Is This A Market Melt Down?

Short answer if you don’t want to read the rest of this is, no this is not a meltdown.  It’s not a correction either.  For newbies, meltdowns look like this.  If you believe this is a market meltdown, then perhaps you follow the Super Bowl Indicator too.  When an NFC team wins the championship, buy the market.

SPY data by YCharts

If you are only watching Bitcoin, it is in meltdown phase. But, it’s not as if you had to be Methuselah to see it coming. The Bitcoin bubble might have been the easiest one to pick out in recent memory. However, it was impossible to short. You could have shorted it with futures once they started trading but it was very thin, and margin requirements were pretty high so your risk was high in an irrational market. The GBTC is 75% off of its high.

GBTC data by YCharts

This is actually the time to start looking at crypto which was beaten down.  You have to find the ones where the blockchain solution is core to the mission of the company.  That means that the cryptotoken which corresponds to that blockchain might be worth something provided the enterprise can execute on the business.  This makes investing in the space more difficult than traditional venture.  The trick will be finding the businesses that use blockchain as core to executing the business, and then deciding if they can execute.

If you think this break is about Trump, you are wrong again. Neal Kashkari, architect of the bank bailouts in 2008-09 and now President of the Minneapolis Fed said, “I’ve been surprised about how much optimism has come from the tax cut. And the tax cut, think of it as short-term stimulus.” This sort of surprises me because a good economist would know that a tax cut should increase the activity on the segment of the market which is receiving it.  There is a lot of misinformation on the tax cuts along with a lot of speculation.  There might be a small, small correlation to the lack of confidence in the bureaucratic branch, the executive branch and the legislative branch of government.  Each political party has either more or less confidence in one or more of the branches.  But, again, despite the hyperbole coming at you via the airwaves this is a very, very small part of why the stock market is going down and not up.

One thing is clear.  In states that have a high tax burden like NY, Connecticut, New Jersey, Illinois and California, the 1% are getting socked with a tax increase due to their inability to write off state and local taxes.  At higher echelons of income, it will cost them hundreds of thousands.  I have friends in Illinois that are paying $35K and up per year in property taxes along with .4.95% state income tax on their first dollar earned.  If you are making $1M or more a year, you are going to pay a lot more.

However, it’s impossible to quantify the effect lower corporate rates are going to have on corporate investment and growth along with the significantly lower level of regulatory burden companies are facing on behalf of the federal government due to the tax law and Trump’s effort to deregulate.

How the corresponding downward effect of the wealthy paying more while corporates pay less remains to be played out.

The stock market went parabolic since the Trump election. Naysayers missed it and there were a fair amount of bears about because of Trump.  Famously, former MF Global CEO Jon Corzine was starting a hedge fund to trade the bear side.  Uh, it’s an understatement to say he didn’t do a good job with MF.  He’s fortunate he isn’t in jail.  Meanwhile, the US Ten Year Note has been yielding more. It should. The Fed is behind the curve on raising interest rates. Kashkari didn’t vote to raise them when he was a voting member of the FOMC. I thought the Fed made a mistake not raising at the last FOMC meeting.

SPY data by YCharts

If you want to know the sentiment of the market, watch the US Treasury complex and the value of the US Dollar relative to other main currencies. It will be the tell on a Bitcoin and stock market bottom. When the stock market decides to stabilize, the dust will settle in the crypto space.  Treasuries will trade back up.  2600 evenish to 2650 on the $ES_F is where the market should stabilize.  Then, buy ’em with both hands.  Remember, the Eagles won.

By the way, currently, the market looks like this.  That ain’t a meltdown.

SPY data by YCharts