House of Cards
Volume V, Issue 162
"I have learned a lesson, which is never apologize for something you didn't do"
— Kevin Spacey
As a matter of fact, today’s title and QOTD have little to do with the popular US tv series which came to an abrupt halt in 2017 after Spacey was accused of sexual misconduct - a charge he was declared as not guilty a few weeks ago …
But rather the title refers to the House of Cards that the crypto space seems to be and which has collapsed quicker than a New York second.
Yesterday, crypto’s most successful investor, Sam Bankman Fried, usually going by the sexy initials of SBF, had to sell his FTX crypto exchange to its largest rival, Binance.
The deal was suggested, analysed, agreed and executed all in one morning’s session. As Matt Levine in his Bloomberg column ‘Money Stuff’ suggested, the speed of the deal was faster than JPM agreeing to buy Bear Stearns over the weekend for $2. Imagine what the price was for a deal agreed in one morning - anything more than zero is probably overly optimistic …
Anyway, we have a look at some cryptocurrency charts in the FX section and also observe another house collapsing in the COTD part.
On to yesterday’s session…
European stocks lead global gains once again yesterday, whilst US stocks did what you would expect a stock market to do whilst it waits for major election results: gyrate …
Waking up this early Wednesday morning we note that this indecisiveness could carry on for a few more hours, as the election results in the US seem to be far closer than initially expected. In other words, no massive landslide win of the upper and lower house by the GOP. Especially the Senate is too close to call yet (and may be for a few more days …).
Looking under the hood of the session, however, would reveal that market breadth was pretty decent, with the advancers to decliners ratio close to three to one and ten out of the eleven economic sectors up on the day:
The market map shows however that gains (and losses) on many traded issues were minimal:
Tesla’s performance stands out on the market carpet above and the chart reveals that the share price of the company recently broke an important support level (dashed black) and is heading right towards the next, possibly even more important zone of support (dashed blue):
The problem is if we change the very same chart above to a log scale, we are prone to get dizzy looking down into the abyss:
As we are on the seldom venture of discussing individual stocks, let me quickly also mention Disney, which reported earnings results after the market close, and however much the company tries to highlight the positive aspects of the quarter, investors are not looking it, sending the stock down 7% in after-hours trading.
Definitely not good news for the already embattled communications sectors, the worst performing in the S&P for the past twelve months:
Asian markets are in a cautionary mood this morning, probably mostly on the back of US futures having dropped into negative territory as the election results is closer than expected. Also, Chinese PPI numbers showed negative growth, as continued zero-COVID policy bites.
If you thought the equity session was dull, then better not look to bonds for excitement, as those were even ‘duller’. In a very slow session, yields edged a tad lower, but really nothing to write home about:
The name of the game here is presumably that political gridlock in the US would overall be disinflationary, as fiscal impulses would be kept in checkers. Let’s see over the coming hours how this develops.
Let’s move into currency markets then, where as mentioned at the outset of today’s deliberations we mentioned the Tohuwabohu taking place in the crypto space.
But first to ‘regular’ currencies, where the US Dollar (DXY) is sliding into this all-important support zone we mentioned discussed just yesterday (or the day before, cannot remember):
Again, all else equal, a lower US Dollar should be a net positive for risky asset classes.
In the crypto space, after an unusually quiet period over several months, volatility was back and with a bang:
At one point in yesterday’s session, crypto posterchild Bitcoin was down 16%, taking out the June lows and completing a two-year round trip:
For now, however, it remains with the wide range we defined a few months ago.
FTX’s own coin, on which the exchange of the same name apparently had over-levered itself (and please, don’t ask me how all of this works), dropped some cool 80%:
With some more light being shredded every minute, it seems the whole debacle started as a peeing contest (please note, I was polite by not typing pissing-contest), between Binance and FTX, with the former winning.
Not only winning but then also taking the piss (now I wrote it) out of the loser:
Any comment on this whole debacle? Any crypto-experts here on the list? Leave your comments here:
Moving into commodities, there is a saying in German which goes as follows:
"Wenn zwei sich streiten, freut sich der Dritte"
This loosely translates to:
"When two people quarrel, a THIRD rejoices”
Ladies and gentlemen, let me present you THIRD:
There’s much more, but it is time to hit the Send button.
Have a great Wednesday!
CHART OF THE DAY
As Houses of Cards collapsing seem to be our chosen subject of the day, here’s another one. Adapting a popular saying (origin David Einhorn?):
What do you call stock that is down 98%? A stock that was down 96% and then got cut in half!
Carvana, an online platform for buying (and selling) used cars, saw its share price plummet from above $350 to $13.50 in a bit over a year by the end of October, resulting in a 96% ‘discount’:
Since then, the stock has dropped to $7.36 as per yesterday’s close - or - another 50%:
As veterans from the (first) implosion of the internet bubble (Worldcom, Enron, others) and the GFC (Lehman, Countrywide Financial, others) will remember … zero is the bottom.
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Everything in this document is for educational purposes only (FEPO)
Nothing in this document should be considered investment advice
Past performance is hopefully no indication of future performance