Sugar We're Going Down
Updated: Sep 26
Markets trended downwards on the week, finishing at about -2%. The selloff can be attributed to market analysts projecting a short term market downturn of about 15% before the end of the year. Nobody knows what’ll happen, but the sentiment was negative enough to scare 2% out of the market.
💸 Key Events
Global Stock Market Indicator Signals Worldwide Crash
A ratio dubbed the “Warren Buffett Indicator” has been previously used to signify market downturns. The ratio is total Market Cap divided by total GDP (read more here). When the total market cap reaches more than 100% of the total GDP, it’s a symbol that stocks are overpriced compared to the economy, and investors should expect a downturn.
It gained its notoriety when Warren Buffett first used it as an indicator of a potential crash before the stock bubble burst in 2001, often referred to as the “Dot Com bubble”. The world is very different than it was in 2001, and the same indicator may not always yield the same results if the environment is different.
The global version of the indicator sums the market cap of every stock in the entire world, and divides it by the world GDP. The indicator currently reads a whopping 142%, the highest level ever seen in history.
For context, the indicator read 121% in 2008 before the historic housing market crash. The same indicator read 42% just months after the crash in 2009. It has since regained to new heights and could preface an enormous crash in the global financial markets.
The Big Picture: The markets right now look like a massive bubble. All bubbles will eventually pop, and the prices of all assets will fall back down to (or below) their inherent value. How or when bubbles pop is nearly impossible to predict, but following indicators such as the Yield Curve or the Warren Buffett index give us a better indication.
How Big Is The Crash Going To Be? That’s always going to be difficult to answer. We know the Fed has been printing money. Roughly 28% of all US dollars in existence have been created since March 2020; so there’s a lot of excess money in the system. The Warren Buffett indicator suggests stocks are overpriced by roughly 42%. Analysts working at Morgan Stanley suggest stocks may fall 15% by year end (read more here).
So What Should We Do? Analysts for Morgan Stanley are suggesting investors protect themselves by purchasing index funds. Diversify; get as close as possible to the broader market and wait for news of a crash. And then sell when the crash hits.
It’ll protect your money from inflation, which is projected to be between 5-6% on the year, meaning each dollar in cash or in your bank account will be able to buy roughly 5-6% less stuff than it could a year ago.
Facebook Meets with Biden Senior Officials Preparing To Launch Payment System
Facebook has been working for a few years on its cryptocurrency in-house payment system, Diem. Which is brilliant to say the least, because Facebook is essentially a gigantic online phone book, so by creating a Marketplace for people to buy/sell and providing instantaneous payment with their own technology, Facebook is effectively creating a “super app” that performs a multitude of functions under one roof.
In the good ‘ol days we called this a “monopoly”. So Facebook has been in constant talks with regulators (some regulators have recently purchased Facebook stock for themselves), trying to reassure them that the financial system will remain stable.
The One That's Currently Falling Apart? Yes, that same financial system. Introducing a widely used crypto takes a huge bite out of the market for US dollars. If people were originally using USD to pay, and instead they use Diem, that takes a lot of power away from the United States.
Why Does The US Care About Cryptocurrency? The United States dollar is the world’s reserve currency, meaning it’s acceptable everywhere in the world. In fact, roughly 85% of loans given in other countries are given (a.k.a. “denominated”) in US dollars. So if people stop using US dollars and start using something else, especially something that isn’t controlled by the US government, then the US government loses an indeterminable amount of political and economic power.
Facebook has been through a long and arduous process of convincing regulators that their payment system will not introduce any shocks to the monetary system. A few key regulators have recently purchased Facebook stock, so it’s unlikely they would do anything to inhibit the company in any way. (Read More Here)
The Bottom Line(s): The United States will not be able to prohibit the world from using cryptocurrency in the long run. Blockchain technology is remarkable, and it can be used in so many different ways. The system we currently use is deteriorating quicker than expected as wealth accumulated too quickly without regulation to enforce fairness. It has the potential for failure, the signs are apparent. It could fail before the end of the year if the US misses a payment on its debt.
The Sub-Bottom Line: The United States as a country will be fine regardless. This only impacts how people exchange money for goods and services. The US dollar allows for an over-extension of power; an equal playing field is better for all countries. Quite frankly, it’s only a matter of time.
🤷 What To Watch For…
● Stock crashes don’t happen alone, they need to be caused by something. At the end of the day, stocks crash when people sell them all at once. So we’re looking for catalysts that’ll make everyone want to sell stocks all at once. Our friends at Barron’s have a solid list: Click Here
● Mark Cuban and the CEO of Coinbase ridiculed the SEC publicly via Twitter after a continuous lack of regulation surrounding cryptocurrency has left investors confused. Nobody knows what’s allowed because the SEC hasn’t said what’s legal vs. illegal. (Read More Here)
● The UN issued a warning that Afghanistan will enter “universal poverty” in less than a year. The country has $10 billion in reserves sitting in a vault in the Federal Reserve bank of New York, which has been restricted during the Taliban’s rule. Without the US dollar, there's not much to prevent the country from total economic failure, except crypto. (Read More Here)