Weekly Plan 6/25/2023
Hey folks -
From a macro perspective, this week was dominated by the Global Central Bank narrative and actions.
In many of these instances, the Central Bankers, whether it is the Canadian or the Bank of England, or the Kiwi Central Bank to SNB had declared a pause or an end to the hiking cycle but were forced to go back and raise rates aggressively again to combat another uptick in inflation data.
If you listen to some of these Central Bankers, you could gain an insight into the thinking of these elites and begin to understand how out of touch these officials really are.
Many of them blame this pesky inflation issue on the workers being greedy and demanding unsustainable wages. These bankers do not equate endless fiscal and monetary spend with a surge in demand while supply remains stable.
This is not a complicated concept to grasp. Let us say you paid 2000 dollars in rent 2 years ago and now due to inflation, your rent has gone up to 3000 dollars a month. These price increases are not going to automatically come down on their down. I think these prices have permanently plateaued. US rental market is getting more and more consolidated with M&A within the REITs. End result of this is going to be constantly higher trending rental prices unless we see a reset in the underlying properties. Average households’ biggest expenses each month are housing, car loans and energy costs. Even a modest 3-5% YOY increase in these costs can keep inflation as a whole propped up for years to come- unless we see a drastic reset in prices of the underlying properties themselves. 2022 market was very unique in the sense that we saw a marked drawdown in stock prices with some stocks losing more than 80% and the general market also losing anywhere from 30 to 40%. This did not translate to the housing prices. We did see some markdown - for instance in markets predicted by me to lose more than others, like Austin and some WEST Coast markets saw a 10-20% reduction but then bounced back recently as the cash on sidelines was deployed by buyers. High mortgage rates dud not deter these buyers as the proportion of all cash deals hit a new high recently, higher than the prior record which I think was set in 2011-2012. Fate of the housing market ever more so now is tied not to the interest rates alone but also to the unemployment rate and the rate of wage growth. I do think the housing market will reset in a year or two but some desirable zip codes may escape the brunt of it.
Outside of the macro factors, both the Nasdaq NQ and the S&P500 ES markets were encapsulated between the two levels I had shared last Sunday night. I had supplemented these two levels with Daily levels which presented a wall above which the market was not able to climb on any of the 4 days this week that the US session was open. In fact on every single day this week, the market managed to find sellers from these intraday levels which I often share after the close, around 5-6 PM. It is quite easy to find these levels in your inbox every day by hitting the subscribe button below.
Over a year ago, I had called that the product inflation to peak but that the wage inflation will be the last shoe to drop. The FED actions can take one year to one and a half years to percolate thru the economic plumbing and the employers will not cut jobs until the very last. So I do think if the FED keeps these rates around these levels for a couple of quarters, we will see a marked deterioration in the employment rate. Whether the FED will do so or not is another question and is not possible to answer- it is impacted by many factors, many of which are beyond the control of the FED itself. For instance, we are only a few months away from an election year. I think if the FED actions cause 5-6% unemployment then the FED will be under pressure to cut rates and stimulate the economy very rapidly. This could put us in a situation where the inflation begins to climb up again and at the same time the current FED policy creates enough demand destruction that we see a slow or no growth type environment in the US for a year or so.
While the general market remained on the defensive side this week, I did not find a lot of other exciting opportunities as part of my research. This was a dull week with a few exceptions like the ones I describe below.
It is no secret that I have been a Bitcoin bear from the 64000 level. Bitcoin had lost about 75% of its value from this level and had traded down into 15000 last year before recovering some losses. Only a few days ago, in this very Stack, I shared a level around 25K on Bitcoin where I said I can not be bearish on this any more in the short term.
I was quite right in this thinking as we saw about a 25% rally off my level within days and at this point when I begin penning this post the Bitcoin is flirting with 32000 level.
So why was I suddenly a bull on Bitcoin at 25K?
Many months ago I had shared a framework on how Bitcoin is perceived and I had shared this framework with examples where I mentioned how this cryptocurrency may behave whenever there is a perceived global crisis in which it may be required to move large amounts of cash from one geography to another due to war, economic failures, coups etc
In my view, Bitcoin is the perfect tool to move large amounts of money by nefarious elements for nefarious reasons.
When I made my 25K bullish call on Bitcoin, little did I know about the impending Russian coup. This is still a developing story and unfortunately I am afraid this could results in devastating results for the every day Russia citizens and it could have global impact. Only time will tell. However since there are quite a few unknowns. I do think 27K may be a decent LIS on Bitcoin and it could be supported on dips into that and I think it is possible to see a test of 27000 on the crypto.
Remember these are my personal opinions and observations. I combine them with a study of the orderflow to come up with these levels. You can also gain access to my macro themes and observations instantly. Hit the button below. It is almost free and frankly silly not to join as these observations are very unique and proprietary to Substack platform (I do not share them anywhere else).
Not only was my call on Bitcoin quite good, I had similar take on names like MARA on Thursday which rallied about 10% on Friday.
I think if Bitcoin remains supported, it could also help names like MARA which is now up about 2 dollars from my 11-dollar LIS.