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Moby Live: Bitcoin crashing, tech plummeting & where to invest in 2022
27:44
 

Moby Live: Bitcoin crashing, tech plummeting & where to invest in 2022

market & industry analysis Jan 07, 2022

The following is a transcript of the weekly Thursday Moby Live Podcast we host on Discord, at 2:00pm PST // 5:00pm EST.

 

Peter Starr Northrop:

And now coming to you live from our coast to coast trading desk, this is the Flagship Pod, a weekly live podcast about the economy, market forces, the stock market, and everything affecting you and the markets around you. As always, I'm your host, Peter Starr Northrop, coming to you in front of a live discord audience joined as always by Justin Kramer, co-founder and chief analyst here at Moby.co Justin Kramer, man, what's good.

We promised you a fun 2020 and my God, 2022 don't miss. Sorry, I'm missing all the twos I have to say in terms of that. So audience, really appreciate you being here. But other than that, I just want to get right into it.

Justin, I guess the main there's a lot of angles to tackle this from. And I think if we start with fiscal policy, we can move outwards. We've known that the fed has been talking about tightening fiscal policy for weeks now. We've known it's coming, that's kind of what we based everything on. We have the same homework everyone else does, but then the fed announces, yeah, we're really doing it. The FOMC notes come out today and it just initiates this kind of wild sell off in both tech and a little bit in crypto too, but crypto may be getting fed by other aspects. What's the deal here? Wasn't this stuff already priced in? Why have the FOMC notes cost such a huge reaction from specifically growth tech stocks this week?

 

Justin Kramer:

It's just like a re-innovation of what's been happening. But as it gets closer and closer, it becomes real and real. When you look at the price of a rate this year, the market's already pricing in around 80%. Whereas, if you look back three to six months ago, it wasn't as high. Obviously nothing is guaranteed so just as we get closer and closer and closer to our date, becomes more real. I think the notes this month just further signified that this is really, bear any unforeseen circumstances or any unforeseen changes, this is really happening. For the time being, seeing the notes come out, seeing that the fed is definitely going to start tapering, definitely start raising rates. And so the market's reacting and they're like, this is really happening. The valuations for these tech stocks are continuing to get compressed. It's just going to be more the same for a while, unfortunately.

 

Peter Starr Northrop:

Yeah. As you become more of a long term investor, as you start watch watching the market, it takes your breath away a little bit just how reactive the market is because what happens is, is that you get news that a thing is going to happen and the market reacts a little bit and then recovers and then guess what the thing happens and the market overreacts to it. Just keep this in mind. Keep in mind the market is the largest, most complicated machine ever devised by the universe. It is a collection of billions of human minds, reacting together with various signals coming in and out. Those signals being prices. But ultimately, you've got feedback loops made out of other feedback loops made out of other feedback loops.

 

Peter Starr Northrop:

The main thing you see in the macro is just these giant shifts once things become much more clear and much more focused. Keep that in mind. We can go through a lot of things too. We can go through all the reverberations of that and we're kind of seeing, Tesla is recovering a little bit. There's a lot of like good headlines here, but I think the main thing want to talk about is crypto because the crypto market just keeps getting hammered. Not necessarily turning into a full on bear market, but there's lots of huge world forces that have been driving the price of the whole market down. The more and more you look at it, it looks like Bitcoin really is the price leader in the crypto space, such that the Bitcoin crash earlier in Q4 is what kind of started this whole thing.

I thought that was fascinating because this actually cuts back all the way to last August when China announced that they were going to basically ban a bunch of exchanges and make it a little bit harder to be a crypto investor in China. And so the initial sell off was actually people on Asian exchanges just dumping all of their coins knowing they were going to have a harder time. And now this is where it gets wild. We are not even talking about the market anymore. We're talking macroeconomics because now that China's off the board at the exact same time, Kazakhstan's like, Hey buds, it's a good time for a revolution. If you're unaware audience, Kazakhstan has basically gone into three straight days of social unrest off the back of rising gas prices. The government was a like, Hey, I'm going to stop having gas prices be capped and they doubled overnight.

