House of Cards meet Game of Thrones!

Last week was one of the most eventful week - elections, crypto crash, soft inflation triggered massive rally in stock markets, layoffs at Meta and many other tech peers, slow counting of votes and of course the chaos at Twitter.....each of these can be a blog topic. But let's focus on how FTX "House of Cards" came crashing due to "Game of Thrones" in Crypto Universe!

I have written about Cryptos in my previous blogs 

"Coinbase IPO: Netscape or Webvan moment for Crypto", 

"Crypto-currencies: Fad, Fraud or Frontier", 

"Tulips, Eyeballs and Dogecoin"

Many of those hypothesis and predictions came to forefront this week which led to collapse of FTX - once valued at $32 Billion and its young founder Sam Bankman-Fried became from hero to villain.  FTX was saving crypto world during summer meltdown by buying or supporting other smaller "houses of cards" built on fraud coins, over-leverage, no regulations...no one had any idea that same is happening at FTX also. FTX built its empire based on FTT coin created by itself and using money from customer accounts to trade, leverage, party in Bahamas and exotic locations and donate to politicans to avoid scrutiny and regulations. FTX and Sam were top 10 donors in this election cycle. No wonder everyone was turning blind eye to the Wild West of Cryptos. Another big player Binance controlled by another young founder Changpeng Zhao (CZ) was growing on international markets without much regulations. The tensions between these two founders came out in open (where else - Twitter). CZ announced that Binance is going to sell FTT  coins which it got when it invested $100M in FTX. That was enough for FTT to start crashing wiping out the paper (or virtual) wealth created by FTX. There was classic "bank run" on FTX when major players started pulling out money (over $5 billion). FTX tried to sell itself to it's rival Binance and initially CZ agreed to buy only to reverse it next day...It was classic "Game of Thrones" kind of move because he knew that the Hunter has become the Prey and it's time to go for the kill....well FTX.COM filed one of the biggest bankruptcy on Friday and appointed Mr Ray who helped thru bankruptcy process of guess which entity....Enron! After all FTX was Enron of Crypto world! All of these events led to major crashes across all crypto coins costing investors and speculators lose over half trillion $. To complete the "Game of Thrones" analogy, "Winter is Coming"....So if you are participant in crypto, be careful! There are more "House of Cards" to collapse...we just know which ones are these.

Now onto other events of last week...

CPI reading came better than expected which gave hopes to markets that Fed may be closer to doing its job of controlling inflation and may slow down interest rate hikes. This cased massive rally in growth stocks - some of the biggest companies (from FANG group) went up by 10-30%. This was similar to Vaccine hopes during depth of COVID pandemic. Markets would digest these massive gains over next few weeks till Fed meeting in mid-Dec. There would be multiple reports like employment report, Nov CPI/PPI reports before Fed meeting. If those indicators came as good as Nov, Fed would raise interest rates by 50 basis points and give an indication that they are closer to slowing down with terminal rate around 5%. That should set foundation for markets to rally during holidays and S&P may end the 2022 year near 4200.

Elections - The counting is still not over at some places...so Washington is still waiting who will control house and senate. How can most developed nation takes more than 5 days to complete counting of just few thousand votes at some places? India finish its counting in less than 48 hours most of the times despite having 4 times votes to count...maybe the US needs to send some election officials to India to learn. One of the great outcome of the elections was finally GOP would start side-lining Trump...already the Murdoch media world has started setting the stage of dumping "Trumpty Dumpty" and supporting Ron DeSantis.

Twitter - Chaos at Elon Musk's Twitter continues with fake but "verified by paying $8" accounts spreading rumors and fake news...but that topic for some other time.

That's all for now! 

/Shyam

"Gridlock" is Good!

Many of you know the famous Gordon Gekko (played by Michael Douglas) dialogue from the 1987 movie Wall Street - "Greed is Good". Well - on the eve of mid-term elections, let me tweak that dialogue into a political context and say "Gridlock is Good".

Over the last two years, we've had a one-sided government within all branches of government (President, House and Senate controlled by Democrats). We got some meaningful policy actions done by Biden and Congress. But some of those actions also created the inflation mess that the economy is dealing with (another reason is slow action by Fed in raising interest rates) as well as gyrations in stock markets.

Most of the predictions suggest that Democrats are going to lose House by a few seats and there is small possibility that they may lose control of Senate (my prediction is that the Senate will remain 50:50). Either way, with the House gone to GOP, there would be "gridlock" in Washington. Here are my reasons to suggest that "Gridlock is Good":

• Both parties must agree to budgets, taxes (increasing or reducing), debt-limit, all kinds of funding. This would bring some much needed financial discipline which has been lacking for last few years.
• Major policy decisions will not take place unless both parties agree and there is very small chance that they would agree to anything. 
• Power to the centrist political leaders - the election setbacks would bring Washington to centrist policies. In last 6 years, it feels that Washington has been taken over by "ultra-right" or "ultra-left" and centrist have lost their sway.
• 2024 - These elections would set the tone for 2024 elections and hopefully send message to both parties to promote centrist policies and make America united again!
• And history had proven that when there is gridlock in Washington, markets do well. In the last 80 years, markets have been up every time after mid-term elections and in most cases, mid-term elections have balanced the power. History is bound to repeat again - after mid-term elections, markets would start finding bottom and inch higher with S&P heading to 4000 or higher by the end of the year.

As a follow-up to my earlier blog regarding the 4 "Cs" of Tesla - a lot had happened in last few days. Musk is focused on Twitter (based on his non-stop tweets and so many drastic actions he had taken in first few days) and during last 6 days, Tesla had lost 14% of market cap, which is ~80 Billion (reaching 17-month low). And if my hypothesis is correct, there is more pain ahead for the stock and company! As far as Twitter, the story is going to get worst before it gets better due to recession, boycott by many companies and individuals, low employee morale and the CEO's "strategy by tweet" approach. It's possible that after initial churn, Elon Musk may be able to transition it but may has to keep it private for many years.

Tomorrow is election day in USA, Go out and Vote (I already voted by mail)

/Shyam