepared!
Stephan Livera Podcast | Alex Epstein - Fossil Future and Better Energy Conversations
Alex Epstein discusses his book Fossil Future in which he defends fossil fuels. He explains that while everyone criticizes fossil fuel, few acknowledge that everything we take for granted in our society was achieved thanks to fossil fuel. Thought-provoking and well worth a listen.
Crypto Corner
The "What is Money?" Show The Recent Collapse in Crypto Debt Structures with Caitlin Long
Caitlin Long, Founder & CEO of Custodia Bank discusses the recent collapses in various crypto debt projects and products. She reiterates what all long-time crypto holders know by heart: “Not your keys, not your coins.” Translation for nocoiners: It is very important to take self-custody of your crypto and to not trust a centralized party with it. The discussion also explores the risks of leverage in the system, the prevalence of crypto scams, and why regulation may be coming sooner than we think due to these recent events.
Bonus | Video of the Week
If you have made it this far in the newsletter, I have something else for you! Margin Call is one of the best movies taking place in the world of finance. If you haven’t seen it yet, watch it! In this scene, the CEO of a large US bank is told for the first time that his bank faces large losses because of Mortgage-Backed Securities. Many great quotes in the scene, and many similarities with what is happening in 2022.
Sam Rogers: The real question is: who are we selling this to?
John Tuld: The same people we've been selling it to for the last two years, and whoever else would buy it.
Sam Rogers: But John, if you do this, you will kill the market for years. It's over. And you're selling something that you know has no value.
John Tuld: We are selling to willing buyers at the current fair market price. So that we may SURVIVE.
Margin Call