Cryptocurrency Executive Order from White House Could Come Before President’s Day

 

The White House, according to Bloomberg, is said to be drafting an executive order for cryptocurrencies. It is more focused on being restrictive than creating a level playing field for all currencies. The expectation is the chief executive could execute the order during the month of February.

President Biden is looking to get ahead of crypto issues and give regulation a priority. The plan tasks multiple federal agencies to evaluate risks and opportunities within the digital currency environment. Bloomberg cited unnamed sources when they suggested that the reports were expected to be presented to the White House quickly.

Senior Biden administration officials have already had several talks related to the plan. Their recommendations are due to be submitted to the chief executive in the coming weeks, according to the report.

As technology rapidly changes, under current statutes and regs, there is no definitive legal framework for cryptocurrency or the regulation of crypto exchanges. The Securities and Exchange Commission (SEC), for its part, has been calling for a greater level of oversight over the crypto market.

Blockchain and digital assets are a challenge for most to understand, this is why so many outright dismiss the asset. Other skeptics point to the lack of clarity in crypto-related policy as a reason not to get involved.  Executives within the industry like Sam Bankman-Fried the CEO at FTX have called for more regulation, saying it would remove barriers to entry for many retail and institutional investors.

The push by the Biden White House puts the executive branch at the center of efforts to set policies and regulate the new market.  The related potential oversight agencies have been waiting for legislative guidance. This development follows a sell-off in crypto markets which follows other asset weaknesses in the face of higher costs to participate in the economy.  Bitcoin which traded above $68,000 in November broke below $36,000 and ether fell below $2,500, wiping out $350 billion in value from the total crypto market over the weekend.

Federal agencies, including the Financial Stability Oversight Council, are tasked with publishing reports on the systemic impacts and illicit uses of cryptocurrencies. A similar report from the Federal Reserve had detailed the pros and cons of a central bank digital currency, or fully digitizing the U.S. dollar with a “legal tender” status.

According to the report, the executive order is expected to ensure the U.S. is not left behind, but is a competitive player in the evolving field of digital assets.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading

Is Biden Tightening the Reins on Large Companies?

Federal Marijuana Laws are Half-In/Half-Out Says Justice Clarence Thomas

Will the SEC Allow ETFs to Own Cryptocurrency?

How Close is the U.S. to Having a Digital Currency?

 

Sources

https://www.bloomberg.com/news/articles/2022-01-21/white-house-is-set-to-put-itself-at-center-of-u-s-crypto-policy?sref=3REHEaVI

https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-record-high-price

https://www.barrons.com/articles/cryptocurrency-exchanges-regulation-sec-coinbase-51620335275

 

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	Image Credit: Patrick Feller (Flickr)

Michael Burry’s Investments in Health, Bombs, and Bars

 

Michael Burry’s investing genius was brought to the world’s attention in the movie The Big Short. When the hedge fund manager’s insight and brilliance became known, investors made a practice of checking the latest transactions from his company, Scion Capital Management, on its 13F quarterly filing. His latest filing shows that he scaled down his stock holdings considerably. In fact, when compared to the previous quarter, Burry’s holdings of public companies went from 22 to just 6. 

It’s safe to say Burry’s investment universe is broader than the average self-directed investor and even deeper than the average hedge fund manager.  With this in mind, out of the entire universe of publicly held corporations he could hold, there are only six that Burry’s portfolio owned at the end of the third quarter. Of the six, two are large-cap household names, and the others have smaller market-caps and are far less known. It’s on the lesser-known opportunities that we’ll focus.

 

SCION ASSET MANAGEMENT, LLC – Q3 2021 (per 13F filing)

Sources: Whale Wisdom / Channelchek

 

The two large-cap names, CVS Health (CVS) and Lockheed Martin (LMT) shouldn’t need an introduction. CVS operates retail and mail-order pharmacies. Lockheed Martin is a defense contractor that builds military satellites, missile control systems, mission systems, and aeronautics. As for the four smaller companies, there are two prison systems, a health care company, and a distributor of oil and gas services. These are the four out of the thousands of publicly traded stocks available to Dr. Michael Burry that we will explore further.

Burry’s Small-Cap and Microcap Holdings

CoreCivic (CXW) is a company that owns and manages private prisons and detention centers along with related concessions. CoreCivic is a publicly owned prison system that was trading as a REIT up until January 2021, it now trades as a Regular C-Corporation.

In a research report dated January 11, 2022, titled A
Significant Win Noble Capital Markets Senior Research Analyst, Joe Gomes we learn that CoreCivic is one of the largest private owners of real estate used by U.S. government agencies.  The Company owns 15 properties representing nearly 2.7 million square feet of real estate, all used by government agencies. 

Shortly after being inaugurated, President Biden signed an executive order directing the attorney general to not renew Justice Department contracts with privately operated criminal detention facilities.  The company has been proactive in pivoting to adjust to the changing operating landscape. The company’s initial steps are discussed in an exclusive Channelchek
Virtual Roadshow.  

CoreCivic’s 52-week price range is $5.92-$12.35.

 

NOW Inc. (DNOW) is a global distributor to the oil and gas markets. It does business under the brands DistributionNOW and DNOW. The Company operates approximately 130 locations in the U.S., and 40 locations in Canada, plus nearly 20 other countries. NOW’s energy product offerings are used in the oil and gas industry, including upstream drilling and completion, exploration and production, midstream infrastructure development, and downstream petroleum refining. They also operate in related industries such as chemical processing, power generation, and industrial manufacturing operations. NOW provides supply chain management to drilling contractors, E&P operators, midstream operators, downstream energy, and industrial manufacturing companies.

DNOW’s 52-week price range is $6.83-$11.98.

