Forward-Looking Markets.
In my opinion, the most important news this week was the high consumer price index (CPI) print of 7.5%. CPI is commonly used to measure inflation, and in plain English, that means “inflation is high.”
If inflation is high, there’s no point in holding cash because its purchasing power erodes over time. Thus, it makes sense to invest in assets like stocks, commodities, and crypto because prices for everything are going up.
Yet, the opposite happens. Growth and tech stocks plummet; crypto follows. That’s because the market is scared about what the Fed will do.
Nasdaq 100 (blue, left) and SPX (green, right). Sources: Yahoo, Nasdaq.
Because the markets are forward-looking, future events are being priced in today. Understanding this simple fact can give you an edge in an environment full of noise. What’s the point about watching the doomy predictions of the Fed raising rates if they are most likely already priced in?
People from Wall Street don’t wait until the last minute. They do their best to front-run the Fed’s actions. And the previous CPI print signaled that the Fed would likely raise rates sooner than initially expected. So, why wait till another CPI print is published if you can offload your assets today and hedge against the potential taper tantrum?
So, if you read the headline, it’s too late to think about how inflation and the Fed’s hikes will affect your asset holdings. Once hikes start, much of the uncertainty around the economy will be gone.
At that time, the market will be pricing in other, potentially more optimistic things that will likely happen in the future. Weirdly, playing according to these dynamics looks like buying the rumors and selling the news.
I’m not saying that the rough times are past us. Because of the uncertainty of the rate hikes’ effects, there will still be volatility, likely to the downside. But, given how the last taper tantrum played out, there’s little reason to be bearish long-term. And, once the rates begin to be raised, the fear-fueled selling pressure should be over.
Always try to think a step ahead. If you see something in a headline, it’s likely already priced in.
SIMETRI Portfolio – Stuck With the Market
The Portfolio’s performance has been stagnating over the past week. But, this is true for the broader altcoin market as well. It held better than ETH, which lost over 7%.
That being said, I wouldn’t expect substantial growth in the next few weeks. There’s still a lot of uncertainty, and BTC is still in a macro bearish trend. It’s time to learn and fill bags, not monitor prices.
