Monthly Asset Class Review

Happy Monday!

We’re back at it, and it’s time to see what happened last month in the markets.

  • Bitcoin is back above $40,000.
  • The SPX steamed north again, as did the Nasdaq.
  • Gold and silver are yawnfests, again.

Here’s your monthly review.

Please send all questions, comments, and issues to asksean@paradigm.press, as I’d love to hear from you.

Now, without further ado…

HODLing is Just Biden Your Time

I hope you had a pleasant and restful July.  The markets certainly didn’t take a break, and most asset classes resumed their TTM (to the moon) trajectories.

It’s not a huge surprise, considering all the political turmoil in the United States.

President Biden presides over the most embarrassing, corrupt iteration of the United States government since Richard Nixon.  And he makes Tricky Dickie look amateur by comparison.

While allegedly attempting to quell the covid outbreak, Biden leaves open the southern border.  

While promising to cancel student debt, he did not in practice.

While promising to finance massive infrastructure improvement to rebuild the creaky US highway system, third-world airports, and crumbling bridges, he has not got the package through Congress yet.

And while promising that inflation is “transitory,” it almost certainly is not.

That’s great news for any of you who are HODLers!

BTC has rallied back over $40,000, which, if anything was a bit sooner than I had expected.  But that’s just fine.

With all the silliness going on in the Land of the Free, people still flee to the one asset – crypto – that’s beating the pants off the others and protecting one from inflation.

But with the way inflation is blowing asset bubbles nowadays, stocks, bonds, and real estate have also rallied hard.

Gold, silver, and copper have remained subdued.  Gold and silver, probably because the funds that would’ve lifted them to well over $2,000/oz and $50/oz, respectively, are now in crypto.  And copper, probably because the economy is pumping as hard as it can without firm footing.

Let’s get to the charts, then.

The S&P 500

What you’re looking at is the monthly SPX candlestick chart with the 9-month (roughly 200-day) moving average lined through it.  The SPX rallied another 100 points this August.  This doesn’t fundamentally change the outlook on US equities.  We’re still largely above the 9-month MA.  At these all-time highs (ATH), there’s simply no reason to be bearish on US equities.

The above chart is the 4-hourly chart over the course of July.  The only noteworthy thing is that during the mid-month sell-off, the 50-day moving average held as good support.  The bounce off it was immediate and the rally into the end of the month was furious.

The Nasdaq

The Nasdaq Composite is rallying so hard, its 50-day MA is no longer within sight.  Again, a new all-time high (ATH), so there’s no reason to be bearish on tech stocks currently.  In fact, the main stocks in the Nasdaq, FB, AAPL, NVDA, GOOG, and MSFT all look strong.  Only AMZN and NFLX look vulnerable.

This is just “get long, and stay long” territory as far as I’m concerned.

The Russell 2000 (Small Caps)

As you’d expect, the small-capitalization stocks had a choppier rally since March 2009 than the large caps.

But since the Covid crash, the small caps exploded to the upside. This July, however, we’ve finally seen the index take a breather.

This may just be a consolidation before the next move up or could be the beginning of something bigger.

Biden Beware’s “stimulus” plans and the tax effects on small businesses will determine where we go next.  

Technically, the index now looks weaker, with the 50-day MA acting as resistance, rather than support, in a reverse of polarity.  It needs to regain the 50-day MA soon, or you can feel comfortable getting bearish on the small caps.

Finally, according to the WSJ, Biden’s convoluted new tax code may be placing thousandaire landlords into millionaire tax brackets.

The US 10-Year Yield

Why do we watch the 10-year yield?

  • The UST 10-year bond is the benchmark bond for the US market.
  • Its yield affects mortgage rates and corporate borrowing rates.
  • Volatility in its yield brings volatility to the stock market.

The Fed works hard to keep its foot on this rate.  Jay Powell & Co. want this Everything Rally to continue.

If the 10Y heads south again, expect to see higher inflation, higher bond prices, and a lower USD.

This is all hugely positive for BTC and other coinholders.