GEOGroup (GEO) is another correctional facility play that specializes in the ownership, leasing, and management of correctional, detention, and reentry facilities as well as community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a range of secure facilities, including maximum, medium, and minimum-security facilities, processing centers, as well as community-based reentry facilities. It also offers delivery of offender rehabilitation services under its GEO Continuum of Care platform.

In a research report dated January 11, 2022, titled What Do The
Debt Negotiations Reveal?, Noble Capital Markets Senior Research Analyst Joe Gomes updates investors on the company including a section on GEO’s monitoring business called BI. The analysts calls BI “a hidden gem.” Gomes explains GEO is a market leader in the monitoring business with over 2,000 active contracts and a 98% customer retention rate.  He presents the value this way, “BI is the largest producer of electronic monitoring devices and has developed an unrivaled platform of monitoring, case management, and supervisory services. Since 2015, BI has generated a 12% CAGR in revenue and should end 2021 with about $260 million of revenue. With many clients seeking an alternative to detention for low-risk offenders, we believe there remains substantial growth potential in this business.”

GEO’s 52-week price range is $4.96-$11.

 

SCYNEXIS Inc. (SCYX) is a drug development company focusing on the commercialization of novel anti-infectives to address what they see as a significant amount of unmet therapeutic needs. The company engages in developing a lead product candidate, SCY-078, which is a novel oral and intravenous (IV) drug for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections. According to information found under the company ticker on Channelchek, it is a structurally distinct triterpenoid glucan synthase inhibitor that is effective in vitro and in vivo against a broad range of Candida and Aspergillus species, including drug-resistant strains.

SCYNEXIS’ 52-week price range is $4.21-$10.25.

Take-Away

Dr. Burry has an excellent record of spotting investment opportunities before the rest of the market catches up. His picks are as disparate as the mortgage market in 2008 and GameStop (GME) in 2020. Burry will typically see what others are not looking at. One-third of his public company holdings are prison and detention center related. Does he believe the industry is beaten up and will rise, does he think the real estate or other assets owned are valuable beyond the stock price, perhaps something else? The research reports for both CXW and GEO may provide more insight.

One of his other two small company holdings, DNOW, is an oil and gas distributor. This is another industry that would appear to have substantial government policy headwinds. The last, SCYX, develops drugs to fight off fungus infections. It is a microcap company that is the smallest of the six that Burry committed capital to.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Content

CoreCivic C-Suite Interview (Video)

Biden Signs Executive Order to End Use of Private Prisons by BoP

Michael Burry vs Cathie Wood is Not an Even Competition

Is the Index Bubble Michael Burry Warned About Still Looming?

 

Sources

https://whalewisdom.com/filer/scion-asset-management-llc#

https://www.youtube.com/watch?v=URBOifP8EDY

https://channelchek.com/news-channel/Wall_Streets_Tools_to_Copycat_Meme_Stock_Investor_Successes

 

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How the Fed is Moving Ever So Slowly Toward Normalcy

 

The market nail-biting isn’t over, but the FOMC meeting is, and the resulting directive brought a sigh of relief to the equity and bond markets. The statement that followed the meeting has a real change in marching orders for those conducting open market operations (buying/selling securities to implement policy), but the change is in the pace of being accommodative, which is not perceived the same as a move to tighten.

Today (January 26), the Federal Open Market Committee (FOMC) decided to continue to steepen the taper of their bond purchases. While the reduction each month, as decided at the last meeting, would have had the purchases completed by June, the increased reduction (less tapered) brings these bond purchases to an end in early March. The directive to the Fed’s Open Market Trading Desk (the Desk) is to increase purchases to the System Open Market Account (SOMA) by a lesser amount than previously. This will still inject money into the economy and have the impact of holding longer-term rates down, but it will do it with a less pronounced impact.

Along with these purchases, the Desk was told to maintain the policy of reinvesting at Treasury auction all maturities and interest payments from Treasury securities and reinvesting cash flow from mortgaged Backed Securities (MBS).

 

For Treasury securities, monthly purchase schedules won’t be published after mid-February because new purchases will end in early March. The Desk will continue to roll over maturing Treasury security holdings by replacing maturing securities with newly issued securities available at Treasury auctions.

Rollovers are typically accomplished by bidding at Treasury auctions for an equal par amount to the value of SOMA maturities. The bids at Treasury auctions are placed “non-competitive” and are treated as add-ons to announced auction amounts.

Net increases in purchases will end in early March. The regular monthly purchases will continue to reflect the reinvestment of principal payments from agency debt and agency MBS into agency MBS using the secondary market. These purchases will continue to target recent 15 and 30-year mortgage securities.

Not a Tightening Move

The Committee was clear that it views changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy. It reiterated it will determine the timing and pace of reducing the size of the Federal Reserve’s balance sheet so as to promote its goals of maximum employment and price stability. The Committee expects that reducing the size of the Federal Reserve’s balance sheet will occur after it has begun to increase the Fed Funds target rate. 

The FOMC appears to want to return to normalcy as they stated, “In the longer run, the Committee intends to hold primarily Treasury securities in the SOMA, thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.”

While it appears that a Fed Funds hike is coming, perhaps as early as March, the FOMC also reserved the right to change its mind as needed, “The Committee is prepared to adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments” the Fed said in its statement.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Why a Less Dovish Fed Doesn’t Translate into a Hawkish Fed

Can the Fed Stop Inflation?

 

Sources

https://www.newyorkfed.org/markets/opolicy/operating_policy_220126

https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126c.htm

https://www.newyorkfed.org/aboutthefed/fedpoint/fed27.html#:~:text=The%20System%20Open%20Market%20Account,outright%20and%20a%20temporary%20basis.