 

Peter Starr Northrop:

I don't know if you know this, but people need heating oil and stuff to heat their homes and gas to drive around. The price of gas literally doubled overnight in Kazakhstan. It's not the best time to be doing that sort of thing. Straight up revolution in Kazakhstan right now, super cool, much love to anyone if we know anybody out there in the steps. But the reason that affects the market, it's not because there's a revolution, Bitcoin goes down. No, Kazakhstan is responsible for 18% of the Bitcoin hashing right now. There are massive Bitcoin mining operations at old, very decrepit coal mines in Kazakhstan. It is amazing how little macro economic forces come into our home markets here as well. Bitcoin stabilizing a little bit, of course, but it's one of those things where it's like, maybe it's time to become a miner because a lot of the mining interest in crypto is finally going down.

 

Peter Starr Northrop:

How do even react Justin to just the world coming in and just punching the market in the face less than a week into the new year. I don't even know how to parse these huge macroeconomic forces. As you watch this, how does it change the game in terms of you thinking about, as you add to your positions, I know it's one of those things where just keep holding on because you're a long term investor anyway, but looking at all macro stuff, how do you even begin to start trying to watch all the chess pieces on the board right now?

 

Justin Kramer:

Yeah. You said it good earlier when you and I were catching up before this podcast and just talking about if prices continue to drop, if there's a full out revolution in Kazakhstan and as you mentioned, there's over 10% of Bitcoin minors is there and obviously that's an issue if it has to go from China to there, to there to somewhere else. If it keeps going down, it really starts presenting a larger buying opportunity. In the long run, the hash rate of Bitcoin has only gone up. It'll eventually get moved to another country. The amount of money being poured into Bitcoin and into crypto, the US market is not going away. It's not bad. So listen, it hurts your portfolio because you're looking at it and you're measuring yourself in the top, but it still has a long way to run, basically. It's just unfortunately dealing with a lot of day to day. And with interest rates movements, we'll see a declaration stick, but there's a lot going on. This unfortunately need to take it day by day.

 

Peter Starr Northrop:

Exactly. It's one of those things you shouldn't even really be reacting to. It just kind of being mindful of it. It's not that the market is deciding that Bitcoin is not valuable. It's just that a lot of very interesting forces have lined up together to kind of really give that hit to Bitcoin. Of course, as a long term investor, I'm hoping that this turns into a full on bear market that we go fully down. What we're seeing is the fear index is the highest it's been since May of 2021, which was kind of the bottom of the last air quotes bear market. It didn't really count as a bear market. It was like a bear week really. It was super weird at the beginning of last year. but the main thing to watch is just seeing if it kind of bounces off 42 or not. Bitcoin's price.

What I really find interesting about all that is that it's not necessarily just like Bitcoin mining taking a hit. It's also the market itself reacting to the fed. I think it gets to a question I got this question a lot because it's one of those things where you and I are still thinking really deeply about it. You've been going over the numbers a lot in terms of watching the patterns here and seeing Bitcoin as an on risk or off risk asset. When the fed threatens raising rates and that sort of thing, Bitcoin's price goes down. What does that mean in terms of like, is Bitcoin actually an inflation hedge? Does Bitcoin follow the market more? How can you think about that as you sort of plan your strategy moving forward? Has that changed the making at all?

 

Justin Kramer:

Yeah. It definitely has. Historically my view and our view has always been that Bitcoin is a risk on asset. In a risk off environment right now, which basically means that these high risky stocks aren't performing well, Bitcoin in theory should fall down and it has fallen down. But someone recently within the last year saw that Bitcoin has actually been tracking the price of interest rates movements over the last year, year and a half. Seeing that makes you start to question is it going to be correlated? Is it not correlated by outside of markets? Well, interest rates haven't risen in over a decade. We're seeing the early stages of a relationship, but relative to interest rates rising and Bitcoin rising, it hasn't really ever been done before. Interest rates have gone up a little bit since their woes earlier this year, but it's still not substantial relative to this decade plus decrease.

