#135 - Is The Canadian Economy Recession Proof, Alex Danco Explains NFTs and How To Cope With Drawdowns.
In this week's episode of Reformed Millennials, Broc and Joel discuss how markets are reacting to world events, rate hikes and insane commodity spikes.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
RATE HIKES - What do they mean?
There’s a myth, a misconception in the market that the Fed allegedly rescues falling markets with rate cuts and easing measures, and vice versa for when the market is overheated.
This myth began in 1987 during Black Monday, when Alan Greenspan’s Fed cut rates after the crash, creating an impression that the Fed was directly responding to the stock market.
This is when the (mis)belief that the Fed would put a floor under a a falling market stuck.
Nevertheless, if we analyze the data, it actually demonstrates that the Fed stood pat for most corrections, and cutting cycles typically arrive during bear markets, just as coincidence.
There are only two occasions in history where the Fed’s cutting cycles corresponded with market low-points.
1. The first is the aforementioned Black Monday of 1987, and even for this case. If we take a look at the situation back then, it’s not so much that the Fed made international moves that contributed to history, but rather that the bear market started amid a global liquidity crisis. With excess liquidity, the rates should have been flat, or down, but that wasn’t the case.
Thus, the Fed’s rate cuts were vital to unfreezing credit and ensuring banks and clearing houses would have access to liquidity they needed, while the market was under severe stress.
2. The second occasion was the rate cut in 1998, when stocks were reacting to the collapse of Long-Term Capital Management (LTCM).
There was fear in the market that this collapse would lead to a domino effect, ending in a banking meltdown.
Generally, when people fear a banking contagion, liquidity in interbank funding markets dry up.
The Fed’s action to cut rates during this time helped keep money moving, and ensured that banks met their regulatory obligations.
In order to understand the recent discussion revolving around the importance of the Fed’s actions, we need to understand human nature.
People love finding narrative threads and grand explanations because we’re biologically wired to make sense of the world that way.
They confuse correlation and causation, and zero in on evidence that supports their view and shuns whatever suggests otherwise.
But it’s important to remember that in most cases, a fact that everyone knows, tends to be closer to myth than reality, and even if it weren’t a myth, the fact that everyone knows it does not give us an edge in the market.
Market shocks are caused by surprises. News about a pandemic or cyber attack that catches investors off guard is much riskier than macro events that are predictable and can be anticipated. Given that the markets are efficient (which I believe they are), it's rational to assume that news about the Fed's rate hikes, and people reaction to it are already priced in. While short term volatility is definitely expected, we believe that the likelihood of this event becoming a trigger for a multi-year recession is extremely unlikely.
💸Reformed Millennials - Post of The Week
“Unless you buy a stock at the exact bottom (which is next to impossible), you will be down at some point after you make every investment. Your success entirely depends on how dispassionate you are towards short term stock price fluctuations.” -Joel Greenblatt
Not all current losses mean the same thing. It depends on what each investor wanted to do with that position, their time frame, risk management and Portfolio process.
If someone no longer holds conviction in the position (that is showing a big loss) and is only holding with the hope of making it back to even. You better cut your loses and run.
BUT if someone understands the business, bought for a very LT hold (also adding over the months and years as the Company executes), most of the current drop is Macro related while the company is performing well - some people refer to this as bag holding. I would just call it a normal part of being a LT shareholder.
If we expect to hold positions 5-10 yrs (as long as thesis holds), we would be delusional in thinking that none of the tranches bought along the way would never show a big loss (either due to major Macro events, valuation cool-offs or occasional Business stumbles).
Volatility and occasional big drawdowns are par for the course for any Business focused long-term investor.
10% once per year or so
20% every 5 years
30% every decade
50% a few times per century
As long as you...
Have a long investment time horizon
Are diversified across asset classes
Have good cash flow
You can keep calm and think long-term.
Shopify Partners With Shippo - Ben Thompson
From Modern Shipper:
Selling products online is easy. But shipping those products is not, as e-commerce merchants contend with continuously increasing customer expectations around speed, price and convenience. Shopify customers, though, are about to receive a massive boost to their fulfillment capabilities through the company’s integration with Shippo for Platforms, a new offering launched by Bay Area-based Shippo on Wednesday. Shopify will become the first platform to leverage the solution, starting in European markets.
Shippo is similar to a service like Bringg or Walmart GoLocal that allows sellers to leverage fleet capacity to fulfill e-commerce and other orders. But the Shippo for Platforms offering is geared less toward retail businesses and more toward marketplaces — its value lies in enabling those e-commerce platforms to offer their buyers and sellers a premium shipping experience. Platforms that sign on to the new service will be able to leverage Shippo’s prenegotiated rates, integrated billing services and a global network of over 85 carrier partners.
Shippo is a company that has been on my radar for a while, particularly after the company raised money at a $1 billion valuation last summer only months after raising money at $495 million; the company announced it had 100,000 customers at the time with its software shipping solution.
To find out more about what Shippo is and why Shopify might want to partner with them, I talked with Shopify founder Laura Behrens Wu. Behrens Wu is originally from Germany, but ended up in San Francisco, where she first got the entrepreneurship bug, and only then realized that shipping was her passion. We discuss what Shippo is and isn’t, the company’s path to this major deal with Shopify, and muse just a bit about where exactly passions come from.
Internet collectibles ranging from cartoon apes to artsy doodles have plunged in value as real-world conflict and a broader cryptocurrency slump begins to unwind one of the past year’s biggest speculative frenzies.
Digital items known as non-fungible tokens burst into mainstream culture last year, as several animal collections including Bored Ape Yacht Club, Cool Cats and Pudgy Penguins spiked in price, aided by celebrity endorsements and social media hype. By the end of 2021, nearly $41bn had been spent on NFTs — making the market almost as valuable as the global art market.
But almost as rapidly, large portions of the market have begun to deteriorate, leaving novice investors with big losses and raising questions about the long term outlook for NFTs.
The average selling price of an NFT has dropped more than 48 per cent since a November peak to around $2,500 over the past two weeks, according to data from the website NonFungible.
Daily trading volumes on OpenSea, the biggest marketplace for NFTs, have plummeted 80 per cent to roughly $50mm in March, just a month after they reached a record peak of $248mm in February.
I think 99.5% of people knew that NFT would crash. We didnt know when it would happen but it always seems so easy to predict in hindsight. Recently i listened to an amazing podcast with Alex Danco. He told this story about band t shirts and how NFTs are just an extension of that identity produced by a band shirt.
It really struck me because hes right. The underlying technology still remains that you can identify ownership of digital goods. and this organization is important but it certainly doesnt mean that old web2.0 ideas will be migrating...
Twitter of web3 is going to be twitter.
Same with youtube and instagram. The switching costs are too great.
And this cost is the anchor and the opportunity.
🌊 Canadian Companies To Peruse 🌊
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🔮Best Links of The Week🔮
Morgan Housel — The Psychology of Money, Picking the Right Game, and the $6 Million Janitor
Capital Allocators Interview Josh Wolfe - Caution and Innovation at Lux Capital
Alex Danco - What is Web 3.0 All About with Jim Oshag
Meta makes Russia Really MAD - Trading View
Canadian House Prices SPIKE - BNN Bloomberg