 

Stay up to date. Follow us:

	Image Credit: Patrick Feller (Flickr)

Michael Burry’s Investments in Health, Bombs, and Bars

 

Michael Burry’s investing genius was brought to the world’s attention in the movie The Big Short. When the hedge fund manager’s insight and brilliance became known, investors made a practice of checking the latest transactions from his company, Scion Capital Management, on its 13F quarterly filing. His latest filing shows that he scaled down his stock holdings considerably. In fact, when compared to the previous quarter, Burry’s holdings of public companies went from 22 to just 6. 

It’s safe to say Burry’s investment universe is broader than the average self-directed investor and even deeper than the average hedge fund manager.  With this in mind, out of the entire universe of publicly held corporations he could hold, there are only six that Burry’s portfolio owned at the end of the third quarter. Of the six, two are large-cap household names, and the others have smaller market-caps and are far less known. It’s on the lesser-known opportunities that we’ll focus.

 

SCION ASSET MANAGEMENT, LLC – Q3 2021 (per 13F filing)

Sources: Whale Wisdom / Channelchek

 

The two large-cap names, CVS Health (CVS) and Lockheed Martin (LMT) shouldn’t need an introduction. CVS operates retail and mail-order pharmacies. Lockheed Martin is a defense contractor that builds military satellites, missile control systems, mission systems, and aeronautics. As for the four smaller companies, there are two prison systems, a health care company, and a distributor of oil and gas services. These are the four out of the thousands of publicly traded stocks available to Dr. Michael Burry that we will explore further.

Burry’s Small-Cap and Microcap Holdings

CoreCivic (CXW) is a company that owns and manages private prisons and detention centers along with related concessions. CoreCivic is a publicly owned prison system that was trading as a REIT up until January 2021, it now trades as a Regular C-Corporation.

In a research report dated January 11, 2022, titled A
Significant Win Noble Capital Markets Senior Research Analyst, Joe Gomes we learn that CoreCivic is one of the largest private owners of real estate used by U.S. government agencies.  The Company owns 15 properties representing nearly 2.7 million square feet of real estate, all used by government agencies. 

Shortly after being inaugurated, President Biden signed an executive order directing the attorney general to not renew Justice Department contracts with privately operated criminal detention facilities.  The company has been proactive in pivoting to adjust to the changing operating landscape. The company’s initial steps are discussed in an exclusive Channelchek
Virtual Roadshow.  

CoreCivic’s 52-week price range is $5.92-$12.35.

 

NOW Inc. (DNOW) is a global distributor to the oil and gas markets. It does business under the brands DistributionNOW and DNOW. The Company operates approximately 130 locations in the U.S., and 40 locations in Canada, plus nearly 20 other countries. NOW’s energy product offerings are used in the oil and gas industry, including upstream drilling and completion, exploration and production, midstream infrastructure development, and downstream petroleum refining. They also operate in related industries such as chemical processing, power generation, and industrial manufacturing operations. NOW provides supply chain management to drilling contractors, E&P operators, midstream operators, downstream energy, and industrial manufacturing companies.

DNOW’s 52-week price range is $6.83-$11.98.

GEOGroup (GEO) is another correctional facility play that specializes in the ownership, leasing, and management of correctional, detention, and reentry facilities as well as community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. The Company owns, leases and operates a range of secure facilities, including maximum, medium, and minimum-security facilities, processing centers, as well as community-based reentry facilities. It also offers delivery of offender rehabilitation services under its GEO Continuum of Care platform.

In a research report dated January 11, 2022, titled What Do The
Debt Negotiations Reveal?, Noble Capital Markets Senior Research Analyst Joe Gomes updates investors on the company including a section on GEO’s monitoring business called BI. The analysts calls BI “a hidden gem.” Gomes explains GEO is a market leader in the monitoring business with over 2,000 active contracts and a 98% customer retention rate.  He presents the value this way, “BI is the largest producer of electronic monitoring devices and has developed an unrivaled platform of monitoring, case management, and supervisory services. Since 2015, BI has generated a 12% CAGR in revenue and should end 2021 with about $260 million of revenue. With many clients seeking an alternative to detention for low-risk offenders, we believe there remains substantial growth potential in this business.”

GEO’s 52-week price range is $4.96-$11.

 

SCYNEXIS Inc. (SCYX) is a drug development company focusing on the commercialization of novel anti-infectives to address what they see as a significant amount of unmet therapeutic needs. The company engages in developing a lead product candidate, SCY-078, which is a novel oral and intravenous (IV) drug for the treatment of several fungal infections, including serious and life-threatening invasive fungal infections. According to information found under the company ticker on Channelchek, it is a structurally distinct triterpenoid glucan synthase inhibitor that is effective in vitro and in vivo against a broad range of Candida and Aspergillus species, including drug-resistant strains.

SCYNEXIS’ 52-week price range is $4.21-$10.25.

Take-Away

Dr. Burry has an excellent record of spotting investment opportunities before the rest of the market catches up. His picks are as disparate as the mortgage market in 2008 and GameStop (GME) in 2020. Burry will typically see what others are not looking at. One-third of his public company holdings are prison and detention center related. Does he believe the industry is beaten up and will rise, does he think the real estate or other assets owned are valuable beyond the stock price, perhaps something else? The research reports for both CXW and GEO may provide more insight.

One of his other two small company holdings, DNOW, is an oil and gas distributor. This is another industry that would appear to have substantial government policy headwinds. The last, SCYX, develops drugs to fight off fungus infections. It is a microcap company that is the smallest of the six that Burry committed capital to.

 Paul Hoffman

Managing Editor, Channelchek

Suggested Content

CoreCivic C-Suite Interview (Video)

Biden Signs Executive Order to End Use of Private Prisons by BoP

Michael Burry vs Cathie Wood is Not an Even Competition

Is the Index Bubble Michael Burry Warned About Still Looming?

