Morning Note: Beware Your “Status Quo Bias”

As you’ve no doubt noticed, seldom do we do bitcoin herein, and when we do it’s generally pointing to the crypto space (while it’s to be taken seriously) as yet another indication of the bubbly characteristic(s) of present-day financial markets.

Yesterday afternoon virtually every corner of crypto took what can only be described as a major hit:

Here’s a 3-day bitcoin chart:

Note the 16% decline from Saturday’s high to yesterday’s low, and the recapture of half of it since.

While there were headlines — (the ones the bulls touted) suggesting a power outage in China (hitting miners) and/or (the bears’ favorite) claiming that U.S. authorities are about to crack down on the criminal element that exploits crypto coins’ anonymity — to blame, just know that we’re talking about a most-speculative, heavily-leveraged play here that has me hoping that folks who’re going there go only with money they can do without. 

Now, you can call the above bearish if you like, but I’d call it simply recognizing the check-the-bubble-box character of the crypto space these days… For all I know this “mania” can go on for a very long time and mint a mountain more crypto millionaires in the process… or not…


Asian equities leaned green overnight, with 12 of the 16 markets we track closing higher.

Europe’s struggling this morning, with 16 of the 19 bourses we follow trading lower as I type.

U.S. major averages are in the red to start the day: Dow down 177 points (0.52%), SP500 down 0.61%, SP500 Equal Weight down 0.67%, Nasdaq 100 down 1.06%, Nasdaq Comp down 1.13%, Russell 2000 down 1.81%. 

The VIX (SP500 implied volatility) is up 9.48%, VXN (Nasdaq 100 i.v.) is up 11.21%.

Oil futures are up 0.19%, gold’s down 0.09%, silver’s down 0.49%, copper futures are up 1.90% and the ag complex is up 0.29%.

The 10-year treasury is down (yield up) and the dollar is down a notable 0.49%.

Led by ALB (lithium miner), base metals, the yen, ag commodities and consumer staples stocks — but dragged by MP (rare earth miner), solar, India, uranium miners and metals miners — our core mix is off 0.33% to start the session.


Poker champion and best-selling author Annie Duke’s latest book How to Decide; Simple Tools for Making Better Choices is telling, and, in my view, timely:   

emphasis mine…

“When it comes to decision-making, current conditions also play an outsized role in how we think because we have a tendency to assume that those conditions will persist.

The sense that the way things are now is the way they will always be is known as status quo bias.

Of course, nearly everything changes over time. This includes your emotional state, how much money you make, or the political climate. Paradigms shift, challenges change, market conditions evolve, and technology provides additional solutions as well as creating new problems. When you look forward from the present, status quo bias distorts your view.”


Have a great day!

Marty

Ps: Client-only* note: This week we’re rotating 15% of our fixed income allocation into TIP (tracks the Bloomberg Barclays US Treasury Inflation Notes Index). This comports with our go-forward inflation thesis. I.e., our analysis places significant enough risk that inflation going forward will become unanchored, as, in our view, there’s no foreseeable end to mammoth fiscal injections (although their complexion has to evolve [infrastructure next]), and we see zero will from the Fed — other than the occasional (ultimately benign) obligatory comment from a board member here and there — to stem what we expect to be a rising structural inflation tide. In the meantime, otherwise cyclical (and situational) forces (consumer savings drawdown [spending], supply bottlenecks, protectionism, etc.) present notable tailwinds to the inflation trade as well.

Technically-speaking, the timing looks decent enough to add this modest (amounts to 2.5% of our overall core mix) position:


Breaking out above prior resistance as well as its 50-day exponential moving average, along with bullish momentum divergences (bottom 2 panels) and a MACD buy signal (white circle in panel 2) has us giving TIP a current technical score of 7 on our 1 to 10 scale.

Note: When I’m talking technicals, we need to always be thinking about the “wind and tide” analogy that I use when sharing via video. The wind (the technicals), at the moment, favors an entry. However, it’s the longer-term tide (the fundamentals) that has us adding modestly to our inflation-oriented positions. My point: the wind can change instantly — particularly in today’s market — while the tide looks fairly strong right here…

*References made on this blog to allocations within client portfolios are under no circumstances to be construed as recommendations to non-client subscribers or, for that matter, to anyone (individual investor or professional money manager) managing their own (or others’) money outside of PWA’s platform…
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