Crypto Continues to Struggle
What is it?
So far this year, cryptocurrencies have been performing poorly. Not long ago one crypto exchange went bankrupt, causing many crypto investors to lose confidence. Investor confidence is said to be high when prices are stable or moving higher which has not been the case for crypto-related assets lately.
Below is a glimpse at our Matrix for the Tactical Crypto ETF model. The Matrix is used to visualize trend strength and momentum for many assets at once.
The ProShares Trust – Short Bitcoin Strategy ETF (BITI) is shown higher than the other tickers on the matrix. BITI is the only asset in the Neutral section while none are in the strong or overbought sections.
Why does it matter?
Being a short strategy, BITI goes up or down in the opposite direction of Bitcoin. We do hold some BITI in our Tactical Crypto model at the moment while the rest of that model is in cash or cash equivalents (short-term bond ETFs that generate a positive yield).
This is important to note since crypto has been suppressed for a while now. While the tickers shown in the weak section had great returns in the past, they have been bombarded with bad news. As a part of our tactical investment process, we plan on investing in the other crypto tickers on the matrix when they have a stronger trend strength. Since BITI is not in the strong or overbought sections, it may not be long until the crypto-derived investments switch trends and move higher. We are prepared to change the portfolio whether crypto continues down or changes directions toward the end of the year.
Inflation Impacts Consumers Spending Habits
What is it?
“Blackstone Inc (BX.N) Chief Executive Stephen Schwarzman said on Wednesday that redemptions in his firm’s $69 billion non-traded real estate income trust (REIT) were driven by investors roiled by market volatility rather than dissatisfaction with the fund.”**
We see this as a signal that investors are starting to dig deeper into their assets in order to pay for things. Instead of using cash, some investors are selling assets to keep up with their spending on inflated products and services.
“Schwarzman told the Goldman Sachs financial services conference that individual investors were hit particularly hard by a liquidity crunch in Asia, as the Hang Seng Index nosedived and many also had to cover positions they amassed with debt, causing financial distress.”**
With other factors limiting economic growth, we are seeing lower levels of investments and higher amounts of consumer debt as mentioned last week.
Why does it matter?
Conditions may not be great if investors are in a position to sell investments that have been doing relatively well.
“’If you are an investor who’s got margin debt and your market goes down 40%, you can imagine what it was like to be one of those individuals … As the world is busy shrinking, people get scared,’ Schwarzman said.”**
We are not concerned with the current measure of economic contraction. However, the market may begin to price in a move lower with minimal positive news to go around.
“He added the redemptions did not mean the investors were not happy with the REIT and its profits; If the interest rates go down, the value of all the real estate will be worth much more. So we’re actually rooting for that,’ Schwarzman said.”**
Like many investments, real estate is cyclical since it is sensitive to the move of interest rates. With interest rates rising, real estate (and REITs) are not favorably positioned to grow.
“‘When there’s more confidence, whether it’s when the Fed stops raising interest rates or some other triggering event, then they’ll put money in these types of products if they perform,’ Schwarzman said.”
This is another reason we prefer to use a tactical approach to investment management. We believe that real estate can be a great investment, but not all the time. When conditions change we will be more likely to invest in more cyclical investments.
Other articles we found interesting this week:
Mysterious, Dirt-Cheap Oil Is Being Marketed to Houston Traders
Stocks waver as inflation, consumer sentiment surprise
Consumers Don’t Know What to Think
Current 401(k) portfolio
Our last portfolio reallocation: 5/19/2022.
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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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Sources:
*Yahoo Finance. “ProShares Trust – ProShares Short Bitcoin Strategy ETF (BITI)”. 12/8/2022. Yahoo Finance. https://finance.yahoo.com/quote/BITI?p=BITI&.tsrc=fin-srch
**Chibuike Oguh. “Blackstone CEO says financially distressed investors driving REIT redemptions”. 12/7/2022. Reuters. https://www.reuters.com/business/finance/blackstone-ceo-says-financially-distressed-investors-driving-reit-redemptions-2022-12-07/
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