 

Sources

https://whalewisdom.com/filer/scion-asset-management-llc#

https://www.youtube.com/watch?v=URBOifP8EDY

https://channelchek.vercel.app/news-channel/Wall_Streets_Tools_to_Copycat_Meme_Stock_Investor_Successes

 

Stay up to date. Follow us:

	Image Credit: Alphatradez (Pexels)

Does “Buy the Rumor, Sell the News” Apply to Today’s Markets?

 

Is the current market selloff a case of “Buy the rumor, sell the news”? The expectation that the upcoming Fed announcement is going to surprise investors with an even more hawkish stance than previously declared is the impetus for the current selloff. The presumed certainty is so great that the market may be positioned for the worst, and have this expectation already priced it in. If the Fed’s position is instead unchanged or otherwise less severe than feared, it could lead to a relief rally.

 

Background

The S&P 500 is down over 8% over the first 24 days of the year, the Nasdaq Index is down 12%, and both have fallen several more percentage points from their highs attained last year. Many highly followed tech stocks have fallen even further. Much of the selloff has been attributed to a hawkish Fed that is planning to raise interest rates to combat rising inflation. A modest increase in rates was expected heading into the new year. The market’s concern is now that the Fed will act with more resolve. The current selloff appears to be fear of the worst case for many sectors of the market, especially those that are impacted most by borrowing costs.

 

 

Is Relief on the Way?

If the market’s fears are correct and the Fed ramps up its hawkish rhetoric, will the markets have much further to fall? This risk may have already been substantially reduced with the current price action. If instead, the Fed sets a less aggressive timeline than priced in, many traders will wish they bought at current prices. And for those that are contemplating selling, they may be handed a better opportunity.

JP Morgan’s top equity strategist, Marko Kolanovic says the market correction could be approaching its “final stages.” In a note released this week, Kolanovic said the recent bearishness in stocks is out of line with momentum in economic activity, easing supply bottlenecks, and what JP Morgan expects will be a strong earnings season.  “While some are concerned that rising input prices will eat into margins, we expect margins to remain resilient thanks to strong activity and prices outpacing wage inflation,” Kolanovic wrote.

Investor sentiment has turned bearish, causing technical indicators to suggest oversold conditions, “we could be in the final stages of this correction. While the market struggles to digest the rotation forced on it by raising rates, we expect the earnings season to reassure,” Kolanovic explained.

According to the latest AAII Sentiment Survey, bullish sentiment fell to a low not seen since the coronavirus selloff. At the same time, bearish sentiment rose to a 16 month high. For many contrarian investors, that bearish sentiment suggests something between incremental buying and loading up on favorite sectors.

The Fed is in a tough spot and may again use unconventional tools to navigate. If the market continues to decline, it has implications for the overall economy and employment. Should the selloff continue, Kolanovic sees the Fed potentially stepping in with policy changes to stem the decline. “In a worst-case scenario, we could see a return of the ‘Fed
put,'” Kolanovic said.

Fed thinking could be altered by a continued steep market correction which may translate into fewer and smaller interest rate hikes in 2022 or a return to a longer-term tapering.  Just as when a quarterback calls a play, the movement on the field may quickly dictate other means of moving the ball toward the goal line. If the Feds plan to fight inflation and maintain a strong economy runs afoul, it certainly has other less aggressive offensive options to implement toward its goal.

Take-Away

As with all things related to predicting economic trends (or even forecasting weather), the expectations never match what is actually experienced. If the Fed is predicting one set of conditions, and it appears that another set is unfolding, they can turn on a dime. The Fed has done this unannounced before. It has also pulled tools from its quiver that have previously gone unused.

The most recent selloff appears to be based on the worst-case scenario; as JP Morgan’s top strategist has written, the economy is growing with very strong momentum.

Is there a better sell opportunity in the near future, is this a buying opportunity? Time will tell.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Will the Fed “Put” Become Worthless?

Climbing a “Wall of Worry”

The Correlation of Passive Ownership and Underperformance

Safe Haven Comparison During Downturns, Bitcoin vs. Gold

 

 

Sources

https://www.nasdaq.com/articles/vix-etfs-surge-as-stocks-continue-to-tumble

https://www.cnbc.com/2022/01/24/jpmorgans-kolanovic-says-selling-is-overdone-as-stocks-tumble.html

https://www.aaii.com/sentimentsurvey

https://www.thebalance.com/what-does-buy-the-rumor-sell-the-news-mean-1344971

www.koyfin.com

 

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	Image Credit: ETF Trends.com

Cathie Wood Says Investors Making Emotional Decisions is a Mistake

 

In a recent interview with Cathie Wood, ETF Trends’ CEO Tom Lydon, asked the popular fund manager about her expectations for the markets, and specific strategies for recent volatility for the Ark Innovation Fund (ARKK). The ETF has fallen over 50% from its high. Wood discusses specific plays while highlighting the importance of the technology companies the fund invests in. She explained her belief that deflation, not inflation, is the more worrisome risk over the medium term.

 

Longer-Term Outlook

Cathie Wood’s advice to investors who have experienced drawdowns or realized losses on her strategy is to know that, “We have never underperformed the market on a rolling three-year point of view.” Wood stressed the importance of taking a long-term view in a well-managed future-looking portfolio. 

In the past Wood has stressed that Ark Invest takes a five-year outlook when it places investments. With the steep sell-off amid inflation fears, she says the bond market confirms are unwarranted, and a more hawkish Fed stance, Wood expects a rebound to begin to unfold. “What this means is that this rubber band has been stretched so tightly, that we believe, and consider the source, but we truly believe given the valuations in our portfolio, the growth in the portfolio, and the fact that we’re probably looking at very choppy waters from a cyclical point of view so that our secular growers are going to shine,” Wood said.