 

Justin Kramer:

It's an interesting pattern I've watched. I don't think it's conclusive yet and with interest rates even spiking in the last few days, again, very small relative to the decade plus time were looking at. The price of Bitcoin kept dropping down, but it's not a one-to-one correlation, even if it was proven to be correlated. So long story short, I just don't think there's enough data out there for anyone to say it is, or it isn't correlated to the rise or fall in interest rates.

It historically has been viewed as a risk on asset, which would then be negatively correlated to interest rates. But there's also the whole thing that it's non-inflationary and all these things that in theory should then follow interest rates. Long story short, I think it's too early to say, we'll need some more data over the next year. I think that's like going to be the data we need than over the longer term to point and say, Hey, this actually is more correlated, isn't more correlated and we can actually start calculating how correlated it really is. But in an environment where just rates have gone down forever, there's not enough data to say that once that inverses things will change.

 

Peter Starr Northrop:

What I love about that is somebody who is A, raised by scientists and then B, went through a science program and ended up as a science teacher, what I love about this moment is it's a really strong opportunity to learn some really interesting information about Bitcoin and crypto itself because one of the key things there audience was that we haven't really seen interest rates be raised for essentially the entire time Bitcoin has existed. They've gone up and down a little bit, but we have had this extremely qualitative easing like let's just keep shoving money to this economy so that it doesn't completely collapse in on itself after 2008, which is when Bitcoin started and this whole crypto stuff began in the first place. This is the first time we're going to see fiscal policy and Bitcoin meet in a big way.

 

Peter Starr Northrop:

For me, this is going to be a big test. It's not predicting, oh, interest rates go up, price of Bitcoin will go up, because we're seeing that correlation. It's interest rates are almost certainly going to be pumped up this year by the fed so let's see what Bitcoin does with that and that's going to give us a much, much clearer view of what crypto is as a long-term investment. For me, it's an ex it's an exciting year because during these kind of bare periods, it's not that you're missing out on money, your positions go down a little bit, but you learn really valuable information about which of your positions can take a punch, which of your positions may be a little bit more volatile and it gives you a better sense of the health of your portfolio overall.

 

Peter Starr Northrop:

Frankly, I am deeply excited for this, but at the same in time, I'm all about shifting into making more value plays this year. When we think about that, of course, a lot of the stock picks you've gotten from us this week are more based in like those value plays. We're talking healthcare, we're talking Microsoft. I can talk about Microsoft all day, but one really interesting prediction, one really interesting turn to this is also understanding what precisely a value play is. That's not necessarily a stock that is really well valued or a stock that is super stable that can take a punch like this. It's also stocks that even in a growth environment were traditionally undervalued. And so Justin, my angle here is, is that I'm also really impressed with your prescience with talking about Nayo and Chinese EV stocks, because it genuinely feels like something is unfreezing a little bit in terms of the Chinese government stopping, wrapping their big tech companies on the knuckles and letting them go. Tell me more about your research into Nayo and tell me more. Is it Nio or Nio? I literally never get it right. Forgive me.

 

Justin Kramer:

I think it's Nio.

 

Peter Starr Northrop:

Oh my God. I refused to pronounce it correctly. It's like in my DNA. Sorry dude.

 

Justin Kramer:

No worries. Yeah. I guess I can preface the section with, I know we've been preaching value and Neo isn't a value play, but that doesn't mean that like every single value, every single growth stock is going to go down. Tesla's a Testament to that. Tesla's obviously a growth stock and it's been doing really well this year, especially with the use of deliveries recently. It's not one size fits all. Just want to put that out there. When we were saying value versus growth and growth versus value and et cetera, et cetera, but then for Neyo specifically, it's an interesting position right now because, excuse me, right now, Neyo is so compressed.

