Welcome to The Cypher!
We distill the market chaos and provide three ideas each week that you can tell your clients, friends and family were your own 😉
Idea 1: The FED’s QT Bet Looks Done
The FED increased its balance sheet dramatically during COVID and readjusted again with the collapse of Silicone Valley Bank. Now, however, levels are near those just after the COVID relief activity.
The balance sheet is never paid off. It only goes up over time. Given the “considerable progress” made, and the Fed’s ongoing concern with market stability, the Fed’s bet that QT won’t “blow up” the financial system looks to be closing.
Takeaway: Our sense is that QT will end in Q1, which typically marks the beginning of an alt-coin season with cryptocurrencies and makes for relatively calm conditions for stocks. It might even end on Jan 29th.
Positions to watch: SPY, RSP, QQQ, IBIT, COIN
Idea 2: Bitcoin Degens Go On Holiday
Perpetual futures are an invention just for cryptocurrencies–they’re like options without an expiration date. To tie a perpetual to the spot price, an additional mechanic known as the Funding Rate is used. If traders are too bullish, then the longs pay the shorts. If the reverse, then the shorts pay the longs.
Featured is a review of funding rates. We focus on Binance, since it has the largest market. Extremes above 20% or below -20% are contrarian signals. Presently, $BTC sits at a 10% funding rate (somewhat positive).
Takeaway: The degenerate gamblers (degens) who populate the crypto space have gone on holiday and are not taking aggressive positions either direction. This might indicate a time to begin careful accumulation.
Positions to watch: BTC, MSTR, COIN
Idea 3: High 30-Year Interest Rate? Who cares?
Higher 30-Year fixed interest rates have presented challenging times for the real estate industry, but not uniformly. Though most stocks fell initially, some, such as DHI (purple), which does construction, bounced back relatively quickly.
Zillow (green) has seen a recent persistent climb, while Redfin (Red), which depends directly on transactional volume, has struggled the most. Yet, even its share price appears to have bottomed.
Takeaway: this sector looks interesting for select stocks as the bad news for interest rate hikes appears to be in.
Positions to watch: DHI, LEN, Z, RDFN
Final Remarks
We believe knowledge is power, so if you learned something, please share us and help others Think Beyond What’s Next.
Happy Trading!
The Team:
Sebastian Purcell, PhD,
Julian von Loesch, PhD
Todd Mei, PhD, Elyse Purcell, PhD
David LaRoca, PhD