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Happy 4.20 everyone… In this week's episode of Reformed Millennials, Joel updates listeners on the market and gives his take on the cracking Canadian Real Estate Market, Elons bid for Twitter and Biden’s lacklustre 20 month tenure as President.

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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.

📈📊Market Update💵📉

The 10-year US Treasuries yield is not far from reaching 3%. Less than two years ago, it was 0.5%. It should not be a big surprise that most tech stocks have been under heavy pressure. The Nasdaq 100 (QQQ) fell to 340 last week. Its March lows are only 20-points away. If you think that it’s impossible to test them, keep in mind that the semiconductors ETF – SMH, just did exactly that.

Individual investors with way too much exposure to growth stocks are not happy.

In fact, they're the most pessimistic they've been in 30 years.

Last time individual investors were this bearish, Baby Got Back and Achy Breaky Heart were topping the music charts.

AND now that earnings season has just begun. Big Tech will report in the next three weeks. As always, some will show more resilience to the current driving economic forces and report better than expected results. This is why I believe that choppy, range-bound action is more likely than an accelerated selloff in tech.

The current leaders are still concentrated in the energy, metals, and agricultural space – oil, gas, coal, uranium, gold, steel, potash, etc. Most of them have started a new leg up in the past couple of weeks. Don’t forget that even momentum leaders need to pull back and consolidate occasionally. Don’t chase stocks that are up several days in a row because they don’t offer good risk-to-reward. If you have to endure a 10% pullback to make a 10% potential return, the setup is too sloppy.

There’s another theme that is starting to emerge again – travel stocks are showing relative strength. A few weeks ago Carnival Cruises (CCL) said they are seeing record bookings. Last week, Delta Airlines was very optimistic about booming demand despite higher fuel costs. As a result, other travel stocks are perking up – hotels Marriott (MAR) and Hilton (HLT) are near all-time highs. The stocks of AirBnB (ABNB) and car rental companies Hertz (HTZ) and Avis (CAR) are also looking constructively. People want to travel this year as much as possible no matter what and it is shown in the charts of the relative companies. We don’t know if this group of stocks can continue to push higher in the face of additional market weakness but their relative strength is something to pay attention to. They are likely to be among the leaders when the indexes bounce again.

CANADIAN HOUSING: RBC

• This year’s spring market kicked off on a slightly weaker note as low supply constrained activity.

• Demand-supply conditions still strongly favour sellers, fueling further widespread price appreciation.

• The only hint of a market shift is a moderation in the rate of price increase.

• Higher interest rates and affordability issues are poised to cool demand in the period ahead.

  

💸Reformed Millennials - Post of The Week

Crypto: Derivatives and Bitcoin's S-Curve:

Every day the blossoming crypto asset class makes strides toward what appears to be its inevitable maturation.

Almost all breakthrough technologies follow an Adoption S-Curve; more on that:

Most look at Bitcoin on the S-Curve through the lens of standard metrics of volatility or network data.

Still, an often under-appreciated element of Bitcoin’s maturation is the rising cohort of traders approaching the market from the perspective of yield.

An influx of capital in the coming years will come not just from the directional side but instead to capture yield.

In many aspects, we’re already seeing this play out. The number of firms yielding the carry on the basis of trade has grown exponentially over the last year.

The first time Bitcoin crossed the mid 40,000s, the forward three-month futures traded at a 25% premium.

The second time, it was trading slightly below 10%.

And, more recently, it was half that, at just 5%.

The same applies to funding rates, which use perpetual swaps over traditional calendar futures. There are two dynamics at play here:

• When funding rates are high (perpetuals trading at premiums versus spot), trading firms short perpetual and long spot, extracting yield.

• When funding rates are negative, quant firms long perpetuals over spot for the aforementioned cash-and-carry trade.

In both cases, open value has received a permanent boost, particularly since the creation of the US futures ETF.

The end result is that funding looks like this — the excessive funding we’ve seen in previous cycles is stuck in a relatively neutral range:

What’s the net impact?

As these yield opportunities get arbitraged out of the market, it makes it materially more efficient. Apart from the funds competing in these trades, this is a net gain for everyone involved.

From the perspective of an analyst, it only makes your job more dynamic and nuanced.

The historical correlations that traditional derivative metrics previously had are slowly eroding as we crawl further into maturation along Bitcoin’s S-Curve.

While this topic deserves its own post, the infamous “liquidation cascades” are a great example.

As a greater proportion of open value is becoming delta-neutral positions extracting yield, this will more than certainly decrease the quantity and severity of these events.

Another rudimentary testament to these changes is that the savviest of traders went to cash in November not by selling spot, but by hedging their spot via shorting calendar futures.

As this selling wasn’t spot in nature, even the most sophisticated of on-chain metrics produced over the last few years lagged behind this selling.

This post hasn’t even covered the infant options market, which if the growth of futures is anything to go by, will likely 2x or 3x in open value by this year.

To quantify Bitcoin’s maturation, many tend to focus on standard metrics like user adoption, volatility, and market size.

But the growing market efficiency due in large part to the influx of capital being deployed into yield opportunities via derivatives is another natural progression that I haven’t seen get much attention in this discussion.

Morgan Housel - How People Think

4. We are extrapolating machines in a world where nothing too good or too bad lasts indefinitely.

When you’re in the middle of a powerful trend it’s difficult to imagine a force strong enough to turn things the other way.

What we tend to miss is that what turns trends around usually isn’t an outside force. It’s when a subtle side effect of that trend erodes what made it powerful to begin with.

When there are no recessions, people get confident. When they get confident they take risks. When they take risks, you get recessions.

When markets never crash, valuations go up. When valuations go up, markets are prone to crash.

When there’s a crisis, people get motivated. When they get motivated they frantically solve problems. When they solve problems crises tend to end.

Good times plant the seeds of their destruction through complacency and leverage, and bad times plant the seeds of their turnaround through opportunity and panic-driven problem-solving.

We know that in hindsight. It’s almost always true, almost everywhere.

But we tend to only know it in hindsight because we are extrapolating machines, and drawing straight lines when forecasting is easier than imagining how people might adapt and change their behavior.

When alcohol from fermentation reaches a certain point it kills the yeast that made it in the first place. Most powerful trends end the same way. And that kind of force isn’t intuitive, requiring you to consider not just how a trend impacts people, but how that impact will change people’s behavior in a way that could end the trend.

🔮Best Links of The Week🔮

• NFLX Down 26% After Hours - Thomas Chua

• Opinion: Disney Didn’t Leave the GOP Behind. Culture Did. - Politco

• 🏡 Why Airbnb Fails To Disrupt the Hotel Industry - Modern MBA

• 🎓 Is a college degree still worth the price tag? - Bloomberg