As the Chief Investment Officer of the Innovation Fund, Cathie says that investors would be wise to take advantage of the potential for a sharp rebound in Ark’s investment strategies. “I certainly would be using this downdraft to increase that allocation [to ARK funds], because if anything during the last year, and it is quite a year for me to be saying this if anything our conviction in how rapidly the world is going to change and how transformative these technologies will be as they converge and feed one another, our conviction in that outlook has increased dramatically,” Wood said.

 

“Well, and I will harken back to ’08, ’09. How many people do both of us know who just couldn’t take it anymore? They became very emotional. Their life was flashing before their eyes. They thought they were going to be destitute. You conjure up all kinds of fears as downward momentum continues relentlessly day by day. They finally can’t take it. They sell and they regret it for the rest of their lives. They think of about it every day the market goes up after that.” “… An emotional response, just avoid it. It is usually catastrophic to long-term performance. What is additive and significantly so to performance is averaging down. It doesn’t feel good maybe as you’re doing it, but you would be shocked how little it takes if you’re consistent and you just keep averaging down.”  _C. Wood

 

According to Wood, it’s crucial that investors avoid making emotional investment decisions, as that can be catastrophic to their portfolio performance. Instead, investors can improve performance by averaging down, according to Wood.  The 65-year-old added that the undervaluation in Ark’s portfolio holdings “has reached an extreme I’ve never experienced in my career.” Wood used Tesla as an example reminding of the amount of skepticism the company faced for years until it soared from $35 to $1,000 in a short period of time. “It was a major surprise to some people, and it was because they didn’t understand the story. We feel that is a theme that’s going to play out again and again and again, in our portfolios,” said Cathie.

As for some of the top holdings in the AARK portfolio, like Teledoc, Roku, and Zoom Video, “they are ready like a coiled spring,” Wood said.

On Inflation

Cathie addressed interest rates and inflation while discussing the ETF’s healthcare holdings. She said many think inflation means higher interest rates. She pointed out, “Interestingly, long-term interest rates are not confirming that by the way. We do believe inflation is transitory. I know that’s become a bad word recently, but we believe people are going to be shocked at how low inflation goes this year. We’re going to see negative year over year in many, many categories.”

 

Take-Away

An ETF that invests in one sector is likely to underperform the overall market when the sector underperforms, and overperform when the sector overperforms. Individual stock holdings can do the same. The sector Cathie Wood’s ARKK ETF invests in has, in the past, performed well above the S&P 500, and is now experiencing performance well below. The CIO says the time horizon they take when adding to holdings is five years. She suggests that those in or considering investing in the fund that concentrates on disruptive technologies, use the same time horizon. Cathie Wood believes, with that timeframe, the selloff makes timing very good.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

The Sources of Deflationary Pressure According to Cathie Wood

Index Funds Still May Fall Apart over Time

Is it Game-Over for Meme Stock Investors?

Walmart’s Metaverse, NFT, and Crypto Plans

 

Sources

https://www.etftrends.com/disruptive-technology-channel/qa-with-ark-invests-cathie-wood/

https://markets.businessinsider.com/news/stocks/cathie-wood-advice-to-investors-after-arkk-sell-off-2022-1

 

Stay up to date. Follow us:

	Image Credit: Alphatradez (Pexels)

Does “Buy the Rumor, Sell the News” Apply to Today’s Markets?

 

Is the current market selloff a case of “Buy the rumor, sell the news”? The expectation that the upcoming Fed announcement is going to surprise investors with an even more hawkish stance than previously declared is the impetus for the current selloff. The presumed certainty is so great that the market may be positioned for the worst, and have this expectation already priced it in. If the Fed’s position is instead unchanged or otherwise less severe than feared, it could lead to a relief rally.

 

Background

The S&P 500 is down over 8% over the first 24 days of the year, the Nasdaq Index is down 12%, and both have fallen several more percentage points from their highs attained last year. Many highly followed tech stocks have fallen even further. Much of the selloff has been attributed to a hawkish Fed that is planning to raise interest rates to combat rising inflation. A modest increase in rates was expected heading into the new year. The market’s concern is now that the Fed will act with more resolve. The current selloff appears to be fear of the worst case for many sectors of the market, especially those that are impacted most by borrowing costs.

 

 

Is Relief on the Way?

If the market’s fears are correct and the Fed ramps up its hawkish rhetoric, will the markets have much further to fall? This risk may have already been substantially reduced with the current price action. If instead, the Fed sets a less aggressive timeline than priced in, many traders will wish they bought at current prices. And for those that are contemplating selling, they may be handed a better opportunity.

JP Morgan’s top equity strategist, Marko Kolanovic says the market correction could be approaching its “final stages.” In a note released this week, Kolanovic said the recent bearishness in stocks is out of line with momentum in economic activity, easing supply bottlenecks, and what JP Morgan expects will be a strong earnings season.  “While some are concerned that rising input prices will eat into margins, we expect margins to remain resilient thanks to strong activity and prices outpacing wage inflation,” Kolanovic wrote.

Investor sentiment has turned bearish, causing technical indicators to suggest oversold conditions, “we could be in the final stages of this correction. While the market struggles to digest the rotation forced on it by raising rates, we expect the earnings season to reassure,” Kolanovic explained.

According to the latest AAII Sentiment Survey, bullish sentiment fell to a low not seen since the coronavirus selloff. At the same time, bearish sentiment rose to a 16 month high. For many contrarian investors, that bearish sentiment suggests something between incremental buying and loading up on favorite sectors.

