“The adulation’s heaped on him by a grateful nation for his supposed genius turned his head, which, added to his natural disposition, caused him to bloat his little carcass with debauchery and dissipation which carried him off prematurely.”
–General George Crook
Good Morning! Holy crypto. To be clear I don’t cover crypto, this is mostly Christian Drake’s space and we also have a lot of people in the office way more familiar with the space than me. Drake runs our crypto tracker product, which I’m sure will have a wealth of information this morning as well is a way to risk manage your positions.
But from a behavioral standpoint, let’s get into what happened… The SEC filed a lawsuit against Ripple’s (a blockchain company) operators. The lawsuit was that the operators illegally financed Ripple by raising capital through an unregistered digital asset security offering. It was alleged that Ripple raised $1.3B by selling their tokens between 2013 and 2020. Also in the complaint was that the current CEO, Garlinghouse, was sharing publicly that he was ‘long XRP’ (XRP is the crypto currency of Ripple) when in reality he was selling his assets. It is alleged he profited $600m.
Now, the technicals of the rest of this case are around the levels of compliance required to host a public offering.
The results: The ruling was that Ripple’s XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts. The sales were “blind bid/ask transactions” where buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.”
So now I’ll tell you what I think about this, then let’s get to what the numbers say about this because my opinion won’t impact the market.
What this screams to me is that companies or individuals now have a path to have unregistered public offerings, which can be great for innovation but also not great for those looking to profit from this. For example, a Kim Kardashian now has the legal pathway to create her own coin, market it to her huge audience, pump it up, then dump it. Not that every one of these unregistered offerings are malicious but I certainly see the path for some to become pump and dump schemes. The wild west is back, which like my quote of the day, with some of the fortunes made also came great loss. Where luck could turn in either direction at any moment.
But now what does the market think? The altcoins (cryptos that are not Bitcoin, kind of like small caps) were up very big on the news. In the last 24 hours: XRP (+64%), Stellar (+53%), Solana (+32%), Lido DAO (+25%), Cardano (+23%), Polygon (+18%), Avalanche (+17%), Pepe (+17%), ApeCoin (+17%).
Let’s not forget though, the last big news item for the crypto space were the SEC’s charges against Binance (6/5) and Coinbase (6/6), since these charges the space is up. So, will this positive news with Ripple be the peak or will the flow keep the space going higher? That’s the million-dollar question and I will personally use the Crypto product’s risk ranges to manage my positions. Looking for low ends of risk ranges and not buying at peaks. Also, $COIN and $BLOK are bullish trend as of yesterday, lets see what the trends are once everyone wakes up.
Back to the Global Macro Grind…
Let’s go first to the ETFs up the most yesterday: Blockchain $BKCH (+16%), Bitcoin Miners $WGMI (+14%), Digital Transformation $DAPP (+13%), Crypto & Digital Economy $CRPT (+13%), and Future of Finance $GFOF (+13%).
The ETFs down the most: Tail Risk Strategy $CYA (-3.9%), Dry Bulk Shipping $BDRY (-3.7%), and Natural Gas (-3.7%).
Tickers that are BULLISH trend at the top end of the risk range (yesterday’s ranges) $NVDA, $META, Nasdaq, $XLK, $NFLX, $MSFT. Tickers that are bearish trend at the top end of the risk range Bitcoin, $AMZN, $XLF, $XLI.
On the yields front, the two-year yield remains near the low end of the range. From a rate hike expectation front, that means the market is expecting one rate hike this year and three rate cuts thereafter by June 2024 (Chart of the Day). This is the opposite of expectations around the world. Expectations for June 2024 in the Eurozone are no rate cuts, UK no rate cuts, Switzerland no rate cuts, and New Zealand no rate cuts.
Although, the current move in rates is getting us paid in Silver, Gold, and related miners. Although from Keith’s long only account he has been selling some of his exposure to $GLD and $AAAU.
On the other side of the ocean, in the APAC region for the long short book, the recent upward move in China took it towards the top end of the range (Bearish trend). Theme number two in our 3Q23 Macro Themes is "China, Europe, and the #Quad4 Industrial Recession." We haven’t seen Keith put on a short position in Real-Time Alerts yet here. But what this move in China also did, was get us paid in both Japan and South Korea.
The current US 2-10 Spread is sitting at -88 bps. Unfortunately, I’m writing this note at 2:30am this morning so I’m not sure where the big bank earnings are coming out at.
In terms of IVOL Discounts and Premium callouts (parenthesis are TTM Z Scores):
- IVOL Premium Callouts: $PSCE (3.32), $INDA (2.68), $XBI (2.59), $GXG (2.39), $EWN (2.02), $SIL (1.7) $AIQ (1.7), $PSCH (1.61), $VOO (1.6), $CIBR (1.58), $QQQ (1.37) $BKLN (1.0)
- IVOL Discount Callouts: $CORN (-2.36), $IGIB (-1.82), $EWP (-1.77), $EWQ (-1.71), $EWJ (-1.54), $BNDX (-1.38) $EWH (-1.36), $EWL (-1.32), $EZA (-1.26), $SOYB (-1.22), $ARGT (-1.19) $EWM (-1.16), $IBUY (-1.15), $EWU (-1.05)
Lastly, now that we are in a phase of sideways inflation, as per our estimates, the biggest callout is Oil being neutral (as of yesterday) on a trend basis. Maybe one of the most important trend signals to be watching.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.81-4.06% (bearish)
UST 10yr Yield 3.70-4.06% (bullish)
UST 2yr Yield 4.58-5.10% (bullish)
High Yield (HYG) 73.62-75.77 (bearish)
SPX 4 (bearish)
NASDAQ 13,513-14,209 (bullish)
RUT 1 (bearish)
Tech (XLK) 169-177 (bullish)
Industrials (XLI) 105.01-109.74 (bearish)
Financials (XLF) 32.96-34.58 (bearish)
Defense (ITA) 115-119 (bullish)
Healthcare (PINK) 25.84-26.69 (bullish)
Shanghai Comp 3172-3266 (bearish)
Nikkei 31,501-33,915 (bullish)
DAX 15,493-16,201 (neutral)
VIX 12.97-16.95 (neutral)
USD 99.40-104.01 (neutral)
Oil (WTI) 68.76-77.74 (neutral)
Nat Gas 2.50-2.86 (neutral)
Gold 1 (bullish)
Copper 3.66-3.96 (bearish)
Silver 22.50-25.16 (bullish)
Ryan Ricci
Macro