It has so much upside opportunity. They're shipping cars all across Europe. They're spreading, but, I'm sorry, I got cut off. It's interesting because their values are so compressed. We'll see what happens. Right now I think for them specifically, we're going to need to get more data and see ultimately are they going to get delisted enough to bring their stock down. I don't think it's going to happen based on all the initiatives the Chinese government wants to do, but it's really too early to tell.

 

Peter Starr Northrop:

Exactly. I think that's something really important to point out. It's one of those things where you noticed that there was some softening in that relationship literally I would say six hours before the rest of the market did. What we're seeing is a lot of excitement around Neyo and other Chinese EV stocks, but that's pushing out towards other Chinese tech darlings. I'm going to finally start dusting off all the research I've been doing to Alibaba. I really wanted to do a report on them back when I started here at Moby more towards Q2, right before things really started cracking down. Ive always thought Alibaba was like buying Amazon 10 years ago was essentially so that's what I'm going to be looking into. No definitive calls yet. There's a lot of I's to cross and T's to dot or however, you reverse order of that sort of thing.

 

Justin Kramer:

Yeah. I mean guessing what's going on inside the Chinese government's head in terms of what companies we allow to do business aren't allowed to do business, it changes every day. We saw stuff that happened with Jack Ma and Alibaba, obviously we're in no position if ever getting inside information from China, but it's so [inaudible 00:15:37] there. It's crazy.

 

Peter Starr Northrop:

Exactly. But if audience, if you know a guy, hit us up. We're always looking for more inside information. You never know. Put it out there. But that brings me back to America a little bit too, in terms of how we think about this. I think it's one of those things when we think value stock, when we think what's going to be a good pick moving forward, we'd typically think utilities, we think energy, we think healthcare and financials, What I loved this week too, Justin, was all of your research into constellation. There's some consumer discretionary that despite all these supply chain issues can perform well in a inflationary, contractionary fiscal environment. Take me more through what you're thinking in terms of constellation and how they're going to perform this year.

 

Justin Kramer:

Constellation is, they're consumer stock, retail stock, but they're in a different class of them versus Nike. It's not an apples to apples comparison there. What I mean by that is it's almost acts defensive in nature and in terms of whether the economy's doing bad, the economy's doing good, people are still drinking and buying alcohol. There in this group called sin stocks, like tobacco stocks, alcohol stocks, things that are sinful. Constellation kind of falls within that group as a massive like beer and spirits distributor and brand. For them specifically, alcohol was very popular in the last year or two, It's always been popular, but for them specifically, they were dealing with [inaudible 00:17:14] started to be alleviated at end of kind of September, October.

Since then, the stocks really responded by going up as those go away and as they start to report a lot of positive news. They're up almost 25% in the last few months. Really happy to have been able to benefit from that. But at the same time, I don't think this run is close to over. It's something that we're going to continue to recommend. Upped our price target recently, we put our analysis out on that and I see a lot more upside for constellation coming based on all the things that we put in the report.

 

Peter Starr Northrop:

Exactly. Yeah. That's really exciting too and I guess that's what you need to be doing as you think about adding individual picks to the rest of your portfolio audience. You have to find companies that can perform well in both this economy and afterwards, because the thing we keep forgetting is that we keep looking for stocks that are going to perform well in a collapse environment. We're thinking of stocks that perform well in more March 2020 when there's a lot of reasons why even though we're seeing a lot of like fiscal stuff go sideways on us. We're seeing a lot of things get a little bit better, at least after this next spike in COVID that we're currently in the middle of. We haven't hit peak Omicron yet, but peak Omicron hopefully will be in the next three weeks or so.

 

Peter Starr Northrop:

We'll ride this storm out and then hopefully get to appear where COVID has the opportunity to become more endemic as opposed to being a raging pandemic. But of course another variant could come in and just sweep that under the rug. Audience as you think about that, you have to think about a stock that can perform well in both circumstances. What stocks have a good play, regardless of what's going to happen. A stock can only really perform when it's competitors are getting smushed down and suddenly Omicron does the thing that some people on the fringes are saying it'll do, which is kind of just like be a blanket vaccine for everyone and sort of make COVID a much less severe issue by the middle of this year. Will that stock to perform well? What you need to find is those stocks that'll do well regardless, have a big play, no matter what, which is why we did that report on Microsoft this week.