The Fed is in a tough spot and may again use unconventional tools to navigate. If the market continues to decline, it has implications for the overall economy and employment. Should the selloff continue, Kolanovic sees the Fed potentially stepping in with policy changes to stem the decline. “In a worst-case scenario, we could see a return of the ‘Fed
put,'” Kolanovic said.

Fed thinking could be altered by a continued steep market correction which may translate into fewer and smaller interest rate hikes in 2022 or a return to a longer-term tapering.  Just as when a quarterback calls a play, the movement on the field may quickly dictate other means of moving the ball toward the goal line. If the Feds plan to fight inflation and maintain a strong economy runs afoul, it certainly has other less aggressive offensive options to implement toward its goal.

Take-Away

As with all things related to predicting economic trends (or even forecasting weather), the expectations never match what is actually experienced. If the Fed is predicting one set of conditions, and it appears that another set is unfolding, they can turn on a dime. The Fed has done this unannounced before. It has also pulled tools from its quiver that have previously gone unused.

The most recent selloff appears to be based on the worst-case scenario; as JP Morgan’s top strategist has written, the economy is growing with very strong momentum.

Is there a better sell opportunity in the near future, is this a buying opportunity? Time will tell.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Will the Fed “Put” Become Worthless?

Climbing a “Wall of Worry”

The Correlation of Passive Ownership and Underperformance

Safe Haven Comparison During Downturns, Bitcoin vs. Gold

 

 

Sources

https://www.nasdaq.com/articles/vix-etfs-surge-as-stocks-continue-to-tumble

https://www.cnbc.com/2022/01/24/jpmorgans-kolanovic-says-selling-is-overdone-as-stocks-tumble.html

https://www.aaii.com/sentimentsurvey

https://www.thebalance.com/what-does-buy-the-rumor-sell-the-news-mean-1344971

www.koyfin.com

 

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Is it Game-Over for Meme Stock Investors?

 

The tide turned about a year ago.  Professional traders scoffed at the activity they were witnessing in presumed “dead” stocks.  GameStop (GME), AMC Theaters (AMC), both skyrocketing.  Even presumed pandemic nightmare companies such as Hertz (HTZ), international bulk carrier Seanergy (SHIP), and  Norwegian Cruise Lines (NCLH) saw unexpected
buy interest from self-directed investors.  TV pundits discussed how the retail traders placing these trades were going to get wiped out.  Meanwhile, retail’s combined activity hurt the value of a few powerful funds, notably those that had massive shorts in some of these companies.  Their activity even caused retail brokers like E*Trade (MS) and Robinhood (HOOD) to
halt
some activities in the popular retail shares.  It used to be that small investors tried to mimic the professionals.  Now, tools are being created so the big guys can monitor communication, sentiment, and activity on social media platforms such as Reddit, Twitter (TWTR), and Stocktwits.

Money Flows

Economics 101 tells us prices move up when demand increases with unchanged supply.  This is just as true for stocks as it is for Gold,
oil, or even tulip
bulbs.  By the same math, there are worthwhile companies whose value is not yet recognized that would likely be priced higher with more attention.  And companies with extremely unpredictable tomorrows that, if the masses all moved to buy at once, would surely see a price increase.  

A number of hedge funds that underestimated the tenacity of the r/wallstreetbets traders, were resolved to hold their short positions while the retail demand was increasing.  In the end, it’s calculated that managed funds lost $20 billion in this Davey vs. Goliath match-up.

These money flows, possibly even stimulus
check funded accounts, “left a mark” on institutional investors.  No previous experience or education prepared them for this phenomenon.  Prices of fallen-from-favor household name stocks were soaring by hundreds of a percent.  Their experience instead indicated they should side against the amateurs.

 

Change of Thinking

As it became widely known that retail traders or amateur investors plotting on social media and message boards were capable of running-up stocks or commodities, the pros took a “game-on” stance.  It was a game they didn’t win, beaten down companies like GameStop rose 2,000% in the face of pros shorting the stock.

 

“If enough people with enough money start valuing stocks a different way, their new metrics matter, too, even if you think they’re absurd,” – Jim Kramer, discussing the climb in Wendy’s (WND) shares, June 8, 2021.

 

After almost a year, professionals are recognizing that the market’s climate has changed, and they should amass the tools they need to combat the new environment.  A company called Sentifi, with the tagline “Better Investments With Collective
Intelligence,” has just signed a deal to provide “alternative data” to Morningstar.  The company keeps track of hundreds of millions of messages across social media websites like Twitter and Reddit.  It observes shifts in chatter that can help predict which companies or assets are about to soar or plummet.  Morningstar which is one of the most broadly followed investment analytics providers will be integrating Sentifi’s sentiment and attentive analytics into its products as an additional toolset.  The intent is to provide users, including fund managers, financial advisors, and other investors, a means to keep pace with market shifts and price signals.  The expectation is to uncover shifts in sentiment early, discern investment opportunities and risks inherent in the changes.  

While Morningstar is integrating Sentifi into its product line, many other companies, particularly hedge funds, began to rely on its analysis last year.  Other large firms have built their own data gathering information systems.  At UBS, analysts now monitor retail trading activity; in-house traders use the information as one of their decision-making tools.  The investment bank directly tracks retail flows and volumes, analyzes options activity, and monitors social-media sentiment to determine the strength of what self-directed investors may be doing.  Keith Parker is the head of US equity strategy at UBS, he has said, “For the most part, retail doesn’t impact or traffic in tons of stocks.  But the ones that they do, they tend to have pretty outsized influence.  And so it does matter at the extremes.”

