I largely missed market activity on Monday because I was traveling to Orlando, Florida.
There is nothing like sitting in Walt Disney World traffic to take the stress out of your life… (sarcasm).
My brother-in-law is brilliant about money. Rather than pay $5,000 for a wedding location on a Saturday, he and his now-wife took the discount and married on a Monday.
It was a lovely ceremony.
I even gave him a pre-wedding pep talk that looked like this…
The markets saw some pressure after the biggest week since June.
There are three critical trends happening across the markets right now… And I think they can be summed up in three charts.
Chart No. 1: The Energy Rotation Accelerates
The global markets are shifting quickly. Brazil, Russia, India, China and South Africa (BRICS) have been pulling away from U.S. influence and the financialization of the West for the past 13 years.
They’re attracting interest among other commodity-producing nations to join their movements. New BRICs members may soon include Argentina, Iran, Saudi Arabia and Nigeria.
By the decade’s end, more than half the global population may join this economic bloc.
While this may be negative for the U.S. dollar, it’s incredibly bullish for real assets.
As the world centers around hard commodities, the U.S. dollar and the financialization of the economy will find new pressures. The rotation toward commodities is undoubtedly underway. The chart below shows that we’ve seen multiple shifts between commodities and equities over time. And those trends can last for at least a decade.
Remember, central banks bought the largest amount of gold in 55 years during the third quarter of 2022. So is the dollar starting to snap?
I’d be smart and trade around the best U.S. energy producers that can appreciate in value, and don’t subject myself to geopolitical tension. So I’m keeping my focus on U.S. oil producers like Devon Energy Corp. (NYSE: DVN), Exxon Mobil Corp. (NYSE: XOM), Occidental Petroleum Corp. (NYSE: OXY) and other Permian-based names.
Chart No. 2: The Fed is All That Matters
Despite four members of the Federal Reserve signaling that no pivot is pending, the markets continue to operate on the speculation that we’ve hit “peak inflation,” and that we’ll see a dramatic downturn. This week, 10 members of the central bank will speak…
But, I remind you, the Fed’s policy moves are what matter most for this market.
This chart shows that liquidity is the primary driver of S&P 500 returns. It’s been this way for the past decade. Remember, Chair Jerome Powell once said quantitative easing was not supposed to be permanent…
But this chart shows the addiction that the markets have to cheap money, easy liquidity and low interest rates… And when the Fed goes the opposite direction, it’s ugly for the market.
If the Fed isn’t “pivoting,” and we’ll see higher rates and more asset sales (aka quantitative tightening), expect more volatility.
Chart No. 3: What Goes Up… Will Come Down
Finally, I’m sure you’ve followed the ongoing saga at FTX, a massive cryptocurrency exchange that collapsed last week. The company’s founders remain under surveillance in the Bahamas.
This has been one of the biggest downfalls ever of a technology CEO. The mainstream press had dubbed Founder Sam Bankman-Fried as the next Warren Buffett, and the next J.P. Morgan.
However, he is just the face of Bitcoin’s largest asset bubble of the past 50 years. If you look at the chart below, you’ll see that Bitcoin — and the rest of the token economy — has washed out wealth in the past nine months.
Under that Bitcoin bubble sits Ark Invest and its “innovative” funds. Unfortunately, Cathie Wood’s ARK Innovation ETF (NYSE: ARKK) continues to plunge as the Fed raises interest rates and fundamentals return to these markets.
I’ll discuss more ways for you to attack this mess in the crypto markets on Tuesday.
Enjoy your day,
Garrett