 

Peter Starr Northrop:

Microsoft is absolutely set up to win, regardless because it's one of those things where A, all of their growth drivers are within services, they're either software as a service or some, or business services themselves. They're going to be fine no matter what. And the thing is too, the thing that's going to really drive Microsoft's growth is either A, people are going to have to stay remote or B, people are going to have to shift to some kind of hybridized work. So many high performing workers are never going back to offices. No matter what Microsoft has a revenue stream through all of this. And so that's why I have a really strong eye forward in terms of thinking about Microsoft as it grows. I'm not necessarily sure if it's going to surpass Apple as the top company in the world. Apple certainly can come up with some stunners this year in regards to if they ever concretely announce they're putting out an EV or not, that sort of thing. but I'm really excited to have those kind of low and slow plays to buttress your portfolio as you move forward audience.

 

Peter Starr Northrop:

I appreciate all of your questions about clarifications around Microsoft, if they will perform well, if COVID ends or not. The thing that's going to make Microsoft perform well is not, oh, I'm better than everyone else because of the pandemic. It's Microsoft is going to be the company of digital transformation again. They transformed all of corporate America from basically bar charts and slide rules in the nineties to PCs and now they're going to take a very in-person office environment and turn that into something that allows all companies of any size to be distributed. I think that's absolutely brilliant in terms of just like a way that you manage to navigate your way through the 21st century. Just Bravo to the executive team at Microsoft. It's honestly just astounding to watch, especially in these circumstances.

 

Peter Starr Northrop:

But as we get to the back half here, we're getting more into audience questions here, Justin, and a lot of people still thinking pretty deeply about just various picks as well. People are really not struggling, but there's a lot to think about in terms of where I need to be putting my stocks, putting my money. And a lot of people are thinking, okay, so I guess financials seems to be the main game to a play. You had a really good report this week as well about financials. Wells Fargo, Ally, state street corporation. What are your thoughts in terms of where financials fit in this year? How will financial service roll through this kind of weird and contractionary moment?

 

Justin Kramer:

Yeah. Financial services are interesting because historically a boring industry. You have these giant banks they've been around forever, who are growing, but growing slowly. They're not changing it like the world here in terms of their stock growth. And then on top of that, they pay dividends. They're always been a nice stable pick around out portfolio. However, this year's different because they are the most correlated rising rates out there. With rates going to rise up, they have more upside potential than basically in every stock sector right now. When you look across, we're looking at ones that have high interest rate sensitivity towards rising rates. The names we recommended are those and more. We also think that financials are going to continue to rally as the spread between what they're paying interest, versus the interest they're getting increases any.

 

Justin Kramer:

The upside for them relative to a lot of other sectors is unparalleled. The ability to increase in interest rate. No one gets the tailwinds that financial give sectors. It's a sector we loved last year and we love even more this year and assuming the fed continues to raise rates and that path doesn't change, financials are going to rally this year. Obviously nothings a hundred percent, but pretty confident in saying that. If the fed all of a sudden decides, they don't want to do that, then we're obviously looking at potentially the inverse here, but a lot of the price run up in the last six months have been due to this event happening. And then the names specifically at Wells Fargo who have a lot of interest rate sensitive loans on their books, they're just in a position to really capitalize. That's kind of like why we're looking at financials and why look at those three stocks in particular

 

Peter Starr Northrop:

Precisely. That's one of those things where, I know we keep prefacing, we keep feeling embarrassed saying, oh, I know it's kind of a boring pick, sorry guys, but no, no, no. We have to get rid of that mindset. Boring is beautiful, especially in 2022.