 

Take-Away

As the expression goes, kill or be killed.  As the markets evolve, so must the players in order to continue to interact with the market.  An increasing number of professionals are not just taking retail stock market activity seriously; they are committed to benefitting from it.  The benefit can be both offensive and defensive.  It remains to be seen if the offensive plays that could be categorized as joining with the retail action will induce even more pronounced swings, but it is clear that information is readily available to them as the so-called meme stock investors are effectively writing their plays out where they can be seen and studied.  Their tactics may need to be altered.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

You Can Own a Piece of r/WallStreetBets

Tulip Mania Compared to Cryptocurrencies and Meme Stock Investing

Short-Sellers Vs. GameStop Buyers

Are Meme Stocks Improving Flawed Markets?

 

 

Sources

https://www.youtube.com/watch?v=aSUuB4cLWPU

https://www.morningstar.com/news/business-wire/20211208005489/sentifi-announces-addition-of-alternative-data-into-morningstar-data-products

 

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Is it Game-Over for Meme Stock Investors?

 

The tide turned about a year ago.  Professional traders scoffed at the activity they were witnessing in presumed “dead” stocks.  GameStop (GME), AMC Theaters (AMC), both skyrocketing.  Even presumed pandemic nightmare companies such as Hertz (HTZ), international bulk carrier Seanergy (SHIP), and  Norwegian Cruise Lines (NCLH) saw unexpected
buy interest from self-directed investors.  TV pundits discussed how the retail traders placing these trades were going to get wiped out.  Meanwhile, retail’s combined activity hurt the value of a few powerful funds, notably those that had massive shorts in some of these companies.  Their activity even caused retail brokers like E*Trade (MS) and Robinhood (HOOD) to
halt
some activities in the popular retail shares.  It used to be that small investors tried to mimic the professionals.  Now, tools are being created so the big guys can monitor communication, sentiment, and activity on social media platforms such as Reddit, Twitter (TWTR), and Stocktwits.

Money Flows

Economics 101 tells us prices move up when demand increases with unchanged supply.  This is just as true for stocks as it is for Gold,
oil, or even tulip
bulbs.  By the same math, there are worthwhile companies whose value is not yet recognized that would likely be priced higher with more attention.  And companies with extremely unpredictable tomorrows that, if the masses all moved to buy at once, would surely see a price increase.  

A number of hedge funds that underestimated the tenacity of the r/wallstreetbets traders, were resolved to hold their short positions while the retail demand was increasing.  In the end, it’s calculated that managed funds lost $20 billion in this Davey vs. Goliath match-up.

These money flows, possibly even stimulus
check funded accounts, “left a mark” on institutional investors.  No previous experience or education prepared them for this phenomenon.  Prices of fallen-from-favor household name stocks were soaring by hundreds of a percent.  Their experience instead indicated they should side against the amateurs.

 

Change of Thinking

As it became widely known that retail traders or amateur investors plotting on social media and message boards were capable of running-up stocks or commodities, the pros took a “game-on” stance.  It was a game they didn’t win, beaten down companies like GameStop rose 2,000% in the face of pros shorting the stock.

 

“If enough people with enough money start valuing stocks a different way, their new metrics matter, too, even if you think they’re absurd,” – Jim Kramer, discussing the climb in Wendy’s (WND) shares, June 8, 2021.

 

After almost a year, professionals are recognizing that the market’s climate has changed, and they should amass the tools they need to combat the new environment.  A company called Sentifi, with the tagline “Better Investments With Collective
Intelligence,” has just signed a deal to provide “alternative data” to Morningstar.  The company keeps track of hundreds of millions of messages across social media websites like Twitter and Reddit.  It observes shifts in chatter that can help predict which companies or assets are about to soar or plummet.  Morningstar which is one of the most broadly followed investment analytics providers will be integrating Sentifi’s sentiment and attentive analytics into its products as an additional toolset.  The intent is to provide users, including fund managers, financial advisors, and other investors, a means to keep pace with market shifts and price signals.  The expectation is to uncover shifts in sentiment early, discern investment opportunities and risks inherent in the changes.  

While Morningstar is integrating Sentifi into its product line, many other companies, particularly hedge funds, began to rely on its analysis last year.  Other large firms have built their own data gathering information systems.  At UBS, analysts now monitor retail trading activity; in-house traders use the information as one of their decision-making tools.  The investment bank directly tracks retail flows and volumes, analyzes options activity, and monitors social-media sentiment to determine the strength of what self-directed investors may be doing.  Keith Parker is the head of US equity strategy at UBS, he has said, “For the most part, retail doesn’t impact or traffic in tons of stocks.  But the ones that they do, they tend to have pretty outsized influence.  And so it does matter at the extremes.”

 

Take-Away

As the expression goes, kill or be killed.  As the markets evolve, so must the players in order to continue to interact with the market.  An increasing number of professionals are not just taking retail stock market activity seriously; they are committed to benefitting from it.  The benefit can be both offensive and defensive.  It remains to be seen if the offensive plays that could be categorized as joining with the retail action will induce even more pronounced swings, but it is clear that information is readily available to them as the so-called meme stock investors are effectively writing their plays out where they can be seen and studied.  Their tactics may need to be altered.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

You Can Own a Piece of r/WallStreetBets

Tulip Mania Compared to Cryptocurrencies and Meme Stock Investing

Short-Sellers Vs. GameStop Buyers

Are Meme Stocks Improving Flawed Markets?

 

 

Sources

https://www.youtube.com/watch?v=aSUuB4cLWPU

https://www.morningstar.com/news/business-wire/20211208005489/sentifi-announces-addition-of-alternative-data-into-morningstar-data-products

 

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	Image: TV Ad for Crypto.com

Have You Positioned Your Account to Not Fall Victim to a Crypto-Exchange Hack?

 

Storing cryptocurrency in a “hot wallet” rather than a “cold wallet” could make the difference between becoming a victim of theft or remaining secure. When inactive, crypto holders should consider locking their wallets down as tightly as possible.  In the recent case of the 4600 ETH, worth almost $15m, reportedly stolen from the exchange where Matt Damon is the ad personality, it is still unclear if there will be lasting damage.