The Dollar Index

Quickly, the Dollar Index is a trade-weighted basket of currencies against the USD.  Those six currencies are the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.

The USD is still holding above the all-important 90 level, and in fact, rallied this past month despite all the inflation talk.

The Dollar is hardly almighty anymore, but it hasn’t fallen off a cliff yet, either.

If the DX does fall precipitously, that’s a big positive for HODLers.  The weaker the dollar, the stronger the Bitcoin.

Government Bonds

We’ve just had a rally this month that followed a wholly unanticipated rally in June.

Normally, inflation would eat bonds alive, but I think this rally is a consequence of the Everything Rally.  With all the money printing going on, bonds are just following everything else up.

I find this frightening.  I’m much more comfortable with bonds and stocks moving in opposite directions.  That’s just not the case anymore and hasn’t been for some time now.

Bonds remain my least favorite asset class to own right now.

Investment Grade Corporate Bonds

Investment-grade bonds are those bonds with a high probability of returning funds to their creditors.

For S&P, those bonds are the ones with credit ratings AAA to BBB-.  For Moody’s, it’s Aaa to Baa3.

Another bond class, another rally.  Now, the LQD has regained and remains well above its 50-day MA.

High Yield/Junk Bonds

High yield, or junk, bonds are those with low credit ratings.  Below BBB- and Baa3 for S&P and Moody’s, respectively.

High-yield bonds are less sensitive to rates due to their higher credit risk.

As the Fed has kept rates down, the spread between government bonds and junk bonds has tightened considerably.

Although we’ve seen big rallies in the TLT and LQD, the HYG is less pronounced, almost certainly because they’ve barely sold off at all.

And yet, HYG keeps on moving north, slowly, but surely.

Real Estate

The low rate environment gave real estate investors a big boost after the financial crisis of 2006-2008.

Since 2009, the property market experienced only the Covid sell-off and has since broken its prior highs.

The Fed has meticulously built this housing bubble, if you ask me.  And with a big rally this month putting the 50-day MA in the rearview mirror, there seems to be no end in sight.

Base Metals: Copper

You need copper to build pretty much anything of value, so it’s a wonderful leading economic indicator.  Dr. Copper has rallied hard, above its prior all-time highs, in recent months.

After getting hit hard in the June sell-off, copper recovered in July.  It’s within spitting distance of its ATH, but it’ll need a push.

Economists will be watching copper with great anticipation for clues as to where the economy will head next.

Precious Metals: Gold

Gold just doesn’t rally like it used to, and that’s almost certainly thanks to BTC.

But gold has regained its 50-day moving average and is moving in the right direction.

Will it ever get to $2,400/oz?  Maybe, maybe not.

But the technical situation looks better than it did a month ago, and we’ll take what we can get.

Precious Metals: Silver

Silver is performing woefully and quite frankly, I just don’t get it.

With all the inflation sloshing around in the system, I’d expect at least a $35 handle, but that’s nowhere near the case.

Again, I’d rather own BTC, and so would such luminaries as Raoul Pal, Michael Saylor, and even Elon Musk.

Silver just isn’t the hedge it used to be and most of its value comes from its use-value, rather than its money-value.

Cryptos: Bitcoin

“Hey, Diamond Hands, how you doin’?” Joey Tribbiani might have said if Friends were on television today.

It feels good to weather the pain and be right in doing so.

BTC has regained the $40,000 mark this month and regained its 50-day MA.

We may have some time to go before we recapture the ATHs north of $60,000, but this is a great, reassuring start.

I won’t be so bold to call the beginning of another crypto rally, but this certainly looks good, as the sector leader, BTC, has outperformed the other coins.  ETH is up, but not by as much.

Let’s see where it goes from here.

For July, the bonds led the way(!), followed by equities, commodities, and the USD.

Cryptos

BTC indeed led the way, followed by Ripple and Ethereum.

That Sums It All Up…

Ok, you’re caught up for this month.

I’ll leave you with this all-important thought – especially nowadays:

All the best,

Sean

 

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