 

Justin Kramer:

I think you said it perfectly. Boring is outperforming fun. It hasn't been the case for the last decade, but that's what happened last year and that's what going to happen this year. Obviously, Tesla and a few other people were choice names that outperform but United Healthcare and CVS beat 95% of the street. No one was predicting that at the starting year.

 

Peter Starr Northrop:

Which is awesome. Go team CVS for making that transformation and go team United Healthcare finding ways to own the entirety of the doctor patient relationship, which is the main thing you have to do. You have to own the whole customer life cycle, regardless of what your customer/service is. And so that's really exciting to see in terms of thinking our way through this. Again, we're not going to be making those truly ludicrous gains we experienced at the very beginning of the recovery in 2020. We're going to be seeing normal adult investing, the good stuff. What I'm excited about is right now this moment because at the end of one last year, you saw a lot of the noise fade away in the financial education spaces. All the day traders kind of went and hid because it just became very difficult to have a successful mindset as a day trader.

 

Peter Starr Northrop:

And now you're seeing it happen in crypto as well, where a lot of the people who are like guaranteed, you're going to be a billionaire if you buy tether right now, doesn't make any sense, but follow me along with it. I'm really excited to see more mature and more long term perspectives emerge especially in sort of like the finfluencer face. That's not a good word to put together, but I did the best I could. But of course, audience, we do try to keep this at a tight 30 and I have no idea how we already blazed through 25 minutes of this. So Justin, Justin Kramer, co-founder of moby.co and also our chief analyst here, any final thoughts from you before I go ahead and round this out. We managed to address mostly the DMs I got in terms of thinking about the various picks we made this week and just the very complex macro and sort of fiscal environment we're thinking about. Any final thoughts from you before I go ahead and read the credits here man, it's been a while as always.

 

Justin Kramer:

Yeah. Of course. The only thing I'll say at the end is just for 2022, I'd say the key theme moreso than ever, obviously last year, this was not the theme, but to not chase trends. NFTs were a good example, obviously, trend chasing if you were an early adopter there did really well. Towards the end of last year, started to reverse. This year, not saying not to invest in NFPs, I'm not saying to not invest in crypto. I'm not saying to do any of that. I think chasing trends that aren't legitimate is going to be to your detriment in 2022, looking for solid companies that actually have solid financials. Didn't really matter that much over the last several years, but now it's really going to matter more than ever. Pull out those old financial textbooks, look up the boring metrics, do your work, do your homework and it'll pay dividends this year more so than it has in the last several.

 

Peter Starr Northrop:

Exactly, man. Yeah. Folks. When in doubt, do math. Audience, thank you so much for being here with us. Thank you so much for all your awesome questions and thank you so much for your awesome perspective. If you want to hear more from us, you can also check us out over out over at YouTube.

We just put out a kind of short, sweet, punchy video about why we think Microsoft has the potential to beat Apple once again as the top market company by market cap this year. Or just why it's just a good investment overall in this environment. You can also feel free to check us out at Moby.co as well. If you like listening to this live, be sure to check us out over at Spotify, Apple podcasts and actually Google podcasts for whatever reason, that's where we're being distributed right now.

And basically wherever podcasts are sold. Otherwise audience, I really appreciate your time here. If you have any other questions post this, anything you want us to focus on throughout next week before we get to next week's interview, feel free to DM me directly I'm I'm MobyStarr here on discord. Or if you're listening to the recording, just feel free to email us. I'm [email protected] I always want to hear from our audience. I want to make sure that everything I do here is precisely for you, our brilliant and probably beautiful audience. And with that audience, just thank you so much for being here.

And as always, this podcast is hosted, voiced, and produced by me, Peter Starr Northrop. All the sort of intellectual advice you heard today came from the analyst team here at Moby.co led by Justin Kramer, co-founder here at Moby.co. If you have any other questions, feel free to hit us up at [email protected] otherwise audience, thank you so much for being here with us and as always, I'd like to leave you with peace, love and incremental gains. Everyone be well. Thank you so much.

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