Crypto Safety

Cybercriminals are becoming sophisticated at transferring, undetected,  crypto assets from digital wallets. In actual use, a digital or crypto wallet does not store an individual’s crypto holdings; instead what it provides for is access via a digital key. This key allows entrance and the ability to trade online.  A private key is an individual’s digital identity to the market. If someone should possess this identifier, they can engage in unauthorized transactions or transfers.

Storing assets in what is known as a hot wallet that is connected to the internet could make your assets prone to theft. The reason is there may be access to your computer or mobile device, which allows seeing this key. If the private key is instead stored as part of a cold wallet (sometimes called a hardware wallet), access to the key is unavailable to anyone remote from the hardware. 

 

What Occurred

Some of Crypto.com’s Ether hot wallets were reportedly hacked this week. Users of the exchange found themselves missing assets, some with sizeable value.  Crypto.com announced on Twitter on Sunday evening that an investigation into the “suspicious activity” was underway.

 

 

By noon on Monday (January 17) Chris Marszalek, CEO of crypto.com, calmed clients with the below tweet. It still isn’t clear whether funds were ever lost or not. The blockchain security company, PeckShield which describes itself on its website as “…a security company which aims to elevate the security, privacy, and usability of entire blockchain ecosystem by offering top-notch industry-leading products.” Had tweeted a dollar value associated with the alleged theft and what appears to be a list of transactions washed through Tornado.cash. Tornado.cash is an ETH-based coin mixer.

 

 

While Crypto.com reported, “all funds are safe”, there were multiple replies to the tweets complaining of missing cryptocurrency, including both Bitcoin (BTC) and Ethereum (ETH). Some of these tweets were later followed by tweets saying the exchange has restored its missing funds.

 

How it Happened

The attackers reportedly found a way to bypass the two-factor authentication (2FA) security measures on the exchange. When alerted, Crypto.com stopped transactions. They used Twitter to ask account holders to sign into the app and their exchange account to reset their 2FA information. The company made updates and stated once the update had been implemented, withdrawals and transactions would again be enabled.

 

Take-Away

Crypto.com appears to have been compromised by a hack of its centralized exchange in 2022. A good way to make sure if there is another attack during the year, that you’re not a victim is to make sure your access key is not available online. A cold account could go a long way to avoid becoming a victim.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Threats to Your Personal Information

Should Investors Listen to Influencers?

The Cost of Pandemic Inspired Cybercrime in Education

Is Ethereum More Useful Than Bitcoin?

 

 

Sources:

https://crypto.com/security

https://www.shacknews.com/article/128370/cryptocom-pauses-withdrawals-after-theft-in-several-users-wallets

https://qz.com/2110791/celebrities-push-cryptocurrencies-but-fans-carry-all-the-risk/

 

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Are You Up to Speed on the Canadian Stock Market?

 

The Canadian stock market differs in many ways from that in the U.S. To begin with, they are each priced in their local currency. The Canadian dollar exchange rate is about 20% under US dollars. Another impactful difference is the entire population of Canada is 1.5 million people fewer than the state of California. With one-tenth the population of the entire US, the market is not inclined to trade as deep or to have as many large companies on the main exchanges.

For a US investor looking northward, they may find that a Canadian company they are interested in has an ADR on a US exchange allowing any currency exchange to be avoided. If not, to trade in Canada they may need to open a bank account in each currency and will naturally be exposed to any currency risk relative to their native currency.

 

Sector Comparison

Many of the same sectors exist across the two exchanges, but there is a heavy weighting in Canada toward natural resource companies as the country is rich in oil and minerals. As a comparison of industries, this is how the two countries compare. For comparison across the border within the sectors, some recommend using price earnings to determine value, just as one would when comparing two stocks in the same dominion.

Basic Materials – Canada is 1.6 times bigger

Capital Goods – US is 6.5 times bigger

Conglomerates – US is 2.4 times bigger

Consumer Cyclical – US is 16 times bigger

Consumer Non-Cyclical – US is 8 times bigger

Energy – US is 1.54 times bigger

Financial – US is 5.66 times bigger

Healthcare – US is 10 times bigger

Services – US is 8 times bigger

Technology – US is 11 times bigger

Transportation – US is 8 times bigger

Utilities – US is 5.4 times bigger

 

Two standouts in Canada are basic materials which you can see above is quite a bit larger than the U.S. market. And banks, which in Canada did not experience the problems the US banks did during the subprime mortgage crisis. A case can be made that the Canadian banking sector offers diversification alongside holdings in U.S. banks. Canadian railway companies are also large and may offer unique opportunity different from U.S. transportation companies.

Stock Exchanges

In Canada, stocks with low market caps make up a large part of the securities industry.

The TSX Venture Exchange (TSX) is located in Calgary it is often called the junior listings market as it caters to early companies. Listing a company on the exchange is relatively.

The TSX Alpha Exchange (Alpha), is a market for trading securities listed on other Canadian exchanges.

The Canadian Securities Exchange (CSE), is an exchange designed for emerging issuers.

 

Suggested Reading:

Do Canadian Companies Remain Private Because of Corporate Governance?

Copper facing an Onslaught of Demand

Repurposing Power Plants for Crypto Mining

Cathie Wood Clears Way to Invest in Bitcoin ETFs from Canada

 

 

Sources:

https://ca.practicallaw.thomsonreuters.com/7-575-5349?transitionType=Default&contextData=(sc.Default)&firstPage=true

https://medium.com/@jacobgottlieb44/the-differences-between-canadian-and-american-stock-exchanges-3d4514b313b9

https://dividendearner.com/differences-canadian-us-stock-markets/

 

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